England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		7th March 2003

Mr Justice Buckley:

Background.

1. On 15^th April 1997 Kenny Brennan went into Utopia Travel ("Utopia") in Barking Road, London and booked a holiday for himself and six other young men. He indicated that they would also pay for insurance. The group departed for Ayia Napa on 13^th July 1997. On 15^th July one member of the group, the 1^st Defendant (Mr South), was unfortunately involved in a serious accident. A jet ski which he had hired and was riding was in collision with another jet ski being ridden by the 2^nd Defendant (Mr Gardner) who was seriously injured. According to the manufacturers' material jet skis are known as Personal Watercraft. They may be likened to water-going motor bikes. Larger and more sophisticated models are available which are capable of carrying more than one person.
2. In June 2000 Mr Gardner issued proceedings against Mr South claiming damages in respect of his injuries. Those proceedings were served on Mr South on 10^th October 2000. This action was commenced on 20^th March 2002 and the Claimant ("Bankers"), which is the underwriter of Mr South's insurance policy, claims a declaration that it is not liable to indemnify him in respect of any liability he may have to Mr Gardner for the accident. Mr Gardner was added to this action as 2^nd Defendant on 25^th April 2002. By Order dated 25^th June 2002 Master Leslie stayed Mr Gardner's action against Mr South pending the trial of this action.
3. The Claimant and Mr Gardner were each represented before me by leading and junior Counsel. Mr South was to have been represented by junior Counsel, acting on a pro bono basis, but unfortunately he had to withdraw at the last minute, for reasons wholly unconnected with either this action or Mr South. He informed me, before I sat, that Mr South and his instructing solicitors were content to continue and simply follow and adopt submissions made on behalf of Mr Gardner. That was confirmed to me in open court by Miss Halliday of Travers Smith Braithwaite, Mr South's solicitors, who was content to remain in court throughout. In the particular circumstances, including that the real issues were legal and that Mr South's interests coincided with Mr Gardner's, I agreed and the trial proceeded.

The Facts.

4. Few, if any, of the material facts were in dispute. Mr South put in his witness statement and was briefly cross-examined by Mr Lynagh QC for Bankers. He confirmed that the insurance had been arranged by Mr Brennan who did the booking for the group; he had paid £18 for the insurance which Mr Brennan said he had obtained, but he never saw any documentation; he believed his brother, who was also in the group, had contacted their father after the accident and he had been to Utopia; he had taken no steps to inform anyone about the accident, he assumed Mr Gardner had his own insurance; he thought the matter was over until he was served with the papers in respect of Mr Gardner's claim in October 2000; despite seeing some solicitors in October 2000, he took no steps to inform anyone or pass on any documents or correspondence; by the time he consulted solicitors in October 2000, he believed he was not covered by insurance for jet skis or water sports, but couldn't now recall why he thought that; he received correspondence from Hextall Erskine, solicitors for Mr Gardner, recommending that he should report the matter to insurers, but did not know what to do for the best, so did nothing; finally, he wrote to Bankers making a claim on 27^th April 2001, having spoken to Hextall Erskine.
5. Most of that evidence is apparent from the documentation and I find it as a fact save that I was not satisfied that Mr South's father had reported the accident to Utopia.
6. I also heard from Michelle Perry and Martin Byron, travel consultant at Utopia and operations director with Assurant Group Limited (Assurant), respectively. Bankers is a subsidiary of Assurant.
7. Witness statements from Derek Ketteridge and Sarah Victory were read. Mr Ketteridge is a director of Ketteridge Group Limited (Ketteridge). It is a specialist in travel insurance and administers a number of schemes. Miss Victory is a claims manager with Ketteridge.
8. I accept their evidence, the main features of which were as follows:

- Ketteridge administers the Ketteridge Holidayguard Select Travel Insurance scheme which is underwritten by Bankers;

• Policies are sold through travel agents accepted on the scheme by Ketteridge, in this case it was Utopia;

• The wording of the policy is in a standard form widely used in the insurance industry;

• Ketteridge was first aware of the accident from Hextall Erskine's letter dated 23^rd November 2000;

• There was no record that Mr South, or anyone else, had reported the accident (I infer no one had);

