——Singapore M International Pte. Ltd. and Myanmar Ying Co., Ltd. v. the Nanjing Property Insurance Company

Key Word：Duty of disclosure in marine insurance; International shipping practice; Flat-rack on deck; Underwriting duty; Denial-of-claim defense  

Facts：

In September 2019, Singapore M International Pte. Ltd. (hereinafter “M Company.”) purchased an oversized filling-line conveyor from Heng Equipment Co., Ltd. (hereinafter “Heng Equipment”) in China. The parties agreed that Heng Equipment would manufacture the machine and arrange for its transportation and insurance to Myanmar Ying Co., Ltd. (hereinafter “Ying Co.”). The machine was packed into 14 standard containers and 3 flat-rack containers. Upon arrival in Myanmar, Ying Co. discovered that the machine parts carried in the 3 flat-rack containers had suffered severe water damage, and filed a claim with the Nanjing Property Insurance Company (hereinafter “Insurance Company”). The Insurance Company refused to compensate on the ground that the insured had failed to fulfill its duty of disclosure with respect to the fact that the equipment was carried on deck. M Company and Ying Co. then filed suit to the Court, requesting the Insurance Company to pay the premium and the corresponding interest.

Judgment：

The Court held that, under this marine insurance contract, the duty of disclosure is rested on the the policyholder and insured, Heng Equipment. According to international shipping practices, liner carriers usually draw up container stowage plans based on factors such as ports of call, ship stability, and draft, etc. Therefore, the fact that the flat-rack containers were placed on deck was not something Heng Equipment, as policyholder, would normally be expected to know. The bills of lading expressly recorded that the goods were packed into 14 standard containers and 3 flat-rack containers, and the insurance policy incorporated the bills of lading number. Under the management rules of the Insurance Company and industry norms, the insurer should have conducted prudent underwriting for such non-standard machinery. Moreover, stowing flat-rack containers on deck is a situation that insurers are normally expected to be aware of, yet the insurer failed to notice. The insurer therefore could not refuse indemnity on the ground of nondisclosure by the insured. On this basis, the Court held that the Insurance Company was obliged to compensate M Company. After the first-instance judgment, no appeal was filed.

Typical Significance：

The policyholder’s or the insured’s duty of disclosure in marine insurance has long been a difficult issue in judicial practice, with divergent views in practice. In this case, the Court correctly applied international shipping practices and insurance industry norms, and based the findings of the fact, determined that the stowage of flat-rack containers on deck in this case was a fact that the insurer should have discovered through its underwriting. Accordingly, the policyholder was under no duty of disclosure in this regard. This judgment accurately delineates the scope of the policyholder’s or the insured’s duty of disclosure in marine insurance contract, strikes a balance between the interests of the insured and the insurer, and contributes to the sound development of China’s marine insurance market. The case was selected as one of the 2023 Typical Cases of Foreign-related Commercial and Maritime Trials by the High People’s Court of Jiangsu Province, and was published in Chinese Maritime and Commercial Law Reports (Vol. 4, 2024).