The High Court has ruled that a manufacturer claiming the “invoice value” of lost goods under an insurance contract governed by the Marine Insurance Act 1906 (the MIA), can claim the goods’ full retail value, notwithstanding that some of the lost goods were unfinished.

In Clothing Management Technology Limited v Beazley Solutions Limited [2012] EWHC 727 (QB), a British clothing manufacturer submitted a claim to its insurer following its loss of possession of goods being manufactured in a Moroccan factory. The factory was part-way through a large job for Clothing Management Technology (CMT) when the owner disappeared, leaving factory employees unpaid and unsupervised. The employees abandoned the job, and CMT was unable to salvage many finished and unfinished goods from the factory.

CMT’s goods were insured under a policy with Beazley which covered the loss of both finished and unfinished goods. The policy’s Basis of Valuation clause stated that the lost goods would be valued according to their “Invoice Value”. The quantum of the insurer’s liability turned on the proper construction of this expression.

In the course of his judgment, Judge Mackie QC commented that Section 16(3) of the MIA provides that the insurable value of goods or merchandise which form the subject matter of an insurance contract is the “prime cost of the property insured, plus the expenses of and incidental to shipping and the charges of insurance upon the whole”. He noted that previous case law had interpreted the “prime cost” to mean “the cost to the Assured, or the invoice or market value” at the time of shipment or when first at risk. The default position in marine policies is therefore that the insured value will be the market value of the subject matter of the insurance. On this basis, the market (and insured) value of a finished good would be much higher than the market value of the equivalent unfinished good.

However, the judge found that the correspondence between the parties and the insured’s commercial objectives on placing the insurance implied that the “Invoice Value” should be interpreted as the retail price at which CMT sold on the finished goods to its customers. CMT could therefore recover the value of its contracts for the sale of the finished garments to customers, despite the fact that some of the loss was in relation to mere rolls of fabric.

This decision demonstrates that insurers should avoid reliance on default provisions or on perceptions of common usage, and instead set out clearly the agreed basis of valuation, accompanying their chosen wording with unambiguous definitions.