Commercial

Post-contract duty of utmost good faith - insurers' right to avoid insurance policy for insured's post-contract misrepresentation of material facts - insured's production of forged letter to contest interlocutory application not entitling insurers to avoid insurance policyK/S Merc-Scandia XXXX11 v Underwriters to Lloyd's Policy25T 1054 87 and others: QBD (Aikens J): 23 June 2000

In a previous action brought by the claimants against shipping repairers for damages for negligent repair works, the repairers' insurers conducted the defence.

The repairers produced a forged document to support an application to dispute the jurisdiction of the English court, but when the forgery was discovered the insurers declined to defend the claim and avoided the relevant insurance policies arguing breach of duty of good faith by the repairers.The claimants, having recovered a judgment against the repairers, brought the present action against the insurers to recover the judgment sum under the Third Party (Rights against Insurers) Act 1930.

The insurers contended that the production of the forged document had been to deceive the insurers and that they were entitled then to avoid the policies for breach of the obligation of utmost good faith.Richard Millet (instructed by Jackson Parton) for the claimants.

Andrew Lydiard (instructed by Clyde & Co) for the insurers.Held, giving judgment for the claimants, that the post-contract duty of utmost good faith was to refrain from a deliberate act or omission intended to deceive the insurers through misrepresentation or concealment of 'material' facts, but it did not apply to all facts deliberately misrepresented which did not affect a valid claim under the policy; that since the production by the repairers of the forged letter did not demand the insurers to assume any new or varied risk it was not a misrepresentation of 'material' facts; that there was no disciplinary element in the law of marine insurance in relation to post-contract conduct; and that, accordingly, the insurers were not entitled to avoid the policy.