JDA Co Limited v AIG Insurance New Zealand Limited
[2021] NZHC 2912
•29 October 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-988
[2021] NZHC 2912
BETWEEN JDA CO. LIMITED
First Plaintiff
NIKKYO CO. LIMITED
Second PlaintiffINTEGRITY EXPORTS CO. LIMITED
Third PlaintiffAND
AIG INSURANCE NEW ZEALAND LIMITED
First Defendant
VERO INSURANCE NEW ZEALAND LIMITED
Second DefendantIAG NEW ZEALAND LIMITED
Third Defendant
Hearing: 21, 22, 23, 24 and 25 June 2021 Appearances:
P J Napier and N Coyle for the Plaintiffs
P Davies and C Langstone for the Defendants
Judgment:
29 October 2021
JUDGMENT OF GAULT J
This judgment was delivered by me on 29 October 2021 at 4:30 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
JDA CO. LTD v AIG INSURANCE NEW ZEALAND LTD [2021] NZHC 2912 [29 October 2021]
[1] The three plaintiffs claim (including as representatives) under a marine cargo insurance policy known as the AIMS Scheme for damage to second-hand vehicles awaiting export from Japan. The damage was caused by typhoons that hit Japan in August and September 2018.
[2] The defendant insurers declined the claims which are the subject of the proceeding, having paid other claims.
[3] The plaintiffs seek declarations that there is cover for damage to the vehicles in issue – numbering many hundred – and that by declining cover the defendants breached the contract of insurance.1
Factual background
[4] The plaintiffs, JDA Co Ltd (JDA), Nikkyo Co Ltd (NCL) and Integrity Exports Co Ltd (Integrity), are Japanese companies that export second-hand vehicles from Japan to other countries, including New Zealand.
[5]The defendants were the insurers of the AIMS Scheme at the relevant time.
[6] The AIMS Scheme was initially developed by Automotive Technologies Limited (ATL) and its insurance brokers, Sage Partners Ltd (Sage), when ATL wished to offer marine cargo insurance for cars coming through its depot for inspection (structural and biosecurity) and odometer readings in Japan. ATL sought a marine open policy, which is a policy whereby the insurer is obliged to insure cargo, or a specific type of cargo, per the terms of the policy, for a party or parties – in this case for cargo of second-hand motor vehicles. Under a marine open policy, once the insurer is committed to insuring the type of cargo, the specific cargo is then subsequently declared to the insurer in periodic declarations. The insurance attaches before the insurer receives such declarations. This enables cover to be arranged by higher volume exporters without the need to notify insurers or seek cover on each occasion.
1 It is unnecessary to refer to all the individual vehicles, which were detailed in a Car chronology.
[7] ATL engaged Sage to arrange a marine open policy with the New Zealand underwriting market with a view to being able to provide marine cargo insurance to ATL’s customers in Japan. ATL would collect payment from the vehicle exporters, deduct its commission and pay the premium via the broker Sage to insurers. Sage also took a commission.
[8] From 2012 onwards, ATL arranged this AIMS Scheme marine cargo insurance for companies that shipped vehicles from Japan and other places, but primarily Japan, in return for an insurance premium for each vehicle.
[9] In May 2014 Mr Manks of Sage submitted to insurers a proposal for the expansion of the AIMS Scheme as ATL expanded its export business into the USA.
[10] From approximately June 2014, the first defendant, AIG Insurance New Zealand Ltd (AIG), was the lead co-insurer.
[11] On 27 July 2018 AIG reissued the policy wording and a policy schedule in respect of the AIMS Scheme for the policy period from 1 June 2018 to 1 June 2019. By that stage, the programme had not expanded as planned and the total estimated number of vehicles to be insured for the year was 32,750.
[12]On 23 August 2018 Typhoon Cimaron hit Japan.
[13]On 4 September 2018 Typhoon Jebi hit Japan.
[14] On 5 September 2018 Sage emailed ATL to request that the “AIMS declaration” for August 2018 be provided by 12 September 2018 if possible.
[15]On 12 September 2018 ATL provided a list of vehicles to Sage.
[16] In late September 2018 Super Typhoon Trami began to form. On 28 September 2018 AIG contacted Sage regarding a moratorium AIG’s head office in New York placed on new business in Japan.
[17]On 30 September 2018 Super Typhoon Trami hit Japan.
[18] On 1 October 2018 Sage sent AIG a list of 21,855 vehicles declared by Be Forward Co Ltd (a represented party of NCL).
[19] On 4 October 2018 Sage emailed ATL asking for “the declaration by Monday [8 October 2018] at the latest”.
[20] On 10 October 2018 ATL sent Sage a list of vehicles, which Sage sent to AIG the same day. That final monthly declaration for September included 27,717 vehicles.
[21]On 26 October 2018 AIG gave 30 days’ notice of cancellation of the policy.
The claims by the separate plaintiffs
[22] The plaintiffs say that ATL was authorised by insurers, actually and ostensibly, to bind insurers to providing cover, and that ATL provided cover to the plaintiffs in the following ways:
(a)JDA (and those it represents) claim on the basis of a standing agreement with ATL that ATL would arrange insurance cover on their behalf for all vehicles they shipped. JDA claims it reached such an agreement with ATL on or about 29 May 2014. JDA would then give notice to ATL of the vehicles for which insurance was taken by providing a spreadsheet list of vehicles it had shipped the previous month. JDA says this insurance attached when the vehicle was purchased.
