Marine Risks
1. The ingredients of a valid insurance claim
The essence of a marine insurance contract is that it is a contract of indemnity, that is, the insurer undertakes to be responsible for any losses sustained by the assured provided that the cause of the loss is within the scope of the indemnity (Castellain v Preston, Soya GmbH v White).
The cause of the loss will be within the scope of the indemnity if it is within the scope of the perils insured against and is not within the scope of any excluded peril or other exception.
If the assured can prove the following elements, he or she will have an indemnifiable claim under the marine insurance policy, namely that:
a) The assured has suffered loss or damage (or incurred a liability in the case of liability insurance).
b) The loss or damage or liability was proximately caused by a peril insured against (section 55(1) MIA).
c) The loss or damage or liability was not proximately caused by an excluded peril.
d) No other exception applies, that is, there is no other ground upon which the insurer might rely in refusing an indemnity under the policy (e.g. breach of warranty, breach of procedural conditions under the policy – such as notice provisions – or for reasons set out in the MIA – such as sections 42 to 49 and 77).
The above elements give rise to a number of important concepts under the law of marine insurance:
a) The concept of loss or damage.
b) The concept of peril or risk.
The scope of the perils insured against and the scope of the excluded perils.
c) The concept of causation.
If the assured has an indemnifiable claim under the marine insurance policy, he or she will be entitled to an indemnity (the amount of which will be determined in accordance with the ‘measure of indemnity’ provided for in the sections 67–81 MIA) depending on the nature of the loss (e.g. is the loss a total loss or a partial loss?- See sections 56–66 MIA). Given the current state of English law, if the insurer fails to indemnify the assured, he or she will not be liable for damages above and beyond the measure of the indemnity and interest (Ventouris v Mountain (The Italia Express), Sprung v Royal Insurance (UK) Ltd).
2. Loss or damage
The contract of insurance responds to an assured’s loss or damage or liability.
The term ‘loss’ is often used loosely to refer to any type of loss, damage, expense or liability which is insured under the policy. In some cases, ‘loss’ refers only to the situation where the assured has been deprived of the insured property or money.
‘Damage’ is concerned with damage to physical property or to one’s person. In the case of property, ‘damage’ connotes a situation where the insured property has been deprived of value or utility by reason of some physical change to the property (Promet Engineering (Singapore) Pte Ltd v Sturge (The Nukila), Quorum A/S v Schramm).
A ‘loss’ may also refer to a purely financial loss sustained by the assured (e.g. the loss of profit or income). ‘Liability’ means the assured’s legal liability to a third party as established by judgment, arbitration award or agreement (Post Office v Norwich Union Fire Insurance Society Ltd, Bradley v Eagle Star Insurance Co Ltd, compare Lumbermens Mutual Casualty Company v Bovis Lend Lease Limited, Enterprise Oil Limited v Strand Insurance Company Limited).
3. The peril or risk
The essence of an indemnity insurance contract is that it will respond only to losses which arise by reason of a ‘fortuity’ (the words ‘risk’ or ‘casualty’ have the same meaning), that is, the loss was not inevitable or certain to happen. Whether or not an event is uncertain is to be determined at the time of the making of the insurance contract (Department of Trade and Industry v St Christopher Motorists’ Association).
The requirement of a fortuity will often be found to exist even if the language of the policy does not expressly require it (CA Blackwell (Contracts) Ltd v Gerling General Insurance Co).
If the insurance contract provides for an indemnity for loss arising from an event which is certain to happen, it is unlikely that the parties intended such loss to be insured and therefore there will be no recovery against the insurer (Soya GmbH v White, Shell UK Ltd v CLM Engineering Ltd).
A loss will not be a fortuity, for example, if it is caused by ‘inherent vice’ or ‘wear and tear’ or wilful misconduct on the part of the assured (section 55(2) MIA). (The Caribbean Sea, Soya GmbH v White, Noten BV v Harding, Midland Mainline Ltd v Eagle Star Insurance Co Ltd.)
