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Feasey v Sun Life Assurance

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Insurance - Reinsurance - Personal accident business - Liabilities of P & I club members for personal injury or death of person on or in relation to vessels entered with the club - Personal accident and illness masterlineslip policy paying fixed benefits in respect of death and permanent and temporary total disability of persons engaged on board vessels entered with club - Whether P &I club had insurable interest to protect by master lineslip - Whether fixed benefits payable under masterlineslip over-compensated club - Whether termination of authority to commit one reinsurer meant that other was committed for whole risk - Life Assurance Act 1774, s. 1, 3.
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  Feasey v Sun Life Assurance Co of Canada. [2003] EWCACiv 885Court of Appeal (Civil Division).Ward, Waller and Dyson LJJ.Judgment delivered 26 June 2003.  Insurance - Reinsurance - Personal accident business - Liabilities of P& I clubmembers for personal injury or death of person on or in relation to vesselsentered with the club - Personal accident and illness master lineslip policy paying fixed benefits in respect of death and permanent and temporary total disability of persons engaged on board vessels entered with club - Whether P& I club had insurable interest to protect by master lineslip - Whether fixed benefits payable under master lineslip over-compensated club - Whether termination of authority to commit one reinsurer meant that other was committed for whole risk - Life Assurance Act 1774, s. 1, 3. This was an appeal from the judgment of Langley J ([2002] EWHC 868(Comm); [2003] 2 CLC 936) deciding that Steamship Mutual UnderwritingAssociation (Bermuda) Ltd (‘Steamship’) had an insurable interest in relation toa contract of insurance made between it and syndicate 957, that in relation to thereinsurance of syndicate 957 by Sun Life Assurance Co of Canada (‘Sun Life’)and Phoenix Home Life Mutual Insurance Co (‘Phoenix’) there was no non-disclosure ormisrepresentation entitling Sun Life and Phoenix to avoid thereinsurance policy and that in relation to one period of the reinsurance CentaurUnderwriting Management Ltd (‘Centaur’) had purported to write the same forSun Life and Phoenix 50:50 when it had no authority to write forPhoenix.Syndicate 957 argued that Centaurhad written the same 100 percent forSunLife but the judge ruled against syndicate 957 on that issue. Steamship insured the liabilities of its members forpersonal injury ordeath.In about June 1995, ratherthan entering into a conventional reinsurance withsyndicate 957, Steamship and the syndicate entered into a personal accident andillness masterlineslip policy. The aim was to coverthe liability of Steamship toits members. Underthe masterlineslip the syndicate agreed to pay fixed benefitsto Steamship in respect of bodily injury and/orillness sustained by a person (‘ansrcinal person’) who was engaged in any capacity on board a vessel oroffshorerig entered by a memberwith Steamship. That masterlineslip was renewed fromtime to time. In particular, in about May 1998, it was renewed in respect of lossesoccurring on declarations attaching during three consecutive periods of 12months from 20 February 1997 and, later, in respect of losses occurring ondeclarations attaching during the period 20 February 2000 to 20 February 2001. 237 [2004] 1 CLC 237Commercial Law Cases  A BCDEFGH  Syndicate 957 reinsured its liability underthe masterlineslip. Thatreinsurance forthe years February 1998 to February 2000 was 50 percent withSun Life and 50 percent with Phoenix. That reinsurance was negotiated bybrokers acting forsyndicate 957 and Centaurwho were authorised at that stageto write forthose two companies in the above proportions. On 1 October1998Centaur’s authority to write new business forPhoenix ceased. The brokersnegotiated an extension of reinsurance with Centaurfora furtheryearon 29October1998. It was that negotiation which gave rise to the authority point andthe question whetherCentaurwas agreeing to take 100 percent forSun Life. The reinsurers sought to avoid the reinsurance foralleged non-disclosure andmisrepresentation and Sun Life took the point that Steamship had no ‘insurableinterest’in the lives and wellbeing of the srcinal persons, when entering into themasterlineslip forthe three years from February 1997 and after, so that theinsurance was illegal by virtue of s. 1 of the Life Assurance Act 1774.Alternatively Sun Life asserted that Steamship was seeking to claim more thanthe value of any insurable interest it had and was not permitted to do so byreason of s. 3 of the 1774 Act. The judge dismissed the misrepresentation and non-disclosure claims.Steamship and the syndicate honestly believed when the relevant covers wereagreed that the level of benefits had been set so as to eliminate any possibility of over-compensation forSteamship. Sun Life and Phoenix failed to establish therepresentations on which they relied, to the effect that the fixed benefits in themasterlineslip constituted ‘a realistic estimate’made by the syndicate of theaverage sums likely to be properly paid out by Steamship underthe club’s rulesforthe 1998 and following years, and that Steamship’s risk ‘had been carefullyand professionally appraised’by the underwriter. It also had not been shownthat that even if eitherrepresentation relied upon was made it orthey inducedthe reinsurers to write the business. The masterlineslip was not in breach of s.1of the 1774 Act since Steamship had a real and significant contingent economicinterest in the lives and well being of persons on vessels entered by members withit. There was no principle orreason why the law should strike down the masterlineslip as unlawful when it was accepted that in no sense did it amount togaming orwagering, was not suggested to be contrary to any otherpolicyconsideration and was not commercially objectionable. Since there was nogaming orwagering s. 3 of the 1774 Act had no application. The reinsurersappealed on the insurable interest issue and the syndicate appealed on theauthority issue.  