(b)NCL (and those it represents) claim on the basis of a standing agreement with ATL that ATL would arrange insurance cover on their behalf for all vehicles they shipped with ATL’s related company Moana Blue Ltd (MBL). NCL claims it reached such an agreement with ATL in about February 2015. NCL would then give notice to ATL of the cars to insure by delivering them to a holding yard for shipping by MBL and providing a list of those vehicles to MBL. MBL would input this information into the AIMS website operated by ATL at the beginning of each month. NCL says this insurance attached when the vehicle was delivered to MBL for shipping.
(c)Integrity (and those it represents) claim to have arranged insurance through ATL for specific vehicles that they were shipping. Integrity would input details of the specific vehicles into the AIMS website. Integrity says this insurance attached when it placed the order.
Insurers’ defence
[23] The defendants say that a key feature of the AIMS Scheme was that the broker and ATL were to assume most of the responsibility for its administration, so insurers assumed that ATL was in good faith only declaring risks that fell within the terms of the policy. The elevated declarations for September 2018 raised red flags. In particular, the defendants raise three main points.
[24] First, they say that cover is only available to entities coming within the policy definition of Assured, that they became aware following the elevated declarations that ATL was selling insurance to entities that were not its customers for any other purpose, and that the plaintiffs (and those they represent) have not established they are Assureds.
[25] Secondly, the defendants say that the policy provides that, prior to the attachment of risk when the Assured’s insurable interest first attaches (which in most cases would be at fall of hammer at auction), the Assured had to elect the terms of cover, the options being “all risks” or “named peril” only in terms of Institute Cargo Clauses (A) or (B).2 The defendants say this necessarily also implies the intending Assured had evinced an intention to take insurance in the first place. The defendants say they became aware that ATL had no system for ensuring compliance with these policy requirements, and without compliance no contracts of insurance were formed.
[26] Thirdly, the defendants also say that the vehicles that had been insured then had to be declared in the same month as when they had entered a pre-shipment holding yard. They say there were no checks and balances to prevent customers from applying for insurance after losses had already occurred.
2 In the relevant version of the International Chamber of Commerce’s Incoterms rules.
[27] The defendants accept that in an open marine cargo policy risk can attach prior to receipt of the declaration but say that cover is subject to the declaration reflecting the terms of the policy.
Issues
[28] It can be seen that the parties differ significantly as to the operation of the policy.3 The key issues to be determined are:
(a)whether the plaintiffs come within the policy’s definition of Assured;
(b)whether the plaintiffs had to request cover and nominate Institute Cargo Clauses (A) or (B) prior to purchase of the vehicles;
(c)whether the vehicles that had been insured had to be declared in the same month that they entered a pre-shipment holding yard;
(d)whether the plaintiffs are entitled to be indemnified in respect of damage to vehicles insured after they had been damaged; and
(e)whether the plaintiffs’ delays in insuring and/or the act of insuring post-loss indicate lack of good faith.
[29] Before turning to these issues, I briefly refer to the Court’s approach to contractual interpretation.
Approach to contractual interpretation
[30] The approach to contractual interpretation was set out by the Supreme Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd,4 and recently summarised in Savvy Vineyards 4334 Ltd v Weta Estate Ltd:5
3 At least in part, the extent of the difference and the defendants’ no contract defence only arose at trial and required leave to amend: see Minute dated 23 June 2021.
4 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.
5 Savvy Vineyards 4334 Ltd v Weta Estate Ltd [2020] NZSC 115, [2020] 1 NZLR 714 (footnotes omitted).
[24] There is no dispute as to the approach to interpretation applicable. The approach is that set out by this Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd. The Court in that case said the approach was an objective one. The Court went on to accept that “in interpreting commercial contracts the courts should have regard to their commercial purpose and to the structure of the parties’ bargain, to the extent that they can reliably be identified”. The Court also said:
[63] While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
[31] I note that while the policy is relevantly made up of policy wording, a policy schedule and incorporated Institute Clauses, they are to be read together. The definition of “policy” in the policy wording provides:
“Policy” means this document and current Policy Schedule and Institute Clauses contained therein and Endorsement (if any) all of which are to be read together and any word or expression to which a specific meaning has been given shall have the same meaning wherever it may appear unless otherwise specifically stated.
[32] Also, I do not consider that the policy should be construed against insurers on a contra proferentem basis, as Mr Napier for the plaintiffs submitted. Both parties had input.
Whether the plaintiffs come within the policy’s definition of Assured
[33]In the 2018/2019 policy wording, the Insuring Agreement clause provides:
Insuring Agreement
In consideration of the Assured named herein paying the Premium and in reliance upon the statements made to the Insurer by proposal and its attachments the Insurer agrees to provide insurance as provided for herein.
The liability of the Insurer shall not exceed the limits of liability specified in the Policy Limits section of the Policy Schedule or elsewhere in the Policy.
[34]The relevant definitions provide:
“Assured” means the person, corporation and/or other organisation specified in the Policy Schedule.
“Business of the Assured” means the business as described in the Policy Schedule (and, where applicable, as further described in any more specific underwriting information provided to the Insurer).
[35]In the policy schedule, the relevant clauses are as follows:
Assured
1. Unless specified to the contrary elsewhere in the Policy, the Policy covers the Subject-matter insured for the transits and/or other insured risks and on the conditions named transported by or for the account of
Aims Kyosai, ATL America, Inc., Automotive Technologies Limited, trading as AIMS Worldwide, Kiwi Marine
and/or their subsidiary or associated or related companies or parties including the shippers/exporters and other customers of
Aims Kyosai, ATL America, Inc., Automotive Technologies Limited, trading as AIMS Worldwide, Kiwi Marine
for whom they are arranging insurance on behalf of, or the insurance of which is under their control unless insured elsewhere prior to the attachment of cover under the Policy.
…
3.The Policy shall not cover the interests of any other person, but this shall not prevent on assignment of the Policy by the Assured or assignee.
