Sealion Shipping Ltd & Anor v Valiant Insurance Company

This is the trial of a claim for an indemnity under a policy of marine insurance which gave Loss of Hire cover in respect of m.v. “TOISA PISCES” for the year commencing 20 May 2008. The policy was issued by the defendant, Valiant Insurance Company, which is an insurance company operating so far as relevant from New York. The claim is brought by Sealion Shipping Ltd, the vessel’s operator and manager, and by Toisa Horizon Inc. the vessel’s registered owner (nothing turns on the distinction between the two claimants). The claim arises from a propulsion motor breakdown which happened on 25 February 2009, after which the vessel was placed offhire by her charterers, the Mexican oil company, Pemex. The claim is for US$ 2,100,000, the equivalent of 30 days’ offhire at US$ 70,000 per day (30 days being the limit under the policy). In summary, the defendant contends that it is entitled to avoid the policy for material non-disclosure and/or misrepresentation, or alternatively to rely upon a number of policy defences, including what it says was a failure on the claimant’s part to exercise due diligence. If liable, it maintains an alternative defence to the effect that the full period of 30 days is not payable because there was not just one breakdown, but three breakdowns, and the agreed excess period of 21 days under the policy applies to each.

The issues can broadly be split into insurance issues (misrepresentation and non-disclosure) and engineering issues concerning the vessel’s motors (e.g. the cause of the breakdown). Both parties called factual and expert evidence. As factual witnesses, the claimants called Mr Ged Murray, presently its Senior Superintendent Engineer, Mr Robin Lanigan, presently its Technical Manager together with Mr Graham Findlay, its broker at Price Forbes & Partners Ltd, which was involved in placing the policy. The defendant called Mr John Moy, a colleague of the underwriter who wrote the policy (and who has since left the defendant’s employment). Each of these was a good witness, though each was at some distance removed from the events at issue, and their evidence has to be considered in this light.

In terms of engineering evidence, the claimants relied upon the evidence of Mr Alex Sinclair. The defendant relied upon the evidence of two experts, Mr Raymond Luukas, on general engineering issues, and Mr Howard Harper, on vibrations. Each was helpful, though none had actually inspected the motors or any of their parts, so was dependent on conclusions drawn from the available contemporaneous materials. I shall say more about the limitations of their evidence later.

In terms of underwriting evidence, the claimants relied upon the evidence of Mr Nigel Russell, a broker, and the defendant relied upon the evidence of Mr Bernard Devereese, an underwriter. Again, each is very experienced in his respective field, and their evidence was of assistance, though as I shall explain, the parties have acknowledged that some issues arise as to the approach that they adopted to the questions on which they were expressing their opinions.

The facts as I find them are as follows. M.v. “TOISA PISCES” was built in 1997, and prior to acquisition by the claimants was owned by France Telecom, which used her in cable laying. At all material times, she was classed by Det Norske Veritas (“DNV”, or “Class”) and flew the Liberian flag. There has been some dispute as to the history of the vessel during her France Telecom period. It is common ground that she would have endured high loads whilst pulling a cable-laying plough at least in the early years of service with France Telecom. A pre-acquisition report dated 15 November 2002 by Mr Robin Lanigan (the first claimant’s technical manager) based on the classification records, describes various mechanical failures of the propulsion units. The problems related particularly to the gearing systems. This was raised in the defendant’s expert underwriting evidence in connection with the claimants’ disclosure duties in 2008 when the policy incepted, but has not been pursued as a separate issue. In any case, I accept Mr Lanigan’s evidence to the effect that the claimants believed that the problems had been resolved prior to their acquisition of the vessel in 2003.

After acquisition by the claimants, the vessel was used for support activities in connection with oil drilling in the Gulf of Mexico under long term charter to Pemex. She is capable of what is called “dynamic positioning” (DP), which allows her automatically to maintain her position above a wellhead. This is done through the computer-controlled use of bow and stern thrusters. At stern, there are two main propulsion thrusters at starboard and port, known as Azimuth thrusters or Azimuth pods. Azimuth thrusters are steerable propellers capable of 360° rotation, making the conventional propeller/rudder configuration unnecessary.

The port and starboard Azimuth thrusters were driven by large electric motors manufactured by the French company, ABB Industrie (“ABB”). The key components of the motors for the purposes of understanding the issues in this action are as follows. Each motor is bolted to the floor of the vessel’s engine room. A cylindrical stator core (which I shall refer to as the stator) is fixed within a stator housing (variously called housing, frame, casing or tube) which forms part of the motor frame. The stator accommodates insulated coils containing copper wires (themselves insulated) which sit in slots in the stator core. These slots are capped with strips of insulation called top-sticks. It was a short circuit within one of these coils that gave rise to the February 2009 breakdown.

A cylindrical rotor mounted on a solid shaft fits closely inside the stator, separated from it by a narrow air gap of about 2.5 mm. The rotor turns at speed within the stator. The surface of the rotor is interspersed with copper rotor bars. At each end of the rotor, the bars are connected to a ring, involving brazing, which is a type of welding. It is the interaction between the induced magnetism of the rotor and the circulating magnetic field produced by the stator that causes the rotor to turn. This drives the gearbox input shaft, and the gearbox output shaft in turn drives the propeller. The connection of the rotor bars to the ring (and the adequacy of the connection) has been one of the factual issues in the case.

Another factual issue concerns the security of the stator within the frame. It should not of course move at all. There has been debate between the experts about how the stator—which has seven short feet—was or, according to its original design, should have been secured. The candidates are one or more of the following, namely by way of an “interference fit” which is a very tight fit with the frame, the bolting of the foot (or at least some of the feet) to the frame by way of dowel pins, and/or the welding of the foot (or at least some of the feet) to the frame.

The defendant put in late evidence in this regard by way of a letter to the defendant’s solicitors dated 22 November 2011 from Preel Hecquet Payet-Godel, which is a firm of French lawyers representing the manufacturers ABB Industrie. It was adduced under the Civil Evidence Act. According to the letter, the lawyers have been informed by ABB that dowel pins rather than welding was used by ABB for this purpose. The defendant says that this material shows that the security of the stator relied upon interference fits. In addition, it says, dowel pins were used, but only to keep the stator feet in place. This founds an argument that the welding of the feet, or some of them, something which is apparent in the available photographs, was not part of the original design. So, the defendant contends as part of its case at trial, modifications to the feet of one the motors should have entailed a similar modification of the other.

