Overview of Marine Insurance Law

IMO International Maritime Law Institute

Malta, 7
th
10
th
January 2013
Professor Dr. Marko Pavliha
marko.pavliha@fpp.uni-lj.si
There is no time for playing around.
You have been retained as counsel for the unhappy.
You have promised to bring help to the shipwrecked,
the imprisoned, the sick, the needy, to those whose
heads are under the poised axe. Where are you deflecting
your attention? What are you doing?
!ucius "nnaeus #eneca $% &' ( ") *+,
1.INTRODUCTION
Mutual introduction of students and the lecturer: -rofessor -avliha studied law in
!.ubl.ana $#lovenia,, #plit $'roatia, and /ontreal $'anada, where he obtained his
doctorate at /c0ill under the supervision of -rofessor William Tetley. 1e practiced law
for over ten years in a law firm, shipping and reinsurance business. 1e has been 2ull
-rofessor of 'ommercial, Transport and 3nsurance !aw at the 4niversity of !.ubl.ana
since 566% and he also taught law in &elgium, !uxemburg and "ustralia. -rof. -avliha has
been a 7isiting 2ellow at the 3/8 3/!3 $/alta, since 9::;<:: where he is also an
external examiner, as well as a member of the &oard of 0overnors and member of the
"cademic &oard. 3n 566= he was elected as #ecretary 0eneral of the 'omit> /aritime
3nternational, until he has been invited to the #lovenian 0overnment as /inister of
Transport $566%,. !ater he has been elected as )eputy #peaker of the -arliament of the
?epublic of #lovenia $566%@566A,. 1e was chosen ten times by the 3us #oftware -oll as
one of the Ten /ost 3nfluential #lovenian !awyers and won the 5669 !awyer of the Year
"ward granted by the #lovenian 2ederation of !awyersB "ssociations. 3n 5665, he was the
#lovenian candidate for a .udge at 3T!8#. 1e participated in drafting most of the
#lovenian transport and insurance legislation after its independence. -rof. -avliha was
also a longstanding -resident of the /aritime !aw "ssociation of #lovenia. 1e is author
and co@author of 5= books and over +66 articles and scientific papers. 1e lives with his
wife and two children in a small village Cova vas nearby the #lovenian "driatic coast.
Scope of lectures: see this course outline.
First exerciseD on Thursday morning, 96
th
Eanuary 9=, 569=, we will be discussing the
Institute Cargo Clauses 9:;5 and 566: $see sections 55 and 5= of this course outline,.
-lease make copies of the ", & and ' clauses, read them in advance and compare both
versions.
Second exerciseD please study and prepare the case study $see Appendix I at the end of this
course outline,, split into three groups $the insured, the underwriters and the arbitrators or
the .udges, and present the case during the last lecture on marine insurance law on
Thursday, 96
th
Eanuary, 569=.
Basic course material: available at the 3/8 3/!3 library $/. -avlihaD Lectures on
Marine Insurance, 3/8 3/!3, /alta, 5666, ==% pages,. #ee also the Suggested
Bibliography and Interesting Websites at the end of this course outline.
2.DEFINITION OF INSURANCE AND THE CLASSIC LONDON INSURANCE
MARKET DIVISION OF INSURANCE
Introduction to risk management: $9, identification of risks, $5, evaluation of risks, $=,
control of risks, $%, finance the risksD insurance, bank deposits, captives, other.
What is insurance: the primary function of insurance is risk transference and distribution.
&y effecting insurance, the insured transfers the risk of economic losses to the insurer,
who in turn redistributes the risk through investment and reinsurance arrangements
Contract of insurance is a contract under which one person $the insurer, is legally bound
to pay a sum of money or its eFuivalent to another person $the insured,, upon the
happening of a specified event involving some element of uncertainty as to time or
likelihood of occurrence, which affects the insuredBs interest in the sub.ect@matter of the
insurance $2. /arks G ". &alla,. The insured is actually buying his peace of mind, the
invisible product.
Non-marine insurance:
insurance of personsD it deals with the life, physical integrity or health of the insured
and is divided into individual insurance and group insurance.
damage insuranceD property insurance and liability insurance.
Marine insurance: the ob.ect is to indemnify the insured against losses incident to marine
adventure.
3dentical division of insurance in continental markets and civil codes $e.g. 2rance, 3taly,.