Business of the Assured
For the purposes of the Policy the Business of the Assured is principally
buyers, exporters and distributors of Second-hand Motor Vehicles
and any occupation incidental thereto.
[36] Mr Napier submitted that the plaintiffs are “the shippers/exporters and other customers of … Automotive Technologies Limited, trading as AIMS Worldwide … for whom they are arranging insurance on behalf of, or the insurance of which is under their control”.
[37] Ms Davies for the defendants submitted that the AIMS Scheme was to be an added value service as part of an expanded service for the aggregation of cargo volume through one channel. Insurance was not supposed to be sold as a stand-alone product to those who were not part of the aggregation service. Ms Davies referred to Mr Manks’ May 2014 proposal, on which insurers were entitled to rely:
Initially launched in Japan, the AIMS program created a template for the aggregation of cargo volume through one channel in order to achieve a quality insurance solution. Through our client “Automotive Technologies Ltd [New Zealand company], we are expanding the AIMS concept into the US marketplace. Several visits to the market have been made and a shipping industry professional employed there to advance opportunities.
Given the expansion of the AIMS program into new markets, it is opportune to look at the structure, terms and capacity of AIMS to ensure it meets the future requirements.
[38] Mr Manks acknowledged that the genesis of the volume was from customers but said he recalled a later discussion about the ability for ATL also to source volume from others who may not necessarily have been customers.
[39] The issue is whether the proper interpretation of the policy requires the plaintiffs to be customers of ATL other than for the purpose of buying insurance. Starting with the rather unwieldy text of the Assured clause in the policy schedule, the reference to “other customers of [ATL] for whom they are arranging insurance” suggests that they must be customers other than for insurance. The words “and other customers” would ordinarily imply those preceding, “shippers/exporters”, were also customers. But that begs the question here. The preceding phrase in full is “transported by or for the account of [ATL] and/or their subsidiary or associated or related companies or parties including the shippers/exporters”. ATL is an inspection company offering insurance – it is not transporting or shipping vehicles. The phrase “including the shippers/exporters” may be intended as an extension of the preceding phrase without meaning to imply shippers/exporters are or need be customers. If the intended meaning was as insurers suggest, the definition could have omitted the words “including the shippers/exporters” and simply referred to customers, or more explicitly to inspection customers. On balance, I do not consider the clause requires the plaintiffs to be customers of ATL other than for the purpose of buying insurance.
[40] This interpretation is also more consistent with the policy as a whole. As Ms Davies acknowledged, elsewhere in the policy Assured can be read as referring to the vehicle exporters, for example the reference to attachment of the “Assured’s insurable interest”. ATL did not have an insurable interest. It is also consistent with the policy description of the “Business of the Assured”, that is “principally buyers, exporters and distributors of Second-hand Motor Vehicles” and the reference in the definition of Pre Shipment Holding Yards to “acquisition by the Assured”.
[41] Further, Mr Manks’ proposal refers to aggregation of cargo volume through one channel but does not necessarily imply that Assureds had to be ATL’s customer for inspection or odometer reading. The later discussion he recalled suggests otherwise. So may insurers’ subsequent conduct. Mutual conduct after the policy was taken out can be a relevant aid to interpretation.6 Mr Sheppard’s evidence for AIG indicated that insurers paid some claims by each of the plaintiffs. Claims that were declined were declined on other grounds. While not creating any waiver or estoppel, and accepting that aspects of how ATL was arranging insurance were unknown to insurers before this dispute, this is at least consistent with interpreting the policy as not requiring the plaintiffs to be customers of ATL other than for the purpose of buying insurance. It is also consistent with the acceptance of premiums from exporters who were only customers of ATL for insurance (but without suggesting that premiums should not have been accepted without first verifying the source as an ATL inspection customer).
[42] For these reasons, given the text of the clause, the policy as a whole and the surrounding context, I consider that the policy does not require the plaintiffs to be customers of ATL other than for the purpose of buying insurance.
[43] Turning to the factual position of the three plaintiffs, I consider JDA was a shipper/exporter for whom ATL was arranging insurance. It therefore comes within the policy’s definition of Assured even if it were not a customer for other purposes.
6 See Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277 at
[60] per Tipping J.
[44] I consider NCL was in a similar position even though ATL’s related company MBL was involved in the shipping and also in arranging the insurance. MBL’s involvement did not detract from ATL’s role in arranging the insurance. Arguably, NCL was also an Assured on the separate basis that the vehicles were “transported by or for the account of [ATL] and/or their subsidiary or associated or related companies”, since Mr Grindall said MBL was a shipping and logistics company.
[45] I consider Integrity was also a shipper/exporter for whom ATL arranged insurance. In terms of the definition of Assured, I consider the use of ATL’s AIMS website was sufficient for ATL to be arranging the insurance.
[46] For these reasons, I conclude that the three plaintiffs come within the policy’s definition of Assured.
Whether the plaintiffs had to request cover and nominate Institute Cargo Clauses
(A) or (B) prior to purchase of the vehicles
[47] I begin consideration of this issue by setting out the relevant clauses in the 2018/2019 policy wording – the definition of “Duration”, the Duration clause and clause 1 of the Standard Conditions:
“Duration” means the time from which cover attaches under the Policy to the time which cover terminates under the Policy.
