Thursday, September 22, 2005

God bless eunice's exam!

MI is the starting point of insurance law
1st form of insurance to be developed, from the Mediterranean
Moved as a result of political upheaval in the continent to UK
Flourished in UK by Lord Mansfield (father of English commercial law, settled many principles of Marine Insurance Law)
Then spread into fire insurance

Within M. context, principles developed that were applied to new forms of insurance as they developed in the market.

Insurance contract law is not separate from contract law, it is merely a specialised form of Contract Law
Nature of litigation: largely dominated in UK by insurance
Gen contract law is often being developed through insurance litigation

**Arnold, Law of Marine Insurance & Average (carries a lot of authority in the courts but not user friendly
Statute: Marine Insurance Act: the annotated copy- *Ivamy or Merkin(this 1 has more detailed annotations)

>>Ivamy & Lamberth: don’t open them
Good Book: >>> Merkin Insurance & Contract Law (but could be out-dated)
--- Rose

Marine Insurance Law & Contracts

1906 MI Act: designed not to reform the law- purpose was to state the principles that were already being articulated by the courts (the law therein could be 300 years old and even more out of date)
What Mansfield said in 1700 was codified in 1906 MIA.
Singapore has 1906 MIA (applied in Singapore through the Application of English Law Act 1993)
M’sia, Aus, Canada (recent adoption)
Although USA has no such act, it has followed UK law on MI. but there is tussle between federal & state law. US law: in matters of Maritime Law, UK law should be followed, unless there are special reasons not to do so. (position is not the case for state law)
Federal USA does not have MIA 1906, but they follow the same common law, there are differences but there are more similarities.
By & large, common law has same principles for MI Law.

Who provides Insurance? To answer this: put yourself in the position of a ship owner who has 2 concerns: 1) physical condition of the ship 2)liability
When MI started, 2) was not such a major concern but various forms of liability developed over the years (e.g. passenger liability, massive cross Atlantic traffic; cargo liability; environmental liability: that of pollution etc.
Ship owners need property & liability insurance cover

Traditional insurers operated only through Lloyds: an insurance market through which individual insurers do business
Insurance in Lloyds had an effective monopoly of the marine insurance market. (They however won’t keen on liability insurance, only offered property insurance)
But as liabilities developed particularly in 19th century, the need developed. A different insurance structure was revived for the purpose of offering liability package- a mutual insurance association- now called P&I club (most commonly encountered form)
Protection & Indemnity Insurance
19th Century Ship owner went to Lloyds for property insurance over your haul & P&I club for liability cover.
1824 lifting of Lloyd’s monopoly: more companies could offer insurance for ships.
Outside Lloyds, now have property insurance for ships. Liability cover- generally offered separately by P&I company

2 types of insurance are different.
Insuring a ship as a piece of property: same underlying commercial bargain as insuring car (ship is a chattel, like a car) “I’ve got this chattel, can you please insure against anything going wrong?” – takes the ship into account, the owner into account (whether accident prone etc)
Premium is fixed @ beginning: no more/no less
If chattel is destroyed in the course of the year, the insurer has to pay out to you more than he has received from your premium.
In fixing premium, insurer has to cover it’s own administrative & payout cost and also must consider profit/loss.
This is not the case for mutual I. A P&I club is a co but it is controlled & owned by it’s members who are the ship owners: there are no shareholders behind the P&I club- P&I club is not a profit-making organisation. It only needs to generate enough money to cover costs, but no need to make profit.
P&I clubs clearly offer liability cover. Also something else: troubleshooting expertise.
E.g. : if your ship is arrested by a local authority @ a port: ship owner doesn’t know what happened- only knows that there was a panic report. Ship owner has language problems in that port. Ship owner will have P&I club support to solve that arrest. P&I clubs have decades of experience in solving practical problems. Some times they know the legal systems, who to ‘bribe’, technical expertise.
Another e.g. vessel dock in port: coming from port in cool whether but went to port in warm weather: there was a stow-away- who had died en route. Etc

P&I club takes the lead to help ship owners sort out the mess. Their expertise is something that conventional insurance cannot manage. Conventional insurance offer liability cover but that hardly works. Therefore ship owners decide to split their coverage: protection with insurance co & liability with P&I.

Although they don’t have to profit, they still need to cover costs: they fix the premium (not technically ‘premium’ in legal sense)- but it is an estimate that they give on what the club needs from you
The club retains the right to ask for more if there is not enough money to suit your demands on their resources. If they have more things to do (more accidents, more pollution etc) they will probably ask for more. It is an open-ended arrangement. But in practice they avoid making such supplementary calls; because could be regarded as evidence of bad-practice by the managers of the P&I club.

Insurance companies have no such rights.

Understand that there are 2 different species: insurance contract- signed, sealed & finalised. Profit making
P&I club- non-profit making, provides insurance cover + troubleshooting, signed but open ended.

Property insurers in UK have certain market organisations that provide bureaucratic services: in particular there use to be the Institute of London Underwriters
- A forum that developed standard forms for use in MI markets, thus they are called the “institute clauses”
- But because of market re-organisation, it is now the IUL (international underwriting association of London)- now called international clauses. But most of clauses in-use are still institute clauses. Int. Clauses are developed by global insurers, both inside & outside of UK

Marine Insurance
Insurance: what is it?
- Impossible question to answer
- There is no clear legal definition of an insurance contract anywhere
- Characteristics commonly found in Insurance Contract- basic bargain involves assured paying $$ (called the premium) in return for the transfer of risk to the insurer:
o *idea of risk transfer that is @ the heart of an insurance contract. If some adverse eventually occurs, the insurer then pays $ to the assured. But it can be difficult to distinguish Insurance from other forms of contract: e.g. contract of guarantee.
- Basic legal principles attach to Insurance Contract that do not attach to general Contract. e.g. law of misrepresentation- basic contract law: silence is not a misrepresentation. Contract law allows you to withhold information. But not for Insurance Contract Law. You must volunteer without insurer asking. You must voluntarily declare anything that is relevant to the risk. You must volunteer the information (name change of vessel, if ship-owner has been previously convicted) ***therefore very important to distinguish between Insurance Contract and general Contract

What makes Insurance MI?
- with an MIA, that act answers the question. Establish what is its scope: First three sections of the act.
- It says that the subject matter of a MI C is an ‘marine adventure’- marine adventure consists of the exposing of ships, goods/money (e.g. freight) to marine perils/ the incurring of liability through the exposure of a ship to marine perils
- Problem: insuring of cargo: cargo doesn’t just go from port to port. Starts in factory in-land, loaded on ocean going vessel, off-loaded later. Middle portion is appropriate for MI. how about the other bits? Extremely awkward
o S2(1) MIA- this subsection allows a Contract of Marine Insurance to be extended to inland water/ land transit which is incidental to any sea voyage (therefore Marine Insurance Contract can be extended to the whole transit: not a must but it is an option). If this option is taken up, then the whole contract is of Marine Insurance (disclosure repercussions). the standard cargo policies these days always extend cover to the full transit.
• This area is still problematic:
• 1) technically s2(1) extends coverage but does not cover ‘inland air transportation’- 1906 provision.
• 2) not just any land/water-in-land transit: must be incidental to sea voyage.
o Another related issue: what does incidental mean? (there is a sea voyage/is there a proportion issue?) UK channel is narrow, goods that come from central Europe (low labour costs). Can we say that the inland European voyage is incidental to sea voyage? There is very little authority on this term ‘incidental’.

Why does it matter whether Contract is of Marine Insurance or ordinary Insurance?
- generally it doesn’t
- for most purposes, law of Marine Insurance doesn’t differ from general contract law but in some respects it does.
o E.g. if there is property damage (not destroyed, just damaged, can be repaired but repairs are expensive. Economic write-off. That is in MI a constructive total lost. But doctrine of constructive total loss does not exist outside of Marine Insurance.
o Secondly, if insurance contract is concluded but premium is not paid: who is liable to the insurer for the premium? The assured (for non- MI). But not for Marine Insurance- liability for the premium lies with broker who placed the risk therefore insurer in Mi can only sue the broker and not the assured.
o Additionally, there are problems that can arise in Marine context but not elsewhere: e.g. phantom ship fraud. Phantom ship is a ship that usually has been stolen in the past, given a new name (painted over) & not registered as ships are supposed to be (have nationality, fly that country’s flag & register with that country’s authorities- false registration & name. used by fraudsters to take onboard cargo & sail away. Cargo stolen & sold. Ship is then either sunk/recycled. How insurance law responds to Phantom ship is vital but seems to be lack lustre
- There is relatively few e.g. of MI/non-MI. Captain Penagos (introduction to another insurance product.) be a bank. Ships bought by assured using money from bank loan. banks are always concerned to get $ back, where to get it from? Assured promises to re-pay money but bank wants more. Bank takes security right over the vessel (mortgage over the ship) = but bank is worried that in the event that the ship sinks, the mortgage would be rather pointless: assured says it’ll insure the ship and arrange for the bank to have the benefit of the insurance contract. There is an assignment (transfer of intangible property) of the policy to the bank. Bank can grab insurance proceeds instead of the ship that has sunk. But there is a problem: what if assured doesn’t pay premium/other problems to do with the insurance contract? E.g. if policy says that insurance company does not have to pay $ if not paid. Or if the assured was not forth-coming with information- misrepresentation thus insurance policy is voidable. Bank thus needs more protection in case the contract doesn’t work. Therefore there is a second insurance contract with insurer no. 2- a mortgagee’s interest policy- insurance contract covering bank’s interest as mortgagee of the ship. **back up in-case the earlier policy fails.
- In Captain Penagos- whether 2nd IC is marine/non-marine. Answer to that question affected the amount of money that had to be paid by insurer. Difficulty is to know what is the subject matter of the contract because it is designed to cover bank’s exposure in the event of failure of policy 1. Does the bank have a marine adventure? Muster J- depends on the wording of the policy:
o does it focus on the ship? If yes: then it is marine.
- On the facts, it was. Therefore Captain Penagos gives a precedent for drafting if you want second insurance contract to be marine, but doesn’t say that all second insurance contracts for marine insurances are marine insurance
- Issues of difference between marine & non marine (vital?)

Ship with cargo in haul: can be C- property C[contract] for Hull (from Lloyd’s); liability policy with P&I club; each & every cargo owner will have a policy of cargo insurance, ship may be on charter so owner has haul & machinery policy, contract for hire for ship called charter party, owner of freight will have insurance contract on freight, likewise whoever stands to be paid freight will have policies to cover freight that is @ risk, plus mortgage’s contract on ship- thus can be thousands of MIC on 1 ship. All marine insurance contract.
International Sale of Goods- CIF contract- seller has to supply insurance on cargo. If study carriage of goods by sea, charter’s owners will have policy to cover goods also.

Marine Policies and Terms
Mixture of institute and management clauses
- modern MI clauses are simpler
- used to be rather arcane, post 1980s- policy wordings were cleared. Now there is a basic & simple policy document.
- See sample- basic policy with a lot of blanks to be filled. In terms of substantive contract law there is very little in the basic policy & not much more in the schedule that is attached to it. 1st 4 sides are the basic policy, then you see the Mar91 Schedule which is optional. If it is attached to the form, it provides for certain basic information, period of insurance, premium amounts etc.
- At the top, there is also an exclusive jurisdiction clause in favour of UK courts. That schedule, unless the jurisdiction clause was deleted would make the dispute settlement jurisdiction in UK
- Substantive clauses are in attached documents
- Assureds do not go directly to insurers, they instead go through intermediaries called brokers. Brokers are in law the agents of the assured. They are not to act for the insurers.
- Broker presents the risk to the insurers therefore any misrepresentation/non-disclosure stems from broker
- Brokers like all intermediaries are under threat because people ask why do we need them when there is now electronic communication. Brokers sell the fact that they say that they’ve developed clauses to make contracts work better: all main brokers have their own clauses, supplementary clauses added to the standard institute clauses to flesh out the contract. A matter of debate as to the quality therein.

Contract consists of basic policy + standard clauses + broker’s clauses

Standard clauses (institute & international clauses) can be divided up in a few ways
- These are issued separately for different types – cargo/hull/freight clauses
- For most purposes the freight clauses are very similar to hull clauses, most specific terms are identical. (Focus here is on cargo & hull because hull [includes] frieght)
- Within cargo & hull there is distinction with marine risk on 1 hand & war/strikes risk on the other.
- Historically no such distinction- before late 19th century, a marine risk (storm @ sea/fire) war risk (enemy action) strike risk (union action). But advent of torpedoes/ submarines/ weaponry – thus different risks for the insurer cause they are supposed to calculate risk. Contra canon ball & torpedo damage. Also there was change in political complexion in maritime trade: British navy started to lose its power especially in growth of US & French vessels.
- Marine underwriters in London were afraid that the UK navy was not strong enough to win battles- therefore needed separate risks for marine & war
- Thus marine risks today expressly excludes war risks and strikes risks.
- Hull insurance: 1 set of word that covers marine risks (M.R) but there are 2 variants on that wording depending upon the period of cover. You can insure ship either for voyage/ for period of time (time policies v. voyage policies). In practice usually time policies. Equivalent of 1 calendar year by force of law, not allowed to be >1year for tax reasons. (stamp duties on MIC, 1 tax/ MIC/ year= a lot of $) But that is no longer the case now, but practice is still for 1 year. Singapore still has the 12 month mandatory statutory limit. Vessels assured for voyage only in exceptional circumstances: e.g. for last voyage (taking vessel for scrapping) or for repairs (to send vessel for repairs after being damaged)
o 2 sets of clauses introduced in 1983: 1 10 1983- (voyage basis insurance clauses) and (time basis insurance clauses).
o Then insurers were concerned that the claims being made were that the vessels were not being properly maintained, ship owners were being negligent: cutting costs- employing incompetent crew to save money.
o They sort to find a way to avoid paying out when the ship owner was not living up to the unspoken part of the bargain. Insurer will pay out when you pay premium but the insurer should be entitled to assume that the ship owner would take care of the ship as a reasonable ship owner would.
o But Marine Insurance Law has no defence for insurers against lacklustre ship owner. Market response to inadequate law was via contract. Contracts to cut out payments in respect of negligently maintained vessels. See item xi (1/11/95). Also the institute
o Market is very fickle, basic supply & demand problem. With surplus of insurance capital- a lot of insurers will cause brokers to drive a hard bargain to lower the premium rate. Then there are casualties and insurers make big loses: capital move out of marine insurance markets. MI market contract. Market hardens and rates go up again. Historically market works on a wave. But market is soft against insurers most of the time; brokers have a lot of leverage. In 1995, introduction of clauses at a time that shows what market wanted: used sometimes but not often.
o Post 1995, still using 1983 clauses.
o But since then, IUA – international hull clauses in 2002, amended in 2003 (item xiii)- as a result: technically active in the market: 3 sets of clauses, 83, 95 & ’03. too early to say how 03 clauses are going, they have been used but it has not been very successful. The wording that is most commonly used in London hull market is still 1983 clause, followed by 2003 clauses and lastly by 1995 clauses. But it depends on who you are. Leading hull underwriter said that depends on what sort of ship-owner you are; strongest protection against substandard shipping is in 1995 clauses [best for insurers], weakest in 1983[best for ship owners], 2003 are somewhat in middle. New ship-owner w/o track record/ … but reputed owner with good track record you can have whatever terms you want. But some underwriters are not too keen on 03 clauses.
• Hull marine insurance: for time insurance (3 sets of clauses, most common is 1983). For voyage insurance (‘83 clauses)
o War risks and strikes risks: distinction is again whether for time/voyage. Clauses from 1983/1995.
- Cargo insurance: for voyage/journey only – not for period of time. Sometimes that journey is defined a bit by reference to period of time (e.g. until cargo is unloaded at destination with a few days at port). Not that some MI Law distinguishes voyage polices and time polices. All cargo policies are voyage policies.
o Marine risks: 3 basic sets: Cargo Clauses A,B,C
o CC A_ all risks cover: deceptive because a lot of risks are not covered in all risk because there are a lot of exclusions-
o CC B_ and CC_C operate on ‘named perils’ basis: cargo assured on identified perils basis. B & C clauses differ because C clauses have shorter list of perils. In practice, cargo is insured on either A or C. **B clauses used in exam: they are general but with some cargo that are prone with particular types of loss: e.g. peril of fire covered under standard institute fire clause but because coal can start to heat & cause danger without causing flame. But fire has element of ‘flame’- therefore there are coal clauses to add peril of heating to peril of fire. Similarly refrigeration- what happens if fridge breaks down on top of insurance for frozen food.
- Separate clauses for war/strikes. In contrast with hull clauses, war & strike are dealt with separately for cargo. Why kept apart? What is the difference?
o Difference goes back to Spanish civil war in 1930s. The Germans took opportunity to try out their air force. Attack old town in Spain and utterly destroyed the town in short time. First time hostile air power used against civilian air target. 1st of 3 journalist at the scene worked for UK press: described it as a horrendous war crime. Horrors at Gwen. London underwriters read that and thought that if they had insured the property in that town: because of the sheer vast amount of property that could be destroyed with the advancement of weaponry. Scale of destruction is such that the insurance market could be wiped out in a matter of hours. Concluded that war risks had moved on, must separate and treat differently from marine risks. No more insurance on war risks except in certain specified situation- war and civil law exclusion – under that there are dozen derogation: will ensure this type of property against war risk subject to certain automatic termination clauses. E.g. nuclear war
o For cargo the difference lies in where the cargo is. Worry is that you get a lot of cargo in 1 place and the insurers go bankrupt because of the payout. Difficult to have that vast amount of cargo on ship. Thus can insure against war risk if cargo is on ship (if it is a float: waterborne) this market agreement is only on war risks.
o Can have cover on strikes risks although cargo is on land.
o Think about duration of cargo cover- the standard cargo cover starts from departure from 1st factory, transit after transit- but war clauses do not cover inland transit. Duration of war risks cover only when cargo on ship. If goods in warehouse and damaged by bomb: no war coverage.
o But for strikes risks- there is no such fear of being wiped out by bomb: therefore the duration of strikes cover is the entire transit-

Insurance contract is a contract of indemnity. What does that mean?
- The non-marine insurance approach towards indemnity: if you have a damaged car that was indemnified, you get the value of the car at the time of the accident, not the amount of the damage
- Premium for new cars. Expect that a month or so after taking delivery the new car loses 15-20% of its value. But if you made improvements to the car (new music system to the car etc) adds value to the car. Determine exactly what the car was worth at the time that it was written off
- What was the market value of the car at the time that it was written off?
- Marine insurance has a different take on this: unvalued policy: cargo of ship that has total loss: value at the time that the risk commences on the contract: as an assured you are put back financially at the time when you attached the risk to the policy. Therefore default position is not the position of true indemnity that conventional rule has adopted. It is justified with the rule of convenience: ships can vary in terms of their market value: depends on the work that it has to do. Value of ships rises rapidly if there is a lot of cargo to transport.
- How about valuing cargo that is partway through a voyage? Point of shipping cargo is because you can sell it for more. If it sinks ½ of the way through the voyage, what is it worth? Thus take value of the cargo at the time risks attached.
- Reality is that in marine insurance the policy nearly always says something to the contrary.
- Marine insurance always contained an agreed value: thus policy is valued policy. Agreed value is very important. S27(3) of Marine Insurance Act- an agreed value is conclusive evidence as between assured and insurer of the value of insured property.
- With agreed value, neither assured/insurer is allowed thereafter to claim that the property is of a different value. This means that if property is a total loss, the assured receives the agreed value and not the market value of the property.
- It is possible but extremely difficult to re-open that value.
- E.g. of gross disparity between the market & agreed values; 1968: value agreed between assured & insurer on the assumption that the vessel was undamaged. But this wasn’t true: truth was that the vessel had been extremely badly damage that this vessel was an economic write-off. Its real value was actually next to nil. But agreed value was fixed to the agreed undamaged vessel. Agreed value is conclusive evidence of the value of the vessel
- Draw the distinction between agreed value on one hand and sum insured on the other. Sum insured is the maximum exposure of the insurer on the policy: if you have a policy of household goods on belongings at home there is likely to be a sum insured on that policy. $x00,000. if there is a fire and all belongings destroyed you do not get the sum insured, but rather you get the value of the belongings up till the value of the sum insured. The insurer is entitled to have you prove the exact assets you have plus the value on that day. There can be difficulties of interpretation as to whether figure is an agreed value/sum insured.
- Authorities support 3 propositions:
o 1. If the contract says the insurers will indemnify no exceeding/up to a specified amount: that amount is the sum insured and not the agreed value
o 2. No particular wording is needed to create an agreed value. No labelling of ‘agreed value’ is necessary but just because one part of the contract seems to contemplate that there will be an agreed value doesn’t follow that the figure in another part of the contract will necessarily be that agreed value unless it is appropriately worded. E.g.:
o 3. a figure that is expressed to be a sum insured can also be an agreed value if the policy makes it clear that it is to have that dual function. Figure can be sum insured + agreed value
Valued v. Unvalued Policies
Marine Insurance Act 1906, s 27(3)
Barker v Janson (1868) LR 3 CP 303

Agreed value v sum insured
(agreed value better for the assured if the agreed value > market value)
(assured does not need to prove market value if there is agreed value, but needs to do so if the policy is an unvalued policy: sum insured only)
(insurer is the one that usually seeks to challenge agreed value)
Kyzuna Investments Ltd v Ocean Marine Mutual Insurance Association (Europe) [2000] Lloyd’s Rep IR 513
- Yacht policy. Special institute yacht clauses, similar to standard Institute hull clauses
- Yacht policy had a term concerning constructive total loss: said that whether sum appearing in schedule as the value of the insured property. If there is a term that somewhere else there is an agreed value. Policy also incorporated the institute yacht clauses: 2 provisions have the clauses referring to an insured value
- There are 3 points in policy where it is clearly contemplated that there will be an agreed value. But looking at the remain insuring clause: the insurers will indemnify up to the amount agreed herein (which is the sum insured); looking at the schedule: the only figure anywhere in that schedule described itself as sum insured and not agreed value
- Issue: whether valued/unvalued policy
- In the context: sum insured had to be agreed value. But that argument was rejected and held to be an unvalued policy. Sum insured has a clear meaning. Fact that policy contemplated that there’d be an agreed value in some situation was not enough.