• Ketteridge manages claims up to £5,000, above which it refers them to Bankers;

• Ketteridge exchanged a couple of letters with Hextall Erskine and referred the matter to Bankers by letter 2^nd January 2001 enclosing such correspondence as they had received;

• Bankers then instructed its solicitors CMS Cameron McKenna; if the matter had been notified promptly Ketteridge would have reacted in the same manner, in particular, once it became apparent that the insured or other interested party did not accept its view that Mr South was not covered, it would have referred the matter to Bankers;

• Bankers would not have investigated the accident until resolving the dispute over cover, even through court proceedings;

• Assuming the above had occurred, Bankers, through CMS Cameron McKenna, would have started to investigate the matter more than three years ago;

• Bankers has not presently investigated the matter save to ascertain that the Cypriot Police have statements from 14 individuals, including police officers, which they are not prepared to release without court order;

• The booking procedure at Utopia (and which I find was adopted in this case) was that a customer would be asked if he wanted travel insurance when booking a holiday and if he did, the insurance certificate would be issued when final payment was made which could be later or when the tickets were collected;

• The insurance certificates in this case indicate that the holiday was booked (by Mr Brennan) on 15^th April 1997 and that the two certificates were issued on 3^rd and 10^th May 1997. Miss Perry signed the certificates;

• The policy wording is available at Utopia's premises and is attached to the insurance certificate when it is issued;

• Miss Perry understood that jet skis were not covered and if asked would have said so. She also thought that the insurance would not be valid unless the wording was attached and it always was.

The Policy Wording

9. After the heading "HolidayGuard . . . . . ." on the policy wording it is stated that it is arranged through Ketteridge and underwritten by Bankers. The policy benefits are listed and include the usual travel benefits such as personal accident, medical expenses, loss of possessions and so forth and, of relevance to this matter, personal liability up to £2,000,000. Under the heading "Important Points To Note" there appears:

"Read your policy in full before you travel making sure you understand exactly what we will and will not pay for under each Section."

10. Under the heading "What To Do If You Wish To Claim" there appears under the sub-heading "Personal Liability":

"Full details of the circumstances giving rise to the claim plus any supporting evidence will required."

11. Under the heading "Conditions":

"We will act in good faith in all our dealings with you.

The payment of claims following the Events occurring in your selected Geographical Area during the period of cover is dependent on you

OBSERVING THE FOLLOWING

IN RESPECT OF ALL SECTIONS

. . . . . . . . . .

d) reporting in writing to us as soon as reasonably possible, full details of any incidents which may result in a claim under the policy

e) forwarding to us immediately upon receipt, every writ, summons, legal process or other communication in connection with the claim."

12. Under section 9 – Personal Liability:

"For each Person-Insured we will pay for the following Events Insured

Up to £2,000,000 including costs agreed between us in writing for which you are legally liable to pay, that relate to an event caused by you and which results in:

a. Injury . . . . . . of any person.

. . . . . . .

For each Person-Insured we will not pay for:

. . . . . . .

Compensation or other costs arising from accidents involving your ownership or possession of any:

. . . . . . .

Mechanically propelled vehicles and any trailers attached thereto, aircraft, motorised waterborne craft or sailing vessels or windsurfing."

The following issues arise:

Waterborne Craft

13. Mr Lynagh submitted that a jet ski was plainly a waterborne craft within the meaning of section 9 of the policy and thus the accident did not fall within the cover provided or more precisely was expressly excluded. He referred to the Shorter Oxford English Dictionary and various regulations and manufacturers' documents obtained from the internet, also Steedman v. Scofield [1992] 2 Lloyd's Rep. 163.
14. As to the material obtained from the internet, Mr Wyn Williams QC for Mr Gardner objected that it was produced late and in any event was not part of the factual matrix of this contract and thus irrelevant. He very fairly accepted that he was not prejudiced by the late production of the material. I do not regard it as decisive but it is, in my view, of relevance in that, in some measure, it illustrates the extent to which the word "craft" has been used in various contexts and thus its acquired meaning in ordinary usage. I therefore admitted the material. Mr Williams responded to Mr Lynagh's submission in two ways. First, he submitted a jet ski was not a craft. He referred to the Oxford English Dictionary and the general understanding of the word. Secondly, that if a jet ski was a craft the exclusion of it in section 9 was an unfair term within the meaning of the Unfair Terms in Consumer Contracts Regulations 1994 ("the 1994 Regulations"), the material parts of which are as follows:

Terms to Which These Regulations Apply

15. Regulation 3 provides:

"(1) Subject to the provisions of Schedule 1 these Regulations apply to any term in a contract included between a seller or supplier and a consumer where the said term has not been individually negotiated.