It is common ground between the experts based on photographs and reports from 2004 onwards that at least some of the feet were welded at that point, though the precise number is not agreed. Based on the letter dated 22 November 2011 from Preel Hecquet Payet-Godel, the defendant maintained in its opening that they were not welded by ABB upon manufacture, and it is unknown who welded them, when, and why. It would appear, the defendant contended, that there was a problem with the security of the stator prior to the first incident in evidence in these proceedings (which happened in August 2004 and which I describe below). This, the defendant said, would explain why welding was applied.

However as he put it in closing, Mr Robert Bright QC, counsel for the defendant, accepted that he could not press the court too far on this point. The defendant has not contended that the available material justifies a finding that France Telecom (or indeed the claimants) made some repairs unauthorised by ABB which they never reported to Class. The defendant relied on it mainly in support of the argument that at least a proper enquiry was called for, but not made.

Their lawyers’ letter also states that ABB is not aware of any similar case (in other words similar to the breakdowns that occurred on the “TOISA PISCES”) involving engines using the same technology. However I think that the defendant accepted that no substantive argument could be based on such assertion (e.g. that the breakdowns must have been the fault of the claimants or their repairers). I set it out so as to fairly represent the material before the court.

The letter came just before trial. As the claimants say, no documents showing the communication of this information by ABB to its French lawyers have been disclosed, nor the identity of the ABB representative passing it on. The letter says that the manufacturing documents for the motors have not been found, though ABB still had machine trial reports (which were attached). The design (the claimants also say) is in any case different from that of the motors on the “TOISA PISCES”: reliance is placed on the fact that the holes for the dowel pins appear to be in different positions. Although the letter says that only dowel pins were used, it seems to acknowledge the possibility that the stators could be secured by welding.

I should make it clear that I make no criticism whatever of the letter. It was provided after it was suggested on behalf of the defendant that the trial might give rise to possible “damaging criticism of [ABB’s] product”. (In fact, it has not.) The only question I have to decide is what evidential weight I should give to it in the context of the issues which I have to resolve in this trial. Applying the criteria in s. 4 Civil Evidence Act 1995, I consider that I can give it little weight. So far as the security of the stator was concerned, the important thing was that it remained firmly in place despite the various stresses that would inevitably be experienced during operation. Even if it is the case that welding to the stator feet was added at an unknown time after manufacture, it does not follow that the claimants were at fault in failing to realise this, or failing to deduce that there had been some prior problem, or that the motors had been modified in consequence.

The focus of the case has been on a number of incidents involving the motors, the first of which was as follows. On 13 August 2004 while the vessel was at sea, the starboard motor failed when two fuses blew (and blew again upon replacement and an attempt to re-start). The motor was thereafter run at low speed, pending further investigations, for which purpose a specialist electric motor contractor from the UK called Electrical Power Engineering Ltd was brought in. The vessel was off hire for around 5 hours. The starboard motor ran satisfactorily thereafter at low speed, but high temperatures were noted on 21 September 2004. On 23 September 2004, the motor was stopped for further investigations, and failed to re-start. Specialists were again brought on-board, someone from Electrical Power Engineering Ltd, and ABB representatives from the US and an ABB representative from France.

The motor had to be opened up for this purpose. It was found that the stator had broken loose from the frame, and twisted some three inches within the housing. It had come into contact with the rotor, with damage to both. It is plain that this was a major incident. The representative of ABB France said that the motor would have to be removed and sent to an electrical workshop for repairs in accordance with the original design and specification.

He did not however express an opinion as to the cause of the breakdown, saying only in his report of 2 October 2004 that, “The magnetic circuit stator has rotated inside the main stator (possible twisted) this is the reason why we have so much damage to the motor. Why? I have no real answer, probably the vibration (regarding the local report) level to high (unbalancing shaft line) and the magnetic stator fixation not to strong… as the photos (welding…)”. (I have set this passage out it appears in the report.) Other contemporary documents including emails of Mr Richard Jones (the first claimant’s offshore representative) who was on board the vessel at the time, as confirmed by Mr Murray (the first claimants’ Senior Superintendent Engineer) in his oral evidence, show that the security of the stator was regarded as the problem.

Following a survey on 22 October 2004, a Condition of Class was imposed by DNV as to repair or replacement to DNV’s satisfaction. The evidence is that during the time the motor was being investigated, a tug was brought in to assist the vessel to maintain her position (presumably next to an oil rig). That meant that although she was off-hire for some 51 hours between 23 and 25 September 2004, the vessel was thereafter able to operate on-hire with the tug’s assistance.

The vessel put into Coatzacoalcos, Mexico, for repairs in November 2004. Faced with a possibly lengthy repair, the claimants opted to replace the ABB starboard motor with a new motor of a different type manufactured by Louis Allis. This is an American company based in Alabama and is a division of Alliance Speciality Motors. The evidence of Mr Luukas for the defendant was to the effect that the claimants should have investigated the root cause of the problem in consultation with ABB and Class. The evidence of Mr Sinclair for the claimants makes the point that ABB did in fact attend on board to investigate the starboard motor, which was removed and rebuilt in due course, as witnessed by Class, so that both were involved to that extent. On the totality of the evidence, I prefer his opinion and the claimants’ case on this issue. Further, I am satisfied that no question arose at the material time as to the competence of Louis Allis. After the acquisition of the vessel by the claimants and its deployment in the Gulf of Mexico, the problems experienced with the ABB motors were all dealt with by Louis Allis. It is not in dispute that the company is a specialist in the field of such motors. I am satisfied that the claimants were entitled to accept the view of those on the spot that Louis Allis was fully competent to investigate the problems and to deal with repairs, and that no further investigation was required.

During the time when the new Louis Allis motor was being installed, the vessel was off-hire for 7 days, 13 hours and 8 minutes before resuming service. It may be noted that because of the position of the cooling system, the ABB motors could be installed either on port or on starboard, but were not interchangeable. The Louis Allis motor was a simpler design, and could be installed in either location.

By 27 November 2004, DNV had completed an onboard survey and deleted the previous Condition of Class.