When can you re-open the agreed value? Case law shows that it is always the insurer that is seeking to challenge the agreed value.
1. Fraud (s27(3) MIA expressly contemplates that if valuation is fraudulent, it can be re-opened) but it is very difficult to prove fraud and few cases to prove fraud
2. Less difficult but still not easy way: homing in on distinctive characteristic of insurance contract: assured has to volunteer all information necessary to evaluate risk. Insurer wants to know if the vessel is heavily over-valued.
• The assured may run out of money when the vessel sinks (coincidence?)- no money to pay premium. The vessel maybe worth more when it’s sunk: agreed value >market value, assured sinks the ship. Insurers must know if the ship’s overvalued or not. But it is common for agreed values to exceed market values (normal overvaluation). There is acceptable overvaluation
Strive Shipping Corp v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Grecia Express) [2002] 2 Lloyd’s Rep 88 at 158
- You don’t have to disclose overvaluation unless it is so great that is calls for an explanation when judged against normal commercial practice
- Where proposed value is consistent with reasonably prudent ship management, the excess market value … whether there is a reasonable explanation for the disparity?

Vessels purchased using mortgaged finance have to be significantly overvalued because banks require this. Banks often require 130% of the loan per the value of the ship, thus creating overvalues

Utmost good faith and agreed values
Inversiones Manria SA v Sphere Drake Insurance Co plc (The Dora) [1989] 1 Lloyd’s Rep 69
Ionides v Pender (1874) LR 9 QB 531

(a) Duration Of Cover: Time & Voyage Policies
There can be mixed policies.
- When vessels were more commonly insured for voyage, they’d be insured for voyage until they arrive @ destination + x days after (a mixed policy)
- Distinction between Time & Voyage policies: s25 MIA: note definition of time policy: time policy arises when there is a definite period of time defined in the contract.
- What does definite mean? P&I clubs insure on a time basis (annual basis: year starts noon 20 Feb to noon 20 Feb of the following year) vessel remains under protection of P&I club until and unless notice to terminate service is given by either party. This means that when you 1st enter the vessel with the P&I club, you don’t know how long the vessel will be with the club (can be any number of years)

Marine Insurance Act 1906, s 25(1)
Compania Maritima San Basilio SA v Oceanus Mutual Underwriting Association (Bermuda) Ltd (The Eurysthenes) [1976] 2 Lloyd’s Rep 171 (“definite”)
- ¬whether P&I policy is a time policy for the purposes of the MIA. Important because there was question in case as to whether vessel was sea worthy. Must sea-worthiness is dealt with differently depending on whether it is a time/voyage policy. Sea-worthiness is absolute defence for either one
- Definite did not mean that you needed to know exactly when the coverage would stop.
Institute Cargo Clauses (A), (B), (C), cl 8
- S2(1) MIA allows marine policy to be extended to cover inland legs of journey. This used to be done in warehouse-to-warehouse clause (risk attaches form the moment goods depart from warehouse and arrive at destination warehouse)
- Modern successor to W-to-W [clause 8 A,B,C; clause 5, war /
- Clause 5 war clauses to cargo is different:
- Clause 8: Ints. Clauses A- 8(1)- ordinary course of transit: insuring cargo throughout ordinary course of transit. Case law on this. 8(1)2 gives e.g. as to what is not ordinary course of transit: therefore risk terminates
- 8(1)3: risk terminates on expiry of 60 days … if nothing else happens, risk terminates 60 days after unloading @ port of discharge

Marine Insurance Act 1906, s 2(1)

(b) Burden & Standard Of Proof

(1) General principles
Civil law standard of proof on a standard of probabilities: proved if all evidence before court allows court to conclude that it was more likely than not that something happened: 51%.
Once Court considers evidence, it is able to make finding 1 way or another- doesn’t mean that the court is definitely right: only that the 51% standard of proof is satisfied.
Contra the higher standard of proof in criminal law.
But there is possibility that after hearing evidence the court doesn’t know what decision to take: all unconvincing.
Unable to concluded whether something happened.
In this case, the assured loses because the assured carries burden of proving that there was a loss that falls within the terms of the policy. (He who alleges must prove) there was a loss and the loss was caused by insured peril and loss occurred during the time of the policy.
Not for insurer to disprove that.
Insurer can prove that the goods were damaged before/after the risk. But he does not have to succeed in proving that to win.
If court cannot decide when the damage was done- the assured loses.

Issue of burden and standard of proof is important in marine insurance

Important case
Rhesa Shipping Co Ltd v Edmunds (The Popi M) [1985] 1 WLR 948
- fairly small vessel loaded with sugar. Sank in Mediterranean sea off the coast of Algeria in deep water in calm weather. Vessel did not sink because of bad weather
- if ship sinks in calm weather, we can suspect that the vessel was scuffled. Hard to dive down to see what happened.
- Insurers suspicious: but fraud is difficult defence to run: have to prove/plead it. Not allowed as a matter of procedure just to say fraud: must say on what basis you allege a fraudulent sinking. Hard to get evidence.
- Insurers here didn’t allege fraudulent sinking. Assured claimed on the basis of perils of the sea (accidental sinking: not enough that vessel sunk, cause of it has to be an accident)
- Assured sought to get an explanation: claimed that vessel sunk because it collided with un-identified submerged submarine. Not exactly plausible- but best excuse that the assured could come up with. Insurers denied it.
- Insurers alleged that the reason why vessel sunk was because it was too old. Ordinary wear & tear
- Trial judge was able to make one finding: held that insurers defence of ordinary wear and tear was not proved: it was rejected.
- On the other hand he considered if the vessel was sea-worthy (i.e. reasonably fit for that voyage)- concluded that he couldn’t make a finding on sea-worthiness on either way. As to the submarine he said that it was inherently improbable but he nonetheless held for the assured. On the basis that although the explanation was improbable, it was the only explanation going around. [Lousy holding]
- CA upheld first instance decision. Insurers appealed to HL
- HL accepted that the defence of ordinary wear & tear had not been substantiated. But HL held that it did not have to prove the defence and it was for assured to prove the facts on an accidental sinking. Insurers didn’t have to prove that the sinking wasn’t accidental.
- Held that the trial judge was not justified in holding that there was an accidental sinking. Making reference to Sherlock Holmes: when you have eliminated the impossible, whatever remains, however improbable must be the truth. HL said that law cases do not work in the way Holmes reasons: 1) judge does not have to solve the case. Fictional detectives have to do that otherwise the readers will be disappointed. Deciding a case on burden of proof is an option of the last resort but it is nonetheless an option. 2)This maxim of Holmes only once you know all relevant fact so you can eliminate all possible explanation except 1. Fact is that the fact that the vessel was sea worthy was not was not known. Maybe she sank on some other reason that the insurers were unaware off. 3)Must be common sense. It is not common sense to say that it is improbable that the vessel was hit by submarine and @ the same time say that the vessel was likely to have been hit by submarine.
- Popi M important case in burden of proof

Only part of a loss falls within terms of policy can be proved. Difficultly is when the assured cannot prove how much falls within the terms of the policy, under those circumstances, the assured gets nothing.

Kelly v Norwich Union Fire Insurance Society Ltd [1989] 2 Lloyd’s Rep 333
- Non- marine case involving flooding premises on 2 separate occasions. 1 before and 2 after risk attached
- Clear that e 2 floods had each contributed to the damage sustained but assured couldn’t prove how much of damage can be attributed to insured period

(2) ‘All risks’ cover
Only “All Risks” cover is institute cargo clauses A- the assured is covered in respect of all risks except for those excluded. (exclusionary)
Contrast clause A with the others which provide coverage on the listed peril basis. (inclusionary)
-Impact on burden of proof: a lot easier to satisfy all risks cover. But is not a guarantee that the goods arrive in an undamaged condition. Risks denote accidental loss
But all risk cover is supposed to be quasi-universal. All assured has to say is that the cause of the loss is accidental, the precise cause can remain in doubt but.

British & Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41
- authority that all risk cover is universal
- HL decision

Burden of prove on all risk cover is eased but can assured still lose on all risk cover? Logically yes: must be possible for court to listen to evidence and cannot decide that the lose was accidental. E.g. loss that is attributable to before the voyage. (cargo capable of absorbing moisture: leather for e.g.) if there is dispute as to whether the cause of the loss is inherent: theoretically possible that the court cannot conclude
But in the following case the trial judge doubted this
Aquarius Financial Enterprises Inc v Certain Underwriters at Lloyd’s (The Delphine) [2001] 2 Lloyd’s Rep 542
- All risk policy on yacht. Yacht destroyed by fire. Insurers alleged fraud: arson by assured.
In that context of claim for accidental loss met by positive defence by insured, judge said that the assured’s denial that it deliberately burnt down the yacht. Held that the insurers must prove arson otherwise the assured is home free with the claim of accidental fire
- Critique: judge should have said that he could not decide how fire started. Doesn’t mean that just because the court cannot decide that the fire was deliberately started by assured, it necessarily means that there was an accidental fire.

(3) Exclusions
Draw a distinction between 2 different types of exclusion
Munro, Brice & Co v War Risks Association Ltd [1918] 2 KB 78
1) General exclusion that qualifies entirety of the cover. For e.g. marine policies in the past often contain the phrase “warranted, free of particular average” i.e. policy only covered total loss and not partial losses. [Qualifies whole cover under the policy] burden of proving that such an exclusion does not apply: i.e. that there was a total loss falls on the assured. But where cover is subject to specific exclusion, the burden of proof in principle lies on insurer. Normally cargo policy where there are exclusions to the inherent vice… difficultly to see if one is an exclusion.

British & Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41
In Gaunt- the all risk cover only covers accidental loss and shows what is not accidental. Loss caused by inherent vice is not accidental vice (thus not covered). The assured would have to have some evidence that the inherent vice is not the cause of the loss. But consider institute cargo clauses A- 1(1) covers all risks except for those excluded below- inherent vice has been specifically addressed in exclusion clause in clause 4.
What does that do to the burden of proof? Is it for the insurer to raise? Can court and assured ignore it until the insured raises it?

*exclusions should be treated as such… reflection of the parties’ intention
Ikerigi Compania Naviera SA v Palmer (The Wondrous) [1992] 2 Lloyd’s Rep 566 at 572

Further Reading

Bennett, The Law of Marine Insurance (1996), chapter 1 (pP 1-21)
Hazelwood, P & I. Clubs, Law & Practice (2nd ed., 1994), chapter 1
Thomas, “Perspectives on the Contract of Marine Insurance”, chapter 1 in The Modern Law of Marine Insurance (1996), Thomas ed., pP 1-8, 18-22


Scope of marine policies
Marine policies do not cover perils of the sea for e.g. they cover loss/damage to subjects insured caused by perils of the sea
What is ‘perils of the sea’? Then identify that that peril was around the subject, then that the peril caused the damage and that was covered in the policy.
Causation is fundamental in defining the scope of the marine policy.
- Causation is an artificial concept
- For causation: you need a label that you use to indicate something that as a matter of common sense is the cause of the loss
- How you answer the question of causation depends on how the question is asked
- Marine insurance adopts the doctrine of proximate cause
(a) The Doctrine Of Proximate Cause

Marine Insurance Act 1906, s 55(1)
The insurer is liable for damaged caused peril insured against but not liable for damage caused by peril not insured against.
Proximate: legal jargon: legally significant cause in the context of marine insurance. Just a piece of shorthand for legally significant cause in insurance context.
- Definition of ‘proximate’. Marine insurance was rather messed up in 19th century. 2 schools of thought: 1) took proximate too seriously- cause nearest in time to the loss. E.g. if ships sinks, the cause of sinking is the cause that is nearest in time to the ship sinking. If not careful you end up saying that the proximate cause of the sinking of the ship is that it fills up with water- accurate statement in one sense but useless when looking for legal responsibility. Cases that say that cause is that in the last in time and other causes that are regarded as ‘remote’. 2) Proximate cause of loss determined by dominance- the real cause of the loss. Unfortunately these 2 approaches to causation were not reconciled at the time the marine insurance act was drafted. Difficulty arises in some context

Remote, immediate & proximate causes
Butler v Wildman (1830) 3 B. & Ald. 398
But resolve in the following case
(b) Leyland Shipping
- Hull policy that covered loss by perils of the sea (thus including accidental sinking) but excluded war risks
Leyland Shipping Co v Norwich Union Fire Insurance Society [1918] AC 350
- Vessel on voyage to port of le arde in france. At 25 miles from destination, it was torpedoed by submarine. Severe damage, 1 of cargo hulls filled with water & water penetrated other parts of vessel
- Vessel did not sink but was tugged to a safe berth. But it was not allowed to stay at that berth safely cause of bad weather. Harbour authorities became concerned that vessel would sink and block the quay. The quay was needed for military purposes (a time of war)- thus ordered that vessel was to leave the quay- either beached outside the harbour/inside breakwater. Reasonable instructions under war circumstances. But that regardless it had to be obeyed. If allowed to stay in quay: the vessel would be ok.
- But because of damage by torpedo, vessel heavily downed by water damage. When tide went out, the front of vessel rested on seabed when tide came back in, it floated up. Bad news for vessel that has been damage, continuous going aground and re-floating puts a lot of strain on vessel. 2 days later, the vessel broke its back.
- What was the cause of the loss? If caused by torpedoes: then not the insured. If cause by accident: by tide/continual re-floating (therefore perils of sea) then insured.
- If apply last in time doctrine, the it’s loss by damage of the sea:
- HL held that the exclusion operated and in doing so it made it clear that proximity of causation is not determined by timing. Proximity refers to the efficiency of cause as an operating factor. Any one loss may be the result of a number of causes. Chose the real/effective/pre-dominant cause

Understand that proximity operates in a contextual way.
What is the proximate cause of the loss/whether something is proximate cause of the loss depends on the wording of the policy.
e.g. if there is negligent navigation that leads 1 vessel to collide with another. Result of collision is that the vessel we are interested in sinks and there is a loss of both vessel and cargo.
Why? There was a collision with another vessel.
Why did collision happen? Negligent navigation of insured vessel.
What is the proximate cause for the loss? Interpreting various clauses: proximate clause of the loss could be interpreted as negligence which is a named peril.
Can you say that the vessel was caused by negligence? Yes.
Alternatively can you say that proximate cause of loss was the collision.
Which is a covered peril in clause B & C and covered in hull clauses under liability caused by collision. Surely it is correct to say that a collision is the cause of the loss.
Is peril of the sea a cause of the loss?
Accidental sinking- entry of water caused by negligently occasioned collision: therefore yes- sinking caused by peril of the sea.
How about simply an entry of seawater – which is clearly included in institute cargo clauses- not a daft idea.
Regardless of how the water entered, fact that there is water entrance: the cargo owner loses out.
But clearly correct to say that the proximate cause of the loss depending on the contractual context could be regarded as negligence/peril of sea/collision/entry of sea water/sinking of vessel.
In context of hull policy you’ll never ask whether it was entry of water. Ask how did water enter and the cause of the loss has got to be the type of entry that is covered.
In the context of cargo policy, all you need to know that there was entry of water as long as that is what the policy says.
The test of proximity (how far back in time you go) depends on how far back in time the contract says you have to go.
Therefore proximity is a contractual concept and not an abstract legal contract.
Proximity is a matter of parties’ intention.
Proximity is a flexible legal concept.

In Leyland- if the policy said nothing about war risks and only mentioned peril of the sea. Would you say that the insurer was not liable because the water entered because of the torpedo? No because the policy did not deny that cause

(c) The Contextual Nature Of Proximity: Also Of Complex Causes

(d) Concurrent Proximate Causes
More than 1 cause
Courts do not seem particularly to like to conclude that there is more than 1 cause to the loss although at times they have no choice.
If you have more than 1 cause and not all covered by policy: is insured liable?

(1) One cause specifically included, none specifically excluded
2 operative clauses, one covered and the other is not mentioned for e.g. in this case the rule is that the insurer is liable.
It is a rule but it is really a matter of contractual interpretation.
Insurer says that it’ll pay if the cause is by X, it will pay if X causes damage.
It will still pay if Y causes damage also because it was not specifically excluded.
JJ Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyd’s Rep 32
- Yacht sank because it was not sea-worthy (not covered peril: feasible insurer’s defence) and poor sea conditions (insured peril)
- CA held that the insurer was liable. Although sea-worthiness was a possible defence

(2) At least one specifically excluded
Where one of the concurrent proximate clauses is specifically excluded
- 2 causes, 1 is covered the other is excluded.
- Insurer is liable depending on the relationship between covered peril and excluded peril.
- If covered peril is naturally understood as exception to the exclusion, if you say that the exclusion prevailed, you will effectively delete the peril that is supposed to be covered. That is an unlikely interpretation of the contract because the insurer gets the money and gets away with it.

Martin Maritime Ltd v Provident Capital Indemnity Fund Ltd (The Lydia Flag) [1998] 2 Lloyd’s Rep 652
- Hull policy that on the one hand insures against latent defect but excludes loss caused by un-seaworthiness. If vessel has latent defect and latent defect causes vessel to sink then obvious that latent defect cause vessel to be un-seaworthy.
- If un-seaworthiness prevailed
- Exclusion of un-seaworthiness must be read as subject to the latent defect peril

Unseaworthy= no coverage
If latent defect not covered then no coverage also.
*wording of the contract
Exclusion can knock out the peril covered if you are not careful.

(policy to avoid letting the insurer exclude named perils)
Fraser v Furman (BN) (Productions) Ltd [1967] 1 WLR 898
- employer’s liability policy covering employer’s negligent.
- Also said that the employer should take reasonable precaution against disease: so covered for negligence but not covered for negligence: contradicting terms in the contract
- like that the insurer will get money and no pay out
- court interpreted to cover negligence, subject to recklessness (as opposed to objective negligence)

IF P&C Insurance Ltd (Publ) v Silversea Cruises Ltd [2004] Lloyd’s Rep IR 696
- involved loss of earnings policy
- business interruption policy: if there is downturn in fruit of business want to insure against business interruption policy. In HK, recently a lot of litigation along this line cause of SARS. Assured in Silversea operated cruise line. Problem here caused by 911. One impact of that was that Americans decided to stay at home. Problem for cruise line operator.
- Policy in question covered loss of anticipated income “resulting from state department advisory/similar warning by competent authority regarding among other things acts of terrorism whether threatened/crystallised.’ Policy also excluded loss of income caused by [actual acts of terror]
- 2 reason for downturn: 1) attacks themselves 2) possibility of further attacks because of warnings.
- Insurers said that they were not liable because terrorist attacks were not an insured event consequently they fell within exclusion. Anticipated income is excluded…
- CA disagreed- held that insuring clause (resulting from state department warnings etc) contemplated warnings in light of actual events. Those events characterised as events together with covered events. Why would assured want insurance on possible terrorism only if there was no actual terror attack going on? No intention on this policy to exclude loss resulting from warning just because it was excluded by concurrent actual treats:

Cases where exclusions have not prevailed. If exclusions prevailed, the entirety of cover would be knocked out. Those read narrowly.
If scope exclusions narrower than peril- the insurer will not be liable.

Wayne Tank & Pump Co Ltd v Employers Liability Assurance CorP Ltd [1974] 1 QB 57
- CA case
- Establishes the primacy of exclusion
- Exclusions prevail over insured perils where such is the appropriate interpretation of the contract
- Where scope of interpretation is that peril is wider than exclusion

When insurer is liable



when insurer is not liable

peril exclusion



(e) Applying The Effectiveness Test Of Proximate Cause

Identifying what the proximate cause is
Ship perished because she went ashore on the coast of Yorkshire, with many causes to the damage…
Actual infliction of loss/damage or rendering inevitable of loss/damage
Alternatively even if loss/damage isn’t inevitable, there will be proximate cause that follows in the ordinary course of events from the peril

Leyland Shipping Co v Norwich Union Fire Insurance Society [1918] AC 350
- torpedo was not merely the background, it was a proximate cause of the loss because the torpedo directly inflicted damage from which the vessel was never able to recover
- all that followed thereafter was merely a natural consequence in the damage caused. Whether chain of causation broken from the torpedo to the loss? No.
- Bear in mind that Leyland does not decide that on its facts the torpedo was the sole cause of the loss. Should this have been the case then the exclusion would have prevailed. Suffice to say that torpedo was a proximate cause of the loss. A differently worded policy would have a different result.
- If vessel was loss by an ingress of water and that mattered (because it was
- Concurrent losses with excluded loss prevailing

Reischer v Borwick [1894] 2 QB 548
- Vessel insured against collision but not against perils of the sea in general.
- Vessel sustained a leak by virtue of the collision, had temporary repairs done then towed away
- En route the motion of the water (amounting to peril of sea) re-opened the leak
- Leak re-opened, vessel began to sink. Master ran the vessel aground and abandoned it.
- Where insurers liable?
- Insurers argued that the cause of loss was re-open of leak by motion of the water
- Hole inflicted by original collision was a continuing source of risk/danger. Temporary repairs did not break the chain of causation
- In cases with causation debate, issue is question of whether it is a particular event is the cause of the loss.

Midland Mainline Ltd v Eagle Star Insurance Co Ltd [2004] 2 Lloyd’s Rep 604
- Non-marine insurance case
- Another business interruption policy
- Serious rail accident in UK
- When investigated, found that reason for accident was cracking in railway track
- That cracking was a fall of ‘rolling contact fatigue’
- After a while, through ordinary wear and tear, the track starts to crack
- Response to discovery of contact fatigue was that the railway authorities imposed emergency speed restrictions on wherever the cracks were known to exist
- Services disrupted, passengers did not use rails so much
- Led to claim on business interruption policy
- Policy excluded loss proximately caused by wear & tear (most insurance policy exclude them)
- What was the proximate cause of the loss of income?
- Immediate cause was imposition of speed restrictions that were caused by the wear & tear caused by fatigue cracks
- Fatigue cracks were merely background against which the restrictions were imposed
- Held that the cracks …
- CA held that the defective nature of the track could not be causally disregarded & it did have proximate cause status. But CA did not have to decide whether the cracking was the proximate cause to the exclusion of the subsequent speed restriction/ merely a proximate cause to the exclusion of the subsequent speed restriction.
- Another cause was suggested: that of the accident that revealed the crack to begin with.
- Assured argued that [accident that revealed the crack] was the proximate cause of the cause and not the ordinary wear and tear. CA rejected that
- CA did not have to consider whether the accident could be regarded as a proximate cause, suffice that it was not the sole proximate cause.
- For the purposes of this case, issue was whether ordinary wear & tear was a proximate cause of the loss

(f) Apprehension Of A Peril
Suppose that the master of a vessel anticipates the danger of a carpet peril (danger of being attacked on certain routes) for e.g @ outbreak of Iran/Iraq war, a number of vessels were at Iranian oil ports which were @ the Northern end of Iran & Iraq. Obvious that if you had a vessel full of Iranian oil sailing down the gulf of Iraq, you’d be a target by the Iraqi forces.
Best thing to do is to stay put
General thinking was that it [war]was going to be a short one. Thus vessel thought to stay put.
But found that they had to stay put for a long time. A number of vessels in question were of hire for a charter party. After a while the charter parties were frustrated, as a result the freight payable ceased to be payable. Loss to the ship owners, Ship owners wanted to claim on policy through loss of freight.
SO argued that the war risk caused the loss. But that failed because the proximate cause of the loss was the master’s decision not to sail
Wasn’t the war risk that impacted upon the vessel but the belief that the war risk will impact upon the vessel should it have set sail
This is the doctrine of apprehension of a peril
This doctrine has been criticised in a case.
Doctrine originated from:
Hadkinson v Robinson (1803) 3 Bos & Pul. 388
- freight from UK to Naples on Brit ship
- during voyage, Naples was shut to UK ship
- as a result the carrying vessel diverted to another port where the cargo was sold at a considerable loss.
- Held that underwriters had no liability
- Concern seems to have been that if apprehension of a peril gave rise to a claim, then all sorts of fears will be invoked to justify claiming against the insured
- Difficulty of this doctrine is where do you draw the line? When does the peril cease to be apprehended and actually eventuated
- Is it a fear of something that will happen in a future/ is it an imminent fear that is necessary to avoid it by action?

