Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea)
[2001] UKHL 1
Independent editorial summary — not the official judgment. Read the full judgment via the source link.
Ratio Decidendi
Under section 39(5) of the Marine Insurance Act 1906 an insurer escapes liability for loss attributable to unseaworthiness only where the assured was privy to sending the ship to sea in that state: privity requires actual knowledge or 'blind-eye' knowledge, meaning a suspicion of the relevant facts, firmly grounded and targeted on specific facts, coupled with a deliberate decision not to check - negligence, however gross, is not enough. The section 17 duty of utmost good faith continues after the contract is made only in an attenuated form: at the claims stage nothing short of a fraudulent claim will found the defence, and once the parties are in litigation disclosure is governed by the procedural rules of the court rather than by section 17.
Facts
The refrigerated cargo vessel Star Sea, insured for US$3.2 million as part of the Kollakis family fleet, suffered an engine-room fire on 29 May 1990 while on a voyage from Corinto, Nicaragua to Zeebrugge; the master's ignorance of how to use the CO2 fire-extinguishing system and the defective condition of the funnel dampers meant the fire could not be put out, and the vessel became a constructive total loss. The underwriters resisted the claim under section 39(5) of the Marine Insurance Act 1906, alleging the assured had 'blind-eye knowledge' of the unseaworthiness, and under section 17, alleging breach of a continuing duty of utmost good faith in the claims process and litigation, relying on late disclosure of expert reports into an earlier fire on another fleet vessel, the Kastora, and on evidence disbelieved at trial. Tuckey J upheld the section 39(5) defence in respect of the constructive total loss, limiting recovery to the partial loss, but the Court of Appeal reversed his findings and entered judgment for the assured; the underwriters appealed to the House of Lords.
Judgment Summary
The House of Lords unanimously dismissed the underwriters' appeal and affirmed the Court of Appeal. Lord Scott, dealing with section 39(5), held that blind-eye knowledge requires a suspicion firmly grounded and targeted on specific facts together with a deliberate decision to avoid confirming their existence, and that Tuckey J had made no finding of any such deliberate decision, so the privity defence failed. Lord Hobhouse, dealing with section 17, held that avoidance ab initio for a post-contract want of good faith would be effectively penal and wholly disproportionate; at the claims stage the insurer must show that the claim was made fraudulently, and The Litsion Pride should no longer be treated as a sound statement of the law. Once litigation has begun, the parties' relationship is governed by the rules of court procedure, not by section 17.
Key Quotes
"In summary, blind-eye knowledge requires, in my opinion, a suspicion that the relevant facts do exist and a deliberate decision to avoid confirming that they exist."
— Lord Scott of Foscote at [116](verbatim, verified against the judgment)
"I am therefore strongly of the view that once the parties are in litigation it is the procedural rules which govern the extent of the disclosure which should be given in the litigation, not s.17 as such, though s.17 may influence the court in the exercise of its discretion."
— Lord Hobhouse of Woodborough at [77](verbatim, verified against the judgment)
Subsequent Treatment
In Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2016] UKSC 45 the Supreme Court treated The Star Sea as the leading authority on the fraudulent claims rule and the limited post-contract content of the duty of good faith, while holding that the rule does not extend to collateral lies told in support of a justified claim.
For insurance contracts entered into on or after 12 August 2016, section 14 of the Insurance Act 2015 abolished avoidance of the contract as a remedy for breach of the duty of utmost good faith, addressing the disproportionality of avoidance ab initio discussed in The Star Sea; the blind-eye knowledge analysis under section 39(5) of the Marine Insurance Act 1906 is unaffected.
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