Innocent over-valuation of insured property may entitle insurers to avoid a policy on grounds of material non-disclosure. There are no South African judgments on the point but an English court, dealing with a claim for a constructive loss of a super-yacht, “The Galatea“, reluctantly confirmed it was possible.
In Involnert Management Inc v Aprilgrange Limited & Others the yacht was lost by fire. It had been insured under the policy for €13m. Before the cover was placed, however, it had been professionally valued at about €7m, and at the time of the loss advertised for sale at €8m.
The prudent underwriter would not want, at least without good justification, to agree an insured value significantly higher than the insured’s own estimate of (in this case, the yacht’s) value. The underwriter does not want to create a situation where the insured does not have the same interest as the insurer in avoiding a loss because it is clear that the insured would hope to be better off financially if a loss occurred.
The judgment contains a useful review of the law of over-valuation which is likely to change in 2016 under the new English Insurance Act of 2015.
In South Africa, principles similar to those enunciated in The Galatea judgment will be applied subject to proof of materiality. A court would be less hesitant to avoid a policy where there is negligent over-valuation.