"nother possible division of insurance $e.g. under the H4 directives,D life insurance and
non-life insurance $including marine insurance,.
World insurance in 2011D the worldwide insurance premiums have increased *I over
5696 to 4#) %.+:A billion $+AI life insurance and %=I non@life,. #ee
httpD<<media.swissre.com<documents<sigmaJ=J95Jen.pdf .
ighlights of glo!al marine insurance market: !ower premium volumes, investment
income sharply reduced, - G 3 rates rise again, other rates firming, abundant capacity.
5
Total reported premium in 566: amounted to 4#) 55.: billion $+9.+I cargo, 5:I hull,
95.:I offshore<energy and *.*I liability,. 2or more information see
httpD<<img.en5+.com<Web<"8C<"onJ/arineJ3nsuranceJ/arketJ8utlookJ566:.pdf K
httpD<<www.iumi5696.com<pdf<conference<22J0lobal/arine3nsurance?eportJ#eltmann.
dfK
httpD<<www.willis.com<)ocuments<-ublications<3ndustries</arine<96%95J/"?3CHJ/"
?LHTJ?H73HWJ5695J!owJres.pdf .
"lo#d$s of "ondon: !loydBs is the worldBs leading insurance market $it is not a companyM,
with a capacity to write about N9+.:+ billion in 566;. 3t is a society of members, both
corporate and individual, who underwrite in syndicates on whose behalf professional
underwriters accept risks, including marine. #upporting capital is provided by investment
institutions, specialist investors, international insurance companies and individuals.
'urrently !loydBs is home to over +6 managing agents and over ;6 syndicates. There are
over 9;6 firms of brokers working at !loydOs, many of whom specialiPe in particular risk
categories. !loydBs is regulated by the 2inancial #ervices "uthority. Those bringing
capital to the !loydBs market include 969A corporate members $private companies, and
995% individual members $within this number are those with unlimited liability Cames
and individuals underwriting via limited liability companies,. !loydBs is licensed to
conduct business in over 566 countries and territories in accordance with local laws and
regulation. #ee httpD<<www.lloyds.com.
3.DEFINITION OF MARINE INSURANCE CONTRACT
%efinition: the contract of marine insurance is a special $insurance, contract of indemnity
which protects against physical and other losses to moveable property and associated
interests, as well as against liabilities occurring or arising during the course of a sea
voyage $?. Thomas,. #. 9 of /3" 9:6*D " contract of marine insurance is a contract
whereby the insurer undertakes to indemnify the assured, in manner and to the extent
thereby agreed, against marine losses, that is to say, the losses incident to marine
adventure.
&hree crucial principles of marine insurance: indemnity, insurable interest and utmost
good faith. #ee httpD<<www.youtube.com<watch?vQ@/7R&'TgaW; .

'ontract of indemnit#: The great principle of the law of insurance is that it is a contract
for indemnity. The underwriter does not stipulate, under any circumstances, to become the
purchaser of the sub.ect@matter insuredK it is not supposed to be in his contemplationD he is
to indemnify only. ( per !ord Hllenborough in Brotherston v Barber $9;9*, + / G #
%9; at p. %5+. 3deally, the insured should be compensated only to the extent of his loss. 3n
practice, however, this is not always easy to attain $e.g. underinsurance, deductible,
franchise,.Thus, a policy of insurance is not a perfect contract of indemnity. #ee Irving v
Manning $9;%A, 9 1!' 5;A.
'ommon la( and ci)il la( definitions of marine insurance: they are very similar.
&erminolog# of marine insurance in a nutshell: the insured $assured, policyholder,, the
insurer $underwriter, assurer, insurance company,, the sub!ect"matter insured and many
other terms peculiar to marine insurance, which will be explained throughout the course.
=
"a(ful marine ad)enture: one where any ship, goods or other movables are exposed to
maritime perilsK the earning or acFuisition of any freight etc., any third party liability etc.
Maritime perils:
*erils of the seasD fortuitous accidents or casualties of the sea $heavy weather, sinking,
stranding, collision, contact,, not including the ordinary actions of the winds and
waves. #ee the #lobal $rocess Systems Inc and another v Syarikat %akaful Malaysia
Berhad &%he Cendor M'$(), S5699T 4L#' +, S5699T 9 !loydBs ?ep. +*6.