The ABB starboard motor, meanwhile, was sent to the Louis Allis workshop in Alabama for dismantling and repairs. These repairs were undertaken in or about February 2005. There is not a formal report from Louis Allis stating its view as to the cause of the problem, but there is an email to Mr Murray of the claimants of 22 February 2005 in which the company sets out the repair work that will be required. As regards the stator, this includes, “Weld clamp bars and machine to fit the housing”. The claimants maintained that this was a reference to the longitudinal bar that held the laminations in place to form the stator core. However when taken with the report of BMT Salvage Ltd for the Hull & Machinery underwriters dated 10 May 2005, I agree with the defendant that it is likely to be a reference to the stator feet. The evidence shows that the work done by Louis Allis involved (at least) building up by welding of the stator feet to an interference fit with the frame, and (perhaps) additional welding by way of securing the feet to the frame.

It is correct to add, as the claimants emphasise, that the connections between the rotor bars and the rotor end ring were found to be broken, and the work done included doubling the amount of brazing that held them in place. The claimants contend that the root cause of the 2004 breakdown of the starboard motor was that these connections had fractured during operation due to thermal fatigue, causing the loss of electrical conductivity in those bars and increasing the current flow through others, resulting in vibrations, which eventually caused the failure of the welds holding some of the stator feet in place. (The word “some” reflects the claimants’ contention that the stators in the ABB motors, as designed and built, were secured by a mixture of a tight fit, locating dowels and welds to some but not all of the feet.) The defendants say that the cause was persistent external vibration resulting in “fretting”, that is, the erosion of the bottom stator feet over time, after which the welds in way of the connections at the upper stator feet suddenly gave way. In my view, either of these theories is a possible explanation, though I also consider that on the available material, and at this distance in time, it is difficult to reach a conclusion about what caused the 2004 breakdown. What is certain is that the stator moved some three inches within the frame, with serious results.

It appears that Class attended at the repairs. Once repaired, the motor was tested by Louis Allis in August 2005. A Class Certificate dated 9 August 2005 was issued showing that the motor had been repaired to DNV’s specifications and requirements. It was further tested with satisfactory results by Siemens in Cincinnati, Ohio, in December 2005. By early 2006, the repairs were complete, and according to an email from Mr Jones of 27 January 2006, DNV was satisfied with the results. Thereafter, the motor was held in storage by Louis Allis.

I am satisfied that there was no cause for any further investigation. Nor do I accept the defendant’s contention that any additional welding of feet performed on the ABB starboard motor should also have been performed on the ABB Port Motor. On these points I prefer the evidence of Mr Sinclair for the claimants to that of Mr Luukas. The opinion of Mr Sinclair is to the effect that such work should have been considered, but that a decision “would depend on the people on the spot”, which appears to me to be a reasonable conclusion.

It is not in dispute that a claim was made by the claimants under the H&M (Hull and Machinery) policy in the amount of US$ 556,381.47.

The incident I have just described involved the starboard ABB motor. The vessel, as I have explained, continued in service with the new Louis Allis motor on the starboard side. There then occurred what is broadly the second of the incidents which are the subject of these proceedings. Unusual vibrations in the port ABB motor were noticed in December 2005. With the agreement of Louis Allis, who had of course just repaired the starboard motor, the port motor was operated at reduced power, which I am satisfied confined vibrations to acceptable levels. This was pending testing with sophisticated vibration monitoring equipment (not normally kept on board the vessel). I am also satisfied that neither at this time nor otherwise was there a failure on the part of the claimants properly to analyse or deal with the vibrations experienced by the motors.

When the vibration analysis was carried out, the results were considered by Louis Allis to suggest that “the stator core is loose in the housing”. This, it will be recalled, was what was found to have happened to the ABB starboard motor in the 2004 incident, though in that instance a total breakdown had occurred. Louis Allis suggested that the engine be run at light loads until June 2006, when a dry-docking was scheduled. This proposal was followed, and the vessel continued to operate at reduced load until 10 June 2006, when she arrived in Freeport, Bahamas, for her special class survey and routine dry-docking. Because the vessel kept operating, this incident did not give rise to a loss of time or period of off-hire at all.

Upon inspection in Freeport, and the disassembly of the motor, it appeared that the initial diagnosis was wrong, and that the stator was secure, and that the source of the vibration was not (as had been thought) a loose stator core. Attention shifted to the rotor, in other words the spinning part of the motor, which was taken out of the motor. According to the report of BMT Salvage Ltd for the Hull & Machinery underwriters dated 14 August 2006, “Damage to the rotor was noted in way of cracked rotor bars at the end ring brazed connections. Also, twenty-seven (27) stator winding securing top strips found variously dislodged/loose/missing and spotty scuffed areas of insulation varnish on stator core”. The cause of the damage, the report said, could reasonably be attributed to cracked rotor bars at the brazed end ring attachment welds, causing excessive vibrations in operation. I will come back to this issue below, including the question whether (contrary to the defendant’s case) the inspection of the stator that led to this conclusion was adequate.

Witnessed by DNV, the port rotor was replaced with the repaired rotor that had been taken from the starboard motor in 2005. The stator having been found to be sound was not removed. Repairs were conducted in situ before it was subjected to megger testing (which is a form of electrical testing) and high-potential/dielectric testing. Meanwhile, the port rotor was taken ashore and repaired by Louis Allis in the same way as the starboard rotor had been repaired in the previous year. As regards the end ring connections, I find that the rotor bars were re-brazed with additional brazing to withstand severe duty.

It is not in dispute that a claim was made by the claimants under the H&M policy in the amount of US$ 138,757.28.

To recap, as at the beginning of 2009, the ABB port motor was in place with the repaired rotor which had originally been in the ABB starboard motor. The starboard side was served by the new Louis Allis motor. On 25 February 2009, the ABB port motor was stopped for normal operational reasons, but it could not be started again. Mr Murray said (and I accept) that the claimants tried to get hold of a tug to keep the vessel in position as had happened in 2004, but were unable to do so. There then commenced a continuous period of offhire which lasted until 19 May 2009, and which has given rise to the present claim under the Loss of Hire policy.

