Scottish Court of Session Decisions

F. E. Harvey & Company, who acted as agents for Mr Francis Henwood, the owner of a vessel called the “Eunice,” employed Messrs Leitch, Gilchrist, & Aird, marine insurance brokers, Glasgow, to effect an insurance on that vessel. A policy of insurance was executed on the 23d May 1881. By it the vessel was insured for six calendar months, commencing with the 23d day of May 1881 and ending with the 22d day of November 1881, as employment might offer, in port and at sea, in docks and on ways, at all times and in all places whatsoever or wheresoever. The policy was a valued one, the vessel being valued at £2500.

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The premium of insurance was four guineas per cent. There was a special warranty, “No St Lawrence.” The vessel was chartered in April 1881 for a cargo of railway bridge materials, chiefly iron, and sailed from Middlesbro' on 30th May 1881 for Imbituba in Brazil, where she arrived on the 29th August, and off which port she became a total loss by perils of the sea on 13th September 1881.

The underwriters denied liability for the loss.

This was an action on the policy of insurance raised in the Sheriff Court of Lanarkshire by Harvey & Co. against H. L. Seligmann, one of their number, for payment of his share of the sum assured.

The defence was misrepresentation and undue concealment of facts material to the risk on the part of the assured or of those for whom he was responsible. The averments in support of this may be shortly stated as follows:—-On the 20th May 1881 when negotiations were in progress for the execution of the policy of insurance on the vessel, Mr Morton, the defender's broker, who was prohibited by the conditions of his employment with them from accepting any risk on wooden ships carrying iron cargoes, asked Mr Gilchrist, the pursuers' broker, on what voyage the vessel was intended to sail, and Mr Gilchrist replied that the vessel was going from Middlesbro' to Pernambuco with coals, and home with sugar. On the faith of these representations, Morton, on the defender's behalf, underwrote the risk at a premium of the rate of £4, 4s. per cent., and noted the representation in his insurance book at the same time. The same representation was made by Gilchrist to the other insurance brokers in Glasgow, who underwrote the vessel and her freight for the same period. The port of Imbituba (to which, as above narrated, the vessel sailed) was a dangerous open roadstead, where any vessel discharging cargo is obliged to ride at anchor without protection from storm or heavy sea. “The said representation made by Mr Gilchrist as to the intended voyage and cargo of the ‘Eunice’ related to material and essential facts affecting both the rate of premium and the taking of the risk. Farther, the concealment of the fact that the vessel was chartered to carry railway iron (which is a dangerous and trying cargo, especially for a wooden vessel) to a place like Imbituba from the knowledge of the defender's broker, was material in leading him to accept the risk. Although the policy was a time policy it was in reality only for the one voyage to the Brazils and home, said voyage usually taking about six months, and the negotiations were conducted on this footing. The cargo on the voyage and the port of destination were thus of the first importance in estimating the risk. If Mr Morton had known the true state of the facts he would not have taken the risk at any rate of premium, especially as it was one which he was precluded from accepting on behalf of the defender and his other underwriters. The said representations were made by the pursuers' broker in the knowledge that they were untrue, or at least were made recklessly and without due inquiry as to their truth, and for the purpose of inducing the defender's broker to accept the risk at the low rate of £4, 4s. per cent. premium, and the said material facts were concealed by him and by his principals, the present pursuers, with the same object.”

The pursuers denied that any such representations as were alleged had been made. They averred that Gilchrist did not at the date of the policy know the destination of the ship, and had only said that her previous voyage had been to Pernambuco with coals and home with sugar. Farther, they averred that Imbituba was a usual port of discharge.

The defender pleaded that he was entitled to absolvitor in respect of his having been induced to accept the risk on the faith of representations which were material thereto and were false in fact, and his having been induced to accept the risk through concealment on the part of the pursuers' broker of material facts.

A proof was taken, the import of which was as follows:—The “Eunice” had been chartered for Imbituba in April, but this had not been communicated to the pursuers or to Mr Gilchrist. All that they could have known was that the owner had been desirous of effecting a voyage policy to the coast of Brazil with liberty to call at any port. With regard to the alleged misrepresentations relating to the vessel's destination and cargo, the evidence was that of the conversation between Mr Gilchrist, acting on behalf of the pursuers and the underwriters, and was somewhat vague and conflicting. Mr Gilchrist deponed that it was not usual in a time policy to ask the probable employment of a vessel. All that he represented to the underwriters was his knowledge of the past employment of the vessel. He said that it was possible the vessel might take a cargo of coals to Pernambuco as she had done before, but made no positive representations of any sort. Mr Morton, the defender's broker, deponed that on Gilchrist's representations he made an entry of the risk in his book in the following terms:—“May 20th, L. ‘Eunice,’ 15, 1874. Six months from 23d May, £100 at four guineas…. Warranted no St Lawrence … To go from Middlesbro’, coals, Pernambuco, home sugar.” Mr Russell, one of the underwriters, made a similar entry after his meeting with Gilchrist. “(Q) With this memorandum in your book, would you think yourself off the risk if the vessel went to Bahia instead of Pernambuco, and for a time policy?—(A) I never had occasion to dispute a thing before. I considered I was taking this out to Pernambuco and home; but if you ask whether I would dispute it if she had gone to Bahia, I am not prepared to say that I would have disputed it. I am not in a position to say whether these memoranda are always strictly conformed to.” The underwriters examined deponed that in a time policy for so short a period as six months it was their custom to assume a special purpose for the employment during that period, and to make inquiries as to the voyage according, as if the policy were not a time policy. On this ground few special warranties were inserted in such policies.

