The claimant took out insurance on its fleet of ships (the Star Sea). It had been laid up in its off season. The ship’s safety certificates were renewed before it sailed. It was damaged by fire. The insurers asserted that the ship had been unseaworthy, and that that was causative of the fire, and that the claimants knew of the condition, and that they had withheld a privileged expert report, said to be relevant to an allegation that the insured had knowingly sent the vessel to sea in an unseaworthy condition.
Held: That defence failed. The insurers then claimed that after litigation had commenced, the claimants had failed to make proper disclosure, and that since the contract was uberrimae fidei, that vitiated the entire insurance contract. It was not said the parties had actual knowledge of the unseaworthiness, but that they had ‘blind eye knowledge’. Such blind eye knowledge required a positive decision not to look. That was not established, and the appeal failed.
Liability for dishonest assistance requires a dishonest state of mind on the part of the person who assists in a breach of trust. Such a state of mind may consist in knowledge that the transaction is one in which he cannot honestly participate, or it may consist in suspicion combined with a conscious decision not to make inquiries which might result in knowledge.
Lord Scott of Foscote said: ‘Blind-eye’ knowledge approximates to knowledge. Nelson at the battle of Copenhagen made a deliberate decision to place the telescope to his blind eye in order to avoid seeing what he knew he would see if he placed it to his good eye. It is, I think, common ground – and if it is not, it should be – that an imputation of blind-eye knowledge requires an amalgam of suspicion that certain facts may exist and a decision to refrain from taking any step to confirm their existence.’
Lord Hobhouse observed: ‘The logic is simple. The fraudulent insured must not be allowed to think: if the fraud is successful, then I will gain; if it is unsuccessful, I will lose nothing.’
As to the Litsion Pride case, Lord Hobhouse said: ‘The particular claim was only fraudulent in so far as the broker had not been truthful in dealing with the insurers at that stage. The reasoning adopted by Hirst J has been criticised both by academic writers and by other judges in later cases. I consider that it should not any longer be treated as a sound statement of the law. . . In so far as it is based upon the principle of the irrecoverability of fraudulent claims, the decision is questionable upon the facts since the actual claim made was a valid claim for a loss which had occurred and had been caused by a peril insured against when the vessel was covered by a held covered clause.’
Lord Steyn Lord Hoffmann Lord Clyde Lord Hobhouse of Wood- borough Lord Scott of Foscote
Times 23-Jan-2001, [2001] 1 All ER 743, [2001] 2 WLR 170, [2001] UKHL 1, [2003] 1 AC 469
House of Lords, Bailii
Marine Insurance Act 1906 39(5) 35(2)
England and Wales
Citing:
Cited – Thomas v Tyne and Wear SS Freight Insurance Association 1917
For an insurer to set up a defence under claim for the loss of a ship on the grounds of the unseaworthiness of the vessel, the unseaworthiness must have been causative of the relevant loss. . .
Cited – Standard Oil Co of New York v Clan Line Steamers HL 1924
A ship sank with the entire loss of the cargo. The cargo owners sought damages from the owners, saying that the ship was unseaworthy. The ship was of an unusual construction, requiring a certain amount of water ballast to be mainatined for the ship . .
Cited – The Gloria 1935
‘I think that if it were shown that an owner had reason to believe that his ship was in fact unseaworthy, and deliberately refrained from an examination which would have turned his belief into knowledge, he might properly be held privy to the . .
Appeal from – Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd and Another CA 23-Jan-1997
The results which would follow from a fraudulent insurance claim should not to be extended similarly to follow from culpable non-disclosure in the absence of fraud. . .
Cited – Black King Shipping Corpn and Wayang (Panama) SA v Massie (The ‘Litsion Pride’) 1985
The LITSION PRIDE was insured against war risks. The terms required of her owners, notice as soon as practicable of her entry into specified war zones and then to pay an additional premium. The owners traded her into a war zone without giving . .
Cited by:
Cited – Agapitos and Another v Agnew and others CA 6-Mar-2002
Insurers resisted a claim saying that fraudulent acts of the defendants to promote an otherwise valid claim, made the entire claim void. The insurance required certificates to be obtained before ‘hot’ works were undertaken as part of the ship’s . .
Cited – Drake Insurance Plc v Provident Insurance Plc ComC 3-Feb-2003
A driver caused an accident, and the claimant insurance company paid out. It now sought a contribution from the defendant, who had also insured the driver, but had denied liability. The driver was a named additional driver under the second policy, . .
Cited – AXA General Insurance Limited v Gottlieb CA 11-Feb-2005
The defendant made a claim under an insurance policy. The insurer made an interim payment, but then asserted that the claim was fraudulent, and sought recovery of the interim payment.
Held: At common law, fraud in an insurance claim, once . .
Cited – Barlow Clowes International Ltd and Another v Eurotrust International Ltd and others PC 10-Oct-2005
(Court of Appeal of the Isle of Man) Defendants appealed a finding of dishonest assistance in the activities of Barlow Clowes.
Held: The judge had been able to reach the conclusions on the basis of the evidence. The appeal of the deemster . .
Cited – Meretz Investments Nv and Another v ACP Ltd and others ChD 30-Jan-2006
The applicant challenged the exercise of a power of sale under a mortgage, saying that the mortgagee’s purposes included purposes not those under the mortgage. The parties had been involved in an attempted development of a penthouse.
Held: The . .
Cited – Douglas and others v Hello! Ltd and others; similar HL 2-May-2007
In Douglas, the claimants said that the defendants had interfered with their contract to provide exclusive photographs of their wedding to a competing magazine, by arranging for a third party to infiltrate and take and sell unauthorised photographs. . .
Cited – Fairclough Homes Ltd v Summers SC 27-Jun-2012
The respondent had made a personal injury claim, but had then been discovered to have wildly and dishonestly exaggerated the damages claim. The defendant argued that the court should hand down some condign form of punishment, and appealed against . .
Cited – Versloot 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 . .
Cited – Willers v Joyce and Another (Re: Gubay (Deceased) No 1) SC 20-Jul-2016
Parties had been involved in an action for wrongful trading. This was not persisted with but the claimant sought damages saying that the action was only part of a campaign to do him harm. This appeal raised the question whether the tort of malicious . .
Lists of cited by and citing cases may be incomplete.
Insurance, Transport
Leading Case
Updated: 11 November 2021; Ref: scu.83379