The discord between a "mysterious disappearance" clause, which discharges the insurer from liability if it can prove that the insured's loss was mysterious, and the accepted position under an All Risks policy that the insured is able to recover by proving a fortuitous loss is clearly illustrated in Underwriting Services Ltd [2010] EWHC 3244 (Comm).
The facts of the case are simple: a loss occurred which the evidence clearly indicated was caused by theft, and the insurers failed in their attempt to invoke the "mysterious disappearance clause". Nonetheless, Gloster J elected to comment on a number of issues of principle, ruling that under an All Risks policy the insured was tasked with proving that loss had accidentally occurred, with no requirement to demonstrate the specific cause of the loss. Given that the insured had satisfactorily proven such loss, the burden fell to the insurer to illustrate that the exception applied. The challenge was whether a "mysterious disappearance" clause affected that position.
In Widefree Ltd v Brit Insurance Ltd [2010] EWHC 3671 (a case in which this firm acted successfully for the claimant), the All Risks policy of a jeweller included a clause which prevented the insured from recovering where it was "unable to prove the date and circumstances of any loss". The court held the impact of the provision was that the jeweller had to prove its loss regardless of the fact that the policy was All Risks. This statement however was obiter since the provision only applied to losses which were discovered during stocktaking and, as the court subsequently held, the loss was revealed under other circumstances.
In AXL, the judge identified that the wording of the clause in Widefree varied substantially from that in AXL. Thus the correct interpretation in the case before Gloster J was that the insured was required simply to prove a loss – not to provide the cause of such loss – after which the burden of proof fell to the insurers to demonstrate that the loss concerned was mysterious. The analysis raises the predicament for insurers of when, under an All Risks policy, they can establish mysterious disappearance. Gloster J put forward two possibilities:
- Insurers could convince the court that the evidence of the loss was so lacking with regard to the cause that it provided the real possibility that the loss was indeed a result of a "mysterious disappearance". Examples of such a case might include mis-delivery of goods or unauthorised delivery to an unknown recipient.
- Insurers could present evidence that a real possibility existed that the loss was caused by a particular type of "mysterious disappearance".
Gloster J held that there was no requirement for an all-embracing or exclusive definition of the circumstances comprising "mysterious loss"' as the definition will be dependent on the context. Nonetheless, it will commonly involve circumstances where the basis of the loss cannot be established or where any explanation of loss is suspicious or based on speculation.
In AXL however, there were no such concerns since the evidence strongly implied that theft was the cause of the loss, and thus even if AXL had been required to disprove "mysterious disappearance", they had discharged that burden.
"When you have eliminated the impossible, whatever remains, however improbable, must be the truth." Sherlock Holmes.
Consequences of the Judgement
Gloster J's ruling highlights the discord between All Risks cover and a "mysterious disappearance" clause.
Under the All Risks cover, the insured must prove solely that a fortuitous loss has been suffered, after which the insurers must demonstrate that some aspect of the loss was mysterious. It then falls upon the insured to disprove that assertion by proving how the loss happened, a concept which is entirely alien to All Risks Cover. A mysterious loss clause thus appears incompatible with All Risks cover, and any decision by an insurer to repudiate a claim on that basis should be scrutinised carefully
Edwin Coe LLP work with CCS and kindly contributed this article for your information.
Excellent article - thanks Edwin!
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