Short and sweet: insurers responsible for banks’ cocoa product losses

ABN Amro Bank NV -v- Royal & Sun Alliance Insurance plc and others [2021] EWCA Civ 1789

The Court of Appeal ignored the insurers in their appeal against the commercial court’s finding that they were liable to the plaintiff bank, ABN Amro, for the losses it suffered as a result of the collapse two major players in the cocoa market.

In a judgment remarkable for its brevity – barely 26 pages compared to the first instance judgment of 263 pages – the Court of Appeal took only 5 paragraphs to set out the reasons for dismissing the appeal, holding that it just wasn’t ‘out of the ground’. It was, however, a sweet victory for the defendant broker, Edge, who succeeded in his appeal of the trial decision, with an earlier finding of liability against him, resulting from an estoppel by agreement, having been canceled.

The short first call

At first instance, the plaintiff bank, ABN Amro, succeeded in its claim for compensation under an insurance policy placed on the maritime market, invoking a clause the effect of which was to provide the equivalent to trade credit insurance. Such a clause was unusual as shipping policies generally provide compensation for physical loss and damage to cargo, and not for economic loss. However, the court found that the wording of the clause was clear and that it extended to losses suffered by the bank in the sale of the cargo.

The insurers appealed against this finding on the grounds that the judge should have interpreted the clause as providing only for the measure of compensation in the event of physical loss or damage to the cargo.

The Court of Appeal disagreed, initially finding that supplements to standard coverage for physical loss and damage were common in the market and, where there were clear words, could result in coverage. wider; and second, that the wording of the clause was clear and aimed to cover economic losses. The wording of the clause was that of a cover, not a measure of indemnity or a basis of valuation contingent on physical loss. Therefore, the bank’s losses incurred on the sale of the cargo, comprising various cocoa products, as a result of the default of its cocoa market player clients on their credit policies, were covered by the policy.

The sweet second call

At first instance, the broker had been declared liable to two of the defendant insurers, Ark and Advent, following a conclusion of estoppel by agreement. Ark and Advent had argued that they were prompted to draft the font following a statement that the renewed font was the same as the previous font. However, it was not in fact the same thing but included the clause in question providing for the coverage of trade credit. Neither Ark nor Advent read the policy and therefore were unaware of the inclusion of the clause. The statement that the policy was “at expiration” resulted in a treaty estoppel, meaning the bank could not invoke the clause against Ark and Advent, resulting in liability for the broker.

In appealing the conclusion of estoppel by agreement, the broker sought to argue that the terms of a non-avoidance clause in the policy, which provided that insurers would not seek to evade the policy or rejecting a claim on grounds of non-fraudulent misrepresentation was intended to prevent them from doing so. The Court of Appeal agreed, concluding that the statements “at the expiration” were non-fraudulent inaccurate statements and that as such, in accordance with the terms of the non-avoidance clause, insurers could not rely on them. to dismiss the claim. The trial judge was found to have erroneously focused on the “non-avoidance” aspect of the clause, overlooking the fact that it also prohibited the dismissal of a claim.

In sum

In light of what the Court of Appeal characterized as the “sound and complete” nature of the trial analysis on the interpretation of the clause, it is perhaps surprising that insurers sought to appeal, and certainly not surprisingly they were unsuccessful. Likewise, the broker’s first instance finding of liability was viewed by many as inconsistent with the rest of the judgment – not least because Ark and Advent were effectively released from their obligations due to their failure to read the terms of the judgment. police. As such, the conclusion is welcome on both counts, making it clear that, for better or worse, the parties will be bound by the terms of the contracts they enter into.

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