Fire+ (ar perils+ pirates+ ro)ers+ thie)es+ !arratr# etc. #ee %he Captain $anagos *$
S9:;+T 9 !loydOs ?ep. *5+. The element of fortuity is of crucial importance.
&he Inchmaree clauseD the scope of this clause sub.ect to the due diligence proviso is
to cover loss or damage to the sub.ect matter insured caused by the bursting of boilers,
breakage of shaft or any latent defect in the machinery or hullK negligence of the
master, officers, crew or pilotK negligence of repairers or charterers, provided they are
not insured under the policyK and barratry of master, officers, or crew. #ee %hames +
Mersey Marine Insurance v ,amilton &%he Inchmaree) $9;;A,95 "' %;%.
*ollution ha,ards. #ee #ection 5A of this course outline about - G 3 coverage.
'ollision lia!ilit# -&he .unning %o(n 'lause/. #ee #ection 5A of this course outline
about - G 3 coverage.
*irac#D it is estimated that the total annual monetary cost of piracy to the international
community is between 4#) %.: and ;.= billion. ?ansoms of about 4#) A+ ( ;+ million
were paid in 5696 to secure the release of 59 ships. The average ransom payment was
about 4# U % million. The average length of time that ships are held captive was 59% day.
2or further information regarding the most recent insurance implications of piracy see
httpD<<documents.marsh.com<documents<piracywhitepaper6A@99@99.pdf. -iracy also affects
contracts of carriage of goods, for instance, it was held by 1igh 'ourt of Eustice, VueenBs
&ench )ivision $'ommercial 'ourt, in the $ai-an Wisdom S5695T HW1' 9;;; $'omm,
that even if the charter party provides that the passing of the 0ulf of "den is allowed with
insurance authoriPation, owners are permitted under 'onwartime 566% clause to refuse
instructions to proceed from hoping, Taiwan to /ombasa, Lenya referring to recent
developments in the 3ndian 8cean in respect of piracy.
" contract of marine insurance may cover mixed sea and land or sea and inland (aters
risks $e.g. the %ransit Clause under the 3nstitute 'argo 'lausesD warehouse to
warehouse,.
)ifference between insurance la- and other legal branches, e.g. maritime la- Hxample
of a typical marine cargo claim.
4.ORIGINS
10
th
centur# B1'1D %he ,ammurabi Code ( probably the first traces of insurance.
2
th
centur# B1'1: Lex .hodia de iactu was a custom recorded in writing much later in the
'ode of Eustinian in the *
th
century. The birth of modern general average Q an
extraordinary sacrifice or expenditure which is intentionally and reasonably made or
%
incurred, for the common safety, for the purpose of preserving from peril the property
involved in a common maritime adventure.
0
th
centur# B1'1: $hoenician maritime la-, e.g. general average and marine insurance
$traces to be found in the Talmuds of Eerusalem and of &abylon at the beginning of our
era,.
345 6 322 B1'1: the shipping loan $foenus nauticum, of 0reek and ?oman origin $the
oldest texts are to be found in certain pleadings of )emosthenes,. 3f the loan was based on
the ship $bottomry,, the borrower had to repay it with high interest only in the case of a
successful voyage. !oan could be also based on cargo $ respondentia,.
1350: the oldest marine insurance policy $0enova,.
1300: the birth of marine reinsurance
17
th
6 18
th
centur#: fragmentary insurance regulation in medieval cities $e.g. &arcelona,
7enice, 2lorence,.
1782: 'rdo super assecuratoribus $)ubrovnik, @ probably one of the oldest insurance
legislation.
1783: the /ing $hilip II 'rdinance on Marine Insurance $&elgium,.
9nd of 18
th
centur#: Le #uidon de la Mer $private collection of marine customs,.
1841: %he Marine 'rdinances of Louis 0I1 in 2rance, also received with great respect in
the courts of Hngland and the 4nited #tates,. 3t was included in the 'ode of 'ommerce of
9;6;.
1844: first mention of 2d-ard Lloyd3s 'offee 1ouse in !ondon.
1002: !loydOs standard marine policy ( the S# &Ships and #oods) $olicy.
1404: Code de Commerce $2rance,.
1472: %he Ant-erp Marine Insurance $olicy.
1401: %he 4or-egian Marine Insurance $lan.