Held  , dismissing the appeal on both issues:1. (PerWallerLJ) Asufficient interest was not demonstrated by showing thatthe policy was not a wagering contract. The question whetherthe contract of  238 Feasey v Sun Life[2004] 1 CLC© DSP Publishing Ltd[2004] 1 CLC 237  A BCDEFGH  insurance could be correctly described as ‘gaming orwagering’was a materialfactor. But the starting point was the question whetherthere was an interest notwhetherthe contract was one of gaming orwagering and the critical questionwas not whetherthe policy was a wagering contract but whetherthe disputedpolicy was an insurance made ‘on the life orlives of any person orpersons oronany otherevent orevents whatsoever’wherein Steamship had no interest. (Dalbyv India and London Life Assurance Co (1854) 15 CB 365 considered.)2. (PerWallerLJ) Following the amendment to s. 2 of the 1774 Act by s. 50 of the Insurance Companies Amendment Act 1973, Parliament must be taken notto have intended that s. 1 of the 1774 Act would make null and void an insuranceon lives of persons unidentified as at the date of the policy, but within adescription such as that given for‘srcinal persons’.3. (PerWallerLJ) In a life policy the date at which the insurable interest mustexist was the date of the taking out of the policy. Furthermore, that was the dateforvaluing the insurable interest. The value of an interest at the time of takingout the policy was assessed on the maximum pecuniary loss that the assuredcould sufferon the death of the life assured. (Dalby v India and London LifeAssurance Co (1854) 15 CB 365 and Hebdon v West (1863) 3 B & S 579considered.)4. (PerWallerLJ) The following principles could be derived from theauthorities: (i) It was from the terms of the policy that the subject of theinsurance must be ascertained. (ii) It was from all the surroundingcircumstances that the nature of an insured’s insurable interest must discovered.(iii) There was no hard and fast rule that because the nature of an insurableinterest related to a liability to compensate forloss, that insurable interest couldonly be covered by a liability policy ratherthan a policy insuring property orlife.(iv) The question whethera policy embraced the insurable interest intended tobe recovered was a question of construction. The subject orterms of the policymight be so specific as to force a court to hold that the policy failed to covertheinsurable interest, but a court would be reluctant so to hold. (v) It was not arequirement of property insurance that the insured must have a ‘legal orequitable’interest in the property as those terms were normally understood. Itwas sufficient fora sub-contractorto have a contract that related to the propertyand a potential liability fordamage to the property to have an insurable interestin the property. It was sufficient unders. 5 of the Marine Insurance Act 1906 fora person interested in a marine adventure to stand in a ‘legal orequitablerelation to the adventure’. That was intended to be a broad concept. (vi) In apolicy on life orlives the court should be searching forthe same broad concept.It might be that on an insurance of a specific identified life, it would be difficultto establish a ‘legal orequitable’relation without a pecuniary liability recognisedby law arising on the death of that particularperson. There was howeverno CAFeasey v Sun Life 239 [2004] 1 CLC 237Commercial Law Cases  A BCDEFGH  authority which dealt with a policy on many lives and overa substantial periodand where it could be seen that a pecuniary liability would arise by reference tothose lives and the intention was to coverthat legal liability. (vii) The interest inpolicies falling within s. 1 of the 1774 Act must exist at the time of entry into thepolicy, and be capable of pecuniary evaluation at that time. Applying thoseprinciples it was not an abuse of language to say that Steamship had an insurableinterest in the lives and wellbeing of srcinal persons as defined by the policy andno reason not to construe the subject of the policy as embracing that insurableinterest. Accordingly the judge was right that the policy was not in violation of s.1 of the 1774 Act. (PerDyson LJ) Authority did not compel the conclusion that,as a matterof law, an insurable interest in a contingency based on an insured’spotential liability forthat contingency could not be covered by a policy on lifeproperly framed so as to embrace that insurable interest and on that basis thedecision of the judge on the insurable interest issue should be upheld. (PerWardLJ dissenting) ‘Original person’meant anyone who suffered a bodily injury onboard orin relation to an owner’s vessel whetherornot the ownerwas liable innegligence to compensate him. The insurercould have no interest in the life of such a stranger. Adouble contingency – death/bodily injury and potentialliability therefor– was the subject matterof the insurance as described in thepolicy and Steamship did not have an insurable interest in it. The legalrelationship which could give rise to an insurable interest was the club rule thatthe club would indemnify the memberin respect of compensation paid by thememberin relation to that death orinjury. But that depended upon themember’s liability to compensate being established. Until that liability wasestablished, the death orinjury perse created no more than an expectation of disadvantage and, on the authorities, that was not enough to create an insurableinterest.5. (PerWallerLJ) The judge was right that the reinsurers had not shown thatSteamship was seeking to recoveran amount in excess of the value of the interestas at the date of the policy in breach of s. 3 of the 1774 Act. 6. The judge reached the right conclusion on the authority issue. It wasfallacious to argue that because Centaurno longerhad authority from Phoenixit must have committed Sun Life to the whole of the risk. It was not sufficient toestablish that Centaurhad such authority (which it did). It was necessary to seewhetherin fact it exercised that authority and Centaurdid not purport to bindSun Life to 100 percent cover. The following cases were referred to in the judgments:  Anderson v Morice (1875) 10 CP609; (1876) 1 App Cas 713.  Baker v Black Sea and Baltic General Insurance Co Ltd  [1996] LRLR 353 (CA). Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484 (QBD). 240 Feasey v Sun Life[2004] 1 CLC© DSP Publishing Ltd[2004] 1 CLC 237  A BCDEFGH

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Jul 24, 2017
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