Policy construction, non-disclosure and misrepresentation and duties of an insurance broker: ABN AMRO Bank NV v Royal and Sun Alliance Insurance Plc & Others  EWHC 442 (Comm)
UK & Europe
Insurance & Reinsurance
On 2 December 2021, the Court of Appeal handed down judgment in relation to the appeals brought by ABN Amro’s insurers and its broker in the case of ABN AMRO Bank NV v Royal and Sun Alliance Insurance Plc & Others. The Court allowed the broker’s appeal, finding that two insurers could not rely on an estoppel defence arising from non-fraudulent misrepresentations in order to reject ABN Amro’s claims for loss against them. The Court also held that it would have dismissed the insurers’ appeal on construction of a policy term, had the appeal not been settled before judgment was handed down.
Our case update on the High Court’s decision can be found here.
In summary, ABN Amro brought a claim against its fourteen insurers for approximately £31.3 million in respect of an indemnity it was seeking under a marine cargo insurance policy (the “Policy”) following financial losses it sustained via a subsidiary when two major cocoa supplier customers (Euromar and Transmar) defaulted and became insolvent. ABN Amro also brought a claim in the alternative against its insurance broker (“Edge”), alleging breach of contract and negligence by Edge in placing the Policy, in case all or part of the claim against the insurers failed (as it did against two insurers, Ark and Advent).
The High Court (Mr Justice Jacobs) found that: (i) insurers (all except Ark and Advent) were liable to indemnify ABN Amro for its financial loss by virtue of a Transaction Premium Clause (the “TPC”) contained in the Policy. The High Court held that the TPC provided cover for credit risks and/or financial defaults even where there was no physical loss and damage to the cargo; (ii) that Ark and Advent were not liable under the Policy, because ABN Amro was estopped by convention from relying on the TPC as against them due to a misrepresentation by Edge to those two insurers on renewal that the Policy was “as expiry”; and (iii) Edge was, therefore, liable to ABN Amro for the amounts they would have recovered from Ark and Advent, which was approximately £3.3 million.
The insurers’ appeal was in relation to the proper interpretation of the TPC and the High Court’s finding that the TPC provided cover for credit risks and/or financial defaults regardless of there being any physical loss or damage to the cargo. The insurers contended that the TPC applied only to calculate the measure of indemnity in the event of physical loss or damage to the insured cargo and did not extend to provide cover for lost profits. The insurers also contended that certain elements of the factual matrix ought to have been sufficient to displace the natural meaning of the language of the TPC including, for example, the nature of the insurance market in which the Policy was placed.
The Court of Appeal held that the High Court’s decision-making on the interpretation of the TPC was “sound and comprehensive”. The High Court acknowledged that elements of the factual matrix pointed against a literal interpretation of the TPC and that marine cargo insurance was normally a different class of business from credit risk insurance. However, the evidence before the High Court was that add-ons to standard physical loss and damage cover were generally available in the marine cargo market at the relevant time and “there was no reason why such an add-on could not give protection for financial default”.
The Court of Appeal rejected insurers’ argument that the TPC applied only to physical loss and damage, finding that the words used in the TPC were clear and unambiguous and were “words of coverage, not simply of a basis of valuation or measure of indemnity.” The Court held that it would have dismissed the insurers’ appeal, had it not been settled between insurers and ABN Amro before judgment was handed down.
Edge’s appeal concerned the High Court’s finding that ABN Amro was estopped by convention from relying on the TPC against Ark and Advent due to a misrepresentation by Edge to those two insurers on renewal that the renewal Policy was “as expiry”.
The High Court found that Edge on the one hand and Ark and Advent on the other were at cross purposes about the meaning of “as expiry”. Edge understood it to include the TPC and a non-avoidance clause (the “NAC”), having broked the policy endorsement to the lead insurer during the expiring policy year which included the TPC and NAC. However, as the endorsement was not circulated to the following market (which included Ark and Advent), Ark and Advent understood “as expiry” to mean that the renewal terms did not include the TPC and NAC.