1445: %he Institute of London (nder-riters
1208: %he Marine Insurance Act 5678 $4.L. ( #ir /ackenPie 'halmers,. The mother of
all marine statutes, inspired by common law, lex maritima and lex mercatoria.
1212: %he #erman #eneral .ules of Marine Insurance &A*S).
Modern era: the 3nstitute 'lauses $9:;5, 9:;=, 9::+, 566=, 566:,, the "ntwerp /arine
-olicy, the new policy form /"? $9:;5, 9::9,, the "merican 'lauses, the 4C'T")
+
'lauses $9:;%,, the 0erman 'lauses $)T7@")# 566:,, the '/3 failed efforts to unify the
law, etc.
5.TYPES OF MARINE INSURANCE
ull insurance: insurance of the vessel with its gear.
'argo insurance: insurance of goods carried by sea.
Insurance against the lia!ilit# of the carrier: protection and indemnity $- G 3 'lubs,K
compulsory or mandatory insurance $e.g. '!' 9::5, 1C# 9::*, &unker 5669, "thens
5665, etc.,K voluntary insurance $e.g. liability for cargo,.'ompulsory insurance is
increasing in order to protect public interest.
:ther t#pes of marine insurance: e.g. insurance of freight, salvage expenses and general
average contributionsK insurance of containers, shipyards, oil rigs $energy,, etc.
6.SOURCES OF LAW
"ack of international la(: no international convention on marine insuranceK however,
international treaties tend to provide more compulsory insurance for certain risks.
.ecent attempts to unif# the la(: The '/3 3nternational Working 0roup has identified
non@disclosure, good faith, alternation of risk and warranties as being the most
controversial areas of marine insurance. 1owever, there is no prospect for international
instrument $e.g. convention, model law,. 8ne of the current topics of '/3 is #uidelines
for Mandatory Insurances in International Conventions.
Statutes: e.g. /3" 9:6*. /uch of the worldBs marine insurance business is transacted in
!ondon and is governed expressly or impliedly by Hnglish law.
;c<uis communautaire: the three generations of H4 directives, unfortunately nothing on
insurance contracts. The Huropean 'ivil 'ode is under preparation.
Standard clauses: e.g. the 3nstitute 'lauses $3'', 3T'1, 37'1, etc., reflecting an
international lex mercatoria &about A6I of all marine insurance contracts are based on
those clauses,.
'ommercial practice: e.g. the !loydBs slip placing system.
'ourt decisions -case la(/: especially in the common law countries $e.g. 4L, 4#",
'anada, "ustralia,.
;r!itration decisions1
%octrine: articles, books, etc. written by eminent scholars.
7.EXAMPLES OF MARINE INSURANCE LEGISLATION
*
"a( on companies $status law, and contract la(.
Belgian marine insurance legislation9 August :5
st
9 5;<6D the statute became a part of the
Code of Commerce, sections 9:9@5+6.
#erman Commercial Code 5;6< &,#B)D including rules on marine insurance $WW AA;@
:66,.
&he =1>1 Marine Insurance ;ct 1208 -MI; 1208/: the mother of all marine
insurance statutes $:% sections X 2irst #chedule $2orm of -olicyD !loydBs #.0. policy X
?ules for 'onstruction of -olicy, X #econd #chedule $Hnactments ?epealed,. 3t came into
force on 9
st
Eanuary, 9:6A.
The "ustralian Marine Insurance Act 5676 $based on /3" 9:6*,.
The 'anadian Marine Insurance Act 566= $based on /3" 9:6*,.
The 2rench Code des Assurances $including !aw Co. *A@+55 of Euly =, 9:*A and )ecree
Co. *;@*% of Eanuary 9:, 9:*; which comprise marine insurance,.
Civil Code of >uebec 5665, "rticles 5+6+ ( 5*5;.
8ther legislation.
8.WHO PROVIDES MARINE (RE)INSURANCE?
Insurance companies: stock<shareholding companies, mutual companies.
.einsurance companies: marine reinsurance and retrocession. #ee #ection 5:.
"lo#d$s of "ondon: it is a market, not a company. #ee #ection 5.