A peril or risk, however, will not be inevitable merely because it is foreseeable (NE Neter & Co Ltd v Licenses & General Insurance Co Ltd, The Miss Jay Jay).
The notion of ‘peril’ or ‘risk’ is often explicit in the policy wording itself (Institute Cargo Clauses A, B and C (1982) and (2009), clause 1; Institute Time Clauses – Hulls, clause 6). However, it need not be; if there is no reference to ‘peril’ or ‘risk’, it will be assumed that the parties intended that there be an indemnity only in the event of a fortuity (Soya GmbH v White).
4. The perils insured against
The ‘perils insured against’ (section 55(1) MIA) are the causes which give rise to the loss which will be indemnified under the insurance contract.
However, where a peril is apprehended or feared, but does not in fact occur, then (unless the policy provides otherwise) there will be no indemnity in respect of any loss which arises by virtue of that apprehension or fear (Becker, Gray and Co v London Assurance Co). However, if an expense is incurred with a view to avoiding or minimising a loss by an insured peril, that expense may be recoverable from the insurer pursuant to a ‘sue and labour’ clause in the policy (section 78 MIA).
The ‘perils insured against’ may be very wide. For example, some marine insurance policies insure against ‘all risks’ of loss (Institute Cargo Clauses (A) (1/1/82) and (1/1/09)). This phrase does not mean any cause of loss will be covered; it means that any accidental or fortuitous cause of loss will be covered.
Traditionally, marine insurance policies insure against losses which are caused by specified perils which were found in the SG form of policy (Schedule 1 to the MIA). Some of these perils may be still found in the Institute Clauses (e.g. clause 6 of the Institute Time Clauses – Hulls; clause 1 of the Institute Cargo Clauses (B); clause 2 of the International Hull Clauses 2003).
Traditionally, ‘war risks’ were excluded from the cover offered by an ordinary marine policy (by way of the ‘free of capture or seizure’ warranty). Today, there are express ‘war risks’ exclusions in the traditional forms of marine policy (clause 24 of the Institute Time Clauses – Hulls (1/11/95); clause 6 of the Institute Cargo Clauses (B)). Of course, it is perfectly possible (and usual) to insure against war risks (Institute War and Strikes Clauses – Hulls – Time (1/11/95)).
We will focus on clause 6 of the Institute Time Clause – Hulls (1/11/95). Clause 6 is divided into two parts:
a) The ‘traditional’ perils in clause 6.1 (i.e. the perils which had been insured against since the time of the old SG form of policy).
b) The Inchmaree clause in clause 6.2. The Inchmaree clause was introduced in 1888 and provided an extension of the indemnity traditionally available against ordinary maritime perils. (This cover can itself be extended by the Liner Negligence Clause or the Institute Additional Perils Clause; see, for example, clause 41 of the International Hull Clauses 2003.) The assured is entitled to be indemnified under the Inchmaree clause only if the loss was itself not caused by a ‘want of due diligence’ on the part of the ‘Assured, Owners, Managers or Superintendents’.
5. The traditional marine perils
i)Perils of the sea
The phrase ‘perils of the sea’ has long been debated before the Courts.
‘Peril’ connotes a risk, fortuity or casualty (see above; see also rule 7 of the Rules of Construction scheduled to MIA). The difficulty arises with the words ‘of the sea’. A ‘peril of the sea’ is a peril which arises by reason of the vessel or cargo being at sea (for example, because of the action of the wind or waves). A vessel is ‘at sea’ if the vessel is water-borne. Just because the peril occurs while the vessel is at sea does not mean that it is a peril of the sea, especially if the peril might equally have occurred while the subject-matter insured was on land. The entry of seawater into a vessel is regarded as being a peril peculiar to the sea, no matter what the cause. Accordingly, it has been said that if a rat eats a cargo of cheese on board the vessel, that is not a peril of the sea; but if a rat eats through a pipe allowing seawater to enter the vessel, that is a peril of the sea (Hamilton, Fraser & Co v Pandorf & Co). Although the entry of seawater into the vessel is an indication of the operation of ‘perils of the seas’ as an insured peril (Marina Offshore Pte Ltd v China Insurance Co (Singapore) Pte Ltd), there will be no cover under the marine policy for loss or damage caused by perils of the seas unless the entry of seawater has itself been caused by a fortuity. If, for example, the water enters because of the poor condition of the vessel, there will have been no peril of the seas: 566935 BC Ltd v Allianz Insurance Co of Canada).
