Englehart CTP (US) LLC v Lloyd’s Syndicate 1221 and others  EWHC 900 (Comm): all risks marine cargo insurance and fraud on the insured
After being provided with fraudulent bills of lading for a shipment of non-existent copper ingots, Englehart’s attempt to recover its losses under an all risks Marine Cargo and Storage policy was rejected by the Court on the basis that the alleged damage was economic loss to which an all risks cargo insurance policy did not respond.
THE AGREED FACTS
For the purposes of a construction summons under Part 8 of the Civil Procedure Rules, the parties agreed the following facts (among others).
Pursuant to a contract of sale between Englehart CPT (US) LLC (“Englehart”) and the seller World Gold International Ltd (“World Gold”), packing lists, quality certificates and bills of lading were issued in respect of a cargo of 1,967.898 metric tonnes of copper ingots, said to be shipped in 102 containers from New York.
In good faith, Englehart paid World Gold for the cargo over three instalments in late September 2015.
However, on arrival in Hong Kong for transhipment, it was discovered that no copper ingots were in fact shipped in the containers. Indeed, no such cargo ever existed and the containers only ever contained slag of nominal commercial value. The bills of lading, packing lists and quality certificates were, therefore, fraudulent.
Englehart submitted a claim under its “Marine Cargo and Storage Insurance” policy dated 1 December 2014 (“the policy”). The policy was underwritten by the defendant members of Lloyd’s (and other members with whom Englehart settled without recourse to proceedings).
The policy included a number of general conditions, including the following:
… it is understood and agreed that in all cases, the most favourable conditions will benefit the Assured notwithstanding what is mentioned on the insurance certificate and/or insurance declaration.
There were then ten sections setting out specific insuring conditions for the commodities insured including oil products, coffee, sugar, metals and vegetable oils. The introduction to the commodity specific conditions recorded that the parties had “noted and agreed that unless otherwise declared the contrary, the broadest coverage shall apply”.
The policy also included a container clause which provided, in part:
It is agreed that this Insurance contract is also to pay for shortage of contents (meaning thereby the difference between the number of packages as per shippers and/or suppliers invoice and/or packing list loaded or alleged to have been laden in the container and/or trailer and/or vehicle load and the count of packages removed therefrom by the Assured and/or their agent at time of container emptying) notwithstanding that seals may appear intact, and/or any other loss and/or damage including but not limited to cargo and/or container sweat howsoever arising.
Finally, the policy provided fraudulent documents cover as follows:
This insurance contract covers physical loss of or damage to goods and/or merchandise insured hereunder through the acceptance by the Assured and/or Shippers of fraudulent documents of title, including but not limited to Bill(s) of Lading and/or Shipping Receipt(s) and/or Messenger Receipt(s) and/or shipping documents and/or Warehouse Receipts and/or other document(s) of title…
Englehart encouraged the Court to keep in mind, when construing the policy, the commercial context of all-risk policies where insurers charge substantial premiums for large, open cover. Englehart also pointed to the express provisions in the policy to the effect that the broadest possible coverage should apply and numerous instances where the policy terms were deliberately permissive.
More specifically, it was Englehart’s case that the agreed facts amounted to a “shortage” under the container clause pursuant to which insurers were bound to pay for the difference between what the packing list had stated and what was removed from the containers at the outturn. Further, Englehart submitted that the fraudulent documents clause made it clear that the policy responded to loss caused by the acceptance of fraudulent documents in the absence of goods.
Insurers resisted Englehart’s claim for a declaration, arguing that the policy did not cover loss resulting from the acceptance of fraudulent documents for non-existent cargo.
Sir Ross Cranston, sitting as a judge of the High Court, rejected Englehart’s broad construction of the policy:
- First, the Court accepted the insurers’ submission that the alleged losses were economic losses due to the acceptance of fraudulent documents in the expectation that they covered physical goods.
- Second, the judge took a different view from Englehart as to the wider context in which to interpret the policy. Citing authority and leading textbooks, Sir Ross Cranston concluded that all risks marine cargo insurance was generally to be construed as covering only losses flowing from physical loss or damage to goods, subject to clear words indicating a broader intention.
- Third, the policy as a whole did not displace the presumption against cover for pure economic loss. Indeed, in the judge’s view, much of the policy was redolent of cover for loss of or damage to physical goods alone – and on the agreed facts, there never had been physical goods to lose or damage.
- Turning to Englehart’s submission that the alleged loss fell under the container clause, Sir Ross Cranston held that “shortage” should be given its ordinary meaning and could not cover a situation where there were no goods in the first place. Similarly, the fraudulent documents clause expressly (and exclusively) responded to “physical loss of or damage to” goods through acceptance of dishonest documents.
Englehart’s proposed construction of the policy was, on any view, boldly purposive. It is perhaps of no great surprise that Sir Ross Cranston’s judgment – which cited various recent reminders from the Supreme Court that interpreting a written contract is in the first instance a textual exercise – emphasised the ordinary meaning of expressions such as “shortage” and “physical loss of or damage to”.
Accordingly, insureds and their brokers should note that general statements in all-risk insurance policies which purport to describe the nature of the coverage provided in broad terms are no substitute for specific provisions dealing with types of loss (such as pure economic loss) which are otherwise presumed to be excluded.