&he role of insurance !rokers and insurance agents: the agent ( the insurer, the broker (
the insured. 1owever, there may also be the possibility of the broker acting also on behalf
of the insurer. 3n fact, there is an element of uncertainty as to the law regarding insurance
brokers where they are acting in a dual capacity as brokers for the assured and the insurer,
in that a conflict of interests may sometimes arise between the brokerBs duties to the
assured and those to the insurer. "t !loydBs as in other areas of the insurance market,
codes of practice exist, and a code of practice exists for !loydBs brokers, which was issued
by the council of !loyds on Covember 9
st
, 9:;; to regulate any potential conflicts of
interest. 3t is very important to determine in law, exactly for whom a particular broker is
acting for. )ual agency may arise when a broker performs functions on behalf of the
insurer as well as the assured. #ee Woolcot v 2xcess Insurance &9:A;, 9!!? *==. )ual
agency is permitted provided that there is no conflict of interests.
*rotection and Indemnit# 'lu!s -* ? I 'lu!s/: liability insurance. #ee #ection 5;.
A
Insurance and reinsurance pools: for huge risks $e.g. oil rigs, aviation, nuclear plants,,
based on co@insurance $.oint and several liability of the members,.
9.CONCLUDING AND ENFORCING MARINE INSURANCE CONTRACTS:
THE LONDON MARKET
'onsensus ad idem: a marine contract is deemed to be concluded when the proposal of
the insured is accepted by the insurer.
BrokersD they play a central and dominant role. #ee !ord )iplock in American Airlines
Inc v. ,ope S9:A%T 5 !loydOs ?ep. =69 at =6%. Two recent cases have highlighted the need
for brokers to be familiar with the nature of their clients business and the limits and
exclusions of marine insurance products on the market. 3n both of these cases, the broker
was found to have failed to have proper regard for these matters and held liable for the
uninsured losses. 3n Lane v. *ive %-o $ty Ltd. S5695T C#W#' 96%, the broker was found
liable for losses suffered by the insured as a result of inadeFuate cover. The insured owned
a vessel which was predominantly used for commercial diving. 2rom time to time
however, the insured intended to use the vessel for pleasure. The cover sourced by the
broker excluded use of the vessel for pleasure. 1owever, the broker failed to alert the
insured to this policy exclusion. 8n the morning of the incident the vessel had been used
commercially. )uring the afternoon the insured took friends and family on a leisurely
excursion. )uring the afternoon excursion the vessel collided with another vessel, causing
in.ury to a third party. The insurer refused cover for the third party losses on the basis that,
at the time of the incident, the vessel was not being used for commercial purposes. The
'ourt found that the broker failed to advise the insured that the insurance cover procured
by him was inadeFuate to cover all activities undertaken by the insured and held the
broker liable for the uninsured liability.
3n /otku Bread $ty Ltd v. 1ero Insurance Ltd S5695T V#' 96:, the 'ourt found that the
insurers refusal to cover the insureds property after fire damage was a direct result of the
brokers negligence in failing to make proper enFuiries with the insured when procuring
cover. The broker failed to enFuire as to the manner of construction of the insureds shop,
where he should have known that the policy procured excluded cover for fire damage
when certain materials were present in the construction, which they were in this case. "
fire broke out and the insurer declined cover. The insured sued the broker and the 'ourt
held the broker liable for the total value of the loss and damage to the insureds property.
The above cases demonstrate that a broker owes its client a duty to exercise due skill, care
and diligence when procuring the most suited policy. &rokers must ensure that they
discharge their duties by procuring the right product for the risk in Fuestion. 3n order to
achieve this, brokers need to be knowledgeable of the market in which they operate,
informed as to their clients business operations and risks and aware of the limits of the
available insurance products. 3f a broker is unable to source a policy which properly
covers the risks faced by an insured, then the broker must clearly inform the insured of the
limits of such policy. 2ailure to make enFuiries in relation to the clients operations and
risks or to advise of any limitations of the policy could result in a broker being held liable
for uninsured losses or refusal of cover.
#ee httpD<<www.nortonwhite.com<images<Cewsflash<CewsflashJCovemberJ5695J=.pdf .
&he slip placing s#stem: the slip sets out a brief and abbreviated statement of the sub.ect
matter of the risk and the proposed insurance conditions, as well as type of insurance,
;
policy form, information about the insured, interest, sum insured, value, voyage, ship and
premium. The slip is first presented to a lead underwriter, then to the subseFuent
underwriters. "mended slip Q counter offer.