As to the meaning of ‘perils of the sea’, see Versloot Dredging BV v HDI-Gerling Industrie Versicherung AG (The DC Merwestone) [2013].
Examples of ‘perils of the sea’ include:
a) A storm at sea (Canada Rice Mills Ltd v Union Marine & General Insurance Co Ltd, The Miss Jay Jay).
b) The vessel striking a rock, iceberg, shipwreck or other object at sea.
c) A collision with another vessel or possibly with a wharf, etc. (Buller v Fisher). However, clause 6.1.6 of the Institute Time Clauses – Hulls (1/11/95) provides cover against collision (‘contact’) with ‘land conveyance, dock or harbour equipment or installation’. (Clause 8 of the Institute Time Clauses – Hulls, which insures against the assured’s liability to the owner of the vessel with which the insured vessel has collided).
d) The entry of sea water (The Hellenic Dolphin, The La Pointe).
e) Listing during loading (The Stranna ; clause 6.1.8Institute Time Clauses – Hulls (1/11/95)). By contrast, if a ship sinks because of its old age or general condition, that will not be a peril of the sea. The assured bears the burden of proving that his or her vessel was lost by perils of the sea. If the vessel sinks and neither the assured nor the insurer can put forward a cogent explanation for the sinking, the assured will be unable to demonstrate loss by an insured peril. However, there may be a rebuttable presumption of law that the loss was caused by perils of the sea if it can be demonstrated that the vessel was seaworthy when the vessel left port and the circumstances of the loss cannot be explained. As to the burden of proving ‘perils of the seas’, see Venetico Marine SA v International General Insurance Company Ltd.
ii)Fire and explosion
‘Fire’ means visible heat and light caused by ignition or combustion. The mere apprehension of fire is not sufficient. It does not matter what causes the fire, provided that the cause of the fire was fortuitous. Therefore, fire caused by lightning, negligence or even arson (except of course the arson of the assured) will come within the meaning of ‘fire’. (Lightning is also insured under clause 6.1.7 of the Institute Time Clauses – Hulls (1/11/95)). If the fire arises by reason of the assured’s own misconduct or by inherent vice, then there is no peril insured against.
‘Fire’ also includes the immediate consequences of fire, including damage caused by smoke and the water used in firefighting or rain entering the burnt property. If the ‘fire’ leads to an explosion, then any damage caused by that explosion will be covered. If, however, the fire was caused by an explosion, then that is not a ‘fire’.
However, clause 6.1 of the Institute Time Clauses – Hulls (1/11/95) covers loss by ‘fire and explosion’. Accordingly, if there is an explosion, whether coming before or after the fire or occurring without any fire, there will be cover. An explosion involves a violent nuclear or chemical reaction or a violent escape of gas or vapour. A volcanic explosion is within ‘explosion’ (clause 6.1.7 of the Institute Time Clauses – Hulls).
Depending on the policy, it may be that ‘fire’ will not include loss arising from a fire which had been deliberately lit for an industrial process or for heating, etc. – a so-called ‘friendly fire’. Even in cases of ‘friendly fires’, the recoverability of a claim may turn on whether the subject-matter insured was intended to be affected by the fire.
iii)Piracy
A ‘pirate’ is a person who robs or attempts to rob by violent, not clandestine, means for private, and not political, gain. Piracy must take place on the high seas, tidal waters or in a port or harbour, but not on an inland waterway. However, this is subject to the true construction of the policy; given clause 6.1.1 of the Institute Time Clauses – Hulls (1/11/95), it is possible that piracy might extend to navigable inland waterways.