The electrical engine specialists Wartsila North America Inc (which had by this stage taken over Electrical Power Engineering Ltd) and Louis Allis were called in again, but after several days they had still not identified the problem. Megger testing failed to show any problems with the stator coils. A further test was carried out on 3 March 2009 with specialist equipment called a “Baker Surge Comparison Tester”, which is a kind of oscilloscope capable of detecting discrepancies in the turn-to-turn insulation within the stator windings inside the coils. What this testing was showing was a turn-to-turn short (a form of electrical short circuit) in one of the stator coil circuits. It is not in dispute that a short circuit was indeed stopping the motor from working, though the cause is in dispute.

On 6 March 2009, Pemex (the charterer) released the vessel to sail to Coatzacoalcos for repairs, where she arrived on 8 March 2009. According to Wartsila’s report of 11 March 2009, the conclusion was that “the motor exhibits readings indicating Phase-to-Phase stator winding short, at this point the motor is condemned and must be replaced”. The claimants say the reference to a phase-to-phase short is “loose language”, and the rest of the evidence shows that the short was a turn-to-turn short and not a phase-to-phase short. The defendant says that the Wartsila report is accurate, but I am not convinced that much turns on this possible factual issue.

There is some lack of clarity in the evidence as to the precise sequence of events afterwards, but broadly I find that it is as follows. The claimants arranged for the shipment to Mexico of the repaired starboard ABB motor which Louis Allis had been keeping in storage. By 10 March (if not before), the motor had arrived at Coatzacoalcos. Over the next few days, the motor was re-installed on the starboard side of the vessel, with the Louis Allis motor (which as I have explained could be located on either port or starboard) being moved to the port side.

Unfortunately, during testing there occurred a failure of the starboard azimuth hydraulic system and the consequential failure of the starboard azimuth thruster. I accept the description of the incident in the evidence of Mr Murray as follows: “With both motors out of the way (the port motor removed for repair and Louis Allis motor on deck waiting for the starboard ABB motor to be installed), maintenance work could be done on an unused cooler which had a small oil leak but which could not be easily accessed with the motors in place. Taking the opportunity to gain access to the cooler, the crew blanked it off in order to stop the leak. But unknown to the crew, the configuration of the valves was incorrect. (This was an issue that pre-dated our acquisition of the vessel but did not become apparent until after the cooler had been blanked off because the cooler had not been in use.) The incorrect seating of one of the valves meant that when the starboard hydraulic propeller pitch control pump was re-started after blanking off, the system became over-pressurised and a hydraulic pipe ruptured.” He adds, “Without the port motor breakdown, the motor would never have been removed and the maintenance work to the cooler would never have been done.”

The hydraulics incident happened some time between 11 and 14 March 2009. The latter date is the claimants’ pleaded case, but they have contended at trial that the incident in fact occurred on 10 March 2009. They sought at closing to put in entries from the log book in support of 10 March 2009 date, but these should have been disclosed earlier, and I refused to allow this evidence in at such a late stage. (I did however allow in an email that shows as a matter of fact that Rolls-Royce in England had been consulted about the hydraulics incident by 13 March 2009.) The clearest evidence of the date is an incident report which states that it happened on 11 March 2009 at 22.00 hours, and despite criticism from the defendant based on the fact that this report seems to have been compiled a few weeks later, I find that this was the date of the incident. The date is relevant because the defendants say that there was not one breakdown event, but three–the failure of the port ABB motor on 25 February 2009 being the first, and the hydraulic failure on 11 March 2009 being the second—and that each attracts the 21 day excess period. (What the defendant describes as the third breakdown event happened on 25 April 2009.)

Rolls-Royce advised that the vessel would have to be repaired in dry-dock. She sailed from Coatzacoalcos on 20 March 2009 and arrived in Mobile, Alabama shortly afterwards.

Meanwhile, the broken down port motor was taken to the Louis Allis workshop. Mr Bruce Bailey, a senior figure at Louis Allis who handled this matter throughout for the claimants reported to them by email of 23 March 2009 as follows: “We have disassembled the ABB motor and found a few more issues. The stator has 1 shorted coil as we discovered with the surge tester ... . In addition the stator had broken loose from the frame just like the first motor failure. We caught it in the early stages so in essence the stator was making light contact with the rotor iron. There are only 2 dowel pins that hold the whole core in place and they sheared off. As I explained to you this whole core is held in place by a few pads on a very narrow fit. If you look at pictures … you will see not a metal to metal fit but a huge gap. Had the coil not shorted and the motor continued to run you would have had a catastrophic failure.” The pictures that Mr Bailey was referring to show a piece of what looks like sandpaper pushed between the frame and feet demonstrating the gap where there should have been a tight fit.

Mr Bailey was the author of a further email sent on 26 March 2009 to one of the claimants’ technical officers. It appears to have been intended to allay the latter’s concerns as to the quality of construction of the ABB motors, explaining what the problems had been and what work was to be done. He said:

“… Both motors basically had 2 design problems:

1.

The brazing used on the rotor bar joint to the end ring did not have sufficient build up. This allowed the end ring to develop cracks and fractures after numerous starts. Both rotors have now been repaired by Louis Allis and the proper amount of brazing has been achieved.

2.

The second problem was a poor design of the stator core fit to the motor housing. You have a narrow machine surface and (4) dowel pins that were holding the entire core in place. Both cores eventually worked loose due to vibration and normal use. We have already repaired the starboard motor correctly by tightening the interference fit between core and frame and then welding the core in place. The same repair will take place on the port side motor next week.

Once the port motor is rewound and the above wall performed, you will have two very reliable motors that should give you years of excellent service. …”

By the time the vessel arrived in Mobile, Alabama, she had gone about 2 years and 9 months since her last dry-docking. There has been some dispute about dates, but I am satisfied that work started on 28 March 2009, and that the claimants used the occasion concurrently for repairs and also to carry out an Intermediate General Survey and other owners’ work which had previously been scheduled for June or July of 2009. It had been predicted that the scheduled dry-docking would have taken 14 days. This is relevant to a submission of the defendant to the effect that time in drydock does not go to erode the excess period under the Policy, given that the vessel was due to go into drydock anyway.

