Introduction
The courts are gradually working their way through various cases relating to the Insurance Act 2015, the latest being Delos Shipholding SA & Ors v Allianz Global Corporate and Speciality SE & Ors [2025] EWCA Civ 1019. Delos Shipholding is of general interest to non-shipping insurance contracts with regard to the scope of the duty of fair presentation and the determination of whether an insured has actual or constructive knowledge of material circumstances requiring disclosure.
Background
The appeal was brought by the insurers of a cargo ship, the “WIN WIN”, who denied liability under a war risk insurance policy on bases which included alleged breach of the duty of fair presentation under section 3 of the Insurance Act 2015 (the “Act”).
The owner of the vessel and policyholder for purposes of the insurance claim (the “Insured”) was a special purpose vehicle with a sole nominee director. At the time that the Insured renewed its policy, it did not disclose that serious criminal charges had been brought against the nominee director three months prior. The director maintained his innocence and the charges were ultimately discontinued.
It was the insurers’ case that – irrespective of the nominee director’s guilt or innocence – the fact of serious criminal charges being brought against the nominee director should have been disclosed at the time of the policy renewal. Failure to disclose was, the insurers argued, a breach of the duty of fair presentation.
The High Court found no breach of the duty of fair presentation and permission to appeal was granted for the Court of Appeal to consider, amongst other things, the proper application of section 3 of the Act and the duty of fair presentation.
Statutory Framework
The duty of fair presentation is set out in section 3(1) of the Act:
“Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk.”
The scope of disclosure required by the duty is set out in section 3(4):
“The disclosure required is…(a) disclosure of every material circumstance which the insured knows or ought to know; or (b) failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.”
Actual knowledge
According to section 4(3) of the Act, a company is deemed to know only that which is known by any member of its senior management or any person responsible for its insurance.
Section 4(8)(c) of the Act defines senior management as those having a significant role in decisions about how an entity’s activities are managed or organised.
Section 4(8)(b) defines persons responsible for an entity’s insurance as being those who participate in its procurement.
Constructive knowledge
According to section 4(6) of the Act, a company ought to know those material circumstances which would be revealed by a reasonable search.
Decision
The Court of Appeal ruled that the High Court had not erred when it found no breach of the duty of fair presentation by the Insured. Its decision turned on a finding that the nominee director did not form part of the Insured’s senior management and would not have known anything about the risk to be insured.
Senior management
While a director may normally be expected to be part of a company’s senior management, it is not a hard and fast rule. Whether or not a director is senior management for purposes of section 4(8)(c) of the Act is a question of fact.
Even where a company’s constitutive documents confer extensive powers on a nominee director, a director who exercises no independent judgment, makes no decisions and is contractually obliged to act on the instructions of the decisionmakers operating the underlying business is not part of its senior management for purposes of the Act.
The court rejected the argument that the Insured’s activities were purely administrative in nature and that the nominee director was a significant decisionmaker. The court found that the Insured’s activities included owning an asset and operating it for profit, which was done by decisionmakers who instructed the nominee director and were themselves the relevant senior management.
It was common cause that the nominee director was not involved in the procurement of the Insured’s coverage and was not a responsible person under section 4(8)(b).
Reasonable searches
Where a nominee director has no operational role or function regarding the trading of the Insured’s assets or its insurance, it may be concluded that such director would not have any knowledge about the risk to be insured.
Conducting reasonable searches within the meaning of section 4(6) of the Act does not require an insured to undertake the pointless exercise of making inquiries of a nominee director with no knowledge of the risk to be insured.
The question of what is required by a reasonable search is an objective one and it is reasonable to consider industry practice with respect to similarly situated insureds.
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