A person attacking the vessel from the shore (rather than from another ship) may be a pirate. A passenger or a member of the crew may be a pirate (rule 8 of the Rules of Construction, Schedule 1 to the MIA).
iv)Other perils
Other perils insured under clause 6.1 of the Institute Time Clauses – Hulls (1/11/95) include:
a) Violent theft by persons from outside the vessel (see rule 9 of the Rules of Construction, Schedule 1 to the MIA; La Fabrique de Produits Chimiques SA v Large, Nishina Trading Co Ltd v Chiyoda Fire & Marine Insurance Co Ltd, Dino Services Ltd v Prudential Assurance Co Ltd).
b) Jettison, namely throwing property from the ship into the sea (Butler v Wildman, Symington v Union Insurance Society of Canton).
6. The Inchmaree clause
i)Introduction
Clause 6.2 of the Institute Time Clauses – Hulls (1/11/95) is referred to as the Inchmaree clause (taking its name from the case which prompted its adoption: Thames & Mersey Marine Insurance Co v Hamilton, Fraser & Co (1887) 12 App Cas 484). (Compare the International Hull Clauses (01/11/03), clause 2.2.)
In order to establish cover under this clause, it must be the case that the loss or damage was caused by one of the named perils, namely:
a) Bursting of boilers, breakage of shafts or any latent defect in machinery or hull.
b) Negligence of master, officers, crew or pilots.
c) Negligence of repairers or charterers provided such repairers or charterers are not an assured.
d) Barratry of masters, officers or crew.
e) Contact with aircraft, helicopters or similar objects or objects falling
In addition, in order to recover under the Inchmaree clause, the loss or damage must not have resulted from ‘want of due diligence by the Assured, Owners, Managers and Superintendents or any of their onshore management’. As to the ‘due diligence’ proviso in the Inchmaree clause, see Sealion Shipping Ltd v Valiant Insurance Co (The Toisa Pisces); Versloot Dredging BV v HDI-Gerling Industrie Versicherung AG (The DC Merwestone); Venetico Marine SA v International General Insurance Company Ltd.
The first point to note is that the mere fact that a boiler bursts (or a shaft breaks) does not mean that there will be an indemnity available under the Inchmaree clause. The bursting of the boiler or the breakage of the shaft must cause physical loss or damage to the insured vessel.
Accordingly, the Inchmaree clause will not provide cover for the cost of repairing the boiler which has burst or the shaft which has broken, unless the boiler burst or shaft broke by reason of an insured peril.
Similarly, if something cracks or breaks by reason of a latent defect, if the crack is no more than the manifestation or development of the defect, then there is no damage which is to be indemnified. Often, it may be very difficult to determine whether or not the crack is the latent defect or the resultant damage.
Accordingly, there is a form of additional cover available to indemnify the shipowner against the cost of repair of the burst boiler or the defective part (the Liner Negligence Clause or the Institute Additional Perils Clause), although this cover is more restrictive in the case of latent defects.
ii)Bursting of boilers, breakage of shafts and latent defects
It may be that some parts of the Inchmaree cover will be inconsistent with the ‘inherent vice’ exclusion in section 55(2)(c) MIA, particularly the ‘latent defect’ cover. Therefore, to that extent, the exclusion in section 55(2)(c) MIA will not be operative (The Caribbean Sea). Indeed, in some respects, the cover is explicitly inconsistent with the inherent vice exclusion.
As to breaking of shafts, it is to be noted that:
- A ‘shaft’ has been interpreted as not including connecting rods (Jackson v Mumford).
- ‘Breakage’ has been interpreted as meaning physical separation or discontinuity (Oceanic Steamship Co v Faber).
