Marine insurance - non-disclosure

HELICOPTER RESOURCES PTY LTD & ANOR v SUN ALLIANCE

AUSTRALIA LIMITED & ORS*
Supreme Court of Victoria 26 March 1991
This was a claim on a policy of marine insurance over 4 helicopters
which were intended to be carried on the ship Icebird from Hobart to
the Antarctic base a t Casey. The helicopters had all sustained substan-
tial damage shortly after departure from Hobart. The underwriters
relied on non-disclosure and breaches of policy conditions. The plain-
tiffs also sued the broker who had arranged the cover.
The underwriters alleged, first, that there had been non-disclosure of
the fact that under the contract between the first plaintiff and the
Commonwealth of Australia to supply, charter and operate helicopters
for use by the Australian Antarctic Division there was an express
indemnity given to the Commonwealth relating to damage to the
aircraft during the period of charter. Secondly, it was alleged that it
had not been disclosed that the insured party, rather than the master
or the stevedore, would be responsible for securing and lashing the
helicopters on board the ship and that in fact the securing and lashing
were carried out by employees of the insured party. Thirdly, it was
alleged that the plaintiffs failed to disclose to the insurers that the risk
would involve helicopters being stowed and unstowed repeatedly at sea
and in varying weather conditions. Reliance was also placed on clause
4.3 of the Institute Cargo Clauses (A) relating to insufficiency or
unsuitability of packing or preparation of the insured subject matter
and on clause 5 of the same Clauses to the effect that the vessel was
unfit for the safe carriage of the cargo.
' In the event that any of the non-disclosure defences succeeded the
plaintiffs asserted that there had been a breach of duty of care by the
broker.
I. NON-DISCLOSURE
In so far as the indemnity which was given by the first plaintiff to
the Commonwealth of Australia was concerned, Ormiston J found that
there was no doubt that the clause in the charter pursuant to which an
indemnity was given to the Commonwealth had been drawn to the
attention of the broker. It was also passed on to another firm of

* Provided by Ebsworth & Ebsworth, Solicitors, Sydney.

 Helicopter Resources v Sun Alliance 39
brokers who arranged the hull covers for the helicopters. Ormiston J
found that Mr Miller of Marine & Aviation Management Services
Limited (MAMS), the agent for the pool of insurers who underwrote
25% of the marine policy, was not notified of the terms of the charter.
Ormiston J accepted the underwriters' submission that the fact that
the insured had no rights of recovery against the Commonwealth of
Australia was a matter which was material and should have been
disclosed to the underwriters. This effectively meant that the under-
writers' right of subrogation would be valueless and the insured would
"for all practical purposes be solely responsible for any damage in all
circumstances in which the Commonwealth might otherwise be held
responsible". The plaintiff sought to argue that, because Government
contracts contained such indemnities, this was a matter which the
underwriters might be presumed to have known. This argument relied
essentially on the fact that the quotation slip, which had been sent to
Mr Miller and which had been initialled by him, contained the words
"including waiver of subrogation, hold harmless and loss payee clauses
as expiring in respect of all joint assureds". Of critical significance in
rejecting that argument was his Honour's reliance on the fact that "in
the truncated list of joint assureds which he [Miller] saw, the Common-
wealth of Australia and the Department of Administrative Services
were omitted". Ormiston J was "not satisfied on the evidence that Mr
Miller came to know either the terms of the indemnities or the fact
that the Commonwealth of Australia was requested to be a joint
assured for the purpose of the 1988-1989 Aviation Policy".
It was also argued that the underwriters had waived their right to
have disclosed to them information relating to the relevant clauses in
the charterparty. This argument rested upon what was described by
the Judge as the "remarkably casual way in which the marine
department of MAMS approached the writing of this policy". This
argument was rejected by Ormiston J also on the basis that Mr Miller
had not been put on enquiry as to the existence of any such clauses
particularly as he was unaware of the fact that the Commonwealth
and the Department were intended assured parties. Ormiston J then
dealt with the question as to whether knowledge of those clauses was
"material". He confessed that when the matter was first raised he felt
the assertion by the underwriters that it was material was "somewhat
artificial". He referred to the fact, however, that the plaintiffs' and
broker's expert witnesses had asserted that those matters were not
material in reliance on the matters already discussed and rejected by
his Honour. He also noted that the plaintiffs' two principal expert
witnesses "conceded that, unless knowledge of the clauses could be
imputed to the insurers, they would be material and ought to have been
disclosed".
 (1991) 8 MLAANZ Journal - Part 2
As to the manner in which the helicopters were stowed and
unstowed, Ormiston J found that both the broker and Mr Miller were
aware broadly of the manner in which the helicopters were used in the
course of the Antarctic expeditions, and in particular of the fact that
they were unstowed and put into commission for the purpose of
reconnaissance and transport on the approach of the vessel to each
Antarctic base. However, he was not satisfied that either the broker or
Mr Miller knew anything of the detailed method by which the helicop-
ters were stowed either a t the beginning of each voyage in Hobart or in
the Antarctic, or of the precise method of unstowing during those
voyages. He was not satisfied that they were aware that the task of
lashing and unlashing the helicopters in the hold was, and would be,
performed only by members of the plaintiffs' air crew with no
assistance from stevedores or ship's crew and with minimal supervi-
sion by the master and boatswain.