Meanwhile, as the claimants put it, they decided to adopt a ‘belt and braces’ approach, and had put in train the repair of the port ABB motor in parallel with the replacement/swap-over plan. Arrangements were made for the despatch of the port ABB motor to Louis Allis’ facility for repair, and by 23 March 2009 (the date of Mr Bailey’s email), Louis Allis had received it and commenced its disassembly. There is a dispute about how expeditiously that happened, though the defendant does not pursue a pleaded case based on alleged failure to effect, or cause to be effected, repairs with due diligence and dispatch. In oral closing, the defendant’s case was that repairs were placed on the backburner for a two week period between about 12 March and 25 March 2009, when it is recorded in a report of 30 March 2009 by Alpha Marine Surveyors (hull underwriters’ surveyors) that the claimants wanted the motor repaired in an expedited manner. This point was deployed in support of a reduction contended for in the period that counted towards offhire, but it was something of a makeweight. In any case, I accept the claimants’ case on the facts that (whatever the precise timings) the repairs did not in fact go on the backburner.

On 21 April 2009, the vessel left Mobile destined for the oil field. A few days later she underwent the annual survey of her Dynamic Positioning System nearby her station and under the supervision of DNV. Then another incident happened. On 25 April 2009, the starboard ABB motor—in other words the motor which had been repaired by Louis Allis after the 2004 breakdown and re-installed in the vessel on about 11 March 2009—failed due to a turn-to-turn short circuit in the stator windings. This is what the defendant describes as the third breakdown event (an event, it says, which was unrelated to the other two).

Whether that analysis is right or wrong, the result was that the whole process had to be gone through again. The vessel arrived at Brownsville, Texas, on 2 May 2009. The newly repaired port ABB motor arrived on 4 May 2009. The Louis Allis motor was moved back to the starboard side, and the port ABB motor was re-installed on the port side. After the work was done, she left Brownsville on 11 May 2009, underwent further sea trials, and was finally accepted back into service by Pemex on 19 May 2009. I was told that the motors have performed satisfactorily since then.

The claimants’ Hull & Machinery (“H&M”) cover was broked by Price Forbes, who did not however handle claims, which were handled directly between the claimants and their insurers. The claimants had Loss of Hire (“LOH”) cover, which was also broked by Price Forbes, but only for part of the period after they acquired the vessel. Transmarine insured the vessel for three policy years between 2003/2006, cover being limited to 60 days with a 34 days excess period.

The defendant places some reliance on the disclosures which were made to Transmarine in support of its non-disclosure case saying that similar disclosures should also have been made to the defendant insurance company. Factually, the position is as follows. When the insurance was placed in 2004, this was on the basis of information that there had been no hull claims reported on the vessel since its purchase by the assured. When in 2005 Price Forbes realised that a period of about 7½ days offhire had been incurred in November 2004, Mr Findlay (the broker who handled the claimants’ account) informed the underwriters, who were also told that offhire was limited because the hire of a tug had kept the vessel operating. (In fact, this figure was wrong because it did not take account of the 56 hours offhire experienced in September.)

There was no LOH insurance in place between 2006 and 2008. In early 2008, the claimants wanted it in place again, and this was again handled by Price Forbes. The evidence is that in 2007-8 the defendant insurance company (operating from New York) was trying to develop a marine underwriting book. Mr Joe O’Connor and Mr John Moy were the underwriters concerned with this case. Neither had been at the company long, though they both had prior experience in marine insurance.

The risk was presented by Price Forbes to Mr O’Connor, who was at the time a Senior Vice President of the insurers. He has since left the defendant company, and its oral evidence as to the events concerning the presentation of the risk were related by Mr Moy, who was his junior. He was a good witness, but though he shared a desk with Mr O’Connor, he plainly was at some disadvantage in giving a first hand view of events. He says that he recalls Mr O’Connor having a telephone conversation with Price Forbes around the time when the cover was placed. Mr O’Connor finished the call, and said that he considered that this was a good risk because he had been told that the TOISA PISCES had a clean history with one little prior event which had not given rise to a claim.

That evidence is consistent with the handwritten notes of Mr O’Connor which appear in a “Marine Underwriting File Guide” as follows:

“Excellent Hull record”

“No major B/I prior”

“B/I” means “business interruption”, which is what loss of hire is in the case of a ship owner. The claimants suggested that this information may have come from some other source, but on balance I find that something to this effect was said at the time by the brokers, and noted down by Mr O’Connor. The claimants also say, I should note, that if the brokers did say something to this effect, it was only a statement of their opinion.

The information section of the policy states that:

“There has been one hull claim on the vessel for a failed thruster motor however the off hire time that resulted for its repair was combined with the vessels scheduled dry docking since its purchase by the Assured. Apart from scheduled dockings and a few hours off hire now and again, the vessel has not experienced any significant off hire period”.

That statement was factually inaccurate. As set out above, there had been two hull claims, not one. As I shall explain, the defendant says it was inaccurate in other respects also. At all events, Mr O’Connor accepted the risk on or about 19 May 2008 after the final version of the slip was received from Price Forbes.

The LOH insurance is contained in a Slip Policy prepared by Price Forbes. It was underwritten as to 100% by the defendant. The Policy (which was subject to English law) incorporated the Loss of Charter Hire (ABS 1/10/83) wording (“the Wording”). Under the Wording, the Policy responds to a “loss, damage or occurrence covered by Institute Time Clauses-Hulls (1/10/83)” (i.e. by the vessel’s H&M policy).

The relevant provisions are as follows:

“DAILY

INSURED SUM: USD 70,000

...

LIMITS: Limited to 30 days each accident or occurrence or series of accidents or occurrences arising out of one event and in all.

...

EXCESS: 14 days any one occurrence, 21 days in respect of Machinery claims

INFORMATION ... There has been one hull claim on the vessel for a failed thruster motor however the off hire time that resulted for its repair was combined with the vessels scheduled dry docking since its purchase by the Assured.

Apart from scheduled dockings and a few hours off hire now and again, the vessel has not experienced any significant off hire period.

Loss of Charter Hire Insurance –

Including War

(ABS 1/10/83 Wording)

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In addition, the claimants rely on cl. 6.2.2 of the Institute Time Clauses (Hulls) which provides: “This insurance covers loss of or damage to the subject-matter insured caused by ... any latent defect in the machinery or hull”.

An unsatisfactory feature of this case is how the claim came to be made under the policy. The first thing that happened was on 5 May 2009, when Price Forbes contacted the defendant to request a renewal quote, advising that “there are no claims outstanding”.

