Contingency Insurers bowl out IMG in Sahara Cup Case

IMG v Marcus Ian Clifford Simmonds and Others - The Sahara Cup case

1. The Background Facts

IMG claimed against its cancellation policy insurers in respect of losses suffered as a result of the cancellation of a cricket tournament between India and Pakistan organised by IMG and scheduled to take place in Toronto in September 2000. The tournament was known as the "Sahara Cup".

The Sahara Cup had run successfully between 1996 and 1998, but in 1999 the tournament had to be rearranged so that instead of India and Pakistan playing each other, two mini series were played between India and West Indies, and between Pakistan and West Indies. Although the 1999 rescheduling resulted in losses for IMG, these had not been insured because IMG had at the time only taken out standard cancellation cover and had not obtained any cover in respect of war and political risks. In 2000, IMG obtained insurance cover from the defendant insurers both in respect of cancellation risks, but also in respect of war and political risks. Although the contingency underwriters were initially unwilling to write the political risk element of the cover, they were persuaded to reconsider their decision based, in part, upon an e-mail from IMG in March 2000 and a facsimile from IMG the following month.

In August 2000, the Indian Cricket Board, the BCCI, informed IMG that the Indian cricket team would not be attending the Sahara Cup because it had been refused permission to go by the Indian government. (The Judge concluded that the government's political decision as communicated in this letter was the proximate cause of the loss, and not the hostilities in Kashmir.) A claim was submitted to the defendant insurers who, having investigated the claim, concluded that IMG were in breach of warranty because necessary permissions had not been obtained and also that there had been material non-disclosures and misrepresentations, in particular relating to the circumstances of the rescheduling of the Sahara Cup in 1999.

2. What was the cause of the 1999 rescheduling, and what did IMG know?

Although a number of documents produced by IMG in disclosure clearly suggested that IMG were aware that BCCI needed the permission of the Indian government before the Indian cricket team could travel to Toronto, IMG witnesses gave evidence to the effect that they did not in fact believe that permission was needed and merely took that position in correspondence to "humour" the BCCI or to avoid lawsuits from the Pakistani Cricket Board, the PCB. In rejecting their evidence, the Judge concluded:

"With the exception of Miss Trott, I regret to say that I did not find the evidence of any of the IMG representatives satisfactory. They were prepared to give answers they thought were best fitted to the case that IMG had chosen to make and to give a version of events which was contrary to the letters, faxes, e-mails and other documents to which they were referred in evidence, including those they had personally written or received and acted upon. Their efforts to explain away the contents of these documents were not credible and did not reflect well on their integrity. Where their evidence ran counter to the documents, I rejected it without hesitation."

In relation to the permission process itself, while the Court concluded that there was no clear juridical basis for the BCCI's application to the government and the grant of permission, both the BCCI and the government treated the application and permission process as necessary before teams could be sent abroad or before foreign teams could play games in India. The Judge found that IMG were clearly aware of this position both because of reports in the Indian press and of information given to them by the BCCI. The Judge rejected IMG's evidence that they did not believe what BCCI had told them, and he went on to conclude that the whole reason they had taken out insurance in 2000 was because of what had happened in 1999.

The Judge also concluded that the Indian government had clearly drawn a distinction between two nation tournaments between India and Pakistan on the one hand, and larger tournaments where other teams were also involved on the other hand. Thus, for example, in 1999, the Indian government had objected to the Sahara Cup but had not prevented India and Pakistan from playing each other in a triangular tournament in Australia. The Judge concluded that IMG were also aware of this distinction.

3. The terms of Cover

The cancellation cover was divided into two sections and provided both the "traditional" cancellation and abandonment coverage and coverage in respect of war and political risks. It was based upon the standard Lloyd's forms GC(J)92 NMA2540 and GC(A) NMA2394. The warranty was slightly amended to read:

"It is warranted that the Assured shall ensure all necessary licences, visas and permits are obtained within sufficient time prior to the insured event."

Under the information section of the slip, it stated:

"It is noted that the respective National Cricket Boards have already sanctioned the event. Previous losses:

1999

The 1999 Sahara Cup was replaced by the Toronto Cricket Festival being a two three match series between West Indies and Indies (sic) and West Indies and Pakistan due to the political situation prevalent at the time."

Under the standard conditions, it was a condition precedent to the insurance that the assured had no knowledge of any matter of fact or any circumstances, actual or threatened, that increased or could increase the possibility of a loss under the insurance.

4. The Key Issues

The main issues before the Court were:

1. Had there been a breach of warranty?

2. Had there been material misrepresentations and/or non-disclosures, which had induced Underwriters to enter into the contract?

3. If inducement were established, should there be a presumption of inducement in respect of the one Underwriter who did not appear to give evidence?

4. Could the followers rely upon the fact that they were unaware that an unfair presentation had been made to the Leading Underwriters, as per Aneco?

5. Had there been a breach of the condition precedent (and, if so, was it necessary for Underwriters to show inducement)?

5. Was there a breach of warranty?

The Court concluded that there had been a breach because although the permission of the Indian government may not have been legally necessary, it was necessary in practice. The Court accepted that the warranty had to be construed against the background of section 1 of the wording, which had given cover in respect of "the withdrawal of any previously issued necessary permits, licence or visas". Although the Judge accepted that there was nothing that IMG itself could have done to achieve the result because it was a matter between the BCCI and the government, it made no difference because "the word 'ensure' means exactly what it says. This was a warranty that had to be strictly complied with and it was not".

