Valued and Unvalued Policies

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1 Valued and Unvalued Policies by Dr Nicholas G. Berketis

2 Valued Policy A policy which specifies the agreed valued of the subject-matter insured Marine Insurance Act (1906), Section 27(2)

3 Agreed value is conclusive 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 the assured, conclusive of the insurable value of the subject intended to be insured, whether the loss be total or partial Marine Insurance Act (1906), Section 27(3)

4 Excessive over-valuation n in the absence of fraud n Breach of utmost good faith n Non-disclosure of material fact

5 In the absence of fraud n The defence of fraud could be used to nullify an excessive agreed valuation; n If a Policy is tainted with fraud, the whole Policy, and not just the agreed valuation is at risk.

6 Breach of utmost good faith Blackburn, Low & Co v. Haslam (1888) The plaintiffs were Underwriters in Glasgow. They had insured a ship, which has become overdue. They therefore instructed an insurance broker to effect a reinsurance. Before the broker actually made the contract of reinsurance, he received independent information that the ship was lost. This was indeed the case. However, because the information was received in confidence, the broker failed to communicate the news either to his principals, or to the defendant reinsurer. The defendant refused to pay the Sum Insured, and the plaintiffs sued. The action was dismissed. The Policy was void on the ground of concealment of a material fact by the agent of the Assured.

7 Non-disclosure of material fact (1 / 3) n n Non-disclosure of excessive over-valuation Non-disclosure of additional insurance In Ionides v. Pender (1874) a Policy of STG 2,800 was taken out on goods valued at STG 2,800. The real value of the goods was only STG 970. This over-valuation was not disclosed by the Assured. It was held that on evidence, Underwriters consider it material to take into consideration whether the over-valuation is so great as to make the risk a speculative one. The lack of disclosure by the Assured on this matter therefore entitled Underwriters to avoid the Policy.

8 Non-disclosure of material fact (2 / 3) In Ionides v. Pender (1874) a Policy of STG 2,800 was taken out on goods valued at STG 2,800. The real value of the goods was only STG 970. This over-valuation was not disclosed by the Assured. It was held that on evidence, Underwriters consider it material to take into consideration whether the over-valuation is so great as to make the risk a speculative one. The lack of disclosure by the Assured on this matter therefore entitled Underwriters to avoid the Policy

9 Non-disclosure of material fact (3 / 3) In the Gunford Case (1925), the Assured, in addition to taking out a valued Policy on hull for STG 18,500 (the actual value was STG 9,000) and on freight for STG 5,500 (actual value of about STG 5,000) took out additional Policies in connection with the ship on disbursements for STG 6,500 and disbursements for STG 4,600 for cargo. It was held that there was a very large over-valuation which might well make a prudent underwriter hesitate both to to undertaking the risk and consider the premium which he should be required before doing so.

10 Unvalued Policies (1 / 2) A policy which does not specify the value of the subject-matter insured, but, subject to the limit of the sum insured, leaves the insurable value to be subsequently ascertained, in the manner hereinbefore specified Marine Insurance Act (1906), Section 28

11 Unvalued Policies (2 / 2) An unvalued Policy is one which does not specify the value of the insured subject-matter, but, in the event of loss, leaves the insurable value to be ascertained at a later date. The items which may legitimately be taken into account when calculating the insurable value of ships, cargoes or freight are laid down in Section 16 of the Marine Insurance Act For example, the insurable value of cargo is defined as the prime cost of the goods (prima facie the invoice cost) plus the shipping and insurance charges. Any claim under the Policy will of course be subject to the overall limit of the Sum Insured.

12 Sources n Gaskell, N. J. J., Debattista, C., Swatton, R. J., (1992), Chorley and Giles Shipping Law, Pitman. n Hodges, Susan, (2004), Law of Marine Insurance, Cavendish Publishing Limited.