Duration
…
Unless specified to the contrary elsewhere in the Policy, the Duration of cover in respect of all other risks is as follows:
3.1Cover attaches at the place at which the Assured’s insurable interest first attaches anywhere in USA or Japan and continues
…
Standard Conditions & Extensions:
1.Unless specified to the contrary elsewhere in the Policy, the Policy covers:
1.1Where, prior to the attachment of risk hereunder, the Assured has elected for coverage to be on an “all risks” basis, then, unless specified to the contrary elsewhere in the Policy, the
Policy covers all risks of loss of or damage to the Subject- matter insured in accordance with the Institute Cargo Clauses (A)
OR
1.2Where, prior to the attachment of risk hereunder, the Assured has elected for coverage to be on a “named peril” basis, then, unless specified to the contrary elsewhere in the Policy, the Policy covers risks of loss of or damage to the Subject-matter insured in accordance with the Institute Cargo Clauses (B) …
…
[48] Mr Napier submitted that ATL was authorised as the insurers’ agent to accept requests for cover. He accepted that the Assured needed to request ATL to arrange cover, but submitted this could be done either on a standing order or spot basis. If the request for cover occurred after purchase of a vehicle, he submitted that there are two workable interpretations of the policy:
(a)cover attaches from when cover is taken; or
(b)cover attaches retrospectively but the duty of disclosure would mean there is no cover for undisclosed damage before it was taken.
[49] In relation to nomination of the terms of cover, Mr Napier submitted these clauses do not require that a nomination takes place prior to the attachment of risk such that absent an election there is no cover or that an election is a pre-condition of cover. Rather, he submitted, they are a definition that all risks and named perils accord with Institute Cargo Clauses (A) and (B) respectively. Mr Napier also relied on the parties’ conduct prior and subsequent to entering the policy contract.
[50] Ms Davies submitted that the policy provides that, prior to the attachment of risk when the Assured’s insurable interest first attaches (which in most cases would be at fall of hammer at auction),7 the Assured had to elect the terms of cover, the options being “all risks” or “named peril” only in terms of Institute Cargo Clauses (A) or (B).
7 Insurable interest is defined in s 6 of the Marine Insurance Act 1908 but nothing turns on that definition.
Ms Davies submitted this necessarily also implies the intending Assured had evinced an intention to take insurance in the first place.
[51] Ms Davies emphasised the background context, including that the terms of the policy were negotiated for ATL by its broker and that the broker secured a change in wording of the Duration clause so that attachment of cover changed from “commencement of loading of the vehicles onto the carrying road or rail conveyance at the place at which the Assured’s insurable interest first attaches” to “the place at which the Assured’s insurable interest first attaches” so that the vehicle was covered while at the auction house awaiting pickup. She submitted the Duration clause creates a single point of commencement of cover.
[52] Ms Davies also submitted that ATL was not the agent of the insurers but rather was the agent of the exporters. Thus, a request to ATL for cover did not bind insurers. Ms Davies did accept that evincing an intention to insure could be by way of standing order, consistent with insurers’ acceptance of claims where there was an established course of dealing. Mr Sheppard also accepted in evidence that the request need not necessarily identify specific vehicles. For example, the vehicles successfully purchased will not be known until after auction.
[53] I now address whether Standard Condition & Extension 1 requires the Assured to elect the terms of cover – Institute Cargo Clauses (A) or (B) – prior to when the Assured’s insurable interest first attaches (which in most cases would be at fall of hammer at auction). I make three points.
[54] First, Standard Condition & Extension 1 deals with the type of cover, namely “all risks” in accordance with Institute Cargo Clauses (A) or “named peril” in accordance with Institute Cargo Clauses (B). It refers to the cover that applies where, prior to the attachment of risk, the Assured has elected. I do not accept it is merely a definition that all risks and named perils accord with Institute Cargo Clauses (A) and
(B) respectively, as Mr Napier submitted. It is a statement of the cover that applies depending on the election. This implies that if there is no election prior to attachment of risk, there is no cover.
[55] Secondly, it is the Duration clause that refers to cover attaching when the Assured’s insurable interest first attaches and then continuing until it terminates. The first point of attachment was changed to enable cover where vehicles were at the auction houses awaiting pickup. I accept that “prior to the attachment of risk” in Standard Condition & Extension 1 implicitly cross-refers to “the place at which the Assured’s insurable interest first attaches” in the Duration clause. But the Duration clause has location as well as time parameters and it does not necessarily follow from the need to elect terms of cover “prior to attachment of risk” that Standard Condition & Extension 1 precludes the taking of cover after the Assured’s insurable interest first attaches. Mr Napier submitted that the policy does not say insurance can only be taken at that point. He submitted that if cover is taken and terms elected later, cover may attach when it is taken. In that case, the election would still have occurred prior to attachment of risk. As Mr Napier submitted, that possible interpretation of Standard Condition & Extension 1 is consistent with Mr Sheppard’s evidence that insurers allowed cover to be taken out again when it had lapsed after more than 90 days in a pre-shipment holding yard. On the insurers’ interpretation, there could be no cover in that situation. Even so, on the ordinary and natural meaning of the policy, I would on balance favour the potentially harsh but more coherent single point of attachment approach; that is the interpretation that requires the Assured to elect the terms of cover prior to when the Assured’s insurable interest first attaches.
[56] Thirdly, there is relevant surrounding context that supports an interpretation that the election may be implied. Mr Manks, the broker from Sage who was involved in the development of the AIMS Scheme on behalf of ATL, gave evidence for the plaintiffs. He said that the premise of the cover originally set out was that the underlying cover to apply would be Institute Cargo Clauses (B) on every vehicle with the option to elect (A), all risks insurance, and pay an additional premium. A copy of the prior wording was disclosed at trial, confirming that this was explicit. Mr Manks said that wording was removed at the request of the underwriter (representative) at the time, Mr Walker, who was of the view it was superfluous because it was evident anyway; that (B) cover would have to apply in the absence of any requests to take (A) and it was unnecessary to have it written in there. This occurred in 2014. The removed wording was never reinstated.