As to ‘latent defect in the machinery or hull’, the following questions arise:
What is meant by ‘latent’? A defect is latent if it is not discoverable upon an examination which a reasonably careful skilled person would make (The Caribbean Sea). However, this will vary according to the circumstances. The reasonableness here may well be equivalent to the ‘due diligence’ which the assured must exercise in order to ensure his or her insurance is not prejudiced.
What is meant by ‘defect’? There is question whether a ‘defect’ is limited to any flaws in the construction or the constituent elements of the machinery or hull; or whether it extends to defects in design as well (Jackson v Mumford; The Caribbean Sea). Latent defects may give rise to other problems as they may amount to the cause of an inevitable loss, in which case there might be no indemnity. As ‘latent defects’ necessarily exist prior to the inception of the insurance (Promet Engineering (Singapore) Pte Ltd v Sturge (The Nukila)), if there is any fortuity it must lie in the uncertainty of any damage resulting from the latent defect. If the damage is bound to happen, then there is no fortuity. If the insurance is against the cost of repair of the defect, that is not likely to be covered as it is inevitable.
iii)Negligence of master, officers, crew, pilots, repairers, charterers
Section 55(2)(a) MIA provides that there will be cover if the loss or damage is caused by a peril insured against, even though it was also caused by the negligence of the master or crew.
The Inchmaree clause makes it clear that if the sole cause of the loss or damage were such negligence, then the insurance will indemnify the assured against such loss or damage. Although such negligence is covered, the insurance does not extend – indeed it excludes – any loss or damage caused by the negligence of the assured, owners, managers or superintendents.
The negligence may be negligence in the navigation or operation of the vessel. However, the negligence may also arise in the master or crew’s response to a casualty. For example, the vessel may collide with another vessel and catch fire, but even though the crew could have put the fire out if they had acted promptly and carefully, the crew responds to the fire too late or uses the firefighting equipment incorrectly, thus resulting in the loss of the vessel. Whether or not this might give rise to cover depends on whether the negligence was limited to the master and crew or whether it involved the negligence of the assured (for example, if the assured failed to exercise due diligence to ensure the crew had been trained to fight fires or to ensure that the firefighting equipment was functional). This may give rise to complications because of the ‘due diligence’ proviso in the Inchmaree clause.
Additionally, there is the added complication of the fact that one of the insured perils is that of negligence and the fact that the assured may be deprived of any recovery if it is established that the assured, including the master for this purpose, failed to take reasonable steps to avert or minimise the loss in accordance with section 78(4) MIA.
The insured peril requires that the negligence must be that of ‘Master, Officers, Crew or Pilot’. The question arises whether such individuals must form part of the complement of the vessel or whether the crew of another vessel is within the clause. It is likely that the individuals contemplated are those on board the vessel or forming part of the vessel’s complement. (The Belle of Portugal).
Even without this head of cover, the mere fact that the master or crew were negligent would not deprive the assured of cover, provided that the loss was caused by a peril insured against (section 55(2)(a) MIA). There is also cover for loss or damage caused by charterer’s or repairer’s negligence (The Lydia Flag).
iv)Barratry
Rule 11 of the Rules of Construction (Schedule 1 to the MIA) provides: ‘The term “barratry’” includes every wrongful act wilfully committed by the master or crew to the prejudice of the owner, or, as the case may be, the charterer.’ Compare the common law definition in Earle v Rowcroft, Heyman v Parish.
Barratry requires intentional criminal or fraudulent conduct on the part of the master or crew operating to the prejudice of the owner or charterer (The Salem). There need only be one member of the crew involved for there to be barratry. However, if the conduct of the master or crew was merely misjudged or an innocent error, no matter how egregious, that will not be barratry.
Equally, no act is barratrous if the owner (or his agent) has encouraged or acquiesced or taken part in the act. That would, of course, be wilful misconduct of the owner within the meaning of section 55(2)(a) MIA, which is excluded from coverage. (If the master is also the owner of the ship, no act of the master will be barratry: Ross v Hunter).
