Cometsambre v Lloyd's: Commercial Court allows insurer to avoid policy over undisclosed scrap metal fires

The Commercial Court has dismissed a claim by Belgian scrap metal dealer Cometsambre SA against its charterers' liability insurer, finding that the company breached its duty of fair presentation under the Insurance Act 2015 by failing to disclose a series of fires in its cargo before renewing cover in 2022.

Mr Justice Butcher handed down judgement following a five day trial concerning Cometsambre's claim for an indemnity after a serious fire aboard the chartered vessel Lowlands Mimosa in June 2022, which caused significant damage and gave rise to arbitration proceedings brought by the vessel's disponent owners. Lloyd's, whose risk was underwritten through coverholder AMICA, had declined the claim and purported to avoid the policy on the basis that Cometsambre ought to have disclosed five earlier fires, three on board chartered vessels and two in stockpiles at the Ghent quayside, occurring between May 2020 and October 2021, none of which had been reported to underwriters.

Cometsambre had originally presented its business to insurers in 2008 as involving clean, non-oily, non-hazardous scrap, of a type expected by industry specifications to carry a low fire risk. The judge accepted expert evidence that a prudent underwriter would have understood this to be a Group C cargo under the IMSBC Code, carrying a correspondingly modest risk profile, and rejected Cometsambre's contention that fires of this kind were an accepted and expected feature of the trade for which no accepted tolerance for flammable impurities had been established on the evidence.

Central to the judgement was the finding that the pattern of fires experienced by Cometsambre, five incidents in around eighteen months following twelve years without any vessel or quayside fire, represented precisely the kind of material change in risk profile that a prudent insurer would want to know about, regardless of whether any individual fire had given rise to a claim. The judge preferred the evidence of Lloyd's expert, a former senior marine underwriter, over that of Cometsambre's expert, whose relevant underwriting experience was considerably more limited, and found that the absence of a renewal questionnaire or updated risk information requests from AMICA did not amount to a waiver of the insured's disclosure obligations.

On inducement, the judge accepted the evidence of AMICA's managing director that he would not have renewed the policy on any terms had the fires been disclosed, notwithstanding the comparatively low premium involved. The judge treated with appropriate caution the general risk that underwriters may reconstruct their position defensively once a large claim has materialised, but found the witness's account consistent, credible, and supported by expert evidence as to how a hypothetical prudent underwriter would have responded to the same information. A comparison drawn by Cometsambre with AMICA's decision to continue insuring a different scrap exporter following two earlier fires was distinguished on the basis that those incidents had been promptly disclosed and investigated, allowing underwriters to satisfy themselves as to cargo quality at the time.

Having found that Cometsambre knew or ought to have known of the undisclosed fires, that they were material circumstances requiring disclosure under section 3 of the Insurance Act 2015, and that their disclosure would have caused underwriters to decline renewal altogether, the court held that Lloyd's was entitled to avoid the 2022 policy and return the premium paid. Cometsambre's claim was dismissed accordingly.