Kacianoff v China Traders Insurance Co Ltd [1914] 3 KB 1121
- Similar on facts to Hadkinson- diversion of cargo because of hostile blockade
- Assured claimed for hostile capture
- If capture was to be proximate cause, ship had to be in peril of capture.
- What was done in discharging the cargo was done to prevent the ship from coming into the peril. That being so, it was impossible to say that the peril caused the damage

- Dividing line can still be difficult to draw: case closest to sitting on dividing line:
The Knight of St Michael [1898] P 30
- Fire insurance on cargo of coal
- Shortly after voyage commenced, coal started to heat
- Fire didn’t actually break out but would have done if voyage carried on
- Fire in insurance context is classically defined by reference to presence of flames. Not that something is hot and getting hotter if something wasn’t done about it
- Whether there was a loss to the freight that was to be earned by voyage caused by fire?
- Trial judge held yes it was.
- Case explained as follows: was there at the time such a danger of things that the fire [covered peril] would have followed in the natural cause?
- (had the peril begun to operate?)
- This case shows that were peril is not merely foreseen as a future possibility or even a future probability, even an extremely high probability, where it is imminent/going to happen/already on the way (coal is heating/fire is coming) then you can say that it is already operative for the purposes of the dominate cause doctrine.

- Contrast that with the following case:
Becker, Gray & Co v London Assurance Co [1918] AC 101
- Concerned cargo policy relating to goods that were shipped on board a German vessel against war risk
- In the cause of the voyage the 1st world war began
- Master of vessel put into a neutral port to avoid capture. With the intention of suspending voyage until war was over (believed that WWI wasn’t going to last very long)
- Voyage abandoned all together
- Argument that was put by the assured was that the proximate cause of the loss was war risk
- If vessel had carried on with voyage, it’ll be arrested by Royal Navy, captured & destroyed
- Assured sought opinion of royal navy to say that it will be arrested. That the vessel would have been in peril had it proceeded. That was rejected
- Proximate cause of voyage was decision of master voluntarily taken not to pursue the voyage

This situation comes before the situation where steps are taken to prevent damage caused by a peril.

X x x
(apprehension of (peril crystallizes)
peril) Canadian Rice Mills
*hodges 391]]

(g) Mistaken Belief Of Peril
- Insurance covers perils that do in fact impact upon the insured property
- Insurers do not cover errors of judgment in deciding whether or not the peril exists
- for e.g.
Joseph Watson & Son Ltd v Firemen’s Fund Insurance Co of San Francisco [1922] 2 KB 355
- The master of vessel saw what he thought was smoke coming from cargo hull
- Believing that a fire had broken out/about to break out, he triggered sprinkler systems and that caused damage to the assured’s goods
- Assured claimed on policy for loss caused by fire
- TJ held that master did not see smoke, but was steam coming from broken pipe
- Therefore insured peril of fire simply hadn’t occurred: therefore cannot make insurer responsible for fire that didn’t happen

(h) Response To Perils
- Assuming that you do have a peril, the peril may cause some steps to be taken to combat that peril
- Classic e.g. of this is fire
- If a house is on fire, you fight fire with pouring water on fire
- In so doing the water may itself further damage the house
- If you have policy against fire, it will also cover all fire fighting mechanisms that cause damage
- Loss caused by peril extends to loss caused by a response to the peril
- For e.g. with a vessel at sea & bad weather brews up. Master closes cargo hulls to prevent storm h2o from penetrating the hulls from damaging the cargo. But because the hulls were shut, the cargo was damaged.
- Natural response to peril caused loss but it was still regarded as being a natural response that was covered
- Proximate cause for the loss of/damage to cargo was fire
- Doesn’t matter that the water was poured onto cargo cause pouring h2o is a natural response to the loss

(i) The Language Of Causation
Causation is a matter of contract
Proximate cause is taken to represent the obvious natural response. Doesn’t matter what we label it with
No reason why an insurance contract has to adopt that causal requirement, parties are free to adopt a different test in the contract for causation
Thus can look at language of causation. But marine insurance contract rarely uses ‘proximate cause’-
Look at terms in institute clauses- causal expressions in institute clauses
Fact that institute clauses depart from language of proximate cause raises 2 questions:
1) is a different test contemplated 2) if it is, what is that test?

(1) The adhesiveness of the proximate cause rule
Look at adhesiveness of proximate cause rule: making it hard to displace
Courts do not readily accept that parties intend something other than proximate cause rule
One can make number of points in this connection:
1) Very clear that intention to depart from proximate cause rule is not demonstrated just because you use a phrase other than ‘proximately caused by’. There are many cases that use ‘arising from’ and courts still hold that the proximate cause test should be adopted
Can have policy with a range of different causal phrases in them
Again that is not considered to be evidence that they carry different meanings.
Even if parties use 4 or 5 different causal expressions, the courts still hold that they mean the same thing
Fact that different causal expression are used for covered perils as opposed to exclusions is still not enough that either of them depart from the proximate cause doctrine

Some insurance policies caused by, arising from/resulting from: the courts don’t really care. They only think that you said ‘caused by, proximately caused by etc’

But can be done. How?
(2) Displacing the proximate cause rule
More than a departure from the wording ‘proximately caused by’, look at contractual structure
Good e.g. of this is in:
Institute Cargo Clauses (B), (C), cl 1
- Named perils coverage
- Perils in clause 1
- That list is subdivided in CC (C) into 2 sub-lists: issue: why it has been subdivided into 2 sub-lists
- Difference is that the language of causation differs
- 1: loss/damage of subject matter insured reasonably attributable to the covered perils
- 2: loss damage … caused by the covered perils

- Thus parties have intention to depart from ‘proximate cause test’

Can get away from CC rule by a change of language but the change of language must be clear.
Best e.g. is where policy refers to ‘direct/ indirect cause’ gets you out of proximate cause test. See : Coxe v Employers Liability Assurance Corp Ltd [1916] 2 KB 629
A similar & recent case is in :
Tektrol Ltd v International Insurance Co of Hannover Ltd [2005] Lloyd’s Rep IR 358
- Bad luck cause assures in software business
- Vital to their business was a computer source code and they were paranoid that this source code would be loss. They kept 5 copies of it (laptop, 2 other terminals in building, a remote location)
- A virus got onto the laptop & contaminated/destroyed that copy of the source code.
- Director decided to replace that with the remote copy but the virus was still active and destroyed that copy.
- The office was burgled and the desktops were stolen
- Insurers say not liable ‘directly/indirectly’ from virus, burglary is excluded. Thus making it a causation issue
- Ultimately the reason why company had no source code left is because of the burglary
- Held that the virus caused the damage. It was @ least a but for cause, an indirect cause within the meaning of the exclusion
- Not a proximate cause of the loss but a background cause

Causation is a problem that is alive in modern insurance law
Common to find causation as a problem

Spinney’s (1948) Ltd v Royal Insurance Co Ltd [1980] 1 Lloyd’s Rep 406

Further reading

Bennett, “Causation in the Law of Marine Insurance: Evolution and Codification of the Proximate Cause Doctrine”, chapter 5 in The Modern Law of Marine Insurance (1996), Thomas ed.
Clarke, “Insurance: The Proximate Cause in English Law” (1981) 40 C.L.J. 284
Davies, “Proximate Cause in Insurance Law” (1996) 7 I.L.J. 135
Mustill, “Fault and Marine Losses” [1988] LMCLQ 310 (a wide-ranging, seminal article)

Specific risks
Structured along: standard hull policy- it divides its list of covered perils into 2
Reason for division is not causation, it is because the 2nd group of perils is subject to due diligence proviso: 2nd group of perils is often known as Inchmaree clause


(a) Hull & Freight Insurance
List of perils varies from 1983, 1995 & 2002/03
Precisely what’s in them varies very slightly
What’s in 1st list & 2nd list vary also. But main perils are the same in all versions

(1) Perils of the seas
*Requires most discussion
**Seas, rivers, lakes,
Definition in: Marine Insurance Act 1906, sch. 1, r. 7
Contains old marine policy that was used up till early 1980s. it is the only instance of a statute including a full text of a standard form contract, indicating dominance of that standard form contract
You also get interpretation of the phrase in that standard from contract
“perils of the sea” continues to have same meaning today
Rule of interpretation rule 7: term ‘perils of the sea’ refers only to fortuitous accidents/perils of sea and not wind/waves
2 requirements for peril of the sea-
1) must be fortuitous (element of chance)
2) of the seas, must be maritime in nature

Fortuitous accidents
Distinctive characteristic of peril of sea, not shared by other perils
Take for example
Samuel (P) & Co Ltd v Dumas [1924] AC 431
- Early case on mortgagee’s interest insurance, in those days the mortgagee’s insurance same as ship owners, including perils of sea
- Deliberate sinking of ship by master of crew (barratry: questionable whether scuttling took place?)
- Assured was mortgagee bank
- Held bank cannot recover. HL held that Fortuity involves element of chance/ill luck but there is no fortuity when those in-charge of vessel deliberately through her away. One might accept that normally because he was not involved in the scuffling of the vessel as it was a mater between the master & ship-owner
- if ship deliberate sunk then not a peril of the sea

Practical relevance of this point however is unlikely to arise. Contra ‘war risk’ that involves deliberate sinking by enemy.
Different here because it is not fortuity when those in-charge of vessel sink it.
Fortuity denied by what is known as ‘ordinary wear and tear’
Ordinary action of winds & waves sinks ship because the ship is un-seaworthy
Such ordinary wear & tear loss is not fortuitous
Difficulty then is to draw the line between ordinary wear & tear and the point of which wear & tear ceases to be ordinary (how rough does the sea needs to be? How high do the waves have to be?)

J.J. Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1985] 1 Lloyd’s Rep 264; [1987] 1 Lloyd’s Rep 32
- Yacht that sustained considerable damage during the voyage across English channel
- Conditions there were not unusual @ that time
- In absolute terms, neither wind/waves were exception
- Sea was confused
- Sea conditions encountered by Miss JJ were those that could be anticipated that he might find but would hope that he would not find…
- Held that it was fortuitous
- CA agreed: even if the occurrence of a particular unwanted event is a foreseeable risk, the event is still accidental when it does occur
- That which is certain to occur is not fortuitous. Inevitability is the opposite of chance
- But something that may/may not happen, if it does happen is fortuitous. Fortuity is not equated with foreseeability
- Supposed if a vessel sails through seas with a damage of ice, that is fortuitous. It may be that there is a threat of ice yearly but not a certainty that it will sustain ice damage
- But there are ports that are inaccessible by reason of ice, you cannot claim for insurance for loss of freight income by this ice bound port because it is certain, it is not fortuitous

Easy to meet the test of fortuity

2nd limb for peril of the seas:
Of the seas
- Maritime Connection
- Must necessarily be connected with the sea
- If peril could occur equally on land than it is not a peril of the sea
- Fact that it occurs …

Thames & Mersey Marine Insurance Co v Hamilton, Fraser & Co (The Inchmaree) (1887) 12 App Cas 484
- Giving rise to Inchmaree clause
- A piece of engine broke.
- HL held that this had nothing to do with peril of the sea
- Same thing would have happened if the engine was on land, sea, waves & wind had nothing to do with it
- Collision between 2 vessels used to be considered as something that was not ‘of the sea’ but on the sea

Thomas Wilson, Sons & Co v Owners of the Cargo per the Xantho (The Xantho) (1887) 12 App Cas 503
- Held that collision is a peril of the sea
- But collision must be fortuitous

Accidents in loading of cargo may/may not possess required maritime nature

Stott (Baltic) Steamers Ltd v Marten [1916] 1 AC 304
- Floating crane lowering boiler into ship’s hull
- Boiler broke and damaged hull
- Held that this was not peril of sea- floating crane would not alter the fact that it could have happened on land

The Stranna [1938] P 69
- Some cargo fell overboard and was loss when ship listed
- Had to be a peril of sea because ships can only list when in water
With regards to rats damaging cargo/ships
Contrast on the one hand: rat gnaws a hole in the ship, sinks it
2: vessel that carries food & rat eats the food
(1) Is a peril of the sea, entry of h2o provides maritime connection
(2) Is not peril of sea because the rats eat everywhere

Can prove that the peril occurred with evidence
But in some cases the question arises whether you can prove loss by peril of sea by circumstantial evidence
The circumstances were such that it is not possible to prove what happened to the ship, evidence simply isn’t there
Assures try to use process of elimination, show that X & Y didn’t happen so that the only thing that’s left is accidental sinking i.e. peril of the sea
Insurers resist this approach. If it cannot be shown what happened to vessel it will be suspected that there was scuttling
They will challenge the assure to prove on a balance of probabilities that the cause of the loss was . that is required for peril of sea
2 leading cases where this is being done:

Rhesa Shipping Co SA v Edmunds (The Popi M) [1983] 2 Lloyd’s Rep 235,
affd [1984] 2 Lloyd’s Rep 555,
rvsd [1985] 1 WLR 948
- The case involving ship sinks in calm waters when opening develops in side plating of vessel
- Assured alleges collision with unknown submarine
- Insurers allege ordinary wear & tear but it’s rather bizarre because each side had expert witnesses to support their account as to what happened but the expert witness. Found that their own story was ridiculous. Only reason why they backed their own argument was because they found the other side’s story even more ludicrous
- 1st instance judge didn’t say it was un-seaworthy but didn’t say it was because of wear & tear either
- Found for assured that there was a collision as it was the only explanation left that was not ‘disproved’
- Invoking presumption to discharge burden of proof: presumption of fortuitous sinking where vessel that is proved to be seaworthy when embarking on journey is then lost w/o explanation. No other evidence as to what happened to the ship
- Have a case by circumstantial evidence of a fortuitous sinking, a process of elimination.
- Vessels sink because they are scuttled
- But scuttlers do not intend to commit suicide, so if there’s scuttling the master & crew would survive. Possible that they be paid a lot of money and disappear to another country. But that is rare
- Complete disappearance of master & crew gives rise to inference that it was fortuitous
- Piracy is a known thing. By that definition the presumption does not arise
- Occasionally sinking is to spike the owner with a grudge
- If vessel is seaworthy when put at sea, the fact that she’s seaworthy shows that there is no ‘wear & tear’. Natural inference is thus that there was accidental sinking
- Presumption is a mere working through the logical inference that one draws with regard to unexplained sinking. Raised in the following case:

Lamb Head Shipping Co Ltd v Jennings (The Marel) [1984] 1 Lloyd’s Rep 624
- A vessel collided w container and sunk
- Container was partially submerged
- Judge looked at expert evidence to see what was necessary for the container to hit the ship in such a manner for the vessel to see. Held that it ‘was very close to impossible that that accident happened’
- Secondary approach: assured sought to rely on presumption.
- In contrast to Popi M, the Marel was found to be seaworthy when commencing voyage but nonetheless the presumption was held to be inapplicable because this was a sinking when there was evidence as to what happened as the master & crew survived, could be examined & x-examined as to what happened. There was direct evidence in this case
- No room for inference to operate
- This led to assured’s final argument that was proof by elimination. Assured said that if you don’t accept my tale of container and the presumption doesn’t apply, then he has proved by peril of sea as there was no other explanation available
- Insurers didn’t allege scuffling. There were no pirates/war going on. If it wasn’t a peril of the sea then what was it?
- But the CA didn’t accept that because this reasoning ignores the burden of prove. Assured has to prove on balance of probability that there was a loss by peril of sea.
- Where the most likely peril of the sea that the assured’s expert witnesses could come up with was rejected as nearly impossible.
- As a matter of logic if the best idea that you’ve got is nearly impossible how can you ask the court to uphold some other peril of the sea that your expert witnesses cannot even imagine to be the cause of the lost
- Consequently it is very difficult to prove peril of the sea by elimination. Assures never managed to do it, but it’s not impossible.

- applying proximate cause doctrine to peril of the sea: there are cases where you have a response to peril of the sea, response is regarded as proximately caused
- e.g. of closing of hull covers is in Canada Rice Mills Ltd v Union Marine & General Insurance Co Ltd [1941] AC 55

2nd peril that is dealt with in hull policies is fire
(2) Fire
Means flames subject to idea of imminent peril.
Cover of fire once you have it extends through to damage inflicted by other aspects of fire (heat/smoke) & damage caused by fire fighting efforts
Main point to note in context of fire is that fortuity is not in the definition
Schiffshypothekenbank zu Luebeck v Compton (The Alexion Hope) [1987] 1 Lloyd’s Rep 60.
- vessel was destroyed by 3rd party arson
- whether one can claim for loss by fire
- CA considered it obvious that you could
- In practice this is very important. Insurer seeking to defend the claim you can require the assure to prove fortuity if the vessel has been sunk
- You can reject claim on that basis
- Assure has to come up with plausible account as to why water entered vessel
- Popi & Marel says that elimination does not prove fortuity. Must prove fortuity to claim under peril of the sea
- But if there was actual fire, the fact that there was fire is enough. Insurer is only not liable if the fire is caused by the assured himself. But assured does not have to prove an accidental fire. Only fire excluded is fire caused by assured
- if assured sinks his own ship: there is then wilful misconduct: a defence to any claim
- But wilful misconduct is a defence that has to be raised & proved by insurer. Burden of proof lies on insurer. Assured does not have to prove no wilful misconduct
- with a peril other than peril of the sea where fortuity is not part of the definition of peril, fire doesn’t matter how it started.
- As long as fire is not started by assured himself i.e.: wilful misconduct (which is for insurer to prove)
- Burn it, don’t sink it
Contra fire with explosions

(3) Explosion
- very little authority on explosions
Commonwealth Smelting v G.R.E. [1986] 1 Lloyd’s Rep 121
- Land insurance claim
- an explosion is not simply a failure of machinery
- even if noisy failure of machinery: a big bang is not an explosion
- There was some fracture of propeller that hit casing, then shattered. Damage to house
- Witnesses said that there was a big cloud of fire & smoke (in layman’s term: an explosion)
- Upon investigation: court held that it was not an explosion. Breaking of machinery + pressurised air is not = explosion. Here was ‘centrifugal disintegration’
(4) Violent theft
- by persons from outside the vessel
- cannot be theft by crew/passengers
- Needs to be violent theft
- Must be manifestation of force but force can be directed at things rather than people
- Force by people inside vessel is barratry
Marine Insurance Act 1906, sch. 1, r. 9

(5) Jettison
- Any throwing overboard for a good reason
- Old example is Butler v Wildman (1830) 3 B. & Ald. 398
o Ship pursued by enemy vessel, carrying money
o In order to prevent $ from falling into enemy hands, the master threw the money overboard
o Debate in court as to what was the proximate cause of the loss because of the way the policy was worded
o Because policy mentioned jettison, this qualifies as jettison
Symington v Union Insurance of Canton (1928) 34 Com Cas 23
- Cargo thrown into h2o can be regarded as jettison if it was on fire

(6) Piracy
- Real modern peril
- Malaka straits well known for piracy
- Who is a pirate for marine insurance purpose?
o A pirate in insurance law is one who plunders without discrimination for personal financial gain
- Distinction is drawn between some1 who is stealing ships to inflate his own bank account v. someone who steals to pursue his own political agenda see:
o Bolivia Republic v Indemnity Mutual Marine Assurance [1909] 1 KB 785
- Political agenda falls under war/strikes risks
- Pirate is a peril of aggression- is a marine risk that is not a war/strike risk
- How about mixed agendas????

Concept of piracy exists in international law/insurance law but insurance law has its own concept of piracy
Athens Maritime Enterprises CorP v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Andreas Lemos) [1983] 1 All ER 590
- Attack on vessel within territorial waters
- Vessel in this case is anchored within port limits + territorial limits of Bangladesh
- Thieves w knives snuck onto the ship
- Thieves fled but took some equipment w them (little resistance though)
- Held not to constitute piracy but rather clandestine theft
- TJ held that some force/threat of force was necessary to have piracy for marine policy
- …
- Location of vessel: fact that it was in territorial waters did not prevent the act from being piracy

(b) Cargo Insurance
Equivalent cover in cargo insurance
Cargo clauses do not adopt the same perils as hull policies
- In particular you will not find any reference to perils of sea in cargo policy in the institute cargo clauses
- Therefore all case law on perils of sea does not apply to cargo insurance

(1) ‘All risks’ cover under the Institute Cargo Clauses (A)
- Cover all risks except for what is excluded
- All assured has to prove that on balance of probabilities that the loss was accidental
- If one thinks about assured’s task about cargo policy where cargo sets out on sea voyage but doesn’t make it: the assured does not have to prove exactly what happened
- Assured does not have to rule out deliberate sinking by those in-charge of the vessel
- Burden of prove is easier in context of cargo insurance than hull policy
- But where cargo assured encounters problem is where the problem lies in ability of insured property to survive the perils that are normal to the voyage in question
- Cf Miss JJ- conditions perhaps the assured hoped would not happen but still regarded as fortuitous and a peril of the sea
- But for cargo insurance, the relevant concept is that of inherent vice. Inherent Vice has been held to provide a defence wherever the conditions are reasonably foreseeable. If you change Miss JJ into cargo case, the assured does not recover. In hull case the assured does recover because the concept of fortuity is a low threshold & any defence based on weakness of vessel is very difficult to rise
- So the assured wins
- But in cargo insurance, 2004 first instance decision: defence of inherent vice is easy to rise. If sea conditions are normal at the time of the year & the cargo is damaged: that’s inherent vice and the insurer is not liable
- Although under cargo clauses A it is easier to claim on definition of peril,
- Have to take the policy on its own wording
(2) Named perils cover under the Institute Cargo Clauses (B) & (C)
- Not all risks cover
- No reference to perils of the sea
- They identify a number of specific sea perils
- Grant cover to the assured in respect of them
- If there is cover for loss/damage reasonably attributed to vessel capsizing/sinking etc. these are events of the sea
- In context of hull policy, if vessel was stranded, assured has to prove fortuity *because it is part of the definition
- For cargo clauses, it doesn’t matter why vessel is stranded/grounded/capsized. No need to be fortuitous
- Policy is not interested in why the vessel was sunk
- Take the policies on their word
- Caveat that undermines that is when you look at defences:
Institute Cargo Clauses (B), (C), cl 1, 4.7
- At the defence level: here the insurers are not liable for deliberate destruction of cargo by anyone
- But this is an exclusion so burden of proof is on insurer- at level of proof of peril all assured has to do is to show that the ship sank
- If assured is to be denied recovery because it was deliberately sank, that is for the insurer to prove for the defence to work

Focus on definition of perils & burdens of proof.