The slip for insurance, as initialed by the underwriters, was “£2500 on hull, etc., valued at £2500, per ‘Eunice.’ For 6 calendar months from 23 May 81, both days inclusive, Greenwich mean time, in port and at sea, in docks and on ways, at all times and places. Prem. 4 gs. % f. c. & s. C/c. docking F. G. A. clauses. In favour of F. E. Harvey &Co., pro rata returns cancelling. Warranted no St Lawrence.”

It was proved that Imbituba was not a port known to Glasgow underwriters at the date of the policy. When it became known its reputation was bad, and one of the underwriters deponed that it was the “worst port in Brazil.”

The result of the proof did not show that there was any generally accepted understanding in trading circles that such a cargo as that which the “Eunice” carried was of such a dangerous nature that it was only to be carried in iron ships. On this point Mr Morton, though he described the cargo as exceptional and trying, deponed—“It is for underwriters to judge. Some people may hold the cargo was good, but if in my experience as an underwriter it is bad I would refuse it.” Another witness, Lees, deponed that the cargo was trying and might be “fully plenty.”

The Sheriff-Substitute ( Guthrie) pronounced the following interlocutor:—“Finds that the pursuers, acting for the owners of the barquantine ‘Eunice,’ for whose behoof they sue, insured that vessel for six months from 23d May 1881, conform to the policy upon which the defender is an underwriter to the amount of £50: Finds that the pursuers' broker represented at entering into said policy that the ‘Eunice’ was to sail to Pernambuco with coals and back with sugar: Finds that that voyage was such as to occupy the whole or the greater part of the period for which the insurance was made: Finds that, in fact, the ‘Eunice’ was at the date of the policy loaded with iron, and about to sail for Imbituba, a port in Brazil, where on 13th September 1881 she was totally lost: Finds that these representations were material to the risk, and were false: Finds, separatim, that the pursuers or their author, the owner of the ‘Eunice, concealed from the defender, as insurer, the material fact that the ‘Eunice,’ being a wooden vessel of 256 tons register, was entirely loaded with iron: Therefore assoilzies the defender from the prayer of the petition, and decerns”

Note.—… The question is, the defender, as underwriter upon a time policy on the ‘Eunice’ for six months from 23d May 1881, is entitled to have the policy voided upon the ground that it was represented to him that the vessel was to be employed on a voyage from Middlesbro’ to Pernambuco with coals and home with sugar, whereas she was loaded with iron, and chartered to Imbituba in Brazil, where she was lost; or, alternatively, on the ground that the pursuers concealed these facts, both the nature of the cargo and the destination being material to the risk?

“That the insuring brokers understood Mr Gilchrist, the pursuers' broker, to represent that the vessel was going to Pernambuco, is prima facie probable, from the entries which both Mr Morton and Mr Russell made in their books. Mr Morton further swears to the statement that the vessel was to be loaded with coals, and is corroborated by the entry in his books, and by Gilchrist's admission that he made such a representation with regard to the manner in which she had been employed previously, and that she might be so employed again. On the other hand, Mr Russell and Mr Spiers do not distinctly remember, and Mr Thomson, the first broker on the ship, is not called as a witness at all. It is probable, from the evidence and the productions, that Gilchrist was not fully informed as to the charter-party, but he knew from his correspondence with the owners or Messrs Harvey that she was going to Brazil, and Messrs Harvey, at least, knew that she was loading iron (not coals) at Middlesbro'. (Telegram, 4th May '81,). Upon the whole, I hardly think that much reliance can be placed on Mr Gilchrist's extremely indistinct recollection of what took place; and I am disposed to think that he did represent as the defenders aver.