Ark and Advent had contended that they could avoid the Policy on the basis of the "as expiry" misrepresentation. However, the High Court held that the NAC prevented avoidance, except in a case of fraud which did not apply here. Ark and Advent did however, successfully establish that the “as expiry” representation had induced them to write the Policy; the High Court found that it constituted an estoppel by convention because Ark and Advent had made the assumption that the terms were “as expiry” and Edge had acquiesced in that assumption. The High Court therefore held that Edge was liable to ABN Amro for Ark’s and Advent’s shares of indemnity.
Broker’s appeal: Can estoppel by convention arise when parties are at cross purposes, and is knowledge necessary for estoppel by convention by acquiescence?
Edge appealed the estoppel finding on the basis that an estoppel by convention cannot exist where the parties are at cross purposes and in cases of estoppel by convention based on acquiescence, knowledge is necessary. In other words, an estoppel by convention based on acquiescence can only succeed, Edge contended, where the party said to be estopped (here ABN Amro and its broker, Edge) knows what it is said to be acquiescing in, namely, that Ark and Advent thought that the expiring policy did not contain the TPC or the NAC. Knowledge is an inevitable part of acquiescence, Edge contended, because one cannot acquiesce in something that one does not know about.
The Court of Appeal was inclined to agree with Edge on the subjective nature of acquiescence, stating that the judges in the cases of Jones v Lydon (No.1)  EWHC 2321 (Ch) and Starbev GP Limited v. Interbrew Central European Holding BV  EWHC 1311 (Comm) “were right to think that an estoppel by convention based on acquiescence can only exist where the parties are subjectively in agreement; i.e. where in this case, the party making the representation knows that the other party has a different understanding." However, the Court found that this issue was not significant to the outcome of the appeal given that Ark and Advent also relied on estoppel by representation (as well as estoppel by convention) in reply to Edge’s appeal. The Court stated that since there had been misrepresentations, “the question of whether there were also common assumptions or an assumption in which [Ark and Advent] acquiesced is not significant to the outcome. Even if, as I have suggested, Edge is right about the subjective nature of a conventional understanding and acquiescence, there is clear authority for the proposition that the meaning of a representation depends upon how a reasonable representee would understand it…Plainly, the reasonable representee in the position of Ark and Advent would understand the representations that the Policy was as expiry to mean what it said, namely that the Policy was indeed on the terms of the expiring policy, which did not, in their cases, include the TPC and the NAC”.
Broker’s appeal: Did the NAC prevent Ark and Advent relying on the estoppel by convention and any estoppel by representation?
Edge’s appeal was also on the basis that the estoppel finding was precluded by the NAC which not only prohibited avoidance for non-fraudulent misrepresentation but also prohibited rejection of a claim for non-fraudulent misrepresentation. The Court of Appeal agreed with Edge, stating: “Ark and Advent are founding their estoppel on non-fraudulent representations, and rely on that estoppel claim in order to reject ABN Amro’s claims for loss against them. That is precisely what the NAC says they cannot do. Accordingly, construing the NAC strictly as is required, it bites on the estoppel whether it is an estoppel by convention or representation – both being based on the misrepresentations the judge found to have been made by Edge.” The Court was not persuaded by the point raised by the two insurers in response that the NAC does not expressly preclude reliance on an estoppel and that it needed to refer expressly to an estoppel to be effective.
The Court of Appeal found that the High Court was wrong to say that “[t]he potential advantage of the [estoppel] argument from the perspective of [Ark] and [Advent] is that it potentially circumvents the difficulties in their avoidance case, and in particular the effect of the NAC and affirmation”. This was wrong, the Court of Appeal found, because the High Court “assumed that the NAC only prohibited avoidance for non-fraudulent misrepresentation and overlooked the fact that it also prohibits rejection of a claim for non-fraudulent misrepresentation.”
Accordingly, the Court allowed Edge’s appeal.
This case serves as a useful reminder of how clear and unambiguous language can outweigh other considerations such as the factual matrix, even where the language in question is unusual in the insurance market in which the policy is being placed. The case is also an important example of interpretation of non-avoidance clauses as well as providing a useful reminder of the law relating to estoppel by convention.