(2) Insofar as it is in plain, intelligible language, no assessment shall be made of the fairness of any term which –

(a) defines the main subject matter of the contract, or

(b) concerns the adequacy of the price or remuneration, as against the goods or services sold or supplied.

(3) For the purpose of these Regulations, a term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has not been able to influence the substance of the term.

Regulation 4 provides:

(1) In these Regulations, subject to paragraphs (2) and (3) below, "unfair term" means any term which contrary to the requirement of good faith causes a significant imbalance in the parties rights and obligations under the contract to the detriment of the consumer.

(2) An assessment of the unfair nature of the term shall be made taking into account the nature of the goods or services for which the contract was concluded and referring, as at the time of the conclusion of the contract, to all circumstances attending the conclusion of the contract and to all other terms of the contract or of another contract on which it is dependent."

16. For enlightenment on "good faith" and illustrations of "unfair terms" reference is made to Schedules 2 and 3.

Schedule 2

17. Assessment of good faith:

"In making an assessment of good faith, regard shall be had in particular to –

(a) the strength of the bargaining positions of the parties;

(b) . . . . . . . .

(c) . . . . . . . .

(d) the extent to which the seller or supplier has dealt fairly and equitably with the consumer."

Schedule 3

18. Illustrations of unfair terms:

"1. Terms which have the object or effect of:

. . . . . . . . .

(i) irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract.

19. Regulation 5

Consequence of inclusion of unfair terms in contracts:

"(1) An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer."

20. Regulation 6

Construction of written contracts:

"A seller or supplier shall ensure that any written term of a contract is expressed in plain, intelligible language, and if there is doubt about the meaning of a written term, the interpretation most favourable to the consumer shall prevail."

21. It was agreed that the insurance policy in this case was subject to those Regulations. It was also agreed that section 9 of the policy contained terms which "defined the main subject matter of the contract". Mr Williams, however, submitted it was not in "plain, intelligible language. . . ."
22. I did not obtain much assistance from the dictionary references albeit, the Shorter Oxford English Dictionary under the heading "personal watercraft" (chiefly US) refers to a jet ski. The Oxford English Dictionary does not mention a jet ski but refers to craft as applied to boats, ships and fishing requisites. It also refers to "vessels of all kinds for water carriage and transport" and "a small vessel or boat; any sailing or floating vessel."
23. The manufacturers' material refers to jet skis as "personal watercraft" and as "craft". A safety document which appears to be produced by some Cornish tourist agency also refers to jet skis as craft as do Guidelines for the Safe Operation of Beach Hired Pleasure Craft issued by the Maritime and Coastguard Agency. These guidelines refer to personal water craft (PWC) and include jet skis and wet bikes. A document headed Department of the Environment, Transport and the Regions Transport Statistics Great Britain: 2000 Edition includes under the heading Pleasure Craft a reference to jet skis (personal watercraft). A document produced by the Scout Association headed Personal Watercraft also refers to personal watercraft often being called jet skis and uses the word "craft" in general terms suggesting that it includes jet skis. All those documents were obtained from the internet and I have indicated how I approach them. I was referred to the Recreational Craft Regulations 1996. They contain no express reference to jet skis but the word "craft" is used liberally and in a fairly general sense. Finally, the Porthmadog Harbour Revision Order 1998 in its definition section refers to personal watercraft as being "any watercraft . . . . . . propelled by jet engine or other mechanical means of propulsion and steered either:

(a) by means of a handlebar-operated linkage system . . . .

(b) by the person or persons riding the craft using his or their body weight for the purpose; or

© by combination of the methods referred in (a) and (b) above."