(a) Covered Perils Under The Inchmaree Clause
2.2- 2.5 International Hull Clauses (pg 3 of the appendix)
2.2.5 continues with proviso- due diligence proviso- does not apply back to clause 2.1 (only to the perils that are expressly found in the Inchmaree clause)
some of the main perils:

(1) Latent defects in the machinery or hull
International clauses clause 2.2.2
we need to have to have a claim the following elements:
1. Defect
2. Defect must be latent
3. Latent defect must cause loss of or damage to the insured ship
a. This is not cover against latent defects as such. This is consequential loss cover
b. If the ship owner discovers defect in insured hull that which was once latent is now being discovered but the defect hasn’t caused any consequential loss then there is no claim.
c. Insurance is not to guarantee and latent defect in the hull. Policy only guarantees any loss caused by the latent defect
d. Notion of causation can cause difficulty: look @ the 2 cases to draw distinction between them
Latent defect

Jackson v Mumford (1902) 8 Com Cas 61
• Policy on war ship that was a prototype: it was undertaking trials
• During trials there was a breakdown in its machinery
• Therefore a claim
• Judge held that there was no claim for a latent defect: because what would happen was a design defect. This was an advanced warship @ the time, brand new technology: perfect manufacture of the vessel.
• Turned out the design specifications simply were not up to the job- that was the basic problem
• Issue was whether that sort of short coming in design specification was what a marine policy is talking about when it refers to ‘latent defect’- judge held that ‘no’
• Phrase latent defect does not cover the erroneous defect of the designer because the workmanship was faultless as it was exactly how it was supposed to turn out per the designer’s intentions

Prudent Tankers Ltd v Dominion Assurance Co Ltd (The Caribbean Sea) [1980] 1 Lloyd’s Rep 338
• Design problem due to weak wielding
• This let to fatigue cracks that developed until one entered the phase of rapid crack growth. This caused a pipe to fracture in the vessel. H2o entered by the fracture into the engine room and the vessel sank
• Claim under inchmaree clause. Are underwriters liable? Yes they are.

Difference between Carribean Sea and Jackson v. Mumford?
• Judge held here to look at the policy: what did the policy ask. Did the latent defect cause the loss of the ship? (in the context of the Carribean sea, ask: was there a latent defect? Yes: what was it? It was the cracking. Did it cause the loss of the ship? Yes because that was how the h2o got in. therefore insurers liable.
• Why was latent defect there in the first place? It was a manifestation of the design defect but judge held that it was irrelevant because the policy does not say that the underwriters are only liable for ‘some’ latent defect but ‘latent defect’
• In Jackson the design defect never led to the latent defect that caused the casualty. Design defect did not lead to loss= no claim
• Carribean Sea: design defect led to latent defect that led to loss= claim.

Definition of latent: from these 2 cases: a defect that will not be revealed from such examination that a reasonably careful person will make
- all ships have to undergo periodic inspections by virtue of international law
- entity that in practice undertakes this task is the Classification society
- reasonable test for latent defect: is it 1 that ought to be discovered by inspections taken by classification societies? The test is not ‘could the defect be discovered’ given the technology available to the human race.

Requirement of consequential loss or damage
If all that happens is that the vessel is discovered by Classification Society surveyor one of the defects and that is not any consequential loss then there is no claim.
Leading case in this area is CA decision in Promet Engineering (Singapore) Ltd v Sturge (The Nukila) [1997] 2 Lloyd’s Rep 146.
LJ Hobhouse: whether you can recover under Inchmaree Clause depends on whether you can answer yes to 3 questions:
1. Was there damage to subject matter insured?
2. Did that damage occur during period covered by policy?
3. Was that damage caused by a latent defect in the machinery/hull?

Damage: what is just a defect and what is a defect that has caused damage?
When the welding was done it was not properly finished/ profiled (not smoothed off) as a result there was increased stress on the metal and to create over time metal fatigue.
- Fatigue crack is a weakness in itself- overtime it will develop
- CA held that there was damage. Trial judge said no because the cracking is the defect. All that happened was that the defect had ceased to be latent but became visible.
- Difficulty in Nukila- when does defect cause damage? How much of a manifestation of a damage do you need before you derive damage from defect? Expert evidence was only able to give a prognosis- cannot give evidence on the legal concept of damage. Distinction between defect & damage is a matter of law that has to be addressed by the judges but the Nukila gives us no answer

Draw a distinction in earlier cases
Scindia Steamships (London) Ltd v London Assurance (1936) 56 LlLRep 136
- there was breakage of a propeller shaft due to a latent defect in the shaft. Assured wanted the insurer to pay him the cost of a new shaft
- judge held no- for 3 reasons: Inchmaree clause (apart from latent defect does cover breakage of shaft International Clause 2.2.1) but that is not a guarantee that shafts will not break rather it is insurance against consequential loss caused by the breakage of the shaft
- the broken shaft could not itself be consequential damage of the broken shaft. By parallel reasoning: it couldn’t have a latent defect claim because the breaking of the shaft was merely the physical manifestation of the previously latent defect
- if underwriters aren’t liable simply because the shaft breaks, it makes no sense for it to be liable if the shaft is found to be in a potentially breaking condition

question 2 from Nukila- damage occurred when insurer was covering risk
problems with timing: 3 different ones
1. damage may be inflicted before insurer comes on risk- insurer is not liable here
2. it may be that the threshold between defect & damage isn’t crossed until the policy expires. Query: At what point did defect become damage? [with cases like Nukila and Carribean Sea- cracking develops over time. Therefore can have damage that developed panning 1 insurance period and another. If you had different policies for this period then how? End up recovering nothing.

Question 3: point on causation?
Oceanic Steamship Co v Faber (1907) 13 Com Cas 28

Measure of indemnity
If you have a latent defect and it has caused damaged: the ship needs repair. When you repair the ship you will be eliminating the defect.

Difficulty is that the insurers don’t like paying for the defect itself.
Only want to pay for consequential loss caused by the defect.

For e.g. in Scindia where a shaft breaks and propeller falls off: we see that the court held that there was no liability with respect to the shaft because it was merely the defect becoming apparent.
Difficulty is that sometimes you cannot cure the consequential damage without curing the defects.
E.g of cracks- you cannot repair the Nukila without re-doing the welding. Question then is “are insurers liable for just the consequential bit?”
What do you do when you cannot separate the consequential bit from the defect itself?
The Nukila the assurers wanted to claim the full cost *including elimination of the defect. Insurers didn’t like the idea that they had to be liable for the cost of eliminating the defect.
5 years later after the Nukila we get…

International Hull Clauses (01/11/02), cl 2.2- insurers’ liability excludes correcting latent defects. Insurers did not think that this was controversial: thought that all they were doing was stating the position that they had believed all the while. But proved commercially controversial: ship owners objected to this: response was in 2003 clauses.
International Hull Clauses (01/11/03), cl 2.3, 2.4
Striking the compromise: in so far as you can isolate the consequential loss: the insurer are liable for the lot: but also if there are common costs: if there is work that cannot be allocated to either correcting the defect or addressing the consequential loss then insurers accept 50% of those cost
When dealing with Inchmaree claim: think of 3 types of costs:
1. Scindia- on 1 hand there is clear consequential loss: the propeller that fell off. The underwriters there were liable for 100%.
2. Breakage of the shaft in Scindia has nothing to do with loss but merely a latent defect. Position here is that the insurers have no liability at all
3. Nukila type claim for the welding where you cannot distinguish between curing the defect and addressing the damage caused by the defect: there the costs are common to dealing with the consequential loss and the defect. There under 2003 clauses the insurers have 50% liability
Messy situation? Ship owners want full cover- that says if there is a latent defect and that defect causes loss then the insurer pays for the whole thing to be sorted out: then that will fall under ‘additional perils’ cover: exists as a standard institute clause that can be attached to the institute hull clauses. Alternatively it is built into the international hull clauses as an option: structure of the international hull clauses are different from a narrower institute hull clauses:
3 sections:
1. Clauses 1-31 “principle insuring conditions”: modernized version of the institute hull clauses. Changes in institute hull clauses and international hull clauses- just that they are more readable. Origin: modernised institute clauses
2. Clauses 32-41 “additional clauses” optional extras: that may/may not be included in policy as the parties so wish. Extension of the clauses. Origin: ad-hoc versions of institute clauses
3. Claims handling protocol. Brand new- no precursor

Reason why you get latent defects/cracks develop/ consequential loss is because vessels are not maintained properly. For ship owners: they have the perverse incentive not to maintain ship properly so that you can get damage & claim on it. Insurers however do not want damage
High proportion of hull claims are brought for this sort of damage: therefore the due diligence provisos are very important.

Additional perils cover

International Hull Clauses (01/11/03), cl 41

(2) Negligence
marine insurance law responds to negligence in 2 different ways:
1. S55(2)a 1906 MIA: the insurer has no defence based on negligence of the master/crew. Setting here is that 1st of all it deals with wilful misconduct of the assured: when the assured sinks his own ship. {under no circumstances is the insurer ever liable when the loss is due to wilful conduct of the assured} but insurer has no defence based solely on negligence of master/crew. If ship is deliberately run into a rock @ the instructions at the ship owner then the insurer is not liable. But if the rock collision is because of the master’s negligence then the insurer is liable.
a. If vessel hits rock the assured can claim ‘peril of the sea’ but the assured must prove ‘fortuity’ = must be accidental. Negligence can supply fortuity to the loss by peril of the sea. Negligence usually provides part of a claim. under Inchmaree clause: negligence of specified persons is itself a covered peril.
i. Not just anybody however: usually master/crew/pilot
Marine Insurance Act 1906, s 55(2)(a)
Baxendale v Fane (The Lapwing) [1940] P 112- negligent berthing of a vessel.
Coverage included ‘negligence of the master’
Project Asia Line Inc v Shone (The Pride of Donegal) [2002] 1 Lloyd’s Rep 659- good recent example: a freight policy: freight was lost due to major engine failure: because of problems with vessel’s turbo charger. Master & engineering officers should have been able to deal with those problems but they were negligent: therefore failed to address those problems as they should have done: therefore failure of reasonable care in the operation of the vessel. No peril of the sea here. It is a breakdown of machinery- only peril was negligence of the master & crew: but that was enough to secure coverage

(3) Barratry
ship may hit a rock for 2 reasons: upon instigation of owner & negligent navigation
Barratry is the master’s own sinking of the ship @ his own initiative; nothing to do with the owner. This sort of conduct is pretty rare. Covers any fraudulent/criminal conduct of master or crew to the owner of the ship. The owner must not be involved in the sinking.

Soares v Thornton (1817) 7 Taunt 627, 639 40: definition of barratry. Difficulty of this peril relates primarily to causation and burden of proof
Pipon v Cope (1808) 1 Camp 434

Cory & Sons v Burr (1883) 8 App Cas 393
Master of vessel indulging in a spot of smuggling: unfortunately smuggling was caught. Customs seized the ship. Costs the assured some $ to obtain vessels’ release: that’s what the assured seeks to recover.
Policy covered barratry but there was express exclusion that extended (amongst other things to seizure) crux here would then be the proximate cause of the loss- if only seizure than no claim. If barratry then assure wins but if combined alternative then the insurer wins because the exclusion covered the cause.
Issue: did the seizure have any proximate cause @ all? Didn’t matter if it was ‘the’ or ‘a’. Held that the insurers were not liable.
Decision must be right: without the seizure= no loss. If master had been a better/luckier smuggler then there would have been no arrest. Clearly the seizure had operative standing therefore the exclusion operated.
But is barratry only the background against which the seizure occurred? But clear that barratry was a cause of the loss at all
Judgement of HL in Cory v. Burr- 2 judgments state that the seizure was the/only proximate cause. The barratry was not the matter (fact that guy got arrested because he got arrested and not that he was committing a crime)
Look at Lord Blackburn’s holding- barratry is also another cause.

But Cory v. Burrs has never been challenged by the courts. Suggests that if you have parallel facts it doesn’t matter- only focus on the seizure. Barratry is a marine peril and seizure is a war risk.
(if it’s combined cause where event 2 completely overwrites event 1)-
but because this is HL: it is still sighted today even when barratry is not the issue.

Another difficulty is ‘burden of proof’-
Barratry is not scuttling by the assured: this must be proved.

If focus on scuttling where assured asks master to sink ship: there is no doubt that the involvement of the assured will be brought up by the insurer. Will activate ‘wilful misconduct’- but have to prove that the assured committed a criminal offence. Branding assured a criminal. Destroying the assured’s commercial reputation. For court to say that you fraudulently scuttled your ship: that is a serious statement but they are rather reluctant to do so. Trouble with barratry is that by definition it puts into play the question of the assured’s character. Definition of barratry is that the assured is not involved: qn is where does burden of proof lie?
Generally the assured must prove all parts of the peril

But here part of the peril consists of the assured’s innocence: that he is not a crook: this is something that is for insurer to raise. Although this is civil law: there is still the presumption of innocence. Just because the contract is drafted in this manner; does the assured have to prove his innocence? If this were a criminal charge then the assured’s innocence is actually presumed.

Elfie Issaias v Marine Insurance Co [1923] 15 LlLRep 186
- CA held that the assured did not have to prove that he was not involved.
- Insurers had to prove that the owner was involved.
- CA referred to the fact that when you allege the complexity of the owner: it being a criminal accusation in the civil context: the assured is still entitled to the presumption of innocence.
- (represents binding CA precedent till this date)
but this view does not attract a lot of favourable comment over the years: see
Michalos (M) & Sons Maritime SA v Prudential Assurance Co Ltd (The Zinovia) [1984] 2 Lloyd’s Rep 264 at 272
- *wrong to combine finding of criminality & failing to prove on a balance of probabilities
Decision of Bingham J (he is now a senior law lord)-
- point here is that the policy here has a peril with 2 elements. The assured ought to have to prove both of them
- 1 can draw a parallel with perils of the sea

Insurers must prove ordinary wear and tear.
when you come to perils of the sea ordinary wear and tear must be disproved by the assured because of the definition of the peril- as it requires the element of fortuity.
Ordinary wear and tear is not fortuitous. Assured must demonstrate something that is not ordinary wear and tear.
thus barratry as a peril should also require the assured to disprove something that is for the insurer to disprove because that is what the contract says.
Analogy with the criminal law is stretched. Suppose the assured claims for loss by barratry: claim fails because the court says that you didn’t prove that you were innocent: what does this say as matter of legal analysis?
Court says that the assured has not proved on a balance of probability that it was innocent of the sinking
Finding that the assured is not innocent: v. assured is guilty beyond reasonable doubt
*this is not the same thing as the court saying that you the assured, beyond reasonable doubt sank your ship. That is a finding of criminal conduct.

Complexity: what do we mean by this?
Basic point to make here is that complexity does not require that the assured actually carried out the sinking of the vessel himself. Nor does it require that the assured directed/was there instructing some1 to carry out the sinking.
Neither does it require that the assured had anything to do with planning on how the sinking is going to be done
Enough if the sinking is the result that is desired by the assured
Complexity simpl y means that the assured is involved at the level of instigation: point clear in The Captain Panagos DP (No 2) [1986] 2 Lloyd’s Rep 470 at 501
(b) The Due Diligence Proviso
difference between these 2 clauses: institute clause 2.1. & 2.2
DDProviso –
1) want of due diligence: ie negligence on the part of specified persons (range of which is worth a comment because it is very controversial)
1983 institute hull clauses: specified persons are assured, owners & managers. When this was drafted the principle aim of insurers was to cut down payouts for sub-standard shipping. Ship owners were cutting costs on maintenance & crew training. If vessel is not properly maintained/ manned by crew that is not properly trained then some sort of machinery damage is rather likely
perils covered by standard hull clauses (where is inadequate maintenance going to surface? It will occur in a form of a negligence claim/latent defect being discovered)
claim under the Inchmaree clause could well @ its roots the problem that the vessel has not been properly maintained by the crew at the standard that it should be.

Difficulty is that it is problematic to trace the problem with the vessel back to the negligence of the managers because there could be layers of corporate structure between the actual owners and these people.

Consequently when 1995 clauses were drafted, the specified persons were extended to superintendents and on-shore management. Those people in the corporate structure who may be more directly involved in the maintenance of the ship: this must then be a directive from on high: but you are saying that it is for the insurer to prove that there has been negligent maintenance of the vessel and trace it back to ship manager. (this was met with howls of outrage)
The ship owners said that the re-drafting was unrealistic. Unrealistic to hold ship owners for any slip by lower management. 1995 hull clauses when market was soft, insurers had very little bargaining power.
1995 clauses have thus never been used without the due diligence proviso being amended to delete its extension.

Institute hull clauses 1983, 1995
International hull clauses 2002, 2003
Wording of due diligence proviso reverted to 1983 wording
As a means of trying to deal with substandard shipping- extension of ‘specified persons’ proved to be a failure. 1995 clauses never used

(c) Relationship Between Cover Under The Inchmaree Clause & Cover Against Maritime Perils

Suppose a vessel is involved in collision and sinks because of master’s negligent navigation
Master was drunk @ the time. Transpires that the master was an alcoholic (and has drunk/been drunk on duty on a number of occasions over the past few years) this is something that the assured should have known. The assured was negligent in having that master in charge of that ship.
If one were to bring a claim under Inchmaree clause for loss caused by negligence of master then the insurers can use due diligence proviso as a defence. They will thus not be liable.
If we bring the claim differently: loss by perils to the sea: requires fortuity (negligence of master supplies that)
As to the negligence of the assured: the due diligence proviso does not apply: therefore the assured wins
There is no way around that conclusion because that is what the insurance contract says.
There is a deliberate separation of those provisos.
There is a clear contractual separation.

Further Reading

Hazelwood, “Marine Perils and the Burden of Proof”, chapter 5 in The Modern Law of Marine Insurance (1996), Thomas ed, pp 156-172


2 damages are possible:
a. Physical damage to the ship: covered under heading ‘peril of the sea’- difficulty arises when the collision is not with another ship. It may bump into another port or something. There are also all manner of structures/objects that you can find at sea that are not ships as such that a vessel may collide with (structures involved in oil & gas industry, containers that have fallen off container carrier; flying boat). Claim under peril of the sea must have a maritime connection. Must demonstrate maritime connection. Consequently the standard market clauses also talk about contact with a number of things. The international hull clauses are very broad but the institute hull clauses are more restricted in the insurer’s coverage
b. Damage that the ship causes to whatever it hits. There is thus a liability problem. Require liability insurance. Since 19th century, standard hull clauses have contained element of liability insurance. Although liability insurance is covered in P&I cover, the main exception relates to collision liability cover. Offers extra bit of cover. Think of marine hull policy as containing little sub-insurance policy in it. 3rd party collision is one such ‘bit’. Collision liability cover is found in ‘running down clause_ RDC’. In international hull clauses: it is clause 6. *pick through this clause because it is full of technical limitations: can limit yourself by clause 6.1: u agree to indemnify the assured for 3 faults [not 100%] for any sum/sums paid for by the assured to any person by reasons of the assured becoming legally liable… where such payment by the assured is in consequence of a collision…
Limitations: there must be legal liability by means of damages: there must be liability for a some that has the legal characteristics of the … see
i. Furness, Withy & Co Ltd v Duder [1936] 2 KB 461. No authority on whether the damages/reference to damages would extend to exemplary damages/punity damages. (Bennett says it does but there is no authority on this view)
ii. Sum/sums paid by the assured: means that the assured has actually paid out and must then seek to recover what has been paid out. Recover once liability has been quantified. Problem here is what happens if the assured becomes insolvent? If you own the other vessel and the assured’s vessel sinks your vessel negligently by collision: but he has no $ to pay you because he is bankrupt. Because insurance is not in the liability is in the assured making the payment- therefore if assured is bankrupt the 3rd party has no recourse
iii. It is not full cover: only 3/4 . in 2003 clause 38: option to have 4/4 coverage
iv. Another limitation is that indemnity only applies if there is a collision with another vessel. Collision with fishing boat/anchor then how? Way around this problem is to incorporate an option in part II (clause 37: fixed/floating objects) effect of this amendment is that cover is extended to collision with any object fixed/floating. That is not all:
v. Vessel must come into collision with it. If the vessel runs aground there is no collision and therefore no indemnity.
vi. However if there is a domino effect and 3 ships are involved then liability extends to the whole lot.
Collision liability provides the best e.g. of complementary nature of cover under standard market hull clauses and cover by standard P&I clauses.
Standard P&I club rulebooks that are designed to work under uk law: collision liability sections match/interlock with international hull clauses to perfection.
Gaps identified are filled by P&I club.
If you only have cover for collision with another vessel: residuary provisions is in P&I rule book. Etc
Issue is not that ‘is the ship owner insured’? it is ‘who insures’ the ship owner
In practice the ship owner will arrange for complete coverage- often the cover is set up and not split between the 2.
(a) Loss Of Or Damage To The Subject-Matter Insured

(b) Third Party Liability

International Hull Clauses (01/11/03), cl 6
International Hull Clauses (01/11/03), cl ?? (four-fourths), 37

There are a number of losses that are not covered under marine policies. Wilful misconduct is not covered because of public policy.
Some are not covered unless the policy otherwise provides because that is what s552(b) and (c) say. Others are not covered purely and simply as a matter of contractual exclusion. E.g war & strikes risks that are all excluded by marine policies: left to be picked up by war & strikes clauses

Wilful Misconduct

Marine Insurance Act 1906, s 55(2)(a): specifically states that insurer is not liable for loss attributable to (not proximately caused by) the wilful misconduct of the assured. This as a specific e.g. of a more general limitation on cover in respect of the voluntary conduct of the assured. It is generally not the case that property insurers covers an event that is voluntarily brought about by the assured. E.g. policy on car (does not as a matter of interpretation of contract) have cover that includes the event when you decide to crash your own car. This is not because there is a rule of public policy but because it is the obvious interpretation of the contract.
If the insurer agrees to cover car if you deliberately smash it up- if you drive the car into another person’s property: you endanger somebody else’s’ property: destroying your own property is your right but you will only have the right to destroy your own property at the insurer’s expense depending on how you destroy the property and what kind of property you are talking about. Contra the pencil e.g. when no 1 gets hurt
Public policy consideration: you cannot destroy your own things and expect insurers to be liable if your act of destruction causes hurt to the environment, 3rd parties
Nothing wrong with insurance that is to serve as indemnity of consequences of ‘positive’ activities. If your acts may harm others then cannot expect the insurers to insure u
Even if there is no policy restriction there is still the question of interpretation: does the policy cover the deliberate act of the assured’s conduct
S55(2)a says that the insurer is not liable for wilful misconduct not wilful conduct. What misconduct means has never been addressed by the court but could well refer to acts that are relatively anti-social but public policy prohibits anti-social conduct.
Definition of wilful: intentional/reckless- the conscious running of the risk. Subjectively you must know the risk of damage is there and you must consciously run the risk: see Morley v United Friendly Insurance plc [1993] 1 WLR 996.
Institute Cargo Clauses (A), (B), (C), cl 4.1
Wood v Associated National Insurance Co Ltd [1985] 1 QdR 297
- assured knew that there was danger of severe weather but he nonetheless left his ship to be manned by crew that was not competent to deal with that sort of weather: he had to leave his ship to go shopping with his wife. Court held that this was a reckless exposure of the vessel to peril= this is wilful misconduct

causation: it might be that the wilful misconduct isn’t technically satisfy the proximate cause test; the point is that it does not have to. It is the relaxation of the ‘proximate cause’ if need be.
Leyland Shipping

Standard of proof that insurer has to raise under wilful misconduct is high. Technical formulation is unclear: seems to be talking about balance of probabilities but you need high levels of proof before the court is satisfied that the standard is met. Scuttling is the classic form of wilful misconduct.
Scuttling: there are 2 element to address here: 1) how the ship was lost (looking for deliberate sinking. But it is not usually deliberate sinking by the assured himself who is the company owner who is safe on dry land. You need connection between the assured and the sinking. If you can get the master into the witness box to confess that the assured put him up to it then you have the best form of evidence. Alternatively you look for circumstantial evidence: looking for motive mens rea cause quasi-criminal territory)
*direct evidence is the confession: this is difficult to find. Sometimes you can show it e.g. fires starting in 4 places @ once. Alternatively: see that the master & crew are all safe; ship sinks in deep water (difficult for divers to go down to inspect the wreck for physical evidence); what account is given by master/crew: the credibility of their account. Do they say that the vessel hits something that is never heard off again? How quickly did they abandon ship? How hard they tried to keep vessel afloat? Are accounts of crew members consistent with witness accounts? Where are the ship’s papers- log book. A master who innocently loses his ship will want to clear his name (in order to look for another job)- he does so by preserving ship’s documentation: that everything was done correctly up till the last moment- normally these are of the high place in the master’s priority. What did the master do after being rescued? You’d expect him to contact the owner/manager immediately to explain/apologise as to what happened. If he does nothing: why not?

