Court finds summary judgment not suitable for determining issue of inducement

The Commercial Court in Kjaergaard v MS Amlin Insurance SE [2021] EWHC 2096 (Comm) found that the insured was not entitled to summary judgment on its claim for an indemnity from the defendant insurer in respect of damage to a yacht, where the insurer had a real prospect of showing that it had been induced to enter into the insurance policy by alleged misrepresentation or non-disclosure by the insured of his claims history.

Background

The Claimant, Mr Kjaergaard, took out an all risks insurance policy in early 2018 covering his luxury yacht (the Policy). The Policy was taken out through Y Yacht, a third party acting as both cover holder for the insurers and the Claimant's broker. The Policy was taken out in the name of Waldorf, being a company in which Mr Kjaergaard had an interest and that owned the yacht, although Mr Kjaergaard did indicate at the time that he might wish to take over the yacht himself in a personal capacity at a later date.

In the proposal form filled out by Mr Kjaergaard there were questions as to whether the yacht would be bareboat or skippered, and how many continuous years he had owned a boat without a claim. Mr Kjaergaard answered that the yacht would be skippered and then answered the question about prior claims on the basis of the skipper's experience, not his own or Waldorf's experience.

The Policy was issued for the period March 2018 – March 2019 covering private and pleasure and skippered charter. In January 2019, Mr Kjaergaard informed Y Yacht and insurers that the ownership of the vessel had passed from Waldorf to him in his personal capacity and stated it was purely for private use. The Policy was renewed in March 2019 on the same terms.

In October 2019, the yacht suffered substantial water damage while moored up in Spain and a claim was notified on the same day. In January 2020, the insurers purported to avoid liability on the basis that Mr Kjaergaard had materially misrepresented his claims history. It transpired that Mr Kjaergaard had made prior marine insurance claims in September 2013, March 2015, and December 2016. The insurers argued that Mr Kjaergaard had deliberately failed to make a fair presentation of the risk by answering the question in the proposal form about prior claims by reference to a skipper instead of himself.

The insurers added Y Yacht as a Part 20 defendant seeking an indemnity from Y Yacht as cover holder if they were found liable to Mr Kjaergaard. In its defence, Y Yacht pleaded that any failure to investigate or disclose Mr Kjaergaard's claims history was not causative of any loss because Y Yacht only had authority to write risks in the insurer's name if certain criteria were met; one of which was that the cover holder must refer the risk to insurers if the insured had more than one claim in the last three years. Y Yacht argued that even if it had elicited the claims history of Mr Kjaergarrd, it would not have been under an obligation to refer the risk to the insurers and the Policy would have been issued on the same terms as it was.

Mr Kjaergaard applied for summary judgment on the basis that, on the terms of Y Yacht's pleaded case, the insurers' inducement argument was unsustainable.  The insurers would need to prove that Y Yacht would have referred the risk to insurers and insurers would not have written it, or would have written it on different terms. Mr Kjaergaard argued that Y Yacht's pleaded case together with the fact that Y Yacht did not, in fact, ask any questions concerning his claim history and were essentially disinterested in the answers on the proposal form, meant there was no real prospect of the insurers' argument on inducement succeeding.

In response, the insurers argued that the application for summary judgment turned on contentions as to what Y Yacht would or would not have done and if insurers were to show that Y Yacht would have referred the risk to them, the question of whether the insurers would have refused the risk is a triable issue. The insurers argued that the question of inducement is a question of hypothetical fact or counterfactual and is inherently unsuitable for summary determination.

Decision

Mr Kjaergaard's application for summary judgment, which was made on the basis of inducement alone (and not whether there were material misrepresentations or non-disclosures), was refused.

The court noted that summary judgment is suitable for some cases, including to determine points of fact which are capable of being decided on the documents. However, in this case, the court did not consider that it could determine the factual question of inducement based only on a pleaded case and without the benefit of disclosure and witness evidence. The insurers' case had a real prospect of success and summary judgment was refused.

Comment

It is unsurprising that an application for summary judgment failed in circumstances where the issue in dispute – inducement – is a question of hypothetical fact or counterfactual. The court recognised the importance of evidence (documentary and witness) in understanding the insurer's decision making process in determining whether to write a policy and, if so, on what terms.