Mr O’Connor then asked a number of routine questions, including whether any repairs or maintenance had been done to the vessel during the last term. On 7 May 2009, Price Forbes forwarded an email from the claimants which stated that, “Vessel carried out scheduled dry-docking in April 2009 when some additional thruster repair work was carried out. General repairs and maintenance are of course carried out on the vessel on an ongoing basis throughout the year”. As I have explained in the chronological account above, by this time the vessel was well into its third month offhire having suffered a chapter of accidents to do with the motors. As a description of what had happened, this email can only be described as false. It is right to say that the senior employee of the claimants who drafted it was in the course of leaving the company at the time, but though various explanations have given, including pressure of work, and the claimants’ usual focus in insurance matters on Hull and Machinery risks, none of them satisfactorily explain how this email came to be sent.

In fact, despite the positive information he had been given, Mr O’Connor responded the same day to the effect that the defendant would not be offering renewal because it had not been able to build much of a book of loss of hire business, and was no longer going to write it.

Then on 19 May 2009, the defendant received another email, this time a loss of hire claim from the claimants. The email said that though the claimants anticipated the vessel going back on-hire during the course of the week, she had remained offhire continuously since 25 February 2009. Mr O’Connor emailed back, entirely understandably in my view, saying that in the light of the information he had recently been sent, this claim was “very suspicious actually”. That apart, as the claimants now concede, the notification of the claim was late, though no case was advanced at trial that late notification in itself gave rise to legal consequences.

Mr Findlay accepted in evidence that he was shocked when he realised that his firm had passed on such inaccurate information. I consider that he was right to be shocked. In due course, the defendant declined liability under the policy, and these proceedings were begun. The claimants are, I think, correct in submitting that the falsity of the email of 7 May 2009 does not in itself affect the legal analysis, because it is post-contractual. However Mr Steven Berry QC, counsel for the claimants, acknowledged that the way the claim was handled by the claimants at this time explains why this matter has ended in a trial.

The parties’ positions on the technical issues and otherwise have changed from time to time during the litigation, but by closing submissions had narrowed somewhat. The issues for decision are as follows. The defendant submits that it is entitled to avoid the policy on the basis of material non-disclosure and/or misrepresentation. It argues that:

In addition, the defendant submits that the claimants failed to disclose that there was a “consensus from the 2004 failing” that the starboard ABB motor suffered from two design problems, namely insufficient brazing and poor fit of the stator core, yet to the claimants’ knowledge, no modifications had been conducted upon the stator feet on the port ABB motor. This point is largely based on the evidence of Mr Murray in his cross-examination on behalf of the defendant.

If, notwithstanding the above, the defendant is not entitled to avoid the policy, it relies upon the provisos to clause 1(b) of the Wording (or else of clause 6.2 of the Institute Time Clauses – Hulls as incorporated through clause 1(a) of the Wording), namely that the 25 February 2009 breakdown resulted from (i) want of due diligence by the assured; or alternatively (ii) wear and tear.

As to (i) (that is, want of due diligence), it submits that after the 2004 incident which involved the starboard ABB motor, a prudent owner would have thoroughly inspected the port ABB motor, and made the same modifications which it says were made to the starboard motor by way of securing the stator feet. Had that happened, the defendant says that what was a known design problem with the motors would have been resolved, and the 2009 breakdown avoided.

If it does not succeed on either avoidance or policy defences, the defendant says that there was not one breakdown/event but three: (i) the failure of the port ABB motor on 25 February 2009, (ii) the failure of the starboard azimuth hydraulic system and the consequential failure of the starboard azimuth thrusters itself which (as I have held) happened on 11 March 2009 and (iii) the failure of the starboard ABB motor on 25 April 2009. The policy excess applies to "any one occurrence", and in respect of machinery claims (as here) it is 21 days. Hence, the defendant submits, either nothing, or much less than the maximum 30 days claimed is recoverable.

Each of these points is disputed by the claimants. It is common ground, the claimants point out, that there was a breakdown of machinery in February 2009, prima facie covered by the policy, subject to the provisos to cover and the question of avoidance. The burden of proof therefore lies on defendant to establish:

I do not think that it is in dispute that the defendant must show these matters, or that the burden of proof lies on it in that respect. The claimants’ case is the 25 February 2009 breakdown was caused by a turn-to-turn short due to failure of the insulation in the stator coil windings, and that the defendant has failed to show any want of due diligence on the part of claimants themselves, still less any causative want of due diligence.

In closing, the claimants made it clear that they were content to say that there were three occurrences in 2009, but submitted that it did not affect the matter because the breakdown to the port ABB motor in February caused 82 days delay. The failed attempt to mitigate by juggling the engines did not, they submitted, affect the "critical path" of loss of time due to the February 2009 breakdown. In any event the starboard ABB motor hydraulic breakdown of 11 March 2009 itself caused substantial loss of hire and produces a concomitant claim on the loss of hire insurance.

There is no dispute as to the principles. By s. 18(1) Marine Insurance Act 1906, “… the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him. If the assured fails to make such disclosure, the insurer may avoid the contract”. By s. 20(1), “Every material representation made by the assured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true. If it be untrue the insurer may avoid the contract”. By s. 20(4), “A representation as to a matter of fact is true, if it be substantially correct, that is to say, if the difference between what is represented and what is actually correct would not be considered material by a prudent insurer”. The defendant relies on both misrepresentation and non-disclosure to avoid the policy.

In terms of expert evidence, evidence of materiality was given for the claimants by Mr Nigel Russell, a broker, and for the defendant by Mr Bernard Devereese, an underwriter. As I said at the outset, each is very experienced in his respective field, having broked (Mr Russell) and written (Mr Devereese) more than fifty stand-alone loss of hire risks over the last 30-40 years. (As Mr Bright QC pointed out, more commonly loss of hire cover is written in conjunction with the hull cover, but not in the present case.) Before considering their evidence against the particular defences, there are some general points to mention.

Mr Bright suggested that Mr Russell’s evidence was unsatisfactory because he saw things through the eyes of a broker rather than an underwriter. In my view, it is correct to say that he saw things as a broker, and that is a factor to keep in mind when weighing his evidence. On the other hand, it is not in dispute that evidence on materiality may properly be received from brokers as well as insurers (see Colinvaux’s Law of Insurance 9^th edn, 2010, para. 6-031, p. 223). Mr Bright also submitted that Mr Russell approached the matter incorrectly seeming to take the view that to be material, the circumstance must be decisive. I do not however think that this submission fairly reflects the approach which Mr Russell took.