[57] Mr Sheppard said he was responsible for re-writing the clause. He said he sent an email to Mr Walker saying “it was messy and we have fixed it”. But Mr Sheppard was not party to the conversation Mr Walker had with Mr Manks and Mr Walker did not give evidence. I have no reason to doubt Mr Manks’ evidence regarding his conversation with Mr Walker.
[58] Mr Napier submitted that given Mr Walker’s statement insurers were estopped from contending otherwise. He referred to the principle of estoppel by convention: if the parties to a contract have dealt with each other on the basis of a common understanding about the meaning of the effect of the contract, that interpretation will bind them if it would be unjust to go back on it.8 The approach to estoppel by convention was summarised by the Court of Appeal in National Westminster Finance NZ Ltd v National Bank of NZ Ltd:9
The authorities show that for an estoppel by convention to arise the following points must be established by the party claiming the benefit of the estoppel (the proponent):
(1)The parties have proceeded on the basis of an underlying assumption of fact, law, or both, of sufficient certainty to be enforceable (the assumption).
(2)Each party has, to the knowledge of the other, expressly or by implication accepted the assumption as being true for the purposes of the transaction.
(3)Such acceptance was intended to affect their legal relations in the sense that it was intended to govern the legal position between them.
(4)The proponent was entitled to act and has, as the other party knew or intended, acted in reliance upon the assumption being regarded as true and binding.
(5)The proponent would suffer detriment if the other party were allowed to resile or depart from the assumption.
(6)In all the circumstances it would be unconscionable to allow the other party to resile or depart from the assumption.
[59] Here, I consider the parties have proceeded on the basis of an assumption that Institute Cargo Clauses (B) would apply in the absence of an express election to take
8 Richard Calnan Principles of Contractual Interpretation (Oxford University Press, Oxford, 2013) at 161.
9 National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548 (CA) at 550 per Tipping J.
“all risks” cover in accordance with Institute Cargo Clauses (A). The circumstances sufficiently indicate they accepted that express reference in the policy wording was superfluous and intended that to govern the position. I consider ATL (and other Assureds) were entitled to rely on that assumption and it would be detrimental and unconscionable to allow insurers to resile from it. But even if the circumstances did not warrant an estoppel, the conversation between Mr Manks and Mr Walker is helpful context in determining the proper interpretation of the resulting policy wording, which did not change again in any relevant respect. It supports an interpretation that Institute Cargo Clauses (B) would apply in the absence of an express election to take “all risks” cover in accordance with Institute Cargo Clauses (A); that is such an election would be implied.
[60] Subsequently, as Mr Sheppard accepted, insurers paid claims where there had been no (express) election before the insurable interest attached as to whether cover was to be under Institute Cargo Clauses (A) or (B). He did not point to any claims being denied because there had been no such election. His reference to accepting claims where there was an established course of dealing addressed a different point; that is, accepting claims in the absence of written standing agreements where the party claiming had an established history of declaring vehicles. More generally, until this dispute, insurers did not appear to question the lack of communication to them of an election before the insurable interest attached. I do not suggest the payment of other claims creates a waiver or estoppel and again acknowledge that aspects of how ATL was arranging insurance were unknown to insurers before this dispute, but subsequent interactions with the plaintiffs may still support an interpretation that an express election is not required.
[61] For these reasons, I accept the policy requires the Assured to elect the terms of cover – Institute Cargo Clauses (A) or (B) – prior to attachment of the Assured’s insurable interest, but I consider that, whether by virtue of estoppel or interpreting the wording of Standard Condition & Extension 1 in the context of the policy as a whole and the surrounding context, Institute Cargo Clauses (B) would apply in the absence of an express election to take “all risks” cover in accordance with Institute Cargo Clauses (A).
[62] That is not to say a request for cover prior to the attachment of risk is unnecessary. An open marine policy involving subsequent declarations does not dispense with the need to evince an intention to take insurance in the first place. That at least is inherent in the AIMS Scheme. No issue would arise in the case of spot orders prior to attachment of risk. But, as indicated, it is common ground that a request for cover can be by way of standing order.
[63] The issue is whether there is evidence of standing orders in the case of JDA and NCL showing an intention to take insurance. That intention must be communicated to insurers. An established course of dealing taking out insurance based on a standing order would evince such an intention. But I do not accept that ATL was acting as insurers’ agent and authorised to bind insurers to cover without communicating an intention to take insurance to insurers. As Ms Davies submitted, ATL was arranging insurance on behalf of exporters. It did so via its broker – and it is well-established in marine insurance that a broker is not the agent of the insurer.10 At most, ATL was authorised by insurers to bundle the instructions and monthly declarations of each Assured. Hence the need for an established course of dealing unless the intention to take insurance was communicated to insurers prior to attachment of the risk.
[64] In relation to JDA, Mr Tagami of JDA and Mr Grindall of ATL initially said that JDA had an agreement with ATL whereby it took insurance for all vehicles that were exported. They referred to an agreement on or about 29 May 2014, whereas the document produced shortly before trial was dated 10 April 2014 and referred to enrolment in AIMS from 1 May 2014. It was also in the name of Direct Auction Co Ltd, but Mr Grindall said it was the same entity. Mr Tagami also said it was the correct document. It preceded the expansion of the AIMS Scheme. The document also stated that the standing order was for all vehicles exported on a CIF basis11 (which the evidence indicated was a regular practice of exporters). JDA’s one vehicle in issue was purchased on 28 July 2018 and entered the pre-shipment holding yard on 3 August 2018. The Car chronology said ATL only received the order on 18 September 2018,
10 Rozanes v Bowen (1928) 32 Lloyd’s Rep 98 (CA) at 101 per Scrutton LJ, approved in Anglo- African Merchants Ltd v Bayley [1970] 1 QB 311 at 316 per Megaw J.
