Over-insurance of valued property

Patrick Bracher from Norton Rose Fulbright.

The English high court held that the substantial over-valuation of a superyacht covered for fire under a valued policy was a material non-disclosure entitling insurers to reject the claim.

The yacht had been valued for policy purposes at €13 million (the original purchase price in 2007) despite a 2009 valuation certificate putting the value at €7 million and an advertised sale of the yacht in 2011 for an asking price of €8 million.

The court accepted the insurer’s evidence that if they had known of the lower valuation of the vessel they would not have insured it for €13 million.

The insurers were therefore entitled to avoid the entire policy and did not have to pay even the actual value of €7 million. This, said the court, was a “blot on English insurance law” which will soon be remedied by the UK Insurance Act, 2015.

This decision is only relevant when there is a valued policy. In a non-valued policy, over-insurance would mean that the value at loss would be paid and the insurer would have had more premium than they deserved. In South Africa many have been crying out for a law that does not allow insurers to escape liability totally where there is a non-disclosure if a full disclosure would have led the underwriters to insure for a lesser amount rather than not at all.

This 80 page judgment deals with a number of other issues including misrepresentation and non-disclosure and breach of policy terms and brokers liability but most of it is specific to English and not South African law.

First published by Financial Institutions Legal Snapshot.