ABN Amro Bank N.V. -v- Royal & Sun Alliance Insurance plc and others  EWHC 442 (Comm)
In a recent judgment handed down by the English Commercial Court on 26 February 2021, the Court has provided useful guidance in a number of areas of insurance law. In our latest blog, we focus on the court’s approach to interpreting certain terms of the insurance contract in question.
Dutch based ABN Amro Bank had taken out cargo insurance with a number of London based underwriters to finance commodities of cocoa products for its trader customers. This included cover for loss arising when the bank purchased commodities that it intended to resell but could not do so, thereby suffering loss of the premium.
The marine cargo policy was based on the usual “all risks” terms. Under the arrangements, the bank came to temporarily own the commodities. Two of the bank’s customers then defaulted on their obligation to repurchase the cocoa products. Following the defaults, the bank was left holding large quantities of cocoa products which were only worth a fraction of the value of the loan repayments due to them. The bank claimed an indemnity of GBP33.5m for the shortfall under the policy.
The bank relied on a bespoke clause in the cargo policy, the Transaction Premium Clause “TPC”, to argue that the bank was covered for amounts “that the Insured would otherwise have received and/or earned in the absence of a Default” by a customer.
The underwriters argued that the policy wording was restricted to cover the risk of physical loss and damage to the goods. According to the underwriters, the policies did not extend to the trade credit risk of customers failing to make repayments to the bank. The insurers raised alternative defences including that the policy had been induced by misrepresentation or non-disclosure.
The Court held in favour of the bank that the TPC covered risks unrelated to physical damage to the goods, including the risk that a borrower was unable to make the required repayments. It found that where parties have used unambiguous language the Court must apply it. This was especially the case given that the TPC was carefully drafted by the bank’s lawyers. The fact that the non-standard TPC had been included in the policy at the request of the bank made no difference.
The underwriters’ other defences in respect of non-disclosure of material facts and misrepresentation also failed. The policy could not be avoided due to an alleged failure by the brokers (on behalf of the bank) to disclose the existence of the TPC clause when placing the renewal. The TPC clause had been included in the slip policy wording which was put before and subscribed by the underwriters. The underwriters therefore either knew or were presumed to know the terms which they signed and to which they agreed. The defence of misrepresentation also failed because the underwriters were considered to have failed to maintain a reservation of rights in their correspondence with the insured. By doing so, the underwriters had affirmed the policy and lost their rights they may have had to avoid the policy on grounds of misrepresentation.
A copy of the judgment can be found here.