Motive: usually the hope of financial gain by all parties: looking for a party that is heavily insured *agreed value; assured heavy in debt; insurance premiums due; transfer of $ to the scuttler (can be master/crew)
Prove scuttling also by luck.

Astrovlanis Compania Naviera SA v Linard (The Gold Sky) [1972] 2 Lloyd’s Rep 187

See for an interesting tale of fraud.
Continue here
If delay is the cause of the loss: it is not covered?
Point about delay arises out of 1 awkward causation case- Pink v Fleming (1890) LR 25 QBD 396
Cargo insured against collision: policy is silent on delay and is not excluded. Vessel is delayed because of collision and vessel requires repairs. Cargo has to be unloaded for repairs and then reloaded after repairs are completed
Because cargo is perishable fruit: some of it goes bad due to delay and unloading/reloading process. Reasoning in judgement does not mention handling problem and focus is on the fact that the voyage took longer than it should have done and the causal significance of that.
CA held: insurers not liable. Per lord Esser- but he got the law on causation completely wrong. What he did was to apply a last in time approach to proximity of causation. This case was decided in 1890 when marine insurance laws had not decided Leyland Shipping where the HL decided which approach was right. This case is the best e.g. of the wrong theory of causation that you can find.
According 2 e UK law of MI, only the last cause can be regarded to connect the loss (damage to the freight) to the policy: P must go back 2 steps 1)to the collision *cannot go beyond the most reason cause in time…
Causation reasoning is wrong: it is incompatible with Leyland and the USA courts had held that Pink cannot stand with Leyland. in terms of the result: the policy in Pink – the wrong result was raised at. The assured should have recovered because the collision was the proximate cause of the loss. Difficult to see that the collision broke the chain of causation between the cause and the loss. The moment the collision was sustained there was no way of avoiding it.
If you have same facts today but with a modern cargo policy: the assured will not recover because of the modern express delay exclusion. The only way to get around delay exclusion: say that on its wording it simply does not apply because delay exclusion in the cargo clauses reiterate Marine Insurance Act 1906, s 55(2)(b)- this section codifies Pink. Difficulty here is: if delay is the proximate cause of the loss? If delay is not then the exclusion clause does not work
Cargo clauses repeat the mistake in MIAct because it follows Pink. See- Institute Cargo Clauses (A), (B), (C), cl 4.5
Don’t know if that is right.

Yes, collision has proximate cause- maybe so does delay. If it were possible to carry cargo fast enough the cargo would not have damaged?
Actual impact of the vessel did not cause the cargo to spoil. Fact of collision led to prolongation of the voyage. Although Essher clearly is wrong to deny collision proximate cause status: delay should be a part of the proximate cause. The exclusion should prevail.

Pink is an awkward 19th century cases that needs review

Losses That Occur In The Natural Course Of Events

Marine Insurance Act 1906, s 55(2)(c): unless otherwise provided: insurer is not liable for ordinary wear and tear, ordinary leakage and breakage…
These are losses that are just the natural incident of transit. Insurance is supposed to be about accidental loss. These types of loss are normal and should not allow recovery.
If I am insurer and you come 2 me w a cargo of goods to be shipped from Singapore- it maybe a liquid that evaporates (e.g. oil) and thus 2% of the oil will be lost.
Insurer will not want to cover losses that will inevitably occur: he may want to up the premium- reflects the obvious bargain/interpretation of the contract.
So far as the cargo clauses are concerned you find the following:

(1) Ordinary wear & tear, ordinary breakage, ordinary leakage
sometimes a different type of cargo policy is issued which does cover ordinary loss: full out turn guarantee. I is guaranteeing that every drop of the cargo will be delivered. Sounds stupid? No because there is the excess clause which says that the insurer is not liable for the 1st $50/100/1000 dollars of the loss. I is only liable for the loss that exceeds the figure stipulated in the policy. Full out-turn guarantee will contain effectively the excess that covers the 2%loss (or thereabouts)

Institute Cargo Clauses (A), (B), (C), cl 4.2
‘Full outturn guarantee’

(2) Inherent vice or nature of the subject-matter insured

*this is for cargo insurance only.

But this is not to say that 1 can always ignore the insurance of ships. But there is another area of insurance law that deals with ships: that of seaworthiness
circumstances in which insurer is allowed to raise a defence of unseaworthiness are carefully controlled by MI law.

There is no room for residuary inherent vice defects
picture that emerges: look @ seaworthiness for inherent condition of ship-
look at inherent vice for cargo.

Institute Cargo Clauses (A), (B), (C), cl 4.3, 4.4
Leading case
Soya GmbH Mainz Kommanditgesellschaft v White [1983] 1 Lloyd’s Rep 122
- important because HL’s most authoritative definition of inherent vice: the risk of deterioration: the gds shipped as a result of their natural behaviour. The ordinary cause of the contemplated voyage w/o intervention of any fortuitous/ external accident causally.
- What do we understand by fortuitous in this context?
Mayban General Assurance Bhd v Alstom Power Plants Ltd [2004] 2 Lloyd’s Rep 609
- insurance of a large electrical transformer. Insured under institute cargo clauses A- from Liverpool to Msia w transhipment in Amsterdam
- electrical transformer was like a stool with an number of legs. On arrival they discovered that there was damage to the transformer. Because of the vessel’s hedging, strained the electrical transformer’s legs.
- A thought he was covered but I raised defence of inherent vice. I argued that there was no unusually rough seas @ that time of the year. If your cargo is not fit to withstand those conditions then that’s inherent vice.
- How bad were the seas? Winds of gale force 8 or more waves of 6m of higher were encountered on a number of occasions. In 1 instance of the UK coast: those conditions were encountered w/o respite for >24 hours.
- Those conditions you may expect to encounter in those waters. But for such occurrence over such an extended period has only occurred once over every 2.5 years
- Suppose u have vessel that tends to go through those seas: how often do you expect the vessel to go through such seas over 24 hours?
- If you have vessel in such seas, the judge concluded that the vessel is not expected to encounter such conditions >1 time over 8.5 years. But he still held that that was often enough for the cargo to be capable of withstanding- held that inherent vice worked
- Inherent vice: any commercial person w experience of the waters would consider to be reasonable to be expected over the relevant time of year.
- Conditions/events that will occur from time to time which are nonetheless uncommon- the cargo must still be able to withstand those conditions.
- If I says to cargo owner that he is insured against accidental loss:
- The result in the case can be sustained because it seems that the damage to the goods might have been caused by the other bad weather that was to be expected on a more regular basis. But if 1 focuses on that part of the reasoning for just that 24 hour period (once every 8.5 years)- this part of the reasoning is extremely surprising

Berk (FW) & Co Ltd v Style [1955] 2 Lloyd’s Rep 382

TM Noten BV v Harding [1990] 2 Lloyd’s Rep 283-
-gloves made in India and to be shipped. Before gloves were packed they were exposed to moisture.
- in course of transit the outside of the container cooled: that caused warm air to rise inside of the container- taking moisture from leather gloves which condensed when it hit the top of the container and that moisture fell back down to the gloves
- gloves turned mouldy.
What was the proximate cause of the loss? Was it the condition of the gloves (that would be inherent vice) or was it the intervening event?
TJ held that it was the rising and condensation of the moisture
CA held that the real dominant cause of the damage was the condition of the glove at the outside
*idea that migration of h2o broke the change was nonsense

Bird’s Cigarette Manufacturing Co Ltd v Rouse (1924) 19 LlLRep 301
- **puzzling case
- Insurance on cargo cigarettes that had mildew on them @ arrival
- Problem: in looking for cause of the loss: 2 causes: 1) inherent vice 2) salt water- accident in transit
- Judge allowed A to recover 80% of the loss
- Despite the fact that scientifically it was impossible to apportion the loss between the 2 causes of loss
- Evidently the I was not unduly upset by this because there was no appeal.
- But how does this stand with Kelly- to causes of loss- 1 insured and 1 not
- This case is puzzling: because ultimately as a matter of principle the decision is wrong and the insured should not have recovered anything
Final question concerning inherent vice is the feasibility of insuring against inherent vice.
S55(2)c clearly contemplates that you can insure against inherent vice
Issue is: what sort of wording would suffice?
Case law tells us 2 things: 1) if the wording could cover externally induced damage and also inherent vice then it is likely to be interpreted as confined to the former. If language is ambiguous- it is likely to be restricted to the former (ie. The externally caused damage)
2) if u have a series of perils covered in policy: and 1 of them is the peril that could be the result of an external accident/inherent vice but the other covered perils are all examples of inherent vice: then your 1st peril covers inherent vice.
e.g. of this is Soya v. White
- insurance of soya beans being shipped from Asia to Europe and they were insured against heat, sweat and spontaneous combustion. (HSSC policy)
- soya beans arrived damaged and the basic reason why they were damage was because of their moisture content @ the start of the journey
- that moisture content led to microbes inside the soya beans doing whatever microbes do and that caused heat
- claimed for damage caused by heat
-I said but ‘heat doesn’t mean heat as a result of the internal condition of the soya but it refers to external heat- ship caught fire)
- HL held that I was wrong. Policy said heat, sweat & spontaneous combustion which by definition came from within.
Although heat in abstract is ambiguous and could cover both sorts of heating, in the context of HSSC- it covered internally generated heating as well

(3) Rats or vermin
- presumptively excluded because of their natural presence traditionally onboard vessels
this exclusion is not however repeated in the institute cargo clauses. ICC (A) which covers all risks except those in clauses 4-7 (but there is no rats/vermin peril exclusion) so ICC (A) includes insurance coverage for rats/vermin

War & Strikes Risks (outline only)
*see relevant exclusions in international hull clauses:
- clauses 29 on wards of international hull clauses: these excluded as worded are not word4word identical in all international hull clauses- but are similar.
What are we talking about in the range of perils that are not covered in the normal marine clauses_
War/civil war- civil strikes arising there from etc.
Various questions one will raise-
Effect of rebellion/insurrection etc.
It doesn’t matter because these perils tend always to go together covered en-bloc- precisely where the dividing line is doesn’t seem clear
- there is a huge amount of case law on war risk out of the 2 world wars but are irrelevant because based on different policy wording.
- A lot of case law on ‘war-like’ operation- very complex which was rejected by the market.

Barratreous/ piratical seizure is not war risk: ordinary marine risk (piracy is covered peril under marine risk)
Capture/seizure is not in context of war/civil war- it is any capture/seizure/detainment- if vessel is detained because of non-payment of tax: that is still a war risk
War risk is short hand for a lot of perils- some have nothing to do with the war

Derelict minds/torpedoes etc- response to a case involving a dredger that sucked up some dubbed WWII munitions that exploded in the hull of the dredger and sunk the ship
Was this a marine risk under peril of the sea/a war risk?
Market introduced this line to make it clear that hence forth this was to be regarded as a war-risk

29.1- 29.3: war risks

Institute War and Strikes Clauses (Hulls-Time)

Strikes- even those wholly unconnected with the employment dispute maybe regarded as a strikes risk
Difference between civil strife/ civil commotion?
- no 1 knows: but usually if you insure the normal cargo package (ICC A,B,C + war risks + strikes risks_ then all covered so it doesn’t matter)

but goes on to cover clause 30 in international hull clauses: (it is more logical but not typical of market as a whole)
- terrorist/ political motive/ using weapon with political motive
- terrorist is either strikes risks/ risks in its own right_ therefore attack on world trade centre is not regarded as a war risk.
- How do you classify the response on war on terror is idiosyncratic

What about problems caused by military weapons? Colonel Kedafee- sale of mines certain distance off the coast of Libya- what if vessel hits the mine?
It is not war/ no conflict
C29.3 also out
Regardless of opinion on kedaffee- he is not a terrorist but he does have a political motive.
Use of weapon w. political motive is the only way>
**pigeon hole accordingly but do think with care regarding incidences that do arise.
What about damage due to friendly fire? Damage due to mistaken identity?

Institute War Clauses (Cargo)
Institute Strikes Clauses (Cargo)
When u look @ ordinary marine policies there is a whole battery of exclusions that have war & strikes risks written off the policy- but the war & strikes risks also have reciprocal separation that have those issues under marine policies
Clause 4.2- war & strikes clauses and marine clauses are separate

Market practice of hull/cargo is rather different
If you are cargo insurer- you will want a comprehensive coverage
Basic- ICC (A or C) + war risks cover/strikes cover to cargo
If you are ship owner- 1 underwriter provides hull & machinery cover (institute clause of 1983/1995) but another underwriter provides your war risk cover

Marine Risks Exclusion In War & Strikes Clauses For Hulls & Freight

Institute War & Strikes Clauses (Hulls-Time) (1/10/83), cl 4.2

Further Reading

Hill, “Wilful Misconduct”, chapter 7 in The Modern Law of Marine Insurance: Volume 2 (2002), Thomas ed.



The making of a claim is the consequence of a loss

MI makes a distinction between total loss and partial loss: same as non-marine I.
A difference is that there are 2 types of total loss:
1) Actual
2) Constructive: this concept is unknown to non MI

There is also partial loss

*what are these losses: how to recognise them
consequences that follow from the different classification of the loss will affect what A has to do and how much $ he gets if claim is successful.

(a) Actual Total Loss
Defined: Marine Insurance Act 1906, s 57(1) **exhaustive explanation
Contemplates 3 ways in which insured property qualifies as ATL
1) Destroyed. Destruction. > badly damaged. Insured item no longer exists. (in the times of the wooden ship: no more ship but wooden planks)
So damaged that it is no longer a thing of the kind insured: test here is whether the insured property has undergone a change in commercial identity

Asfar & Co v Blundell [1896] 1 QB 123: cargo of dates shipped to London. Vessel arrived but then sank in River Thames. River Thames in late 19th century was heavily contaminated with sewage. Dates were recovered but rotten. Unfit for human consumption. But they still had resale value: sold to distillers for wine. Issue: whether there was loss of freight? Was there total loss?
What arrived was something that was not the same commodity.
CA held that if the nature of the thing is altered that it becomes the business purpose of something else and changes from the thing that it was: you have something else. Biologically the thing was still there but commercially the thing wasn’t there. So it has loss its commercial identity.
**consequently need to identify what the original identity was.
Fraser Shipping Ltd v Colton [1997] 1 Lloyd’s Rep 586
ship sold for final voyage of demolition. Ran aground and almost broke into 2. Wasn’t capable of completing voyage w/o savage & repair. Whether there was ATL?
Court held: no. because to begin with, the vessel was a dead ship that was going to be scraped. Although it was a vessel in need of repair in order to carry on its voyage: it still remained a dead ship that remained to be towed and scrapped.
If the vessel spilt into 2 & cannot be subject to single voyage that that maybe considered as change in its ID. Therefore total loss. Moreover the vessel needs salvage: the salvers might have said that it the only thing they could have done was to break the ship into 2 parts. But that was not relevant to the condition of the vessel.
It was not relevant to the vessel as it was/was not as it was left there stranded whether it was/was not actual total loss.

In the cargo context what sometimes happens is that the cargo is so damaged en route that the only sensible thing to do is to sell it at some intermediate port. In those circumstances there is no actual total loss. If a sale is the prudent thing to do it might be because the property (for e.g. cannot complete the voyage w/o a lot of expensive reconditioning) but that does not make property ATL. But if the cargo is now an ATL or it is in imminent danger of becoming an ATL- then the sale is not just a prudent thing to do but is a prudent thing to do. What happens then is that the cargo will be sold to the benefit of the insurers. Cargo has become the benefit of the ATL. Features of the ATL is that the value of the insured property that maybe retained (e.g. dates were worth 2400pds) is values that the I are entitled to.

Basic idea is that if property is a total loss: I gets paid under policy the value of the goods. But then he might have cargo/ship/what’s left of it and still retain some residual value. What happens to that? If A gets to keep it, he will get insured amount + residual value which offends the indemnity principle in insurance.
When you have total loss you have something for abandonment: that means that the assured is deemed to offer the insurers whatever remains of the I.P.

I does not have to take it **in reality in the hull market they ne’er want it. Legal theory is satisfied by the idea that anything that remains in the I.P in the event of an ATL. Cargo damaged enroute: question: is it ATL? If so, if it is worth anything it will be sold and the sale proceeds will be I’s entitlement.

2) If it’s not ATL but A thinks that commercially the sensible thing to do is to abandon the voyage and sell the cargo- I is only liable for partial loss. See
Roux v Salvador (1836) 3 Bing (NC) 266

3) Irretrievable deprivation. Obvious question here is what do we mean by irretrievable? We do not mean that it is certain (100% sure) that you will ne’er get property back. There is no 100% certainty that you will not get property back unless the property is destroyed. Interested in degree of probability that you will not recover the property. 1 degree of probability is that it is unlike that the property will be recovered within a reasonable time. We know that that is not ATL.

We know that because that constitute constructive total loss (a lesser species of ATL) something > unlikely to retrieve over reasonable time but < certainty of no recovery
NB*simply because a vessel sinks doesn’t render it an ATL. Vessel that sinks is not necessarily destroyed. Underwater but no loss of commercial ID.
Ship that is sunk: cannot get it back? Whether it is ATL: depends on whether it can be raised> as salvage technique improves, mere sinking is unlikely to constitute ATL.
If theoretically possible to raise the ship but it is very expensive to do so, then it’s CTL. Irretrievable deprivation is not an economic test. If you spent a fortune and get it back then it’s not an ATL.

Lack of clarity: relating to de minimus’s law: does deme

Hedburg v Pearson (1816) 7 Taunt 154
- indicates dislike of de minimus principle
- do you have ATL? If you have 3% of cargo left then court hold that there is no ATL. Dislike for de minimus principle by the court.
Boon & Cheah Steel Pipes Sdn Bhd v Asia Insurance Co Ltd [1975] 1 Lloyd’s Rep 452
- authority for dislike of the de minimus principle
- insured for 658 steel pipes. All but 12 were lost. 12 were not damaged.
- M’sia HC held that the de minimus rule did not apply because the 12 pipes constituted too high a proportion and of themselves they were insured $16000. They were not insignificant of themselves. But judge conceded that the demininus principle may apply if only 1 or 2 survived.
(b) Constructive Total Loss
Concept of CTL is defined here: Marine Insurance Act 1906, s 60
- divided into 2 subsections
- s60(2) “in particular”: what you have in s60(2) is a list of specific instances… but this is wrong interpretation.
- Look at s60(1) and (2) together to get an idea of what is CTL
- This definition is regarded to be exhaustive. Can identify 6 factual situations in which you have CTL
1) Part 1 of s60(1)- *CTL where subject matter insured is reasonably abandoned because ATL appears unavoidable.
2) 2nd category that we can take alongside it: also reasonable abandonment: because it cannot be preserved from ATl without expenditure that >value when expenditure occurred.
o What is reasonably abandoned? Means that possession of the insured property is relinquished for good. Leading case involves ship that is torpedoed as a result of the damage it cannot be sailed & no towing possibility. Vessel is left adrift at the mercy of enemy submarine. Master orders vessel to be left by crew. That is e.g. of reasonable abandonment where ATL is unavoidable. But turned out that ATL wasn’t unavoidable at the time of the loss but that is another issue

S60(2) deprivation of possession:
1) either unlikely you can recover ship/goods or
2) it is uneconomic to recover them then it will be worth
what is deprivation of possession:
possesory interest: when MIAct talks about possession it is not talking about technical legal concept of a possessory interest. Interested in free use & disposal. See The Bamburi [1982] 1 Lloyd’s Rep 312. Out of the Iran/Iraq war. Iran port authority disallowed vessel to leave and owners maintained skeleton crew on board. No Iraqi onboard and the crew was not interfering with Iranian affairs.
That was regarded as deprivation of possession- because there was deprivation of free use and disposal.
Contra Royal Boskalis Westminster NV v Mountain [1997] Lloyd’s Rep IR 523
- Iraqi invasion of Kuwait
- Inhibition of use on vessels
Unlikelihood of recovery:
1906 MIA: changed test to higher level: from uncertain to unlikely
assured has to prove harder- that it is unlikely that he will get property back.
There has to be a time frame. Courts implied ‘reasonable time period’ into the statute see- Polurrian Steamship Co Ltd v Young [1915] 1 KB 922
- difference between uncertainty and unlikelihood:
uncertainty: no 1 can say 1 way or another
unlikely- any unlikelihood apparently will do. 51% unlikely seems enough
reasonable time: banburi- there reasonable time was held to be 12 months. *nb: a hull policy and not a policy on loss of earnings/freight where Reasonable time in that context might be shortened.
Further, note that unlikelihood is not assessed by matters as perceived by A. it is the perception of reasonable person who knows the true facts. *objective test
See Bayview Motors Ltd v Mitsui Marine & Fire Insurance Co Ltd [2003] 1 Lloyd’s Rep 131- insurance of motor cars. @ port of destination, motor cars placed in fenced grounds. But the guards stole the cars from the fenced grounds.
Assured still believed that there was possibility of getting the car back. *very naive
Was there a constructive total loss? A did not believe that recovery within a reasonable time was unlikely but any reasonable person knowing the facts would have believed that. Therefore there was CTL.