The Judge rejected a submission by IMG that government permission did not fall within the natural meaning of the word "permit".

6. Misrepresentation and non-disclosure

It was common ground between the parties (and settled law) that there was no need to disclose facts or circumstances which fell within the warranty. The Judge nevertheless concluded that, but for the breach of warranty, there would have been a number of material non-disclosures relating both to the government's involvement in the change in the 1999 arrangements and in relation to the need for government permission for the team to play in 2000. The Judge also concluded that there was a nondisclosure and unfair presentation with respect to the difference in government policy between triangular tournaments in which India and Pakistan were involved and bilateral matches. Included within the matters which the Judge concluded should have been disclosed were the contents of an e-mail which IMG India had sent to IMG London on 1st March 2000. That e-mail had said:

"A number of people including prominent journalists and 'well connected' people with the Board have come up to me in the last few days saying that they feel there is no way the Indian government will allow India and Pakistan to play a head to head series such as Sahara Cup.

None of these people have any back-up for these feelings…

It is a general feeling that if India and Pakistan can play against each other in tournaments including other teams but how that passes the acid test, I can't explain…"

IMG argued that this was merely a reporting of loose rumours or gossip and they relied upon previous decisions, including the seminal judgment of Carter & Boehm, to support the argument that such matters were not material to be disclosed. The Judge rejected IMG's arguments, saying that even if the insured were satisfied that the report or rumour was incorrect, the information must be disclosed if it would influence a prudent underwriter. He also rejected the argument that this was a loose or vague rumour and held that it was highly relevant intelligence. The judge rejected IMG's argument that journalists and "well connected people with the Board" were the same, referring to "Mr Krishnan's disengenuous evidence".

Against this background, the Judge concluded that a separate 14 March e-mail shown to Underwriters did not represent a fair presentation of the risk and that an April facsimile presented to the majority of Underwriters failed to disclose the true position in relation to permission and the role of the Indian government. The Judge was satisfied on the basis of the evidence of the Underwriters that each misrepresentation and non-disclosure induced underwriters to underwrite the contract.

7. Would a presumption of inducement operate in favour of the non-appearing Underwriter?

One of the Underwriters did not give evidence because he had since left the employ of the relevant syndicate and refused to co-operate due to an ongoing dispute over his entitlement to confidential information. The Judge rejected IMG's submission that he should find against the syndicate on the basis that the underwriter could have been subpoenaed to appear. He said that it was plain on the facts that the syndicate was entitled to rely upon a presumption of inducement as found in the leading cases on this issue, including St Paul Fire & Marine v McDonald Dowell, and most recently Aneco v Johnson & Higgins.

8. Could the non-disclosure to the followers of an unfair presentation to the leaders be relied upon?

The Judge concluded that, whilst each of the following underwriters made their own underwriting decision, equally they placed considerable reliance upon the leading underwriters. The evidence of the brokers had been that the risk could not have been placed without the two leaders and that if either of the leaders had dropped out because their subjectivities had not been fulfilled, they would have gone back to the following market to ask them what they wanted to do. The Judge concluded that in this context, particularly in a specialist contingency market where the risk included a political element, the reliance upon the leaders was self-evident. He therefore concluded that the situation was comparable to that in Aneco v Johnson & Higgins and International Lottery Management v Dumas such that the followers were entitled to rely upon the fact that they had not been told that a fair presentation had not been made to the leading Underwriters.

9. Was inducement necessary for the purpose of the condition precedent?

It was common ground that the effect of a breach of the condition precedent was the same as avoidance such that if it had been breached the policy was of no effect and the premium would be returned. Underwriters argued, however, that not only did the terms of the condition precedent extend the scope of the information which had to be disclosed, it also was not necessary for underwriters to show that they had been induced. All that was necessary was that the condition precedent had been breached. The Judge did not rule on the first issue on the basis that he had already concluded that the misrepresentations and non-disclosures were material, but he agreed that there was "no basis and logic for any argument that any inducement is required for any Underwriter to take advantage of the provision". The net result was that underwriters would have succeeded in their defence of the claim even if the court had not accepted that the non-disclosures and misrepresentations had induced them to enter into the contract.

10. Helpful Precedent

The judgment is a helpful precedent both for the contingency market and the insurers more generally as it establishes that:

• The contingency market warranty should be construed in a practical way, to include any permissions which are in practice necessary for the insured event to proceed
• It reaffirmed that, in some circumstances, the market is entitled to rely upon the expertise of the leaders, such that an unfair presentation to the leaders can be relied upon by the following market
• It will be easier for underwriters to avoid the policy where the condition precedent wording applies because it will not be necessary for each underwriter to show inducement

For further information please contact Anthony Hobkinson at [email protected] or on +44 (0)20 7367 2892 or Anna McCullagh at [email protected] or on +44 (0)20 7367 2814.

Counsel for Underwriters were Dominic Kendrick Q.C. and Jawdat "Dodie" Khurshid, both of 7 King's Bench Walk.