That would clearly include a jet ski. These references provide some support for Mr. Lynagh's broad submission that the word "craft" is in common usage in a very broad sense which would include a jet ski. In Steedman v. Scofield Sheen J. held that a jet ski was not a boat nor was it a vessel or ship within the meaning of the Merchant Shipping Acts but Mr. Lynagh drew attention to various passages in which Sheen J. used the word "craft" in a broad sense which, he submitted, would comprehend a jet ski. Indeed, after quoting from advertising material which described a jet ski, Sheen J. posed the question "Is this craft, as the Defendants contend, a boat?" In reaching his conclusion in that case he referred to a decision of Roskill J., as he then was, in Dependable Marine Co. Ltd. v. Customs and Excise Commissioners [1965] 1 Lloyd's Rep. 550 in which Roskill J. had to decide whether a skicraft was a boat or other vessel large enough to carry human beings. The quotation from Roskill J.'s judgment includes numerous references to "this craft" or "a craft" used in a general sense, for example "accordingly this craft was not a boat or vessel . . . ." Mr Williams submitted that Sheen J. had been led into his general use of the word "craft" by the references to the manufacturers' publicity material. There may be some force in that submission but considering the judgment as a whole and also the quotation from Roskill J., it seems to me that both those judges, who were very experienced in such matters, were indeed using the word "craft" in a very general sense and one wide enough to comprehend a jet ski. I must endeavour to give the word "craft" its ordinary natural meaning as at the time of this contract, that is 1997, and as it is used in section 9. In particular, its immediate context which, as quoted above, is:

"mechanically propelled vehicles and any trailers attached thereto, aircraft, motorised waterborne craft or sailing vessels or windsurfing."

In my view that is plainly a description which comprehends a jet ski and one which would be so understood by any reasonable insured who troubled to read the policy wording.

24. As to Mr Williams' submission on the 1994 Regulations, I consider section 9 to be in "plain and intelligible language" thus pursuant to Regulation 3 (2) "no assessment shall be made of the fairness. . . . ." of the term. In any event I could see nothing unfair in this term, within the meaning of these Regulations. If I had been called upon to consider "unfairness" and, pursuant to Regulation 4 (2), I had had regard to the nature of the insurance contract and the circumstances attending its conclusion, I would have considered that Mr Brennan could have read the policy wording which I have found was available and could have asked Miss Perry whether it covered jet skis if he was in any doubt or even if he couldn't be bothered to read all the wording. This was a relatively cheap holiday or travel insurance and on the evidence I could detect nothing inappropriate let alone unfair in the circumstances attending its conclusion. Mr. Brennan was not called to give evidence nor was any witness statement from him available for me fairly to reach such a conclusion.

Possession

25. Mr Williams submitted that although Mr South could be said to have been in possession of a jet ski he had hired and was riding, nevertheless, the words:

"Compensation . . . . . arising from accidents involving your . . . . .possession of any:

. . . . . waterborne craft . . . . ."

were ambiguous.

26. He pointed out that accidents could arise from possession without use and that use and possession were different concepts and if "use" use was intended to be excluded the policy should clearly have said so. He referred to the appearance of the word use in the exclusion of land or buildings in the preceding wording as supporting his theme.
27. I cannot accept those submissions, presented as they were with Mr Williams' customary skill. I agree with Mr Lynagh that Mr South clearly had possession of the jet ski and the accident involved his possession of it. I do not think anyone reading the exclusion could reasonably doubt that it comprehended an accident while using a jet ski. The addition of use with reference to land or buildings is because it extends the exclusion to use by or on behalf of the insured other than temporary holiday or journey accommodation.
28. I therefore hold that the accident Mr South had while riding a jet ski was clearly excluded from the events covered by the policy and that the 1994 Regulations do not affect that conclusion. Those holdings are sufficient to determine this matter, but Counsel addressed various other issues arising from the section of the policy headed Conditions, which I should deal with in case I am wrong so far.