If vessel sinks as CTL under heading of ‘deprivation of possession’
Depends on facts/circumstances. See Cohen (George), Sons & Co v Standard Marine Insurance Co Ltd (1925) 21 LlLRep 30:
- obsolete warship on final voyage
- runs aground on Dutch coast. Most of Holland is below sea level. A lot of sea defences to protect land from flooding.
- Warship came to rest on the sea defences: held to be CTL. For 2 reasons: 1- removing vessel would be prohibitively expensive. > question of moving the ship but must also ensure that the removal will not destroy the sea defences
- Moreover because of this danger, it was distinctly unlikely that the Dutch authorities will allow this
- Both limbs of s60(2)i were fulfilled.
But has to be said that common law in this area can give rise to uncertainty: reasonable time depends on the facts. Different position in common law-

Also important to see exactly when it will become constructive total loss. No good saying that something within the month of March it becomes CTL.
A lot of case law on s60(2)i
As a result the institute clauses step in (to some extent) to lend some precision. In particular Institute War & Strikes Clauses (Hulls-Time), cl 3 contain detainment clause. If u have a loss of free use & disposal for a continuous period of 12 months: then you have CTL
Nb- detainment clause doesn’t say that you cannot have CTL unless & until you fulfil the 12 months period. If loss occurs earlier you can still claim for CTL earlier.
What this says is that you can be sure if you have loss free use and disposal for 12 months you have arrived at CTL

Other common insurance documents adopt the same approach of trying to quantify what is ‘reasonable time’
See mutual war risks association: war risk cover for 183 days. ½ year (instead of 1 year from institute clauses)

*those are 4 types of CTL

2 last types are damage to insured property.
S60(2) – 1 deals with goods
Another deals with ships
Does it cost more to repair then it will be worth after repairs?
- consideration is financial one. You have to spend too much money: it occurs in the context of deprivation of possession: as was seen in context of damage. When talk of exceeding value: once property recovered and after repair: what do we mean by value?
- Remember that Marine Insurance Policies have contractual valuation: to determine whether or not there is CTL- are we comparing cost of recovery and cost of repairs w Markey value or contractually agreed value? AV is usually significantly higher than market value. If it’s AV that is relevant economic yardstick then it is harder to establish CTL. AV by s27(3)- is conclusive evidence. S27(3) says that there can be exceptions. See s27(4)

Institute Cargo Clauses (A), (B), (C), cl 13
Marine Insurance Act 1906, s 27(4)
- unless policy otherwise states; you apply the market value: don’t apply the Av when deciding property is CTL. Solid line of authority that is based on idea that AV kicks in when measure of indemnity is involved. Value fixed by policy is not conclusive

common law position: compare cost of repair/recovery with market value. Under Institute Time Clauses Hulls, cl 19; Institute Voyage Clauses Hulls, cl 17 however the position is different
Institute clauses- compare with AV.
(I wants to make it harder for A to establish CTL) suppose you have vessel that is worth $1million in damaged condition. If you repair it then the market value is $5million. Policy contains agreed value of $10million.
If cost of repairs = $7million
Whether this is CTL?
Because MI operates AV- it will be sensible to repair a ship that is worth less than repairs because the payout on AV is even higher
At common law: do you have CTL? Yes because cost of repairs > cost of vessel you are to repair.
Actual value of the vessel is irrelevant to see if there is CTL.
At common law the insurer has to pay out $10million.
In the policy, change common law rule: the yardstick is agreed value. Therefore no CTL. Only partial loss (measure of indemnity in that context is $7m @ most)

In practice insurers are often persuaded to pay out CTL even thought cost of repairs does not reach AV. If cost of repairs is about 70% of AV, I will treat that as CTL (but depends on Insurer’s good will and bargaining power of broker)

International Hull Clauses (01/11/03), cl 21
Position is relaxed slightly here: yardstick is 80% of AV, not the AV
You will still have CTL. But the underwriter will not be happy with this clause: there is commercial pressure to pay out lower than that? ???????

3 ways of looking at CTL
1) common law regulation
2) policy : what does MIC say
3) practice: what happens in practice?

(c) Partial Losses

Marine Insurance Act 1906, ss 56(1), (4), 75(2): deals with it as residuary.
Loss that is neither ATL or CTl is PL
Only point of detail lies in s75(2)
- this provision address the situation when you intend to ship cargo goods. This cargo should amount to 10k units of X. looking for insurance- 10k units of X. Ok.
- We have agreed value for that cargo of US$1mil. If you ship the goods as per agreement (right voyage/time of year) but not the quantity as per agreement. Instead of 10k, u only ship 5k.
- En route the vessel is lost and 5k is a total loss.
- You claim on policy for total loss. Measure of indemnity for TL is agreed value: you say you want $1m. but why should you get $1mil?
- Agreed value is agreed value for full cargo of 10k units: it’s not the AV in the abstract but the value of something. Cargo is the thing being valued. Since you only shipped 50% you should only get 50%.
- That is what s75(2) says. *see s75(2) – because there hasn’t been a TL of that which has been insured – you will only recover that which was actually lost.

(d) Finality Of Losses
Some losses are reversible: the deprivation of possession can be reversed
It may appear that recovery is unlikely within a reasonable period of time
But that does not deny the possibility that the vessel will be recovered within that reasonable period of time. What if it does?
@ 1 date in the light of a seizure, as at that point in time the definition of the CTL is fulfilled but a what if a week later the possession is recovered: can you claim CTL or not?
Is CTL reversible? Yes it can, under the doctrine of ademption of loss. Bainbridge v Neilson (1808) 10 East 329 at 341-342- involving the capture of the insured vessel by a French privateer when the assured learnt of the capture he immediately claimed for CTL
Having been subsequently liberated, it continued the journey.
Court held that under those circumstances the A could only claim part of the loss, the initial TL had been reversed.
But there has to be some point in time @ which we say that we will take the circumstances as they then are irreversible.
If there was a CTL @ the time the writ is served then it is irreversible.

In practice:

I usually agree to put A in the same position as if proceedings had been commenced @ the date @ which notice is rejected/earlier @ the date notice was served upon. I.e. Circumstances taken as final @ the date of the CTL
Even though property is recovered after that date but before any subsequent proceedings commence u still have CTL

There is no authority on whether the doctrine of ademption of loss applies to ATL also.
But there is no reason why the doctrine should not in principle apply to actual total loss but unlikely for those circumstances to arise.
Ademption of loss is about reversing a total loss/ partial loss

Qn then arises: can you stretch that principle to allow insurers to intervene in order to transform a TL into a PL.
No. you cannot. See Sailing Ship ‘Blairmore’ Co Ltd v Macredie [1898] AC 593
- insured vessel sank in harbour
- whether CTL? If yes it will be on economic basis
- comparing the cost of repairing/storing the vessel with its value once restored
- on the facts of this case, looking purely at the cost of repairs and ignoring the cost of raising the vessel: only PL.
- but adding repairs & raising together: that figure is high enough to be CTL
- I wanted to say that they were not liable for CTL because they had in part reversed the loss. All that remained was repairs so V should be partial loss only.
- HL rejected Insurer’s argument: held that I was responsible for whole loss
- HL held that I had undertook contractual obligation to pay for losses when it was CTL. When there was such a loss, I cannot defeat this obligation that they had undertaken by their own act. *this has got to be right because I can always deny liability for CTL just by paying minor repairs. However there can be no objection to I intervening to reverse the loss completely. Suppose for e.g. a vessel is seized by pirates and held to ransom (common modern occurrence). If ransom demand is < AV of vessel but A cannot afford to pay. A wants to argue CTL (which there is one) but how about if I step in to pay the premium?
- Under those circumstances, I can reverse the loss if the ransom is

Ruys v Royal Exchange Assurance CorP [1897] 2 QB 135

(e) Successive Losses
Unlucky insured property that sustains >1 loss during the period of the policy: whether I is liable for all the losses or only some of them

Cumulative recovery: I being liable for each & every loss sustained by the vessel- found in Marine Insurance Act 1906, s 77(1):
Only applies in 2 situations:
1) Only when u have successive PL in which A spends $ in effecting repairs
2) Where u have partial loss that is repaired followed by a total loss
a. If you have a ship that needs repairs but the ship is then destroyed by some accident; if there is AV, A will recover $21million because A is out of pocket to the tune for $21million: having spent $1million on the repairs. (AV is conclusive) but in addition the A must be reimbursed for the repairs because he has actually spent that money.

What about successive un-repaired losses?
If vessel suffers damage but you don’t repair before the policy expires.
The law there as will be seen is that what you receive by way of indemnity is the figure representing the depreciation of the vessel (this will be dealt with later)
It is however conceptually impossible to incur >100% depreciation. Doesn’t matter how many accidents the vessel sustains, it cannot lose >100% of its value. Therefore the idea of Cumulative Recovery has to be qualified. Although vessel has had been very unlucky with 5 accidents, look at accidents in isolation: accident 1 takes of 20%, 2 takes off 30%, with 5accidents- you don’t’ add up the percentage losses. But once the vessel has loss all of its value: you cannot recover. Therefore cumulative recovery is conceptually absurd. If you don’t’ repair the vessel @ the time of the accident and allow the losses to accumulate: you have only what is left of the vessel as at the time the vessel accumulates. Best way for A is to repair the vessel once it has been damaged.

3rd stage: doctrine of merger of loss. To be more precise it is the doctrine of merger of un-repaired partial losses:
the idea is in fact a fairly straight forward one. We looked earlier at sequence of repaired damage followed by total loss. If we take the same sequence and
1) repair at once or
2) don’t repair: if there was reliable estimate that repairs will cost $1million: how much will we get from the insurer? $20 million or $21milion? Only get $20million because no $1million for repairs because $ has not been spent/ never will spend it. Cannot have depreciation sum of money because the vessel could have been completely loss.
a. Because Insurance Contracts are contracts of indemnity: they indemnify you for your loss. If you are paid your AV- you have been fully indemnified because AV is conclusive evidence. You cannot have ‘anything’ for earlier un-repaired damage because you have not paid out anything. Therefore sometimes the earlier un-repaired loss merges into/is swallowed up by subsequent total loss.
b. Merger of losses is a reflection of the fact that a IC is an indemnity contract.

Kusel v Atkin (The Catariba) [1997] 2 Lloyd’s Rep 749

Marine Insurance Act 1906, s 77(2): codifies the doctrine for merger; but it only gives part of the story. Act actually refers to a subsequent total loss caused by peril covered under policy.
But common law has established that the same principle applies even if the TL is caused by a peril that is not covered by the policy.

Under standard marine policy you get nothing. If you recover, you need to insure against war risk: otherwise it is a loss you have to carry yourself. See doctrine of loss in Livie v Janson (1810) 12 East 648.

So far we examined merger doctrine as addressed by common law. But the standard hull clauses also has reference to them.
See international hull clauses: clause 20.2- the institute hull clauses all contain effectively the same provision:
- pg 10 of international hull clauses- contractual modification of merger of loss principle. 1) clause 20.2 adopts the broader common law approach in terms of what is the cause of the subsequent TL? The act is covered under policy? But contract takes broader common law approach whether insured or otherwise? It is broader than statute in terms of cause of the TL.
- It also makes clear what is also the position at common law and under the statue which is that subsequent total loss must occur during the period of insurance
- In other words: returning to the eg. Of PL caused by peril of sea with subsequent TL by war risk: there is merger of loss provided for TL by war risk occurs before the marine policy expires
- Effectively: once policy expires the rights as between A & I crystallise. Looking at un-repaired damage and must calculate depreciation of vessel: look at the expiry of the policy because I is not responsible for what happens thereafter.
- Looking at doctrine for merger “total loss” must occur before policy expires.
- With partial loss and a week later the marine policy expires, and a month later the vessel is destroyed by war risk, the I is still liable for the loss due to the partial loss at the time partial loss occurs.

Can you have successive total losses? Yes you can have property that is rendered a total loss on >1 occasion. Normally the 1st TL is constructive total. Technically possible to be actual total loss but that is unlikely.
When there is CTL- which said that A is supposed to serve formality of ‘serving notice of abandonment”- significance of formality is that if A does serve it, A can be entitled to be paid as to TL. If however A fails to serve notice of abandonment then the loss is treated as partial only.
Although the insured property factually has been so damaged/loss in such circumstances, if A doesn’t serve notice of abandonment: it is only treated as PL.
Constructive TL is hybrid: depends on A’s subsequent action after the damage.
With CTL and a failure to serve the notice of abandonment: now being treated as a PL: then the principles explored earlier of successive losses apply: it is a PL that can be merged into TL.
But now concerned with what happens if A does serve notice of abandonment or exceptionally doesn’t have to so that CTL is going to be treated as a TL- that gives TL no. 1 and subsequently there is another TL: what happens?
Obviously the significance of this question is where 1 of the TL is covered under policy and the other isn’t/ is not recoverable under policy.
Recently decided in a strange case: Kastor Navigation Co Ltd v AGF MAT (The Kastor Too) [2004] Lloyd’s Rep IR 481
- doctrine of merger does not apply where your 1st loss is un-repaired damage that constitutes a CTL
- facts: a CTL followed by ATL. A cannot recover in respect of the later because it was the situation where it was not possible to prove what the cause was.
- Ship sank but cannot tell why
- On the other hand it was clear why the initial CTL occurred and that was thus recoverable under policy.
- Under those circumstances the A recovered.
- In contrast if the initial CTL is caused by an excluded peril the answer there is that the A cannot recover. For e.g. if you have vessel that is totally lost by capture (which is an excluded war risk) and while it is being towed by captor to some port it is destroyed by bad weather. Cannot over look the earlier peril of war risk because that was excluded, cannot get around it
- The same result would appear to arise whether the initial TL is caused not by an excluded peril but simply by peril that is not within policy at all
- Suppose that in Kastor Too it wasn’t clear what caused the initial TL but clear that subsequent total loss was cause by covered peril: it will appear to be the case (although no authority on point) but because the initial loss exhausts the policy therefore cannot recover.

Institute Time Clauses Hulls (1/10/83), cl 18.2
International Hull Clauses (01/11/03) cl 20.2

(f) Claims
If you have loss you need to claim.
Note that you must serve notice of abandonment for CTL [to be converted to TL for claiming indemnity under insurance contract]
(1) The doctrine of abandonment & the notice of abandonment procedure
NB- doctrine of abandonment is not the same as abandonment procedure
Doctrine applies to all TL; it serves the indemnity principle: when you can only recover in respect of your loss: cannot be over indemnified.
If you have TL; you will be paid the AV> therefore payment of AV must be regarded as 100% indemnification.
It maybe that the truth is, exceptionally that vessel is worth > AV; doesn’t matter because AV is conclusive therefore I only has to pay out AV.

With a TL, it does not follow that there is nothing left of insured property. Even if reduced to planks, those can still be sold off as scrap wood. Cf dates in asfa- worth 2000pd in 18 hundreds money.
W scrap value remaining, although unlikely that recovery can be done in reasonable time but can still be recovered at some stage/ likelihood that it can be recovered in reasonable time: there is something left with value
That value + what is agreed= offends indemnity principle. Therefore doctrine of abandonment seeks to correct it as it involves an implicit offer: of what ever is left of the insured property to the insurer.
Prior to 1906 MIAct, law seemed to assume that on payment for the total loss the insurer became the owner of what was left. But 1906 Mia clearly states that it is not the case, I is only entitled to anything that remains but there is no automatic conveyance of the remaining subject matter. S63(1)

Indemnity principle is considered to be satisfied by that indemnity principle.

If I doesn’t want the remains of property then A benefits from AV+ v.
Entitlement of what remains goes 1st to I.

In practice when dealing with chips, I do not want what remains. Reason is because it is too risky as ships that are TL often carry liability: obvious e.g. is wreck removal: every expensive to remove wrecks.
(liability includes cost, environmental liability- for vessels this is common: bunker fuel etc)
with cargo it may be possible but still need to remove/restore shipwrecked cargo.
Doctrine of abandonment is a theoretical nicety: not a practical relevant.
- it is a substantive legal doctrine concerning property interest in the insured asset.
- ‘notice of abandonment’ is title of formality that does not apply to actual total loss.
- Doctrine of abandonment is applicable to constructive total loss & actual total loss
- Notice of abandonment is for CTL only. It is necessary to serve notice of abandonment because if not your CTL is only treated as a PL. for that reason the doctrine of notice of abandonment is very important in practice although it is only a formality- s61 MIAct: when there is CTL you can serve notice of abandonment; it is treated as TL otherwise only PL. this is clear also in s62(1).
- Rest of s62 deals with notice of abandonment: how to serve/what constitutes valid notice fo abandonment…
Continue from here: 8am 20 September 2005
Marine Insurance Act 1906, ss 63(1), 61, 62, 57(2), 62(7), (8)
No rules govern how notice is to be served. No need to be in writing, can phone I. all that is necessary is that you must clearly indicate intention to abandonment insured property to I. key requirement is when u give it- not how u give it. S62(3)- … if information is of doubtful character I can have reasonable time to make enquiry. If u have a CTL, u must give notice promptly- old case law suggests within days. Ship owner may want to sit around to observe market value of insured property in a volatile market- but cannot wait around for commercial reasons.
You can only wait a little bit if it is not clear whether the property is a CTL- maybe you’ve been informed that vessel has been in collision and that the damage loos rather bad. If you need to wait whilst damage is ascertained/ cost of repairs estimated to see if you have CTL- you can wait. Only can wait if it is not clear if property is CTL. Once reasonable time expires, any subsequent notices will not be regarded as NOA that makes CTL a TL instead of PL

But it is hard to know exactly when property becomes CTL- if there is decree issued to prevent cargo from being removed from enemy country, if decree is temporary or if permission limitations are changed-
But whenever the time is that property becomes CTL= what do you do?
U have to then serve a series of notice of abandonment. *just in case that becomes the reasonable period for notice to be served
Unless you can get agreement with I that the procedure has been fulfilled under those difficult circumstances? There is no solution to technical legal difficulty apart from ad-hoc agreement.

What does Insurer do when faced with the notice of abandonment? He may accept it – if so that is conclusive admission for liability for the loss & that the Assured has fulfilled notice of abandonment procedure. But in practice Insurer always rejects notice of abandonment because they are concerned that acceptance of notice of abandonment means that Insurer take over interest of insured asset. Ie that acceptance triggers doctrine for abandonment: but that does not matter to assured; his rights are not prejudiced in any way.

Therefore you find that the whole procedure is hard to defend because giving notice of abandonment is condition precedent to recovery for total loss when you have constructive total loss and yet it doesn’t seem to serve any purpose because insurer rejects them
Purpose is not to inform I that there is a loss. I quite legitimately want to know that there has been a loss but that depends on whether you have CTL under the policy- depends on whether it is MIPolicy or non Marine Insurance Policy
If I want to be informed they will contract for that- A has to give notice of loss that will generate claim but that is not what NOA is about because that is confined to CTL and is concerned with property: procedure exists because where u have CTL by definition something of value remains. That is something of value to which the Insurer is entitled if loss is treated as total. If loss is treated as partial then he keeps the insured asset. If the loss is partial that I is entitled to what remains.
Although work may need to be done to what remains- but who is going to decide? The Insurer or the Assured? the idea is that Assured claims for total and Insurer should be able to say that they will pay for total loss and what remains is his and therefore he has the say as to what happens to it.
Insurer is thus told quickly that something of value remains. He then exerts property rights over that is or is about to become Insurer’s property.
Doctrine doesn’t apply to ATL because there is nothing left: but see Eserh’s judgement because he maybe wrong
No application of doctrine to PL because there is no transfer of asset from A to I there.
But because I doesn’t take what is left: it is only a condition precedent that inconveniences claim: however can be a possibility: more than a legal technicality

S62(7)- you don’t need notice of abandonment where it would be pointless: purpose of notice of abandonment is to allow I to exercise rights over what is left of insured property. The exercise of such rights maybe impossible_
- e.g. if ship is rendered a CTL in a war zone: but too dangerous to go near wreck. Therefore although A did not serve NOA it was not needed because it was too dangerous. Notice of abandonment will not serve any useful purpose.
Best time to investigate a wreck is in the immediate aftermath of the incident. Therefore legitimate for I to want to know that something has happened that might give rise to a claim. I may want to conduct investigations that may have consequences on negotiations & litigation.
Tactical decisions to be made by whom? Legal principle is that A should take the running of the claim but I can contractually takeover the claim. Because A may concede liability and have I pay out to 3p so I will have to be careful with regards to the post wreck investigations.
Therefore MI Contracts will have terms about notifying I, rights to run claims and co-operating with I (disclosing relevant document that A wants to see)
1 of the most topical questions in MI Ct law is what happens if A breaches 1 of these notification/corporation provisions?
- that depends on how you classify the cause in question. until 2000 there were 2 classifications: 1) a condition precedent/ 2) a warrantee

if a condition precedent that it is condition precedent to the insurer’s liability for that claim. It could be drafted more widely but it never would be therefore what that meant was that the breach by Assured meant that Insurer was not liable at all for that claim/ any claim arising out of that loss.
If you fail to give notification of that occurrence then I is not liable for any claim that may arise out of that occurrence.
It may be that failure to notify on the facts makes no real consequence: breach in other words occasion the insurer no prejudice at all but because by contract it has been agreed, if you don’t do X insurer doesn’t have to do Y- that is nature of condition precedent- regardless of consequence/lack there of gives Insurer complete defence

Alternative classification is to ‘warrantee’ – a minor contractual term; breach of which attracts contractual warrantee: failure to inform insurer will be quantified against the indemnity payable under contract.
In practice it is often very difficult for Insurer to demonstrate that late notification has caused any particular damage: case law @ hand shows that Insurer has failed to demonstrate any prejudice where Assured was 5 years late in notifying insurer.
Reality: if the clause was classified as condition precedent- the Assured having no cover for the claim at all. If clause was warrantee- Insurer may have some damages to set off against indemnity but hard to prove loss.
Courts dislike Condition Precedent because they can be very harsh- the nature of Condition Precedent is that you don’t need a causal link between breach and consequence. It is not the case under Condition Precedent that failure to notify results in Insurer being worse off. With a condition precedent it maybe that it makes no difference and thus you are completely off the hook- your defence becomes a legal technicality- but courts don’t like defences that are devoid of humanity

As a result, authority that demonstrates great reluctance to accept that a term is a condition precedent to begin with. It is a condition precedent then there is no room for manoeuvre: is it a condition precedent to begin with? Question of interpretation of contract courts interpret contract to arrive at conclusion that want (interpretation to seek intention of parties) - :P

Up to 2000, case law was in this condition: notification clause was either condition precedent or warrantee
There was a lot of case law on interpretation was to whether clause was condition precedent- held unless clause us unequivocal then the result was that the clause is a warrantee.

