British Caymanian Ins v Lindo

• Jurisdiction: Cayman Islands
• Judge: (Henderson, J.)
• Judgment Date: 28 October 2011
• Date: 28 October 2011
• Court: Grand Court (Cayman Islands)

Grand Court, Civil Division

(Henderson, J.)

BRITISH CAYMANIAN INSURANCE COMPANY LIMITED

and

LINDO and BROWN

P. Reed, Q.C. and R. Annette for the plaintiff;

T. Lowe, Q.C., S. Barrie and C. Flanagan for the defendants.

Cases cited:

(1) British Caymanian Ins. Co. Ltd. v. Dawson, 1997 CILR 304, followed.

(2) Joel v. Law Union & Crown Ins. Co., [1908] 2 K.B. 863; (1908), 77 L.J.K.B. 1108; 99 L.T. 712; 24 T.L.R. 898, applied.

(3) McLaughlin v. American Home Assur. Co., 1994–95 CILR N–18, referred to.

(4) Pan Atlantic Ins. Co. Ltd. v. Pine Top Ins. Co. Ltd., [1995] 1 A.C. 501; [1994] 3 W.L.R. 677; [1994] 3 All E.R. 581, referred to.

(5) Synergy Health (UK) Ltd. v. CGU Ins. plc, [2011] Lloyd”s Rep. I.R. 500; [2010] EWHC 2583 (Comm), distinguished.

(6) Zeller v. British Caymanian Ins. Co., 2008 CILR 11; [2008] Lloyd”s Rep. I.R. 545; [2008] UKPC 4, distinguished.

(7) Zurich Gen. Acc. & Liability Ins. Co. Ltd. v. Morrison, [1942] 2 K.B. 53; [1942] 1 All E.R. 529; (1942), 72 Ll.L.R. 167; 111 L.J.K.B. 601; 167 L.T. 183; 58 T.L.R. 217, followed.

Legislation construed:

Motor Vehicle Insurance (Third Party Risks) Law (2007 Revision), s.4(1): The relevant terms of this sub-section are set out at para. 14.

s.15(1): ‘If, after a certificate of insurance has been issued . . . in favour of the person by whom a policy has been effected, judgment in respect of any such liability as is required to be covered by a policy under paragraph (b) of section 4(1) (being a liability covered by the terms of the policy) is obtained against any person insured by the policy, then, notwithstanding that the insurer may be entitled to avoid or cancel, or may have avoided or cancelled the policy, the insurer

shall, subject to this section, pay to the persons entitled to the benefit of the judgment any sum payable thereunder in respect of the liability . . .’

s.15(3): ‘No sum shall be payable by an insurer under subsection (1), if, in an action commenced before, or within three months after, the commencement of the proceedings in which the judgment was given he has obtained a declaration that, apart from any provision contained in the policy, he is entitled to avoid it on the ground that it was obtained by the non-disclosure of a material fact or by a representation of fact which was false in some material particular, or if he has avoided the policy on that ground, that he was entitled so to do apart from any provision contained in it:

Provided that an insurer who has obtained such a declaration in an action shall not thereby become entitled to the benefits of this subsection as respects any judgment contained in proceedings commenced before the commencement of that action, unless before or within ten days after the commencement of that action he has given notice thereof to the person who is the plaintiff in the proceedings specifying the non-disclosure or false representation on which he proposes to rely, and any person to whom notice of such an action is so given, shall be entitled, if he thinks fit, to be made a party thereto.’

s.15(5): The relevant terms of this sub-section are set out at para. 25.

Insurance-misrepresentation and non-disclosure-continuing representations-policy renewal-representations in proposal implicitly repeated when policy renewed if no new proposal and duty to disclose change of circumstances-no policy renewal or continuing representations if second policy agreed 6 months after expiry of first, but duty to disclose material facts

Insurance-misrepresentation and non-disclosure-insurer avoiding policy-insurer entitled, by Motor Vehicle Insurance (Third Party Risks) Law (2007 Revision), s.15(3), to avoid policy for misrepresentation or dishonest non-disclosure of material facts if grounds set out in notice served within 10 days of commencement-may amend notice only within 10 days of commencement-cannot amendment notice thereafter by amending statement of claim

The plaintiff insurance company brought an action, pursuant to the Motor Vehicle Insurance (Third Party Risks) Law (2007 Revision), s.15(3), to establish non-liability under a policy of insurance.

