Scottish Court of Session Decisions

In this case William Hutchinson &Co., merchants, Newcastle-on-Tyne, sued the Aberdeen Sea Insurance Co. for the sum of £701, 16s. sterling, with interest at the rate of 5 per cent, per annum from 15th December 1874 till payment, being the amount of an insurance effected by the pursuers with the defenders on 3d December 1874 against the loss of the vessel “John George” on the voyage from the Tyne to Cronstadt or Wyburg, while there, and thence back to the east coast of Great Britain.

The circumstances in which the insurance was effected, and in which the pursuers now claimed, are sufficiently set forth by the Lord Ordinary in the following interlocutor, dated 19th November 1875:—

“The Lord Ordinary, &c… finds in point of fact, Primo, That by policy of insurance dated 3d September 1874 the pursuers Messrs William Hutchinson & Co., who were part owners of the vessel ‘John George,’ in name of themselves and the other owners, effected through Messrs John and Robert Catto, shipbrokers, Aberdeen, an insurance against the loss of the said vessel at and from the Tyne to Cronstadt or Wyburg, while there, and thence back to the east coast of Great Britain, and that the said vessel was underwritten by the defenders in various sums, making up in all the sum of £725: Secundo, That thereafter the ‘John George' proceeded to Cronstadt, and thence sailed for Leith; that during the voyage a severe gale arose, in consequence of which the ‘John George’ was on the 9th of December 1874, driven ashore on the coast of Northumberland, and became a total wreck: Tertio, That the pursuers then claimed from the defenders, as underwriters, the sum of £701, 16s. as the amount due under said policy, but that the defenders have declined to make any payment under the policy, in respect that material facts were concealed from them by the pursuers at the time the insurance was effected: Quarto, That in April 1873 the pursuers, through said John and Robert Catto, had effected in Aberdeen a previous insurance on the ‘John George,’ and that the pursuers on that occasion, through the said Messrs Catto, informed the underwriters that the said vessel was registered at South Shields, and referred them to the French Bureau Veritas, which corresponds to the Lloyds Registry in England, in which the ‘John George’ was entered as an English ship, registered at South Shields as having been built at Sunderland in 1837, and as standing in April 1873 as having been classed in 1872 of the second class for two years: Quinto, That in the French Bureau Veritas current at the date of the policy sued on, the ‘John George' still stood as a British ship, and of the same class as at the date of the former policy in April 1873; and that the defenders—nine of whom had been underwriters in the previous policy in 1873—all became underwriters on the policy sued on, in the belief that the ‘John George’ was a registered British ship, and that no information to the contrary was ever communicated by the pursuers to Messrs Catto, or reached any of the underwriters: Sexto, That prior to the 28th July 1874 the ‘John George' had been transferred to a Belgian owner by a fictitious sale and mortgage, effected by James Primrose Lindsay, then the managing owner and principal part owner of said vessel, and that said vessel was on said date registered in Belgium as a Belgian vessel, and continued so registered at the date of the wreck, and that the British registry of said vessel was closed on 25th August 1874: Septimo, That the said transfer of ownership and change of registry were effected for the purpose of excluding the ‘John George' from the operation of the Merchant Shipping Act of 1873, which empowered the Board of Trade to inspect and detain British vessels which were believed to be unseaworthy: Octavo, That such inspection by the officers of the Board of Trade is calculated to afford, and does afford, protection to underwriters in policies of insurance on British vessels for a single voyage, effected without any special survey on behalf of the underwriters: Nono, That the facts of the transfer of the ownership of the vessel and change of registry, were, or ought to have been, within the knowledge

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of the pursuers at the date of their effecting the policy of insurance sued on, and were not made known by them to the defenders: Decimo, That the said transfer of the vessel and change of flag were material facts, the knowledge of which would have materially influenced the underwriters in determining. Whether to accept or decline the insurance when proposed, and the amount of .premium to be charged if the risk were accepted, and that it would have been reasonable in them to have been so influenced: Therefore, and in point of law, finds that the policy sued on is void in respect of the foresaid concealment of material facts, and that the pursuers are not entitled to recover the sums insured by the policy; but finds, in respect of the minute for the defenders, No. 86 of process, that the defenders are willing to repay to the pursuers the premium paid by them on said policy, which amounts to £45, 17s. 6d.: Decerns against the defenders for payment of the said sum accordingly: Quoad ultra assoilzies the defenders, and decerns, &c.

Note—The findings in the foregoing interlocutor so fully set forth the grounds of judgment as to render it unnecessary to enter into much detailed explanation in this note.