Ormiston J found that there was a good deal of evidence which

supported the assertion that the air crew (the insured party's employ-
ees) "were more experienced and more familiar with the methods of
tying down helicopters ..." Notwithstanding that, he found that it was
material and should have been disclosed to underwriters that the
insured party's crew were so involved in the stowage operation. The
reason for this finding was also linked to the earlier finding in relation
to the existence of the indemnity clauses in the charterparty with the
Commonwealth of Australia. The fact that the insured party's crew
were involved in the stowage and lashing of the helicopters once again
limited the underwriters' rights of recovery against third parties in
circumstances such a s those in which the helicopters were damaged on
this occasion.

The third matter of non-disclosure related to the alleged repeated

stowings and unstowings of the helicopters a t sea. In finding against
underwriters on this issue, Ormiston J found that the policy of marine
insurance terminated when the helicopters were unlashed and com-
menced to be used for reconnaissance and transportation of passen-
gers, on the basis that they were no longer "in the ordinary course of
transit" within the meaning of clause 8 in the Institute Cargo Clauses.
Accordingly the only stowing and unstowing which underwriters could
point to as having been done "repeatedly a t sea and in varying weather
conditions" was that which took place when helicopters were taken to
one or two other bases and used for similar purposes and so restowed
for that part of the voyage. He found that those operations did not fall
within the description of "stowing and unstowing repeatedly a t sea and
in varying weather conditions".
 Helicopter Resources v Sun Alliance 41
11. INSUFFICIENCY O F PACKING
In relation to the defence of insufficiency of unsuitability of packing
or preparation Ormiston J ruled against the insurers. He found that the
exclusion contained in subclause 4.3 of the Institute Cargo Clauses was
directed "to those steps which are necessary to prepare the cargo for
the loading process, not to the very acts which result in the cargo being
stowed on board". The particulars of "insufficiency or unsuitability of
packing or preparation of the subject matter insured" relied upon by
the insurers had related to the manner of securing the cargo on the
vessel.
111. UNFITNESS OF VESSEL
As to the exclusion contained in clause 5 relating to the unfitness of
the vessel, which was particularised by the insurers as being the
insufficient number of pontoons to take 4 helicopters in the hold of the
vessel, Ormiston J again found against the insurers.
IV. BROKER'S LIABILITY
Having found that the underwriters were entitled to avoid the policy,
Ormiston J then went on to consider whether or not the broker was
liable to the insured parties for having failed to disclose those matters
which had been successfully relied upon by the underwriters as not
having been disclosed. Essentially, Ormiston J found that, in breach of
his duty to his client, the broker had taken no steps to inform Mr Miller
directly or indirectly of the existence of the clauses in the
charterparty. The Court found that there was no doubt that the broker
had been given the names of all joint assured parties and given
sufficient detail of the "waiver of subrogation" and "hold harmless"
clauses in the charterparties which he failed to pass on to Mr Miller. In
relation to the other ground of avoidance which the underwriters had
successfully relied upon, namely the stowage of the cargo by the
insured party's crew, Ormiston J found that the broker had no direct
knowledge of the method of stowing which he held should have been
disclosed to the insurers. Accordingly if the broker's duty was limited
to disclosing only that information of which he was directly aware, the
broker could not have any liability in relation to this aspect of the
underwriters' defence. Ormiston J however found that:
a reasonable broker, particularly one dealing in the complex wor!d of aviation
insurance must do more for his client. If his client may be a t risk of having his
insurance cover avoided for non-disclosure, the broker must have a duty to inform
himself of sufficient of the business activities of his client to carry out his duties
adequately and in particular to prevent the avoidance of liability under any policy
written. More especially is this the case in this field where no formal proposal
was made by the client. The broker cannot, of course, discover everything, but he
must attend to discover those elements in the activities of the client which might
put its cover in jeopardy.
42 (1991) 8 MLAANZ Journal - Part 2
Accordingly Ormiston J went on to conclude:
Nevertheless, in my opinion, if he had paid reasonable regard to his duties as a
marine broker, he ought to have been in a position to advise his clients as to those
matters which a marine insurer would wish to know, including any unusual
methods of despatching or stowing the cargo. In truth, this was a most unusual
"marine adventure" in the sense described in Sections 7 and 9 of the Marine
Insurance Act and in the ordinary connotation of that expression.
Thus the broker was held liable. It is of particular interest to note
the duties imposed on a broker in regard to his client's disclosure
obligations, especially in complex insurance.