11 Contract, insurance and freight.
but Mr Tagami suggested this was when the accident was reported. The vehicle was only declared to insurers on 10 October 2018. These circumstances raise the question whether JDA evinced an intention to take cover prior to purchase of its vehicles if it was only insuring those it purchased for export and then sold on a CIF basis. Mr Grindall said that selling CIF was common practice in Japan. His understanding was that JDA was insuring every vehicle they were exporting. Despite the discrepancies and timing, I accept on balance that JDA had a standing order with ATL to insure all vehicles it purchased for export.
[65] Given JDA’s standing order with ATL, the number of vehicles JDA had previously declared, insurers’ acceptance that an established course of dealing is evidence of a standing order and insurers’ acceptance of another JDA claim, I consider there is sufficient evidence of JDA’s intention to take insurance prior to the attachment of risk.
[66] Turning to NCL, Mr Sera of NCL and Mr Grindall both gave evidence that NCL had reached an agreement with MBL in February 2015 to take insurance through the AIMS Scheme for vehicles that NCL shipped through MBL. Mr Grindall described it as an agreement with ATL, but he was a director of both companies. Mr Sera said the agreement was reached in a conversation. He said the usual process was that NCL purchased the vehicles and then had them transported to a designated yard, in this case for MBL. Despite the discrepancies and lack of a written agreement, I accept that NCL had a standing arrangement with MBL to take insurance for vehicles that it shipped through MBL.
[67] But Mr Sera acknowledged that NCL did not ship all its vehicles through MBL. Until NCL nominated a vehicle as being one for shipment by MBL, it did not fall under the arrangement with MBL. Mr Yamada of MBL said the timing of the order depended on the exporter: some exporters would place an order with MBL immediately after purchasing a vehicle at auction, others would order once the vehicle had been delivered to the holding yard for shipping by MBL, and others would order when a vehicle had been sold to a New Zealand consignee. He said MBL would input this information into the AIMS website operated by ATL at the beginning of each month. The Car chronology indicated that some vehicles were booked with MBL
weeks after entry into a yard, with insurance orders received by ATL weeks after that. The issue is whether this arrangement that required NCL to nominate a vehicle as being one for shipment by MBL is sufficient to give rise to an established course of dealing. The nomination occurred after purchase, sometimes weeks after. Even though insurers have accepted other NCL claims, I do not consider this arrangement sufficiently evinces NCL’s intention to take insurance prior to the attachment of risk.
[68] In relation to Integrity, Mr Tanaka of Integrity gave evidence of taking out insurance for specific vehicles that it was shipping through ATL using the AIMS website. Integrity also nominated the type of cover when entering an insurance order on the AIMS website. These spot orders were received by ATL after purchase, consistent with the prevalence of only insuring vehicles exported on a CIF basis. There was no standing order. Unless there was an established course of dealing, the required intention to take insurance was not communicated to insurers until they received each declaration, which was well after attachment of risk. Even though insurers accepted claims for 24 of Integrity’s vehicles, I do not consider the individual declarations amount to an established course of dealing evincing an intention to take insurance prior to the attachment of risk.
[69] The Errors & Omissions Clause in the policy does not overcome the lack of request for cover. It only cures unintentional omissions in the making of declarations:
Errors & Omissions Clause
Unintentional errors or omissions in the making of declarations shall not invalidate the Policy provided steps are taken to rectify these as soon as they come to the notice of the Assured but subject always to cover terms and conditions.
In no case shall this Clause serve to increase the Policy Limits.
[70] For these reasons, I conclude that only JDA evinced the requisite intention to take insurance prior to the attachment of risk.
Whether the vehicles that had been insured had to be declared in the same month that they entered a pre-shipment holding yard
[71] Even if each plaintiff evinced the requisite intention to take insurance prior to the attachment of risk, it is necessary to address the policy’s declaration requirement. This declaration requirement is quite separate from the maximum of 90 days cover in the pre-shipment holding yard.
[72]Paragraph 2 of the Premium clause in the policy schedule provides:
2.Within
7 calendar days
of the end of each month, the Assured shall declare to the Insurer the number of units/Motor Vehicles received into the Assured's control at the specified Pre Shipment Holding Yards (as specified in the Policy Limits section of the Policy Schedule) during the preceding month and the Insurer shall calculate the Premium payable by the Assured thereon.
[73] This clause requires, within 7 days of the end of each month, the Assured to declare to the insurer the number of vehicles received into the Assured’s control at the pre-shipment holding yard during the preceding month. Ms Davies submitted the parties contemplated that:
(a)every insured vehicle would enter a pre-shipment holding yard;
(b)every vehicle would be under ATL’s control there for the purposes of onward transportation; and
(c)the monthly declaration would encompass all vehicles that had been received into ATL’s control at a pre-shipment holding yard in the preceding month.
[74] I have already addressed the meaning of Assured for cover purposes. Even if “received into the Assured’s control” in this Premium clause means received into ATL’s control, this is for the purpose of the requirement to declare the number of vehicles received into the pre-shipment holding yard during the preceding month and
to calculate the premium, rather than imposing a separate policy requirement that all vehicles must for all purposes be directly under ATL’s control in the pre-shipment holding yard. I bear in mind that cover attached prior to entry into a pre-shipment holding yard. In any event, I do not infer there was a breach.