Mr Berry QC submitted that Mr Devereese’s evidence was unsatisfactory because he used the term “material” in the sense of “relating to the risk” in any way, even if the facts would not influence the judgment of the prudent underwriter. He appeared, Mr Berry submitted, to be of the view that facts were material and had to be disclosed even if they were “plus” factors. This submission appears to me to be well founded, and indeed for the defendant Mr Bright QC accepted that the relevant test for materiality had not been adopted by Mr Devereese.

In that regard, the position in law can be stated as follows. By s. 18(2) Marine Insurance Act 1906, “Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk”. By s. 20(2), the same test is prescribed to determine whether a representation is material. The term “would influence” is not confined to the case of decisive influence, i.e. where proper disclosure of the non-disclosed or misrepresented fact would result in an actual change of decision (though the position is different where the issue is as to inducement). It is, however, necessary that it would influence the thought processes of the underwriter in assessing the risk. Facts are therefore not in law material even if in some wider sense they relate to the risk, unless they would have such influence. By s. 18(3), “In the absence of inquiry the following circumstances need not be disclosed: (a) Any circumstance which diminishes the risk”. When this provision is read with section 18(2), it follows that discloseable material facts are those which would influence the thought processes of the prudent insurer negatively, that is to say, “minus” factors making the risk worse, not “plus” factors diminishing the risk.

The submissions of Mr Berry QC to this effect were not in dispute, and I have had to bear them in mind in assessing the weight to be given to the evidence of Mr Devereese. In the light of that discussion, I come to the material non-disclosures/misrepresentations asserted by the defendant which were as follows.

“one hull claim on the vessel”

As I have explained, the information section of the Policy stated that there had been one hull claim on the vessel. This was inaccurate because by May 2008 there had been two hull claims on the vessel. (I have set these out above.) The sentence in question reads in full, “There has been one hull claim on the vessel for a failed thruster motor however the off hire time that resulted for its repair was combined with the vessels scheduled dry docking since its purchase by the Assured”. It is common ground that at least this is an accurate statement of what happened in 2006, when the breakdown did not result in any loss of hire.

The defendant’s main point is based on the evidence from the claimants’ own witnesses to the effect that if one hull claim is disclosed to insurers, then the other should also be disclosed. This is clearly right, but on balance, and on the facts of the case, I prefer the claimants’ case on the point, which is that though (as they put it) such disclosure is good broking practice, it does not make a hull claim material, if not otherwise material. If the hull claims were immaterial they remained immaterial even if one was mentioned, and not the other. The hull record, Mr Berry QC says, is not normally disclosed. In the particular circumstances of this case, I agree with him that the materiality of the hull incidents is linked to the extent to which they caused loss of hire, which was the effect of the claimants’ expert evidence. Thus this issue has to be appraised in the light of the conclusion on the case as to undisclosed periods of offhire.

Undisclosed periods of offhire

The information section of the policy continued, “Apart from scheduled dockings and a few hours offhire now and again, the vessel has not experienced any significant offhire period”. To recap, at various times in September and November 2004, the vessel experienced approximately 10 days offhire. A greater period was avoided by using a tug to keep the vessel in position. There was no offhire attributable to the 2005-6 incident, since the affected motor continued to operate on reduced power until the scheduled drydocking in Freeport.

The defendant submits that if it was not material to an underwriter whether the vessel had experienced more than “a few hours offhire now and again”, it is difficult to see why the broker gave these details at all. It also relies on the giving of information by the brokers to underwriters in 2005 that I have described above. In summary, when loss of hire cover was placed in 2004, it was on the basis of information that there had been no previous hull claims. When it was ascertained in 2005 that a period of 7 days 13 hours 8 minutes downtime (as it was then reported) had been incurred, Mr Findlay thought it “prudent to keep the underwriter informed”. If this period was considered sufficiently significant to warrant such steps in the context of a policy with a 34 days excess, the defendant says, this must apply a fortiori in the circumstances of a period of over 10 days and a policy with only a 21 day excess. In his evidence, Mr Findlay accepted that he would have wished to correct the information given if he had known that there had in fact been a period of 10 days offhire rather than 7½ days .

The claimants respond that brokers will always err on the side of caution, and say that this disclosure shows only cautious broking. They say, with some force, that Mr Devereese seemed to suggest that the fact that the use of a tug in 2004 avoided a claim was material to be disclosed because it showed prudence, and thereby minimised the risk—for reasons I have set out, this is not the correct test. It is right to say however that Mr Devereese added that if the cause of the problem was not corrected, that could be a negative factor. The claimants accept that disclosure could be required if, to their knowledge, there was an underlying problem which was not corrected (though in oral submissions that was qualified by reference to a resulting loss of hire claim). In that respect, they say that in 2006, before the 2008 insurance was placed, the claimants did diagnose and correct the problem that caused the 2004 breakdown and the 2006 incident, alternatively believed they had done so. I consider this factual issue in some detail below, but broadly I have accepted their case on the facts as to the 2006 incident.

My conclusions are as follows. The fundamental issue in this respect is whether the period of offhire in 2004 not disclosed in 2008 was material, as Mr Devereese maintained, or not material, as Mr Russell maintained. Mr Russell’s view was that what was material for these purposes was an offhire period which resulted in a claim under insurance or (as it was put) a “near miss” substantially close to the excess. Having been asked for a figure, he defined material in general terms as 70% of the excess. I do not think however that he intended to pronounce a benchmark, and if he did, I do not accept it in the light of the evidence of Mr Devereese. However I do accept Mr Russell’s evidence that in general insurers are interested primarily in the potential for claims and that in the circumstances, 10 days loss of hire experienced in 2004 compared to a 21 day excess under the 2008 policy was not material. I accept that evidence because I felt that Mr Russell’s evidence was the more convincing on this subject and because, overall, it is consistent with a reasonable commercial approach. The fact is that this was not a particularly long period of offhire, it was nearly four years previous to the placing of the policy with the defendant, it did not result in a claim, and it did not come close to the excess period.

“Excellent hull record”, and “no major business interruption”

I have found as a fact that something to this effect was said at the time by the brokers, and noted down by Mr O’Connor of the defendant. As to “no major business interruption”, in my view this was true for reasons which I have just given in relation to offhire.

