Supreme Court rejects Japanese car exporters' insurance claims for typhoon damage

The court found that they breached the policy's warranty

Supreme Court rejects Japanese car exporters' insurance claims for typhoon damage

The Supreme Court recently dismissed an application for leave to appeal filed by Japanese car exporters who made a claim for typhoon damage in 2018 under a marine open cover insurance policy.

JDA Co., Nikkyo Co., and Integrity Exports Co. export cars from Japan. They obtained a marine open-cover insurance policy issued by AIG Insurance, Vero Insurance and IAG New Zealand. The policy required the insured to declare the number of units or motor vehicles received into their control at the specified pre-shipment holding yards. The insured notified an intermediary of the vehicles. The intermediary compiled monthly declarations for a broker, which calculated and invoiced the premiums. The insurer was temporarily at risk for as-yet-unidentified cars received into yards in the immediately preceding month before the declaration.

Typhoons Cimaron and Jebi struck Japan in 2018. An unusually large number of vehicles were nominated in the declarations relating to the months the typhoons struck. The insurers declined cover for certain claims. The insured sought declarations in the High Court that the insurers were liable for damage to their vehicles and, by declining cover, were in breach of the insurance contracts.

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The High Court found that the policy required the insured to show an intention to take insurance. According to the court, notifying the intermediary was insufficient as it was not an agent of the insurers. The High Court further ruled that the policy's premium clause requiring monthly declaration to the insurer was a promissory warranty under the Marine Insurance Act, requiring strict compliance. The court found that the insured breached the warranty when a vehicle was not included in the declaration in the month following the month it entered the pre-shipment holding yard. The court also said that the insurers' liability arose only from a declaration compliant with the terms of the policy. The Court of Appeal upheld these conclusions.

The insured argued that the courts made fundamental errors of law and failed to address key arguments. They claimed that the courts made an error in construing the policy and should have found that the intermediary was the respondents' agent. They elevated the matter to the Supreme Court, which ultimately rejected their arguments and denied their request for leave to appeal.

The Supreme Court said that the proposed appeal would turn primarily on its unusual facts, including the insureds' calculated conduct in failing to notify acquisition and receipt into yards, enabling a selective approach to cover that the policy terms were designed to preclude. The court agreed with the lower courts' findings that non-notification in the month the vehicles entered the yard displayed a lack of intention to insure as at attachment risk.

The Supreme Court also found that the critical policy wording was "bespoke, distinctly negotiated and agreed." Its apparent purpose was to preclude the selection and late inclusion. The court also considered that the insured had insufficient prospects of success in their proposed argument on appeal that the premium clause was not a warranty under the Marine Insurance Act. The requirement to declare all vehicles received into the relevant yards during the preceding month is expressed in mandatory terms. The finding that it is a warranty is consistent with the policy scheme and its evidence of importance to the insurers.

Accordingly, the Supreme Court dismissed their application for leave to appeal.

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