K/S Merc-Scandia XXXXII v Underwriters to Lloyd’s Policy 25T 1054 and Others: CA 31 Jul 2001

The owners of the ‘MERCANDIAN CONTINENT’ had obtained judgment in earlier High Court proceedings against a Trinidadian shipyard for damage caused by negligent repair work. Jurisdiction in the earlier proceedings had been founded on an agreed submission to the jurisdiction of the English court. The yard’s liability insurers appointed solicitors to conduct the defence on behalf of their insured. They had challenged the jurisdiction of the English court, relying in good faith on a document forged by the shipyard’s management, which suggested that the agreed submission had been made without authority. In due course the document was exposed as a forgery and the challenge to the jurisdiction was abandoned. The shipyard having gone into liquidation, the owners brought the current proceedings against the yard’s liability insurers under the Third Parties (Rights Against Insurers) Act 1930. The insurers defended the claim on the ground that they had lawfully avoided the policy because of the fraud of the insured ship repairer in relation to the question of jurisdiction.
For the 1906 Act, an insurer could not rely upon an act of fraud to avoid a policy, where that act only took place after the contract was concluded, unless the circumstances were so serious as to allow termination for breach of contract. The scope of the obligation of good faith has been developed, and not every breach of the uberrimae fides principle will allow an avoidance. The fraud after the contract was concluded would have to be such as would ultimately affect the insurer’s liability, in order to allow the section to bite. This will align the law of post-contract good faith with the insurer’s contractual remedies. Here, the fraud would not affect the insurer’s eventual liabilities.
Longmore LJ said: ‘In my judgment these requirements, which must exist before an underwriter can avoid for lack of good faith pre-contract, must also apply, making due allowance for the change of context, where an underwriter seeks to avoid for lack of good faith or fraud in relation to post-contractual matters. In particular the requirement of inducement which exists for pre-contract lack of good faith must exist in an appropriate form before an underwriter can avoid the entire contract for post-contract lack of good faith.’


Robert Walker, Longmore LJJ, Carnwath J


Times 03-Sep-2001, [2001] EWCA Civ 1275, [2001] 2 LLR 563, [2001] Lloyds Rep IR 802, [2001] CLC 1836




Marine Insurance Act 1906 17, Third Parties (Rights Against Insurers) Act 1930


England and Wales


Appeal fromK/S Merc-Scandia XXXXII v Underwriters to Lloyd’S Policy 25T 1054 87 and Others QBD 20-Jul-2000
The Insurers had avoided a policy after a claim had been brought, and the insured had produced a fraudulent document. Having won their case, the applicants sought to enforce the award against the insurers. The insurers were held not to be excused . .

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CitedVersloot Dredging Bv and Another v Hdi Gerling Industrie Versicherung Ag and Others SC 20-Jul-2016
The ‘DC MERWESTONE’ suffered a water ingress of water flooding the engine room. This resulted from (i) the negligence of the crew in failing to close the sea inlet valve of the emergency fire pump and drain down the system, after they had used the . .
Lists of cited by and citing cases may be incomplete.


Updated: 22 May 2022; Ref: scu.162933