The claimants submitted that the reference to “Excellent hull record” was a statement of the brokers’ opinion, or a statement of belief made in good faith—see s. 20(5) Marine Insurance Act 1906: “A representation as to a matter of expectation or belief is true if it be made in good faith.”. I did not understand this submission to be in dispute in principle. I am satisfied that this was both a statement of opinion by the brokers, and was made in good faith. On that basis, I reject the defendant’s case based on the fact that two previous hull claims had been made, rather than the one disclosed.

I need not deal therefore with a suggestion made by the claimants (primarily based on the cross-examination of Mr Devereese) that if these matters had been material to a prudent insurer, Mr O’Connor would have made further inquiries, absent which he must be taken to have waived disclosure of the material facts and matters which such an inquiry would have revealed (s. 18(3) Marine Insurance Act 1906).

Appreciation of two design defects but only one modification to the port motor

The defendant’s last point under this heading was not included the defendant’s opening, and is largely based on the evidence of Mr Murray in his cross-examination. Particular reliance is also placed on the Louis Allis email sent on 26 March 2009 which I have set out above. It is essentially a submission that the claimants knew that there was a design fault with the stator feet, had rectified it so far as the starboard motor was concerned in 2005, but did not do so to the port motor, either at the same time, or when problems emerged with it in 2005-6. This should have been disclosed, it is said, when the policy was entered into in 2008. It is, therefore, a submission that depends on particular findings of fact.

The defendant’s written closing submissions (expanded orally) were comparatively brief, and as follows. In his evidence, Mr Murray agreed that one would be “more inclined” to declare an incident to an underwriter if it involved an unresolved matter. The difficulty he had with the notion that it should necessarily be disclosed was that he could not conceive of an unresolved matter which might give rise to an indeterminate period of offhire, sufficient to threaten the excess. It is unclear (the defendant submits) why Mr Murray found this so unimaginable. In any case, an underwriter would surely be interested in knowing whether there was an unresolved issue onboard a ship which might exceed the excess. This is entirely in tune with modern risk management. It is consistent with the comment of Mr Devereese that even if there had only been one hour’s loss of hire due to a generator failure, an underwriter would probably do very little about it, “but if it is continuous generator problems he may be concerned about it”. In a similar vein, Mr Devereese later remarked that every period of offhire is significant “if there is a continuing connection with the result of the offhire”.

In fact, the defendant submits, there was, to the claimants’ knowledge such a situation onboard the vessel. This is because there was (according to Mr Murray in cross-examination the defendant says) a “consensus from the 2004 failing” that the starboard ABB motor suffered from two design problems, namely insufficient brazing and poor fit of the stator core, yet to the claimants’ knowledge no modifications had been conducted upon the stator feet on the port ABB motor.

Since the defendant’s point largely depends on Mr Murray’s evidence, I should state that he was a good witness, who gave his evidence in a straightforward manner without embroidery. He did not however have first hand experience of the problems on the vessel, and did not attend on board in 2004 or 2006. His evidence was that people (including in the claimant companies) thought that the stator rotating in the casing was a cause of the problem in 2004. He said “a”, but contrary to the claimants’ submissions, I do not think that he was drawing distinctions between “a” and “the” cause. He said that his understanding was that after the 2004 incident, the feet of the stator on the starboard ABB motor were welded up, and then welded into place, which appears to me to be likely correct.

When asked why nothing was done to check and improve the security of the other stator, he said that, “I do not believe they had any issues with the motor on the port side up until then … everyone was really confident that was okay. That is the only thing I can say on that”. The defendant submits that this and other answers demonstrate that Mr Murray was apologetic about what he realised was an embarrassing omission. I do not think that he intended to be apologetic, but even if he did, this does not seem to me to lead anywhere, because, although with the benefit of hindsight it may well have been better if such work had been done, it is necessary to see what in fact happened to the port motor at the end of 2005 through to June 2006 when the stator of that motor was inspected.

I have set out below in some detail my findings as to what happened in that regard. It was put to Mr Murray that the inspection would have showed that the port stator was secured in the same way that the starboard stator had been before the 2004 breakdown, with the risk that history would repeat itself. His answer, which I accept, was that at the time, they, that is the technical people on the ground, must have been happy with it. In fact, as set out below, the contemporary 2006 documents demonstrate that those who conducted the inspection then were satisfied that the port stator was in fact secure.

The passage in the cross-examination on which the defendant places particular reliance is as follows. Mr Murray was reminded of the Louis Allis email sent on 26 March 2009, and asked:

The “other problem” mentioned in the email was “poor design of the stator core fit to the motor housing”. The defendant’s submission is that, despite the outcome of the inspection in 2006, Mr Murray’s evidence was to the effect that there had been no change in the claimants’ understanding that this had indeed been the problem, and that it was not addressed in 2006 as regards the port motor, and that this was a material circumstance to be disclosed to the defendant insurer in 2008.

I do not consider that this is an accurate appraisal of Mr Murray’s evidence taken as a whole. If one is to analyse it minutely, I accept the claimants’ submission that it is reasonable to conclude that Mr Murray’s answer in the passage I have quoted was in fact a reference back to his earlier answers in which he said that it was thought at the time of the 2004 starboard breakdown that a (or the) cause had been the rotation of the stator. It “wasn’t news” in 2006 or 2009 that at the time of the 2004 incident there was a stator problem. In any case, my view is that the likelihood is that the claimants accepted what they were told in 2006 by those on the ground as to the cause of the problem, and I reject this submission on the facts. The detailed facts in this respect are set out below.

In the light of these conclusions, the question of inducement, that is whether Mr O’Connor would or would not have written the risk at all or done so on the same terms had there been complete and accurate disclosure, does not arise. (See as to the question, Drake Insurance plc v Provident Insurance plc [2004] 1 Lloyd’s Rep 268, [75] Rix LJ; [132] – 137] Clarke LJ; [162 – 164]; [181-182] Pill, LJ.) I need only say that I regarded Mr Moy as an appropriate witness to give such evidence, since Mr O’Connor was shown on reasonable grounds to be unavailable. Notwithstanding, the defendant has not satisfied me that Mr O’Connor would have proceeded in any way differently had he been told that there had been two hull claims on the vessel, or had he been told of the 10 days offhire in 2004.