The Galatea Basis of Agreed Value: Market Value or New Replacement Value?
The claimant insured in the recently decided case of “The Galatea” purchased a new 35m motor yacht M/Y Galatea for €13 million in 2007. The yacht was insured under the “all risks” American Yacht Form R12 policy wording by the…
The claimant insured in the recently decided case of “The Galatea” purchased a new 35m motor yacht M/Y Galatea for €13 million in 2007. The yacht was insured under the “all risks” American Yacht Form R12 policy wording by the defendant underwriters for an agreed value €13 million in 2011.
The yacht caught fire at her mooring in Athens in late 2011. She suffered extensive damage and as a result thereof was a constructive total loss. Following the loss, the underwriters reserved their rights - the underwriters’ principle complaint being that the yacht was over-valued.
The English Courts recently held that, on the facts of the case of “The Galatea”, the underwriters were entitled to avoid the contract of insurance from inception because the insured, who has represented the market value of the yacht to be €13 million, had failed to disclose prior to the inception of cover that:
a) a professional valuation of the yacht valuing her at €7 million had been obtained in 2009; and
b) it had decided to market the yacht for sale with an asking price of €8 million (together the “non-disclosure”).
The non-disclosure was found by the Court to be material because the custom and practice of the London yacht insurance market was to insure yachts on an agreed value based on a yacht’s market value at the commencement of the insurance.
The result would have been very different had M/Y Galatea been insured under the Pantaenius Superyacht Clauses (“PSYC”) because:
PSYC makes it very clear (at Section A 3.1) that:
• A yacht insured through Pantaenius is insured for an Agreed Fixed Value (which is based on the new replacement value of the yacht at the commencement of the insurance); and
• The insured will not be penalised for under-insuring or over-insuring the value of the Yacht.
Accordingly in the light of the above express provisions of PSYC, the non-disclosure in The Galatea would not have been material and the insurance contract would not have been avoided because an insured under PSYC is not penalised for under-insuring or over-insuring the value of the Yacht.
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