In Glencore Energy UK Ltd v Freeport Holdings Ltd, the Court defined ‘barratry’, in the context of a claim under a bill of lading, as follows:
(1) a deliberate act or omission by the master, crew or other servant of the owners;
(2) which is a wrongful act or omission;
(3) to the prejudice of the interests of the owner of the ship or goods (whether or not such prejudice is intended);
(4) without the privity of the owner.
In order for the act or omission to qualify as wrongful for the purposes of (2) it must be,
(a) what is generally recognised as a crime, including the mental element necessary to make the conduct criminal; or
(b) a serious breach of duty owed by the person in question to the shipowner, committed by them knowing it to be a reach of duty or reckless whether that be so (para.22).
Examples of barratry include smuggling (Pipon v Cope; Cory v Burr), running away with the vessel (Marstrand Fishing Co Ltd v Beer), unauthorised deviation (Mentz, Decker & Co v Maritime Insurance Co), and scuttling the vessel (Elfie A Issaias v Marine Insurance Co Ltd).
Although there have been suggestions that gross negligence on the part of the master (as opposed to wilful misconduct) might amount to barratry, that is contrary to rule 11 of the Rules of Construction (Heyman v Parish).
7. Collision liability
The Institute Time Clauses – Hulls (1/11/95), clause 8 provides ‘3/4ths collision liability’ cover in respect of the vessel. Unlike the remainder of the clauses, which provides property insurance cover, clause 8 is a liability insurance.
Under clause 8, the insurer agrees to indemnify the assured in respect of any sum which the assured becomes legally liable to pay another person by way of damages for inter alia loss of or damage to another vessel or property on that vessel in consequence of the insured vessel coming into collision with any other vessel.
Ordinarily, the word ‘collision’ used by itself means two navigable objects coming into contact (Chandler v Blogg).
However, clause 8 requires the insured vessel to come into contact with another ‘vessel’. (Compare clause 6.1.6 of the Institute Time Clauses –Hulls). There have been a number of interesting decisions concerning what is, or what forms part of, a ‘vessel’:
a) M’Cowan v Baine (The Niobe) (the tug which was towing the insured vessel, but not the insured vessel itself, came into contact with another vessel).
b) In re Margetts and Ocean Accident and Guarantee Corp (the insured vessel came into contact with the anchor of another vessel).
c) Bennett Steamship Co v Hull Mutual Steamship Protecting Society (the insured vessel came into contact with the nets of a fishing boat).
d) Pelton Steamship Co Ltd v North of England P&I Association (sunken wreck).
e) Merchants Marine Insurance Co Ltd v North of England Protecting and Indemnity Association (the insured vessel came into contact with a floating crane).
f) Polpen Shipping Co Ltd v Commercial Union Assurance Ltd (the insured vessel came into contact with a flying boat).
g) Steedman v Scofield (jet-ski).
h) The Von Rocks (back-hoe dredger; floating platform).
i) Perks v Clark (jack-up rig).
j) R v Goodwin (jet-ski).
k) As to what constitutes a ‘vessel’, see The Environment Agency v Gibbs (houseboat).
8. Cargo losses
The Institute Cargo Clauses offer three levels of cover:
a) ‘A’ clauses: these clauses provide ‘all risks’ cover (see Schloss Brothers v Stevens, British & Foreign Marine Insurance Co v Gaunt, Mayban General Insurance BHD v Alstom Power Plants Ltd).
b) ‘B’ clauses: these clauses provide cover against perils which are broadly similar to the traditional maritime perils, but with some omissions; they also include discharge of cargo at a port of distress, general average sacrifice (section 66 MIA), and total loss of cargo washed overboard or dropped during loading. They also include loss caused by overturning of land conveyance.
c) ‘C’ clauses: these clauses provide more restrictive cover, insuring against some of the traditional marine perils.
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