The law applicable to such cases is stated thus by Arnold, vol. i. p. 511,—‘It is the duty of the assured to communicate to the underwriters all the intelligence he has that may affect the mind of the underwriter as to either of the two following points:—(1) Whether he will take the risk at all; (2) At what premium he will take it.

‘This is a duty attaching at the time of effecting the insurance, and not at all dependent on subsequent events, for the effect of a concealment on the policy is determined not by its eventual relation to the risk, but with reference to its immediate influence on the judgment of the underwriter. For so is the law, that were the intelligence concealed to turn out to be wholly unfounded, or the loss to arise from a cause totally unconnected with the fact concealed, the policy is nevertheless void.’

And on the same point Parson says, vol. i. p. 469,—‘If it is proved that material facts are not disclosed, it is not always necessary to constitute a concealment that these facts were actually known to the assured. It is enough if he might . have known them and ought to have known them; for it is certainly his duty to use all customary and reasonable means to acquire all the information which it is his duty to impart. And this means all the information which the insurer ought to have in making his bargain, and which he may reasonably believe the insured possesses. ‘“In dealing with cases like the present, the questions whether there was concealment from the underwriters, and whether the facts concealed were material, that is to say, whether everything was disclosed which would affect the judgment of a rational underwriter, governing himself by the principles and calculations on which underwriters do in practice act, are proper jury questions to be decided on the evidence adduced. See Parson on Insurance, vol. i. p. 495, as referred to in the judgment of the Court of Queen's Bench in loindes v. Pender, 27th May 1874, 9 Law Beports, p. 539. It appears to me to be in this case clearly proved that the underwriters believed and entered into the policy of September 1874 in the belief that the ‘John George’ was then a British registered ship, which she undoubtedly was at the date of a former policy effected through the same brokers, and with substantially the same underwriters, in April 1873. It is also proved that James Primrose Lindsay, who was in July, August, and September 1874 the principal owner of the vessel, by means of a nominal sale to a person in Belgium of the name of Watson, and by a mortgage granted by Watson in his favour, so arranged matters that the ‘John George' became ostensibly the property of a Belgian owner, and was registered in the Belgian registry as a Belgian ship. All this was done by the 28th of July 1874. It is also proved that the change of ownership and flag was made expressly for the purpose of exempting the vessel from inspection by Board of Trade surveyors under the powers of the Merchant Shipping Act of 1873. The result of such inspection has been that very many ships have been prevented from sailing on the ground of being unseaworthy, and until they were not merely made barely seaworthy, but received such additional fittings and repairs as greatly to conduce to their safety on the voyage.

The pursuer William Hutchinson, who is the sole partner of the firm of William Hutchinson &Co., and who effected the insurance, was a part owner of the vessel, and although he said in his examination that at the time he effected the insurance he was not aware that the flag had been changed, he yet admitted—‘I had heard it mentioned by Mr J. P. Lindsay that he had some idea of putting her under the Belgian flag, but I never knew positively that it had been done. I took no interest in the matter, but left it entirely in Mr Lindsay's hands.’ Now, it appears to me that if the change of flag was a material circumstance in the case, the pursuers were bound to have made themselves aware of it before effecting the insurance. Although Lindsay was the managing owner, and managed the vessel on behalf of himself and the other owners, the pursuers were entrusted with the duty of effecting the insurance of the vessel for behoof of all the owners, and it was clearly their duty to ascertain definitely before effecting it whether the managing owner's previously expressed intention of placing the vessel under the Belgian flag had been carried out, and to communicate the change to the underwriters.

This being so, the next question is, Was the change of ownership and flag material? Several underwriters were examined by the pursuers for the purpose of showing that, according to the practice of underwriters change of flag made no difference in the risk. But most of these witnesses concurred in saying that vessels under the foreign flag were very rarely insured in this country, and that most of the risks which they were in the habit of underwriting on British ships were on yearly policies, running from February to February, and that in taking the risk they were not guided by the vessel's class in Lloyd's Registry, or any foreign registry, but by an actual survey of each ship, made on behalf of the underwriters previous to effecting or renewing each insurance. Indeed, one of the pursuers' witnesses, Dugald M'Dugald, an insurance broker in Greenock, and agent there for the Union Marine Insurance Company of Liverpool, says that, while in the general case he does not consider the change of flag material, even if made