[75] In terms of the required declaration “to the Insurer”, I have already addressed the agency argument in relation to binding cover. I do not accept that ATL was the insurers’ agent for the purposes of this clause either, nor that the operative declaration was from the plaintiffs to ATL (or MBL as ATL’s agent), as Mr Napier submitted. The 2015 Cardeal claim correspondence referring to vehicles never being declared to ATL does not indicate otherwise. Exporters needed to declare vehicles to ATL before it could declare them to insurers (and in the case of a spot order, the order to ATL was in effect the exporter’s declaration). This clause requires declaration to the (lead) insurer.
[76] Although the clause requires a declaration to the insurer within 7 days of the end of each month, insurers do not take issue with the timing of the declarations sent on 12 September 2018 and 10 October 2018 for the preceding months. This timing reflected a pattern of monthly declarations several days after the prescribed timeframe.
To this extent, there was a waiver.12
[77] Monthly declarations were sent but the insurers’ complaint is that the relevant declarations omitted vehicles received into the pre-shipment holding yard during the preceding month.
[78] Mr Napier submitted that the clause does not constitute a warranty within the terms of s 34 of the Marine Insurance Act 1908 or at all, relying on Glencore International AG v Alpina Insurance Co Ltd:13
Under a contract of this kind making declarations in arrears does not give rise to any difficulty in relation to transits because the insurance is obligatory on both sides. Accordingly, even if the insured fails to declare a shipment it is covered: see Glencore International AG v Ryan [2001] EWCA Civ 2051,
12 New Zealand Railways Corp v Fletcher Development and Construction Ltd (1990) 1 NZ ConvC 190,464 (CA) at 190,467.
13 Glencore International AG v Alpina Insurance Co Ltd [2003] EWHC 2792, [2004] 1 All ER (Comm) 766 at [263].
[2002] 1 Lloyd’s Rep 574. Declarations simply provide the insurer with information about the risks that have already attached to the cover in accordance with its terms.
[79] Ms Davies submitted that the combined effect of the terms regarding declarations was to create a promissory warranty under s 34, breach of which entitles insurers to escape liability for loss, relying on Union Insurance Society of Canton Ltd v George Wills & Co:14
In the present policy the assured undertakes to do a particular thing, namely, to make a declaration as soon as possible after the sailing of a vessel, and the question is whether this undertaking amounts to a warranty. An express warranty may be in any form of words from which the intention to warrant can be inferred.
The policy is an open or floating policy under which the liability of the insurers in the first instance attaches before the sailing of the vessel, and therefore at a time before the declaration of interest is due to be made. … A condition, however, is not the less a warranty because it is a condition subsequent, and unless such a subsequent condition is complied with at the time when its performance is due under the contract, the insurer is discharged from liability as from the date of the breach. …
In the present policy the word “warranty” is not used, but their Lordships are of opinion that, on the construction of the contract as a whole, the parties did intend that the promise to make a declaration as soon as possible after sailing of the vessel should be a warranty, and that, in the events that have happened, there is no liability upon the insurers. There is no difficulty in construing the terms of the promise which the assured have made, and there is no question that this promise has not been complied with. The object of the promise is to protect the interests of the insurer. The question arises whether this object is so material to the risk, and has such a material bearing on the bargain, that it forms a substantive condition of the contract, as contrasted with a collateral stipulation for the breach of which damages—if they could be proved—might be claimed by cross-action or by way of counter-claim. If evidence is necessary, the underwriter of the appellants in London, whose evidence was taken on commission, states that the insurers can only arrive at their line of insurances if the declarations of interest are promptly made, and that this information is required to enable insurers to regulate what line they wish to keep, and what amount they may desire to re-insure, and that the amount of line varies very much by particular vessels. … It appears to their Lordships that the declaration did directly affect the question of re-insurance, and in this respect was clearly material to the risk and constituted a substantive condition of the contract.
[80] Here too, the issue is whether the promise to declare by the Assured is a warranty, as that word is used and understood in the law of marine insurance, or a
14 Union Insurance Society of Canton Ltd v George Wills & Co [1916] AC 281 (PC).
collateral stipulation, the breach of which would not avoid the contract, but would only found a right to bring a cross-action, or to counterclaim, for damages.
[81]Section 34 of the Marine Insurance Act 1908 provides:
34 Nature of warranty
(1)A warranty, in the following sections relating to warranties, means a promissory warranty—that is to say, a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he or she affirms or negatives the existence of a particular state of facts.
(2)A warranty may be express or implied.
(3)A warranty as above defined is a condition which must be exactly complied with, whether material to the risk or not. If it is not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him or her before that date.
[82] While the requirement to declare is in the Premium clause in the policy schedule, that does not mean it lacks prominence. The different parts of the policy are to be read together. The clause is not labelled a warranty but, as s 36 makes clear, the intention to warrant may be inferred.
[83] Given the effect of a warranty, Mr Napier emphasised that the courts apply the strictest construction to the relevant term, contrary to the party relying on it.15 The clause requires declaration of “the number of vehicles” received into pre-shipment holding yard during the preceding month, as opposed to details of each insured vehicle. That aligns with the declaration being for the calculation of premium.
[84] But in the context of an open marine policy where cover could attach on the basis of a standing order before insurers knew the number of vehicles, the monthly declaration as to the number of vehicles received the preceding month was important. Here too, it was relevant to reinsurance.
15 Australian and New Zealand Insurance Commentary (online looseleaf ed, Wolters Kluwer) at [13-310].
[85] This requirement to declare the number of vehicles is reinforced by the Bound to Declare clause in the policy wording:
Bound to Declare Clause
It is a condition of the Policy that the Assured is bound to declare hereunder each and every shipment or sending or risk without exception falling within the terms of the Policy whether arrived or not, the Insurer being bound to accept same up to but not exceeding the Policy Limits.