The first defendant, whilst driving his car, died in a road traffic accident. The second defendant, his passenger, was injured. The first

defendant was insured with the plaintiff, the second defendant sued the first defendant for damages in respect of his injuries, and the plaintiff brought proceedings under the Motor Vehicle Insurance (Third Party Risks) Law, s.15(3) to avoid liability under the policy on the grounds of misrepresentation and non-disclosure.

When he first obtained the policy, the first defendant had completed a proposal in which he affirmed that no modifications or adaptations had been made to the vehicle that improved its performance. On that basis, the plaintiff agreed to insure him for one year. Six months after the expiry of the first policy, the plaintiff agreed a second policy with the first defendant. No new proposal was completed, but the plaintiff obtained a certificate of roadworthiness for his car.

The plaintiff sought to avoid liability under the policy and served the required notice under s.15(3). It made amendments to the notice, within 10 days of commencing its action, alleging misrepresentation in respect of modifications to the vehicle, as well as non-disclosure of the vehicle”s defects. On two occasions it then amended its statement of claim after the 10-day period had expired, alleging further misrepresentations.

At trial, the plaintiff relied upon expert evidence of the inspection of the vehicle. It found numerous defects, including spliced wiring, a corroded power lead, a rusted muffler, and an untightened battery brace, significant corrosion behind the dashboard and in the floorboard, missing dashboard warning lights, and rusting on the rear seat. It also found that the original engine had been replaced, and that DC exhaust headers and a power flow cone air filter had been fitted, which the expert said had improved performance. The expert had obtained performance figures from web sites, rather than from manufacturers, and was shown to have initially overstated the power of the original engine.

The plaintiff argued that its liability under the policy should be entirely avoided for misrepresentation and non-disclosure, submitting that (a) the representations made by the first defendant in the proposal for the first policy had induced, and nullified liability under, the second ‘renewal’ policy since they amounted to a continuing or repeating misrepresentation; (b) the amendments made to the statement of claim after the expiry of the 10-day period for serving the notice had been incorporated retrospectively into the notice, and could therefore be relied upon to avoid all liability; (c) the evidence from the expert demonstrated that the plaintiff had misrepresented that no modifications had been made to the vehicle; and (d) the evidence established that the first defendant failed to disclose material defects, notwithstanding any reliance placed by the plaintiff on the certificate of roadworthiness.

The defendants submitted in reply that (a) the representations made by the first defendant in the proposal for the first policy could not have induced, or affected liability under, the second policy, which had been agreed six months after the expiry of the first policy; the second policy was a new contract and there were no continuing or repeating representations; (b) even if such representations had been continuing, the amendments made to

the statement of claim after the expiry of the 10-day period for serving the notice could not be retrospectively incorporated into the notice and could not be relied upon; (c) the expert evidence was unreliable and failed to prove that the modification had improved performance; and (d) the only defects of which the first defendant could be assumed to have had knowledge were the missing warning lights and rusting to the rear seat, neither of which required disclosure, and the plaintiff had relied upon on the sufficiency of the certificate of roadworthiness.

Held, dismissing the plaintiff”s action under the Motor Vehicle Insurance (Third Party Risks) Law (2007 Revision), s.15(3):

(1) The plaintiff had failed to demonstrate, on the balance of probabilities, that there had been any material misrepresentation in the manner set out in its notice. The representations made by the defendant in the proposal were relevant to the first policy only. Although the second policy was treated as a ‘renewal,’ for which representations would usually be held to have been implicitly repeated, it was in fact a separate contract entered into six months after the expiry of the first policy, that precluded the plaintiff from relying upon any misrepresentations made when agreeing the first policy. It could not be argued that there were continuing misrepresentations affecting liability under the second policy and therefore the plaintiff could not rely upon the misrepresentations alleged in its notice (paras. 24–32; paras. 37–46).

(2) Further, even if there had been continuing representations from the proposal, the plaintiff could not, for the purposes of s.15(3), rely on the misrepresentations alleged by the amendments to its statement of case after the period for amendments to the notice had...