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just before the commencement of an insurance, he thinks it is a circumstance which ought to be communicated to the underwriter. He is asked—‘Would the knowledge of the change of flag having taken place shortly prior to September 1874 have suggested to your mind any reason for making inquiry?—(A) I would certainly have made more stringent inquiries, because the change of flag would have led me to understand that it had been made to escape the action of the Board of Trade. There was a great deal of change of flag about that time among vessels of all classes, but chiefly among low-classed vessels. (Q) You would have thought it reasonable in an underwriter, who had got information of the change of flag, to have made those more stringent inquiries to which you have alluded?—(A) I think it reasonable that the underwriter should have made inquiry. We rarely insured vessels sailing under a foreign flag, because we are rarely asked to do so; it is not generally done in Scotland. There is no other reason. The nationality of a vessel is not a material matter to be communicated to the underwriter. It is better to be communicated, but is not material. (Q) What do you mean when you say it is better to be communicated?—(A) The underwriter prefers to have all the circumstances of the risk set before him. (Q) Do you mean that the underwriter's mind would be affected by the knowledge of that fact?—(A) It might or it might not. (Q) And it would be reasonable to think his mind might be affected?—(A) It might be affected.’

It is intelligible, therefore, that while the Board of Trade inspection is a protection to underwriters insuring British vessels without making an actual survey of the vessel, such inspection may be of less advantage to underwriters who, like most of the pursuers' witnesses, grant time policies after actual survey for themselves. Now, the evidence for the defenders very clearly shews that in Aberdeen, and particularly in the case of policies for single voyages, the underwriters are not in use to accept foreign risks, and that they depend almost entirely upon the information as to the vessel communicated to them by the assured, or disclosed in the list of Llyods Registry, or in the French or other foreign lists. In such cases underwriters insuring vessels after the passing of the Merchant Shipping Act of 1873, considered, and were well entitled to consider, that the risk of insuring a vessel under the British flag without making a special survey was materially lessened, especially in the case of old vessels like the ‘John George,’ by the powers of inspection and detention given to the Board of Trade.

I think that the whole evidence leads to this result, that the circumstance of the flag being changed on the eve of the vessel sailing, and avowedly for the purpose of escaping the Board of Trade inspection, was a circumstance so material that it ought to have been disclosed to the underwriters before the policy was effected, and that the failure to disclose vitiates the policy.

It may be true, as the pursuers allege, that the Board of Trade inspection does not necessarily secure more than that the ship when she sails is seaworthy, and that as the defenders do not maintain that the ‘John George’ was unseaworthy when she sailed, and as positive proof of her seaworthiness has been adduced by the pursuers, the non-communication of the change of flag is not material. But I think that this argument ignores the principle laid down in the passage from Arnold already quoted, and which is also verly clearly stated in Marshall on Marine Insurance, p. 359 (ed. 1861), viz., that ‘concealment so vitiates the policy that it will afford the insured no remedy, even from a loss arising from a cause unconnected with the fact or circumstance concealed; for a concealment is to be considered not with reference to the event, but to its effect at the time of making the contract.’ It may therefore be quite true that even if the registry had not been changed, and if the vessel had been inspected by the Board of Trade, she would have been found seaworthy and allowed to sail—so that in point of fact the loss may not have been attributable to the want of inspection. But the question to be decided is, Whether or not the removal of this old and low-class vessel from the control of the Board of Trade on the eve of her leaving Great Britain, and shortly before the insurance was effected, would, if communicated, have influenced the mind of a rational underwriter in entering into the transaction? The import of the evidence is, in my opinion, that the facts, if disclosed, would have influenced the defenders, and have led them either to decline the risk altogether or to undertake it, if at all, at a higher rate than that to which they agreed; and I think it would have been reasonable in them to be so influenced.

On these grounds, I think the pursuers cannot recover under the policy sued on, which I hold to be vitiated by the concealment or non-disclosure of material facts, which were or ought to have been within the knowledge of the pursuers when they effected the policy. As, however, the defenders offer to return the premium paid by the pursuers, decree will be given in their favour for that sum. But as I do not think the pursuers are legally entitled to such return, the defenders will be assoilzied from the conclusions of the summons quoad ultra, with expenses.”

The pursuers reclaimed.

Argued for them—Board of Trade inspection could give the underwriters no more than guarantee of seaworthiness. Inspection might suggest certain things as desirable for the ship's safety, but unless absolutely unseaworthy, she could not be detained. The fact of seaworthiness was secured to the underwriters by warranty of insurers; therefore the change of nationality was of no importance to them.

Counsel for the respondents were not called upon.

Authorities cited— Harris, 3d June 1872, L. R., 7 Com. Pleas, p. 481; loindes, 9 L. R., Q. B. 539; Parson, vol. i. p. 494. .

At advising—