Marine insurance policies can either specify an agreed value or specify that a value be determined when a claim is made. A recent New Zealand case serves as a reminder of the importance of using correct terminology in an insurance policy, and of the need to check and understand the wording when the risk is placed.
In Vero Insurance NZ Limited v Posa (Unreported, High Court, Hamilton, Asher J, 6 August 2008) the question of whether a policy was for an agreed value arose in relation to a wider issue of material non-disclosure. In 2005 Mr Posa was storing a pleasurecraft at his home when it was destroyed by a fire. The origin of the fire was identified as a battery that was attached to the vessel's motor. The insurer investigated the incident and in doing so uncovered what it perceived as a degree of irregularity on the part of the assured. It declined the claim on a number of grounds. One of the grounds was for a failure to disclose material information at previous renewals of the policy; in particular, failing to tell the insurer about unsuccessful attempts to sell the vessel for less than the going market rate. Whether the disclosure was material in part turned on whether the policy was an agreed value policy.
Marine Insurance Act 1908
The case relied on the interpretation of the New Zealand Marine Insurance Act 1908 (MI Act). The New Zealand MI Act is in all material respects identical to the Australian and English Acts.
A marine policy may be valued or unvalued (in New Zealand see section 28(1) of the MI Act). A valued policy is one that sets out the agreed amount in advance, whereas an unvalued policy does not specify the value of the subject matter and leaves the insurable value to be subsequently ascertained (see section 29).
Section 28 of the New Zealand MI Act provides:
(2) A valued policy is a policy which specifies the agreed value of the subject-matter insured.
(3) Subject to the provisions of this Act, and in the absence of fraud, the value fixed by the policy is, as between the insurer and assured, conclusive of the insurable value of the subject intended to be insured, whether the loss is total or partial.
The Court's findings
In Posa, the insurer relied on the policy Schedule stating that the 'sum insured' was $105,000 and reference to an 'agreed value' in the policy definitions, as grounds for the policy being for an agreed amount. The following featured in the policy and supporting documents:
- The policy Schedule stated the 'sum insured' was for $105,000.
- The introductory paragraph of the policy stated that the 'total liability of the company shall not exceed the amount specified in the Schedule'.
- The definition of 'agreed value' stated: 'the agreed value would be used to help Vero measure the amount of the loss'.
- The Conditions provided Vero could settle up to the sum insured specified in the Schedule. In addition, if there was a total loss, Vero 'would not deduct for depreciation in determining the value of any property'.
Justice Asher disagreed with the position advanced by the insurer. Following the UK High Court in Thor Navigation Inc v Ingosstrakh Insurance Company  1 Lloyd's Rep 547, his Honour found insufficient intention to fix a value for the vessel on his interpretation of the policy terms.
The terms did no more than fix a maximum amount that could be paid out. It was explicit that the insurable value was still subject to determination at the date of the claim being made and accordingly the policy was held to be an unvalued policy.
As a result, the Court found the insurer's evidence as to materiality was of limited value. Justice Asher upheld the District Court Judge's finding of no material non-disclosure by the insured at renewal of the policy.
The lesson to take from this case is that if the parties intend for the policy to be a valued one, the language used must be clear. Using legal terms of art such as 'agreed value', 'fixed' or 'sum insured' may not be enough in themselves. Underwriters should therefore expressly refer to the policy being valued, and ensure other provisions in the policy and supporting documents are consistent with this.
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