Alfred McAlpine plc v BAI (Run-Off) Ltd [2000] Lloyd’s Rep IR 352
- possibility of innominate term analysis
- look on the facts to see what the consequence of the breach (failure to notify etc) –
- if the insurer can prove that the failure to notify has caused serious prejudice to it, then it can reject the claim
- however if this ‘serious prejudice’ cannot be demonstrated then it is confined to a damages remedy:
- on the facts of this case, I couldn’t demonstrate serious prejudice:

post McAlpine- now it seems to have 3 possible classifications all operating within the context of the claim
- only referring to that claim that A was silent about. If A’s vessel’s had accident, and u fail to notify- then there is no cover if it’s a CP. But if there is another accident and you notify then you have cover over the subsequent incident.
- If there is a later claim/accident- the you have to consider the 3 classifications again.

This innominate term possibility was also applied in 2/3 other possibilities: no judge expressed any doubts-

As opposed to promissory warrantees:

Institute Time Clauses Hulls, cl 20 (likewise Institute Voyage Clauses Hulls, cl 18)
Bank of America National Trust & Savings Association v Chrismas (The Kyriaki) [1993] 1 Lloyd’s Rep 137

(2) Making claims: time limits & co-operation
see McAlpine

Friends Provident Life & Pensions Ltd v Sirius International Insurance [2005] EWCA Civ 601
- CA Waller J- who also gave leading judgment in McAlpine and LJ Maines & another LJ who was also not in McAlpine
- LJ Maines reject the possibility the innominate term analysis of this type of clause- got 3rd judge to agree with him
- LJ Waller gave quite a remarkable dissent:
- Majority of CA held that innominate analysis in McAlpine is wrong. It is not part of ratio of McAlpine or subsequent cases because there was no serious prejudice in any of these cases- therefore not necessary for innominate term analysis- doesn’t form the ratio decidendi
- All should be in obiter
- Now there is no clue whether innominate term analysis is going to flow in the future.
- LJ Maines disagrees that you can have partial repudiation of the contract- feels that this offends orthodox contract principle. If u have innominate term as in Hongkong Fir- breach is repudiation of the contract as a whole and innocent party is allowed to elect to say that he can be let off the hock as a whole.
- Here the argument is to be let off the hock partially. Maines thinks that contract law doesn’t accommodate this.
- Bennett doesn’t see why that K cannot do anything that the parties want them to. Why can’t they create term under which insurers are let off for this 1 time; that is how CP operates.
- It is innovative but hard to see why Maines is right

In specifically marine context there are standard market clauses_ International Hull Clauses (01/11/03), cl 43, 45.1-2, 46
- must give notice asap after learning of loss- cl43
- what if A doesn’t’ after learning of the loss?
- Cl43 says that if notice is not forthcoming within 180 days of learning of the loss then insurers are in principle not liable-
- Notification within 180 days is a condition precedent; if you do notify but later than as soon as possible after you learn because the time phrase is such that you must notify per 43.1 as soon as possible-
- Why can’t you notify? This is going to be a fairly limited period of time: given modern day communication periods.
- There are a few periods of time in the International Hull Clauses_
- Clauses are silent on what happens if there is notification.
- Serious prejudice a runner for the intervening time between the occurrence and the notification? Innominate terms are a good solution for that?
Institute Time Clauses Hulls, cl 13.1

Further Reading

Bennett, “Occurrence Notification Clauses: Innominate Severable Obligations” [2002] JCL 224




Insurer’s response not to pay the claim
Defence that is probably the most common in insurance contract law is the breach of the duty arising out of the doctrine of utmost good faith
**very important in practice
very little about UGF that is specifically related to MI

UGF is the most distinctive feature of MI as opposed to general contract law.

(a) The Statutory Framework Of The Doctrine

Marine Insurance Act 1906, ss 17-20
- s17: articulates general principle of Utmost Good Faith- clear that good faith must be observed by both I & A. but idea that I has to observe GF is of very little importance in the law.
- Breach of this duty is avoidance of the contract
- Akin to misrepresentation /duress
- I can get rid of the whole contract and thereby recover all payouts- net result= A has no cover
- Ss18-20: fleshes up s17; s18: disclosure by assured. A has w/o being asked voluntarily to disclose to insurer any circumstance that is material to the risk
- What is ‘material’- s18(2) definition- circumstance being ‘material if it influences the judgement of the prudent insurer in fixing premium or insuring risk’ ie any circumstance that I will take into account in evaluating the risk. It is a test of relevance. It does not require that the insurer, had he been told would have arrived at a different decision about the risk.
- Materiality is an objective concept- hypothetical prudent underwriter. Cannot under the heading of materiality say that this insurer was an idiot and wouldn’t have bothered even if I had told him.
Authority for interpretation of materiality is from
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501

(b) Scope Of The Duty Of Utmost Good Faith 1: Materiality And Inducement

Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501-

What about the actual underwriter? Must we show that failure to disclose had any impact on particular underwriter? Marine Insurance Act is silent on the particular underwriter. But general K requires it to be shown that the misrepresentation had an impact on the misrepresentee
- HL further held that an effect on the mind of the individual I was also required.
Marine Insurance Act 1906, s 91(2)- preserves common law insofar as it is inconsistent with the statute-
Inducement on insurer- what must be shown is that
1)circumstance not disclosed is material and
2) actual I was induced into K by failure to disclose

*position post Pan Atlantic

what is inducement? Pan Atlantic is silent on this.
We know that it must have made a difference to the actual underwriter; if you told me X then I would have charged a higher premium/additional exclusion to policy/ done something different. Not enough for the actual underwriter to say that he would have taken it into account but cannot tell you whether or not that will make a difference to the decision.
But this is important because I had to decide what difference it were to have made to the decision.
But meaning is clarified here Assicurazioni Generali SpA v Arab Insurance Group [2003] 1 WLR 577
- major obligation of disclosure in s18 Marine Insurance Act

range of things to satisfy is broad
1- hull insurance; anything about ship itself- physical matters (physical hazard)
2- moral hazard: A’s character/ people who work for A- do you need to disclose to I that master is alcoholic> yes. You need to also disclose that A is particularly accident prone- because these things will affect as to whether I will take on the risk
a. do I have to disclose charge of dishonest/fraud offence? Yes even if you know that you are innocent- but you can say/maintain that you are innocent. Distinction is vague line between allegation & mere rumour.

Extends to anything that a prudent insurer may take into account- something that is beyond (1) and (2) in Tate & Sons v Hyslop (1895) 15 QBD 368
- loos under policy maybe caused by 3p

A exclusion TP

I should be allowed to act against TP by virtue of subrogation- valuable way for I to get back $ that they had paid out.
Therefore A needs to tell I that he has exclusion clause. The subrogation action is the A’s claim against TP (the ship owner of the other colliding ship for e.g.)
I would want to charge higher premium had he known that he cannot sue TP
**that is an e.g. that you cannot contain items that insurer will want to know within the 2 categories of physical and moral hazard.

S18(3)- list of things for “non-mandatory” disclosure-
1) anything that I is presumed to know – but what are I presumed to know- not often that court will accept that I is presumed o know something. Bates- something that well informed commercial parties would have known but is not within presumed knowledge therefore presumed knowledge is narrow
a. insurers spend time tracking various sources of information (CNN

s19 Marine Insurance Act extends disclosure to broker who places the risk in practice nearly all risk is with broker- thus broker owes obligation independent of assured to disclose anything that broker knows (knows or ought to have known in the ordinary cause of business)
if broker fails to disclose that which he should have, I can avoid K but A can sue B.

s20 Misrepresentation: something that is untrue
(common law on contract)
- with misrepresentation: insurer has nuclear option of avoidance of policy- nb- we don’t’ in insurance law generally worry about the non-disclosure of relevant info is fraudulent etc
- I can have recourse regardless of difference.
- Usually taken to be mistaken non-disclosure
- What was disclose does not have to relate to the ship
- This doctrine can operate in fairly harsh manner.
- One may develop some imaginative equitable reasoning to try and restrain the scope of avoidance but that was rejected in CA in Brothertun
- Only good news if I avoid the contract is that the premium is returned. If non-disclosure is fraudulent however the premium is forfeited. S84 MIAct. (
St Paul Fire & Marine Insurance Co (UK) Ltd v McDonnell Dowell Constructors Ltd [1995] 2 Lloyd’s Rep 116
Marc Rich & Co AG v Portman [1996] 1 Lloyd’s Rep 430, 440-442

Notion of risks- A presenting to I a risk & I agreeing to insure against that risk & none other: even if the other risk is in similar circumstances, background.
Voyage policies: only covers that voyage
• If A never sets out on that voyage then the risk never attaches: e.g. if cargo is sent to a different destination, cargo is sent on a different voyage thus the risk never attaches.
o But cf cargo which is supposed to go to Sydney, changes course to go to Brisbane: from point in time when course is changed to Brisbane, risk no longer attaches: discharge of risk is prospective ie: insurer is still liable for voyage to Sydney up till the time course is altered: known as an alteration of risk: insure is not liable for the future
Actual geographical route of 2 different voyages may coincide for a period but this is irrelevant as the issue is not whether the route is the same but whether the overall voyage is the same: if not the same the insurer does not come on risk. It is the destination that matters

• (a) Failure Of Risk To Attach In Voyage Policies

• Marine Insurance Act 1906, ss 42-44
o Insuring ship for voyage: insuring ship from A (the port) to B
o Risk attaches when ship leaves A: ie not insured against port risk at the origin
o S44 works well when ship never engages in intended voyage
o Difficulty with cargo policies: silent on whether risk attaches when they leave a particular port
o Risk attaches as soon as cargo leaves place of storage and commences journey: covers inland transport to a sea port
• If cargo insured from factory: insured once they leave the factory: but the above position differs from law
• Simon, Israel & Co v Sedgwick [1893] 1 QB 303
o Cargo policy- “at or from (1)a river (in UK), to (2)any port in Portugal/Spain- by any inland conveyance to (3)any places in the interior- route: (1)->(2)->(3)
o Also provided including all risks by any conveyance whatever, full time of leaving warehouse in UK until onboard
o Goods destined for Madrid: put on wrong ship: consignment error: ship actually took a route that was ok but it was not the route that was contemplated
o Goods lost en route before reaching designation: whether risk attaches? • Insurers argued: no risk because ship was never on insured voyage: even though the geographical route coincided
• A claimed that policy contained warehouse to warehouse clause: goods were leaving from warehouse to another in Madrid: it wasn’t until ship left port that goods were sent to a wrong destination.
• Court agreed with I.
 Subject matter of marine policy is a marine adventure: when applied in context of cargo, it relates to exposure of cargo to maritime perils. That a marine insurance policy can be extended to incidental inland transport but this does not extend to the change in the core subject matter of the sea voyage. If assured never embarks on adventure: extension cannot be attached.
• Policy can be extended only if there was a sea voyage
• Nima SARL v Deves Insurance plc (The Prestrioka) [2002] Lloyd’s Rep IR 752
o Cargo of rice- insured from Thailand to Singapore. Cargo clause A: Goods set out from inland to port to be loaded onto vessel. Vessel disappeared.
o Evidence suggested vessel was a ghost ship: phantom vessel used by fraudsters by giving it a false identity, not registered, used to transport cargo, cargo sold and vessel is then either sunk/given a new fake id
o Purchases of cargo claimed under policy: nothing in exclusions applied: theft was covered.
o CA held that claim could not succeed because of s44 MIAct- vessel sailed for another destination therefore the insurers never came on risks
o A sought to rely on clause 8 transition clauses: court held that this argument covered in Simon v. Sedgwick clause 8 worked for inland transportation from the stipulated port to the destination: here because the goods didn’t arrive @ the destination, cl 8 couldn’t apply
• Some questions:
 Scenario; inland warehouse (1) ->sea port of departure (2) -> sea port of arrival -> inland warehouse (3)
 If cargo is damaged at leg (1): no claim at all. Insurance under (2) does not come into force as policy concerns marine adventure only. Insurance policy cannot be extended to (1) since sea voyage never commenced with. commercial absurdity!
 Imagine if only part of cargo is destroyed at (1): not covered. And the remaining cargo is loaded at sea port: but onto phantom ship: then also not covered.
Simon v. Sedgwick
• Suppose policy had reflected a journey to a wrong/an inland destination- seems from report that liability will not be contested
S44 is unlike to create damage

suppose policy does not specify destination port: just an inland venue, what happens in case of phantom ship?
May be assumed that the ship will sail to nowhere else totally to deposit cargo off- s44 still applies
Prestrioka- theft is a covered peril: yet there was [no] liability found: anomaly: cargo stolen by a phantom vessel simply another species of theft
• (b) The General Doctrine Of Alteration Of Risk
if insured property leaves insured adventure, it is outside the scope of the policy
1 destination- % alteration of risk and increases in likelihood that loss will occur: the latter is not alteration- doesn’t discharge the insurer

• Hadenfayre v British National Insurance Society Ltd [1984] 2 Lloyd’s Rep 393
• Raine v Bell (1808) 9 East 195
• Life insurance then the assured takes up hazardous hobbies: risk of death increase but the insurer is still not discharged

• (c) Alteration Of Risk In Voyage Policies: Change Of Voyage, Deviation And Delay
change of voyage: ship starts out on intended voyage then 1/2way redirected to another destination. As soon as determination to change voyage is manifested: then risk is discharged. From owners’ decision to change voyage, to him communicating to the master to the ship actually changing voyage: determination is at 2nd point in time: where manifestation is important.

Deviation: temporary departure from insured route: to rejoin it later. From moment in deviation- the physical departure: liabilities of insurer is discharged. Discharge is complete and no liability attaches even if damage occurs after ship rejoins.

Delay: vessel failing to prosecute voyage with reasonable dispatch: insurer is discharged once there is unreasonable delay

some defences; saving lives (note: saving property is not valid defence)

in modern voyage policies, these doctrines always dealt with by express provisions: MIA ss45-49 not so important today. But reflects a core concept in marine insurance: must have embarked on risk: if there is a departure from it- the insurer is no longer on risk

• Marine Insurance Act 1906, ss 45-49

• (d) Promissory Warranties
very important today. But it is not the same as contractual warranties: means in marine insurance a condition precedent:
• serves to define insured risks: parties have decided that the promissory warranty is part of the fundamental definition of their policy: therefore if PW is breached then insurer has no more obligation to cover: automatically goes off risk- MIAct s33(3)
• but nb- s34: waiver of breach
o but applying s33(3)- once there is a breach, liability is discharged, insurer is off the hook- how does waiver work then? Nothing to waive?
• Marine Insurance Act 1906, ss 33-35
• Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) [1992] 1 AC 233
o Ship rendered CTL- owner company (the Gd Faith Co) rendered fraudulent: ship also mortgaged to appellant bank, also insured of mutual war risks club.
o Insurers undertook to tell bank if ever the ship should cease to be insured.
o Owner company committed breach of warranty by sending ship into prohibited area. Insurers did not tell bank, bank relying on ship & insurance liability as security: lends more $ to assured. During this time the insurer knew about the breach, considering what to do.
o Whether the bank can sue for breach of insurer’s undertaking? In turn whether insurer’s duty had ceased?
• According to s33(3)- insurance had ceased but how about s34? Could argue standard akin to repudiatory breach.
o HL rejected that argument: held that s33(3) is unequivocal- warranty unlike a condition in general contract law: it is a condition precedent.
o Waiver acts like estoppel: even though insurer is off the hook after breach, insurer can be estopped from saying that there’s a breach: may de-bar himself
Warranties: construed strictly
• De Hahn v Hartley (1786) 1 TR 343
o Warranty relating to crew number, must be a minimum of 50. Crew was only 46. 1st part of voyage completed then took in 6 more crew- then casualty.
o Held that breach of warranty despite later addition of crew. Insurer is not liable.
o Causation irrelevant: no line between cause and breach
o Breach of warranty cannot be cured

• Hyde v Bruce (1782) 3 Dougl 213
o Ship had 20 guns (part of PW) but had insufficient crew: could only work 50% of guns at once. Insurer argued that it mean the ship having the force of 20 guns.
o Held that there was no breach because the ship had 20 guns which fulfilled the PW.

Strict construction of warranty: results in injustice?
• Always subject to careful interpretation: the issue of whether a term is in fact a warranty: one favoured alternative interpretation is that of ‘suspensive condition’
o E.g. term that ship cannot carry explosives. Ship carries explosives, arrives safely, takes on new cargo (no explosives) ship sinks. No causal link. If term is PW then breach as soon as ship starts on the 1st journey of carrying explosives- no liability
o If term is Suspensive Condition- cover is suspended as long as explosives are carried. Once no more explosives onboard: liability attaches again. See Morgan v Provincial Insurance Co Ltd [1932 ] 2 KB 70
Innominate terms are a matter of notification.
Don’t confuse with Suspensive condition
Same effect as waiver of breach of innominate term as in McAlpine where contract can be suspended?

• (e) Held Covered Clauses
cargo always insured on voyage basis.
Institute cover clauses override the doctrines- either stating that doctrines don’t apply at all or that it applies to the extent as provided for in the held covered clauses: HCC- which covers also deviation & breaches of warranties

even though an event occur that triggers automatic discharge; A continues to be insured.

Subject to the conditions that
1) that A tells I of event happening and
2) A agrees to any reasonable alteration of terms.
• But how quickly must A give notice? Depends on contractual working: ‘immediate’; ‘prompt’; ‘within reasonable time’- with advanced technology: should not be days.
• Also: HCC talks about payment of additional premium: but this additional premium must be reasonable- for alteration to risk: MIAct s31(2)- could be anything ranging from 0 to full value of the vessel
o Could have situation where alteration of risk e.g. ship totally lost involves such a high cost that the sensible approach for insurer is to charge additional sum equal to what insurer had to pay out for a total loss: economically self-defeating.
o HCC may also state that other terms may be altered- again this must be reasonable alteration
• Reasonableness: realities to doctrine of utmost good faith: designed to ensure underwriter makes informed underwriting decisions: but doctrines must be tailored to circumstances of clause- what assured must informed insurer is only that relating to the alteration of terms under HCC
• Similarly, failure to disclose at this stage leads to the extension of cover under HCC being void but not the whole policy
 Institute Cargo Clauses (A), (B), (C), cl 8.3, 9, 10, appended note
 Institute Voyage Clauses Hulls, cl 2
 Institute Time Clauses Hulls, cl 3
 Marine Insurance Act 1906, s 31(2)
 Overseas Commodities Ltd v Style [1958] 1 Lloyd’s Rep 546
 Liberian Insurance Agency v Mosse [1977] 2 Lloyd’s Rep 560
 Fraser Shipping Ltd v Colton [1997] 1 Lloyd’s Rep 586

Further Reading

• Birds, “Insurance Contracts”, chapter 4 in Termination of Contracts (1995), Birds, Bradgate and Villiers ed.
• Clarke, “Aggravation of risk during the insurance period” [2003] LMCLQ 109
Soyer, “Marine Warranties: Old Rules for the New Millenium?”, chapter 5 in The Modern Law of Marine Insurance: Volume 2 (2002), Thomas ed.
• Soyer, Warranties in Marine Insurance (2001)
Thomas, “Held Covered Clauses in Marine Insurance”, chapter 1 in The Modern Law of Marine Insurance: Volume 2 (2002), Thomas ed.

Vessels not maintained properly: cannot be operated safely any longer etc.
Against public policy to allow insurance to be paid out for these vessels being destroyed: assured gets sum > than value of vessel possibly.