Conditions Precedent

29. Mr Lynagh submitted that sub-paragraphs (d) and (e), set out above, were conditions precedent to liability and since Mr South had manifestly failed to comply with either, Bankers should not be liable in any event.
30. Mr Williams submitted that the words do not drive one to the conclusion that compliance is a condition precedent to payment and that d and e should be regarded as innominate terms. Further, that since the effect of the breaches here was not significant, in that no real prejudice accrued to Bankers, it should remain liable to pay.
31. Both Counsel agreed that the fairness provisions of the 1994 Regulations applied to (d) and (e) and I agree. Mr Williams also submitted that any condition precedent, but certainly (d) and (e) which sought to exclude insurers liability to meet a claim notwithstanding that no prejudice had been caused by a breach was unfair. I was referred to Director General of Fair Trading v. First National Bank plc [2001] UKHL 52 and [2002] 1 AC 481.
32. In my judgment the introductory words under the heading Conditions are apt to constitute (d) and (e) conditions precedent to the liability of Bankers. That seems to me to be the plain and ordinary meaning of the words and to hold otherwise would involve a strained and unhelpful approach to construction of a document in common usage.
33. The subject matter of such clauses, namely, prompt notification of claims or matters which may result in claims, is obviously important to insurers. Thus appropriately worded clauses of this sort have been accepted by the courts as conditions precedent on many occasions. However, bearing in mind the drastic consequences of non-compliance an element of reasonableness has often been read into the permitted time stipulated for compliance. I was not referred to any case which has considered the question Mr Williams raises, as to whether such clauses are inherently unfair and thus not binding on the insured, as a result of the 1994 Regulations.
34. Clearly these clauses are important to insurers. Non-compliance by the insured can hopelessly prejudice the insurers' right of subrogation and chance of recovery from another party. Further, it is not asking a great deal of an insured to pass on information which he has or receives, to the insurer, at least within a reasonable time. On those considerations alone it would be difficult to say that such a clause causes "a significant imbalance in the parties rights and obligations under the contract to the detriment of the consumer." However, a breach by the insured may not prejudice the insurer. Even very late notification, may not necessarily cause difficulties. Thus these clauses may deprive an insured of the benefit for which he bargained or provide the insurer with a bonus, simply because the insured has transgressed procedurally, but without prejudice to the insurer. Provided such envisaged circumstances are not fanciful but may reasonably be contemplated and I think they can, it seems to me that it is appropriate to have them in mind when judging the term in question. By those criteria I would hold such clauses, including d and e, to be unfair as causing a significant imbalance in the party's obligations to the insured's detriment.
35. Thus we arrive at the interesting situation in which such a clause, construed as a condition precedent, is unfair pursuant to the 1994 Regulations and therefore not binding on the insured, notwithstanding it could be regarded as equally unfair for the insurer to be called upon to indemnify the insured, even if its position has been hopelessly prejudiced by the insured's inactivity. Two solutions seem to me to be available. The first, which I regard as unsatisfactory, would be to treat such clauses as innominate terms, however worded. The second, would be to hold that it is only that part of the clause denying recovery whatever the consequences of the breach, which is not binding on the insured. I regard this as consistent with the spirit, at least, of Regulation 5 (2):

"The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term."

36. The result would be the same whichever solution is adopted. I prefer the second because I do not favour false or strained constructions of clauses in contracts. To delete such a clause altogether would produce an unfair result for the insurer and would not be in accordance with the objective of the Regulations. Thus whether I am right or wrong in my construction of this clause, the question of the effect of Mr South's breaches of (d) and (e) arises.
37. If the accident had been notified promptly, the issue of cover would probably have been resolved, even by court proceedings, by late 1999. Thus investigations, if called for, could have begun over three years ago. Amongst the witness statements in the possession of the police are several from witnesses to the accident. This is just the sort of case in which memories will fade, albeit most dramatically in the months immediately following the accident. Some witnesses may now be hard or practically impossible to trace. Mr Williams, however, pointed out that even now Bankers had taken no steps to investigate, which is consistent with Mr Byron's evidence that it would not have done so at the time, at least not before the dispute over cover had been resolved. However, Mr Byron also said that the matter would have been referred to Cameron McKenna, assuming cover was contested, and Bankers would have followed their advice. I have no evidence from Cameron McKenna but I don't suppose they could now say with any certainty how they would have reacted in 1997. It is certainly possible that they would have advised that some prompt inquiries be made and steps taken to secure a nucleus of witness statements in order to protect Bankers' position should it be held on risk.
38. I was referred to McAlpine v. BAI (Run-off) [2000] Lloyd's Rep. 437 at 444 paragraph 34, where Waller LJ. said:

"Condition 1.(a). is however a innominate term. Breach of it, however serious, would be unlikely to amount to a repudiation of the whole contract of insurance. Furthermore, it is not a term the breach of which, or any breach of which, would entitle the insurer not to pay the claim because that would simply make it a condition precedent. But, in my view, a breach which demonstrated an intention not to continue to make a claim, or which has very serious consequences for BAI, should be such as to entitle BAI to defeat the claim. If a term is a condition precedent to liability, any breach defeats liability but does not lead to a repudiation of the whole contract. I see no reason why although a term is not a condition precedent so that any breach defeats liability, it cannot be construed as a term where a serious breach defeats liability."

39. Mr Lynagh submitted that Mr South's breaches of (d) and (e) had serious consequences for Bankers and/or manifested an intention not to make a claim.
40. The breaches of conditions (d) and (e) were manifestly serious from one point of view, namely, that Bankers received no notification of the accident in July 1997 nor any claim in respect of it before Hextall Erskine's letter dated 23^rd November 2000 to Ketteridge. Mr South himself made no claim on Bankers until his letter dated 27^th April 2001. Whilst it does not necessarily follow that such prolonged delay would have serious consequences for Bankers, the position here, as already mentioned, is that by the time the question of cover is resolved Bankers will have lost some three and a half years. On the evidence before me I draw the following inferences:

i. Some significant further fading of memories will have occurred;

ii. Some of the witnesses will probably be more difficult to trace and some will probably be unwilling to assist after so long.

41. Once Bankers had become aware of Mr Gardner's claim against Mr South as a result of Hextall Erskine's involvement for Mr Gardner, they referred the matter to Cameron McKenna who wrote two very fair letters to Mr South. Neither received any response, despite the reference in the second letter to Mr South not considering himself insured. That remark was as a result of information from Hextall Erskine. The lack of response to those two letters coming on top of the passage of almost three and a half years since the accident, in my judgment, demonstrates an intention on behalf of Mr South not to claim. Having seen the correspondence passing between the interested parties, I am satisfied that Mr South would not have made a claim on Bankers save for the perfectly proper and understandable encouragement to do so from Hextall Erskine. Whether they are acting directly for Mr Gardner or for any insurers he may have I know not, but it was clearly in their interests to persuade Mr South to notify Bankers and they manifestly succeeded in doing so. I intend no criticism at all of Hextall Erskine who acted entirely properly throughout. The fact that Mr South was persuaded to notify Bankers in those circumstances does not change the conclusion I have reached, nor does the fact that at some stage Bankers may have realised that Hextall Erskine would encourage Mr South to make a claim. The effective delay of over three years with the consequences I have described, is in my view serious for Bankers. I do not see why Bankers should, at the present time, be expected to run up further significant costs probably involving some legal procedures in order to obtain statements from the Cypriot police or endeavour to trace witnesses, until the question of cover is resolved. Thus I conclude that Bankers falls within both limbs of paragraph 34 of Waller LJ.'s judgment.

Waiver/Estoppel

42. Mr Williams submitted that the manifest breach of conditions (d) and (e) was waived and/or Bankers was estopped from relying on those conditions. He referred to the correspondence, but accepted that it was only that which arose before Cameron McKenna came on the scene for Bankers, that had that effect. He accepted that Cameron McKenna had effectively reserved Bankers' position on the policy. In view of the conclusions I have already reached I do not propose to refer in detail to the correspondence. It would need to demonstrate a sufficiently clear indication that Bankers was not intending to rely upon the Conditions section of the policy or some ground for holding it unfair for it to do so. The letters placed before me, in my judgment, come nowhere near justifying either conclusion.
43. Despite Mr Williams' attractive submissions this claim must succeed. I am grateful to both Counsel for their assistance.
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