“But even if there were no express representation, the defenders say that the concealment of the kind of cargo loaded and the destination is sufficient to void the policy. They say that such a cargo of iron as was carried was a dangerous cargo for the ‘Eunice,’ a wooden vessel, and that it materially increased the risk. They say also that Imbituba is a port formerly unknown, and now known to be an exposed and dangerous port. The pursuers contend that there was no obligation upon them, and that it is not usual to make such disclosures to insurers upon time policies, in which the insurers take the risk of any usual and reasonable employment within the period covered by the policy; and that time policies in this respect are to be broadly distinguished from voyage policies. In the nature of the thing there is undoubtedly a distinction of this description, for in a time policy, especially in one of the ordinary duration of twelve months, it is generally impossible for the insured to specify beforehand all the voyages to be undertaken. The policy is made for time just to obviate that necessity, and the insurer must be satisfied with a general representation as to the kind of trade to be engaged in, or may protect himself by inserting warranties in the policy. But the question whether certain facts represented or concealed by the insured are material to the risk may arise in regard to a time policy as well as a voyage policy, and in both it must be decided as a jury question, according to the evidence ( Stribley v. Imperial Marine Insurance Co., 1 QBD 507, 45 L.J., Q.B. 396), the only difference, so far as I can see, being that representations which are material in the one case may not be so in the other, having regard to the nature of the contract as a matter of fact. The rule is that all must be disclosed which would affect the judgment of a rational underwriter, governing himself by the principles and calculations on which underwriters do in practice act.—( Joindes v. Peuder, L.R., 9 Q.B. 531, 539, 43 L. J., Q.B. 227; Rivaz v. Gerussi Bros. & Co., 50 L.J., Q.B. 176). Now, whatever difficulty I might have had in determining the abstract question, whether in insuring by a policy for twelve months these facts as to cargo and destination ought to have been disclosed, is entirely removed by finding it clearly ascertained by evidence, which is virtually uncontradicted—(1) That in this case a six months’ policy for a voyage in the Brazilian trade hardly differs from a voyage policy, because the trade is so far defined by representations which are not in question that the insurance becomes really one for a voyage out to Brazil and home—that is to say, for a risk defined by certain known limits, and therefore presumably undertaken at a lower premium or upon easier conditions than it might otherwise have been; (2) That the cargo of iron was really an undue and excessive dead weight for a wooden vessel; so that the fact that the vessel was to be so loaded

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would have a serious effect upon the mind of an underwriter; and (3) That Imbituba is an open and dangerous port, and was in May 1881 an unknown port to Glasgow underwriters, who would not have insured a vessel chartered to it in May last without inquiring as to its character, but not that the pursuers had any special knowledge of this port which they withheld from the defenders. I am therefore of opinion, upon the matter of concealment, that the pursuers were not bound to inform the insurers that the vessel was chartered for Imbituba, as they are not shown to have been aware of any peculiarity of the port; and it would have been within the time policy if we assume that no special representation was made as to destination, beyond the general understanding that the vessel was trading to Brazil —( See Harrower v. Hutchinson, 39 L.J., Q.B. 229, where the judgment in error turned on the withholding of specific information possessed by the insured as to the character of a port)—but that he was bound to disclose the peculiar nature of the cargo, and having failed to do so, that the policy is void. It appears to me that the evidence distinctly shows that the nature of the cargo materially affected the risk, and ought to have been disclosed to an insurer under such a time policy as this. Not even the real pursuer, Mr Henwood, contradicts the evidence upon this point. I am further of opinion that, assuming the representations that the vessel was going to Pernambuco, and with coals, to have been made, both these representations were material to the risk, and not having been complied with, the underwriters are not bound.”

On appeal the Sheriff ( Clark) adhered.

The pursuers appealed, and argued—The underwriters were here liable for the loss under the policy. It was a time policy and not a voyage policy, and must be construed accordingly— vide Gibson v. Small, December 1852, 4 H. of L. Cases, p. 363, Lord Campbell's opinion, p. 422. In the former the insurers take the risk of any reasonable employment within the period covered by the policy, and it is not competent to bring evidence to contradict the exact terms of such a policy. To allow such evidence is just to destroy the distinctions well recognised between the two kinds of policy— vide Dudgeon v. Pembroke, February 1877, L.R., 2 App. Cases, 284. But assuming such evidence to be competent, there was no proof of any positive representation of any kind whatever made by the pursuers' broker to the underwriters. Their case merely depended on vague recollections of conversation and entries said to have been made on Gilchrist's representation. In any view, they must bring their case up to fraud, of which there was no evidence. In Rivaz v. Gerussi (cited infra) there was actual fraud; Stribley v. Imperial Marine Insurance Company (cited infra) is not in point. (2) On the question whether there was concealment of material facts—It was conceded that if the owner knew of an exceptional risk he was bound to disclose it, but there was no evidence to show that he did know of such, since the proof did not disclose any such knowledge in trading circles, or on the owner's part, of Imbituba being a dangerous roadstead, or iron being a very exceptionally dangerous cargo for a wooden ship to carry.

The defenders replied—(1) As matter of fact the proof discloses the alleged wilful misrepresentation and concealment of facts material to the risk; and (2) As matter of law—Anything abnormal or material to risk must be disclosed by the insured as affecting the premium in the policy, whatever the nature of the policy—Arnold's Marine Insurance, vol. i. 367; Stribley v. Imperial Marine Insurance Company, February 12, 1876, L.R., 1 Q.B. Div. 507; Joindes and Another v. Peuder, May 27, 1874, L.R., 9 Q.B. Div. p. 531; Rivaz v. Gerussi, November 19, 1880, L.R., 6 Q.B. Div. p. 222; Harrower and Others v. Hutchinson, June 17, 1870, L.J., 37 Q.B. 229; Anderson v. Pacific Fire and Marine Insurance Company, January 15, 1872, 7 L.R., C.P., p. 65, vide Justice Willes' opinion, p. 68; Carter v. Boehm, 1766, Lord Mansfield's opinion, 3 Barron's Reports, 1909.

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