(a) The Concepts Of Seaworthiness & Cargoworthiness
seaworthy- vessel is reasonably fit for voyage undertaken: cargoworthy- reasonably fit to carry that amount of cargo for the relevant voyage.
Seaworthiness- fitness of the vessel itself: not in relation to the cargo it may carry
• Distinction: seaworthiness v. bad stowage
o If cargo is stowed badly such that it will be damaged: vessel still is seaworthy- unless it’s the condition of the ship that leads to the bad stowage
Marine Insurance Act 1906, ss 39(4), 40(2)
The Thorsa [1916] P 257
• carrying mixed cargo of chocolate and cheese- chocolate was contaminated
• didn’t’ make vessel unseaworthy
Elder, Dempster v Paterson, Zochonis & Co Ltd [1924] AC 522
• large pieces of metal stowed on deck: in such a way that they would break away and sink the ship. Stowage problem that threatened the conditions of the vessel
• therefore the vessel was unseaworthy
vessel is not cargoworthy if it is a cargo of live cattle: yet its previous cargo was one of cattle that was ill: that vessel is contaminated doesn’t make it unseaworthy- but certainly uncargoworthy.
Kopitoff v Wilson (1876) 1 QBD 377
Burges v Wickham (1863) 3 B&S 669

(b) Seaworthiness In Voyage Policies
implied warranty in hull policies that vessel is seaworthy when commencing voyage: therefore if not seaworthy: immediate breach- insurers not liable. Is this position too strict?
• Marine Insurance Act 1906, s 39(1), (3), (2)

(c) Seaworthiness In Time Policies
in time policies: no warrant of seaworthiniess
insurer to raise that defence: must prove
1)prove vessel was unseaworthy
2) that the unseaworthiniess cased the loss
3)assured privy to unseaworthiness when vessel set off
in 3) privity means knowledge: sometimes this is stretched to include ‘blind-eye knowledge’- The Eurythenes
• ‘Blind-eye knowledge’: deliberately refraining from getting confirmation of what one subjectively suspected o Marine Insurance Act 1906, s 39(5)
o Compania Maritima San Basilio SA v Oceanus Mutual Underwriting Association (Bermuda) Ltd (The Eurysthenes) [1977] QB 49
o Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2001] 2 WLR 170bad law
• Assured changed nationality of crew but when no further: no training in response to fire
• Vessel was unseaworthy in that 1)fire dampers didn’t work properly; 2)master & crew didn’t know how to use a fire-saving gas mechanism properly- vessel became total loss. No doubt that unseaworthiniess caused loss.
• Issue was whether assured can establish privity?
• Held that assured grossly negligent, implied that reason for negligence was to avoid expenditure of making ship seaworthy. Court inferred that assured must have know that it was unseaworthy:
 Criticism: great leap to interference
• CA reversed TJ’s judgment; no privity was established.
• CA’s decision was upheld by HL
 Criticism: assured who is grossly negligent still gets insurance payment?
o Thomas v Tyne & Wear SS Freight Insurance Association [1917] 1 KB 938
o M Thomas & Son Shipping Co Ltd v London & Provincial Marine & General Insurance Co Ltd (1930) 30 TLR 595

• Proof Of Unseaworthiness

Pickup v Thames & Mersey Marine Insurance Co Ltd (1878) 3 QBD 594

• Seaworthiness & The Inchmaree Clause
Vessel with latent defect- unseaworthy-
How to reconcile insurer’s defence of unseaworthiniess with cover under Inchmaree?
No problem/conflict for time policy- if assured is privy, defect is not latent
Voyage policy- latent defect cover is a contracting out of warranty of seaworthiness
• Martin Maritime Ltd v Provident Capital Indemnity Fund Ltd (The Lydia Flag) [1998] 2 Lloyd’s Rep 652

• Cargo Insurance
Concept of cargo worthiness- no role in hull policy
In cargo policy: insurer can either invoke defence of seaworthiness, or cargoworthiness (s40 MIAct)
• But how does cargo owner check state of ship? Cargo owner has no control over the ship assumes that it is fit for sail
o Institute cargo clauses: all contract out of the rules of seaworthiness/cargoworthiness.
o Replaced with a regime to the hull-time polices where insure is not liable unless assured cargo owner knew about the problem
• Marine Insurance Act 1906, s 40(1), (2)
Institute Cargo Clauses (A), (B), (C), cl 5

Ships are generally not insured under voyage policies
as far as cargo insurance goes the law is excluded by contractual provision: contractual regime-
underlying problem of substandard shipping – more for hull insurance rather than cargo insurance
response of hull underwriters to the inadequacy of s39(5)
• due diligence proviso in Inchmaree clause (contains provisions that are likely to be invoked where problem has to deal with inadequate provision of maintenance leading to latent defect

commercially unacceptable- dropped when it came to the international clauses in 2002/2003
• this response didn’t really work
another response (apart from contractual) has to do with ownership/management
• inevitably considerable diversity between attitude of individual owners/managers therefore need to harmonise standards
• response of international maritime law to lay down certain standards & to allocate primary responsibility for enforcement to the flag state of the vessel (the ship’s country of registration)
• flag states by international maritime law have responsibilities relating to the condition of the ship
• regarding insurance this means then the identity of the owner/manager/flag state is very important when assessing the risk; some flag states are more diligent in enforcing the rules others are horribly slack
• flag of convenience- countries that register ships for the sake of income, lax enforcement- this is to attract registration
• identity of flag states is important to underwriters
• law on disclosure takes care of disclosing identity and misrepresentation takes care of lying about flag state
• underwriters also want the flag state to remain the same
o they want to make sure that the declared information remains the same
o consequently the standard hull clauses provide for automatic termination of cover upon the occurrence of various events that indicates a change of the vessel’s condition included- change of flag/ownership/ transfer of vessel to new management
• unless the underwriters agree to the contrary in writing
• relevant provision clauses 4 & 5 (83; 95) international hull clauses, clause 14 in international hull clauses
another response is classification
• MI predates international standards for maritime standards
• realised a long time ago realised the need for expert objective in inspecting the ship- cannot expect every insurer to have an inspection team- thus the organisations of inspection societies evolved to meet the need involved
• ship enters the ship with classification of society for that society to perform various needs/surveys for MI
• leading classification societies in the world- >12 have grouped to form International Association of Classification society
o IACS- it puts forward new standards for ship construction and maintenance- technical specs.
o oversees operation of member societies
• makes sure that IACS member is surveying properly
• so if you are ship owner and your vessel is due for a particular survey
• legal responsibilities of these surveys lay with the flag states and they are allowed to sub-contract it to the classification society
• danger is that what you have is an owner who puts pressure on surveyor from society to be a bit relaxed about the standards that are to be enforced
• flagstates have no interest in losing ships to other countries because there is money to be earned in being flagstates
• therefore little incentive to be stringent surveyors
• temptation for ship owners to move to less rigorous classification societies
 IACS combats that with its own independent surveyors
Net result is that there is a system of checks and counter checks that the underwriters can trust
plugs in to the 1995 institute hull clauses + international clauses contain provisions relating specifically to classification
you need to enter your vessel for insurance with classification societies that the underwriters are happy with (ie IACS members/ associated members)
• you also need to comply with all the instructions that the society gives you. E.g. repairs during a certain time frame etc. if you don’t then insurance automatically terminates. Therefore classification is a ‘promissory warranty’ even though the phrase isn’t actually used
4th response reflected in MI
• international safety insurances- ISM
o ISM forms part of the safety of life @ sea convention 1974
o ISM adopted in 1993, brought in and attached to pre-existing SOLANCE (chapter 9 of 1974 convention)
o this renders compliance w ISM mandatory for all member states to SOLACE
o ISM code was adopted into UK law
• UK law is the governing law of any policy that incorporates the institute/international clauses unless the contrary is provided
o ISM finally became binding in 1 July 2002- for all agreements
• Requires any ship operator/manager to have a safety management system
• in essence this involves having clearly defined systems for dealing with problems that are likely to arise in the problem of a ship. E.g. oil tanker that leaks oil- there should be clear system so that all onboard knows what to do
• ISM is about having systems
• existence of systems must be evidenced with 2 key documents
 1) document of compliance- issued to company (ship owner/manager): regarded as evidence that there is a proper safety management system
• it’s one thing to have a system and quite another to have the system operated
 2)safety management certificate: issued to a ship- that document evidences the fact that the vessel has been inspected and an appropriate safety management system actually operates
• clause 13 international hull clauses (also concerned with classification) also addresses ISM
 holder of these 2 documents a condition precedent to cover
 obligation throughout the policy that they should be in place
• if the vessel is inspected and it is found that no1 has heard of the safety management system (merely a document in ship owner’s file) then the smc will be withdrawn and insurance coverage lost
o in The Star Sea- masters didn’t have fire fighting knowledge but there’d have to be in place a system in reaction to the fire fighting
o system should have in place a reaction
o high percentage of marine accident are due to human error- no guarantee that every member will do exactly the right thing but that is not the point of insurance- you must try to ensure that certain problems do not arise
o too early to say how successful ISM actually will be
those are various ways as to how underwriters deal with substandard shipping- they have to do that as the standard hull clauses provide them with no protection against sub-standard shipping. SECTION 4: FRAUDULENT CLAIMS

• (a) Scope Of Fraudulent Claims Jurisdiction

different species of F.C
• scuttling- sinking your own ship is not fraudulent- ownership privilege to destroy your own property. But what you are not allowed to do is after destroying your own property you ask the In. to pay for it. Wilful destruction of property+claim= fraud
• genuine claim but exaggerated amount- esp for unvalued policy- e.g. in the household burglary- things lost to the value of $100k. genuine claim but A sees opportunity to inflate claim- say lost laptop also (when not true). Genuine claim+ fraudulent exaggeration= fraudulent claim
• fraudulent device – where you have perfectly genuine claim, true declaration of circumstances + value of claim but you seek to support the claim to persuade insurer to accept the claim and pay more promptly through fraud. The device of claiming is fraudulent.

• Black King Shipping Corp v Massie (The Litsion Pride) [1985] 1 Lloyd’s Rep 437 at 507-16
o hull policy stating- if ship sent into a certain area that I should be told an additional premium paid (here refereeing to sending vessel into Persian gulf @ time of iran/iraq war- ie war zone)
o as a matter of contractual interpretation: telling I is not condition precedent to the continuation of cover. Odd because usually that is drafted as a CP.
• people want to send freight into warzone because the price there is high. But consequently the insurance premiums there are high too
• but the way the policy was drafted here- the information wasn’t CP to cover
o insured didn’t tell insurer of the sending of the ship into the warzone
o ship hit by missile- rendered CTL
o at that point the A decided that it will be a good idea to inform I where the ship was
o sent a fraudulently back dated letter
o issue- whether fraudulent letter rendered the
o A had a good claim he was still covered in the warzone because no CP to inform I about sending the ship into warzone
o but clearly if I knew that A hadn’t notified them then they will be difficult about paying the claim
o thus A lied to try to cover that up
o fraudulent device taints perfect claim
• Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2003] 1 AC 469
• Agapitos v Agnew (The Aegeon) [2002] Lloyd’s Rep IR 573

(b) Consequences Of Fraudulent Claim
the law is if you add abit on you lose everything

• Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2003] 1 AC 469
• K/S Merc-Scandia XXXXII v Certain Lloyd’s Underwriters (The Mercandian Continent) [2001] Lloyd’s Rep IR 802
o bogus agreement doesn’t taint claim
• Agapitos v Agnew (The Aegeon) [2002] Lloyd’s Rep IR 573
• Galloway v Guardian Royal Exchange (UK) Ltd [1999] Lloyd’s Rep IR 209

what if you lose $100k- insurers are hardbargainers and will seek to settle for $80k; so A will claim $120k with the intention that A ends up with $100k (the actual loss)- is that fraudulent?
there is some dicta that suggests that if your intention all along is to get the true lose then that is not fraudulent. Difficulty with this is that ‘what will you do if I agreed to settle for $105k?’
will you give back the $5k extra? Cos if you don’t then you will be fraudulent. That is the difficulty in the indulgence of the judges
a lie is a lie regardless of intention
1st consequence of a fraudulent claim is forfeiture of the entire claim.

(c) Contractual Regime
is a fraudulent claim a repudiatory breach of the entire contract? Is I entitled to say that there is no more future cover after acceptance of A’s repudiatory breach?
also does a fraudulent claim constitute a breach of the duty of utmost good faith? This is unlike good faith earlier regarding informing underwriter @ pre-formation of the contract
but same aspect of the same overarching doctrine
matters because potential remedy for I – breach of utmost good faith is avoidance of the policy
• retrospectively tearing it apart from the very beginning
X X (no more cover)
genuine claim fraudulent claim
avoidance is retrospective- restitutionary measures for all premiums paid to be returned to the A
this was what happened in Star Sea- fleet policy, 2 vessels either TL or seriously damaged. Here not just argument re: seaworthiness but DF also alleged breach of duty of good faith
o perhaps we can go back to get the money we lost in the past
o that’s y gd faith argument attempted
• the Law seems now to be settled that fraudulent claims do not form part of the doctrine so that the remedy of avoidance will not be available
 see The Ageon and Star Sea per Lord Hobhouse- once K is concluded there is no scope for remedy of avoidance. Reason why K is pulled apart is because something went wrong in concluding them to begin with. Factors that vitiate consent. Once K is concluded in the way it is performed, general K has remedy in avoidance, repudiatory breach & discharge. Should be the same in MIK. Worst that should happen to you should be that you in repudiatory breach of K. (these observations found favour in obiter in Ageon but supported that fraudulent claim is not part of doctrine of good faith
 no punishment for fraudulent claim if earlier declaration in good faith when making contract
is fraudulent claim a repudiatory breach of contract?
not asked.
harder to think of anything worse that an A can do apart from a fraudulent claim probably yes it is a repudiatory breach but there is no authority that specifically states that it is a repudiatroy breach .
timing is important with regards to fraudulent claim for common law- when is an act a fraudulent claim?
• Issue in Star Sea- what A did wrong was not f.c issue. But what he did wrong was after the commencement of legal proceedings
• a didn't disclose certain information to i (info came to light a/f commencement of legal proceedings)
• i argued 2 fronts (2 aspects)- 1) outside fraudulent claims jurisdiction there was a more extensive/general post formation doctrine of good faith. It mirrored pre-formation doctrine (it is not confined to fraud, must disclose material circumstance)
• i said that this same non-discriminating doctrine carried on through the lifetime of the policy and 2) carried on into litigation
• argument about a broad post-formation doctrine
• what is now clear is that i was wrong on both limbs of their argument
o there is no broader doctrine of good faith once you get past K formation
o @ claims stage it is the f.c jurisdiction. What is wrong with your claim is something else. If you were negligent in the amount of your claim doesn’t affect your claim.
o in any event, HL held that all these rules stopped when litigation starts.
• Because information that you must volunteer to the other side is governed by civil procedure. There is no room for extra doctrine of insurance contract law
• there are rules of discovery in civil procedure that govern rules concerning disclosing information to the other side
 cannot make a mockery of the rules of civil procedure
 everything stops with the advent of litigation.
One thing about this law is that it is recent- regarding f.c.
why? not as if fraud is a recent phenomenon-
but it is because IK commonly contain express provisions dealing with fraud. Where they do the contractual provisions take over. Forget common law and apply contract
K has long made ti clear that fraudulent claims forfeit the benefit of the policy
o vague whether it goes any further but further consequences have not been litigated .
**contractual regime
• International Hull Clauses 2003, cl 45.3-4
o Institute Hull clauses do not
o Star Sea at about the time the 2002 IHC was being drafted; attempt there to reverse by contract of the effect of star sea because 2002 require disclosure of material even after commencement of litigation
o revision in 2003- by & large this clause accepts the ruling in Star Sea
• makes clear that a fraudulent claim brings a CP to the underwriter’s liability- clear that they will not be liable in the event of a fraudulent claim
• clear in the matter of drafting that a fraudulent claim=fraudulent device
o good lawyer will find a lot of un-certainty in clause 45.3 (areas of possible dispute) don’t think that because there is 45.3 that doesn’t mean that there won’t be any more cases regarding this
• it is not mandatory
• only a marine regime
• but even if IHC 45.3 is dominate approach= there are still a lot of disputable areas
there are other clauses that relate to claims to how A are to do, how quickly they are to bring claims, co-operation clauses (to keep the I fully informed of situations)
provisions for various matters- straight forward contractual obligations that if are broken McAlpine BAI

Further Reading

Bennett, “Mapping The Doctrine Of Utmost Good Faith” [1999] LMCLQ 165, 208-13
Clarke, “Lies, Damned Lies, and Insurance Claims: the Elements and Effect of Fraud” [2000] NZLR 233
Skajaa, “International Hull Clauses 2002: a contractual solution to the uncertainty of the fraudulent claims rule?” [2003] LMCLQ 279


Basic measures, deductible, supplementary

Loss Of Or Damage To The Subject-Matter Insured
Starting point is straight forward
• agreed value policy situation: what you get is the agreed value regardless of the value for the property
• unvalued policy (highly rare in modern MI)- you get the insurable value- ie value of property @ inception of risk - @ the point when insurance started
• partial loss- look at things more carefully
o damage to a ship: dealt with by s69 MI act
• 3 situations
s69(1)- where damage repaired b4 expiry of policy
• measure there is the reasonable cost of repairs
s69(3)- where damage is not repaired at all during the lifetime of the policy & vessel is not sold either during the life time of the policy
• measure is calculated w reference to depreciation of vessel at the time policy expires
s69(2)- where damage is repaired in part during the lifetime of policy
• measure in respect of the repaired bit: reasonable cost of repairs
• unrepaired bit- cost of depreciation
issue: how to calculate depreciation?
• Act is clear that depreciation cannot be more than what you get if repairs were carried out
• but doesn’t say how to calculate depreciation
o question arises for valued policies
• 2 ways to do it: 1) market value approach: take the market value that vessel would have if undamaged minus the actual market value the vessel has in its damaged condition. That is how much $ actually loss in truth regarding value of the vessel by reason of the damage.
 sound value (ie. Undamaged value)- damaged value
• objection to this approach is that it ignores the fact that there was an agreed value
• going back to TL- the A does not get market value of property_ he gets contractual valuation of the property. Argument is that you should do the same for partial loss/damage. You should actually use market values to work out what proportion of the vessel’s value has been lost. And then what the A should receive is that portion of the AV. Mathematically_ sound value-damage value (expressed as a proportion of the sound value) X AV
o if u have vessel that has sound value of 10; because it is damaged: dv= 6. Assume that AV of vessel is 20.
o actual loss should be 10-6=4
• but this ignores av
o so we should take
o (10-6)/10 * 20= .4*20= 8
• which is always going to be more as AV is higher than market value.
Approach to calculating damages is used in cargo + hull insurance
which approach is correct?
• common law follows no.2- the Kusel v Atkin (The Catariba) [1997] 2 Lloyd’s Rep 749
but because insurance polices are often written to favour underwriters-
AV makes it harder to prove CTL
but here your AV is against insurers because measure of indemnity goes up- so hull policies use measure 1- e.g. international hull clauses 20.1

for cargo- see s71 MIact
• contemplate 2 different types of partial loss of goods
o 1) total loss of a part e.g. starting out with 100 units of X and 20 are lost en route; total loss of a clear severable part of the cargo
• if policy is unvalued then measure of indemnity is insurable value of the part that is lost
 value @ inception of risk/commencement of transit of the value of the cargo that’s been lost. S71(2) MIact
• valued policy then look at s71(1)- A gets appropriate portion of the agreed value
 insurable value of the part lost (divided by) insurable value of the whole } (multiply by) AV

• 2) where goods are delivered in damaged condition
o s71(3)
• (SV-DV)/SV *AV
 gross sound value, gross dv: device for making it plain that these values are values of cargo at place of destination?
• basic measure of indemnity
• 3) combination of these 2
Marine Insurance Act 1906, ss 68, 69, 71
The Medina Princess [1965] 1 Lloyd’s Rep 361 at 517

Particular Average Warranties And Deductibles
I will not be prepared to take L for all losses that might be sustained.
3 reasons for this:
1) very small claims- not cost effective to process them- administrative cost to process it is self defeating
2) if the A carries a certain proportion of the risk then A has financial incentive to look after property
3) with some goods identifying the cause of loss may be quite difficult, especially telling difference between external accident and inherent vice.
in response to these concerns there are different thresholds
1) particular average warrantee contra
• clause that confines I liability to TL claims
• not liable for partial losses
• but can moderate clause by saying that free from PA < 5% for e.g. will pay for PA > 5%
o way MI used to deal with the 3 concerns above
o not common today. Seen occasionally- 1993 case- but not featured in standard market clauses
• Marine Insurance Act 1906, s 76
• Institute Time Clauses Hulls, cl 12.1, 12.2
o Deductible in international hull clauses 2003 clause 15: I is not liable for 1st X of a claim (whatever is agreed)
• the higher the deductible the lower the premium- as I is eliminating a lot of potential claims that could be brought
 non mi calls it excess clause
see the franchise clause-
difference between deductible and franchise: under deductible the I pays access over AV, under franchise clause once agreed limit is reached, I pays the lot (ie the entire loss)
institute frieight clauses contain franchise clauses
standard market frieight clauses also the same

Particular Charges & The Suing And Labouring Clause
Old SG policy – after giving cover against standard marine perils-
lawful for them to sue/labour/travel w/o prejudice to the insurance
• travelling: work> doing things/bringing legal claims/ taking reasonable steps to avert/minimise loss
o if there is a casualty- if nothing is done then things will get worse
• vessel maybe stranded somewhere with cargo onboard- clear that vessel is doomed and going to break up completely
• but in the meantime there is time to rescue the cargo
• in the interest of cargo insurance to take reasonable steps to preserve the cargo
• consequently cargo policies all contain provision that are not cast in permissive terms ‘it shall be’ but in language of obligation: A has duty to take reasonable steps to minimise loss/prevent loss from occurring
• clear from case law that if you fail to do this then you are in breach of contract and I is entitled to damages representing the value of cargo you could/should have saved thereby measuring the amount of indemnity
o quid pro quo- measures A take may cost money
o I is to indemnify costs reasonably borne- extra bit of cover that is separate from cover of insured property itself
o extra pocket of cover under sue & labour costs
o costs reasonably incurred
• under contract of carriage of goods by sea- haig rules/slightly modified variant of haig visby rules- short limitation period
• if something goes wrong with cargo and you want to sue carrier- only 1 year to sue. Normally you have 6 years (statute of limitations)
• an insurer of cargo who has paid out under cargo policy- if damage caused by 3p- you want to go after 3p by way of subrogation- but that is the A’s claim- which is subject to a 1 average limitation period
 by the time you paid up on the policy the 1 year maybe up
 so you want 2 be sure that you can sue
 so the sue & labour clause will be drafted to provide for the preservation of the 3rd party claims (ie. Issuance of writ within 1 year limitation period)
resolution of conundrum of taking of reasonable steps to avoid/minimise loss: we mean don’t be negligent.
• negligence is apparently a breach of contract
but see s55(2)a MIAct- you see that I has defence against wilful misconduct of A but not against negligence
• liability exist even if due to negligence
• but suing I & labouring clauses include the duty of master and crew to not be negligent
• not issue of contract v. contract but s78(4)- must exercise reasonable care to avoid/minimise risk
o 2 statutory provisions in conflict: 1 say negligent ne’er mind another says negligent= breach of duty
• answer fist suggested in National Oil Well and confirmed in State of the Netherlands v Youell [1998] CLC 44
 answer lies in causation: where it is alleged that you have negligence on the part of a person mentioned in suing and labouring what you have to do is look @ facts: is that negligence the proximate cause of the loss. If you have peril, w a casualty & an inappropriate negligent response to the casualty & a loss- ask does the negligent response break the chain of causation?
• if no- then forget about it: so s55(2)a operates
• if yes- that negligence breaks the chain of causation then you cannot dismiss it via s55(2)a: look at it through the policy because the negligence of certain people is a covered peril under the inchmarree clause
o if it is covered under inchmarree then A is covered
o if negligence is not within inchmarree clause then look at s78(4) or breach of duty/contractual anaylsis-
• net result is that it is very rare that negligence in suing & labour is going to reduce the measure of indemnity
 rare that negligence breaks chain of causation
 if it does then the person who is negligent is covered in inchmarree clause
 therefore A does not have much to worry about regarding suing & labour clauses. They infact encourage them to repair and get the money back .

o Marine Insurance Act 1906, s 64(2); sch 1 (“And in case of any loss or misfortune ... sum herein assured”); s 78(4), 55(2)(a)
o Institute Cargo Clauses (A), (B), (C), cl 16
o Institute Time Clauses Hulls, cl 11.1; Institute Voyage Clauses Hulls, cl 9.1
o International Hull Clauses (1/11/03), cl 9
o National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd’s Rep 582, 616-19
o State of the Netherlands v Youell [1998] CLC 44

Further Reading

• Rose, “Aversion and Minimisation of Loss”, chapter 7 in The Modern Law of Marine Insurance (1996), Thomas ed.
• Rose, “Failure to Sue and Labour” [1990] JBL 190


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