[86] The Bound to Declare clause focuses more specifically on the requirement to declare “each and every shipment or sending or risk without exception falling within the terms of the Policy”. Particularly where there were standing orders, insurers would only receive declaration of each and every vehicle risk when they received the monthly declaration. Past failures to declare were raised by insurers. In the circumstances, I accept Ms Davies’ submission that the combined effect of the terms regarding declarations was to create a promissory warranty under s 34.
[87] In the alternative, Mr Napier submitted that, if the requirement to declare is a warranty, then s 11 of the Insurance Law Reform Act 1977 applies because the loss for which the plaintiffs seek to be indemnified was not caused or contributed to by any failure to declare within the prescribed time. However, I accept Ms Davies’ submission that s 11 does not apply as the warranty is not an exclusion or limitation provision.16
[88] I consider there was a breach of warranty where the vehicle in issue was not included in the declaration in the month following the month in which it entered the pre-shipment holding yard. In the case of JDA’s vehicle, it entered the pre-shipment holding yard on 3 August 2018 and was omitted from the 12 September 2018 declaration in breach of warranty. It was only declared to insurers on 10 October 2018.
[89] As to whether the breach of warranty entitles insurers to escape liability for loss, s 34(3) provides that the insurer is discharged from liability from the date of the breach of warranty, but without prejudice to any liability incurred before that date. Mr Napier submitted that a breach of warranty does not excuse the insurer from
16 Insurance Law Reform Act 1977, s 11(a).
liability arising before the date of the breach. Ms Davies accepted that as a statement of general principle, but she submitted that does not assist the plaintiffs here since the insurers do not have liability on other grounds. I accept Ms Davies’ submission that, while cover attaches earlier under this open policy, it is subject to – that is liability only arises upon – a declaration in accordance with the policy terms. Unless a declaration conformed to the policy terms, no contract with the exporter would be formed.17
[90] It follows that in the case of JDA’s vehicle, liability in respect of the loss, which occurred on 4 September 2018, would only have arisen if the vehicle had been included in the 12 September 2018 declaration. It is therefore unnecessary to decide whether, as Ms Davies submitted, the pattern of dealing indicates ongoing breaches over the four year period the policy was in force.
[91] More generally, the plaintiffs are not entitled to cover for vehicles that were not included in the declaration in the month following the month in which they entered the pre-shipment holding yard. So this would exclude cover for vehicles which entered the pre-shipment holding yard in or before July 2018 but were only declared on 12 September 2018 and vehicles which entered the pre-shipment holding yard in or before August 2018 but were only declared on 10 October 2018.
[92] This is subject to the Errors & Omissions Clause, but that clause would only cure the unintentional omission of a vehicle from the relevant monthly declaration. JDA did not show that omitting its vehicle from the 12 September 2018 declaration was an unintentional omission.
Whether the plaintiffs are entitled to be indemnified in respect of damage to vehicles insured after they had been damaged
[93] Ms Davies submitted that a number of vehicles were purportedly insured after they had already been damaged.
17 Seavision Investments SA v Evenett (“The Tiburon”) [1990] 2 Lloyd’s Rep 418 (QB) at 422 per Steyn J.
[94] I have already addressed the need for a request for cover in the sense of a demonstrated intention to take insurance prior to attachment of risk. Where this did not occur (as in the case of NCL and Integrity), there is no cover – whether damage occurred before or after the vehicle was declared. It is unnecessary for insurers to rely on s 7(1) of the Marine Insurance Act 1908 or clause 11 of Institute Cargo Clauses (B) to avoid a right of recovery where the Assured was aware of the loss before taking out the insurance and insurers were not. If it were necessary, I would accept those provisions preclude a right of recovery where the Assured was aware of (or was wilfully blind to) the damage before taking out the insurance.
[95] But where there was a demonstrated intention to take insurance prior to attachment of risk in the form of a standing order (as in the case of JDA), cover attached when the Assured’s insurable interest first attached albeit that cover was subject to the subsequent declaration in accordance with the policy terms. If damage then occurred between cover attaching and a compliant monthly declaration, that does not mean the damage occurred prior to the taking of insurance.
Whether the plaintiffs’ delays in insuring and/or the act of insuring post-loss indicate lack of good faith
[96]Given my previous conclusions, it is unnecessary to consider this issue.
Conclusion
[97] For the separate reasons given, the plaintiffs are not entitled to the declarations sought:
(a)JDA’s standing order evidenced its intention to take insurance prior to the attachment of risk, but its only vehicle in issue was not declared to insurers in the 12 September 2018 declaration for vehicles which entered the pre-shipment holding yard in August 2018 in accordance with the terms of the policy;
(b)NCL’s arrangement did not sufficiently evince its intention to take insurance prior to the attachment of risk; and
(c)Integrity’s individual orders did not amount to an established course of dealing evincing an intention to take insurance prior to the attachment of risk.
[98] Counsel advised that the parties represented by the three plaintiffs were in the same position as their representative plaintiff, but I reserve leave if consequential issues arise.
[99] Finally, I note that, insofar as insurers have succeeded in avoiding cover on the basis that there was no intention to take insurance or no declaration in accordance with the policy terms, it was accepted that premiums will need to be refunded.
Result
[100]The plaintiffs’ claims for declarations are dismissed.
[101] The defendants are entitled to costs. If costs cannot be agreed, I will receive memoranda (not exceeding five pages) within 15 working days and determine costs on the papers.
Gault J
Solicitors:
Mr P J Napier, Keegan Alexander, Auckland Mr N Coyle, Solicitor, Auckland
Ms P Davies and Mr C Langstone, Fee Langstone, Auckland
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