The broker is directly responsible to the insurer for the premium.
Where a slip is subscribed to by more than one underwriter, there is established a distinct
and separate contract with each underwriter $no !oint or !oint and several liability,.
;n o)ersu!scri!ed slip: signing down.
; discrepanc# !et(een the slip and the marine polic#: prima facie the primary document
is the slip, because it is the basis of the contract of marine insurance.
10. INSURABLE INTEREST
&he insured must sho(: $9, financial loss, $5, the loss was caused by the peril insured
against, $=, the sub.ect matter was covered by the policy, $%, insurable interest $see
sections %@9+ of /3" 9:6*,.
;)oidance of gaming or (agering contracts: such contracts in marine insurance are void
$e.g. a policy in -.-.3. form Q -olicy -roof of 3nterest,.
%efinition of insura!le interest: Lucena v Crauford $9;6*, 5 & G -C? 5*: $the
restricted view Q legal relationship X economic interest,K Section ? of the 5678 MIA
defines insurable interest by providing thatD $9, #ub.ect to the provisions of this "ct, every
person has an insurable interest who is interested in a marine adventure. $5, 3n particular a
person is interested in a marine adventure where he stands in any legal or eFuitable
relation to the adventure or to any insurable property at risk therein, in conseFuence of
which he may benefit by the safety or due arrival of insurable property, or may be
pre.udiced by its loss, or by damage thereto, or by the detention thereof, or may incur
liability in respect thereof.
%he Moonacre S9::5T 5 !loydOs ?ep. +69 $towards a broader viewD was the relationship
between the insured and the sub.ect matter of the insurance efficiently close to .ustify his
being paid in the event of its loss or damage,.
When interest must attach: at the time of the loss. HxceptionD lost or not lost $e.g. in
case of the 28& contract the buyer insures his goods while they are already at sea, not
being aware of damage or loss,.
%efeasi!le or contingent interest: it is insurable. 3n particular, where the buyer of the
goods has insured them, he has an insurable interest notwithstanding that he might, at his
election, have re.ected the goods, or have treated them as at the sellerBs risk, by reason of
the latterBs delay in making delivery or otherwise.
*artial interest: it is insurable.
:
.einsurance: the insurer has an insurable interest in his risk and may reinsure in respect
of it.
Bottomr# and respondentia: the lender has an insurable interest in respect of the loan.
Master$s and seamen$s (ages: the master or any member of the crew of a ship has an
insurable interest in respect of his wages.
;d)anced freight: the person advancing the freight has an insurable interest $e.g. '32,.
'harges of insurance: the insured has an insurable interest in the charges $e.g. '32,.
@uantum of interest: the mortgagor, the mortgagee.
"ia!ilit# interest1
;ssignment of interest: the rule prevents a mere sale of the insured sub.ect matter from
transferring the policy unless there is agreement to that effect between seller and buyer.
This principle is different from the non@marine insurance. 3n other words, e.g. selling the
property does not mean automatically transferring the policy.
11. DISCLOSURE AND REPRESENTATIONS DUTY OF UTMOST GOOD
FAITH
&he principle of utmost good faith -u!errimae fidei/: a contract of marine insurance is a
contract based upon the utmost good faith and, if the utmost good faith be not observed by
either party, the contract may be avoided by the other party $s. 9A of /3" 9:6*,. #ee
Carter v. Boehm $9A**, = &urr. 9:6+ which made the contract void, however the /3"
9:6* makes it avoidable. The principle applies prior to the conclusion of contract and also
during the contract. #ee sections 9A@59 of /3" 9:6*. #ee the Appendix II at the end of
this course outline.
&he continuing dut# of utmost good faith: duty of utmost good faith $section 9A of the
/3", continues to apply after the conclusion of the insurance contract. 8nce the parties
are in litigation it is the procedural rules which govern the extent of the disclosure which
should be given in the litigation not s. 9A as such though s. 9A might influence the 'ourt in
the exercise of its discretion ( Manifest Shipping Co Ltd v (ni"$olaris Insurance Co
Ltd and La .@union 2urop@ene &%he Star Sea) S5669T 9 !loydBs ?ep. =;: $1!,.
&he dut# of disclosure of insureds and !rokers: every material circumstance must be
disclosedK the ob.ective test of materiality @ $an Atlantic Insurance Co v. $ine %op
Insurance Co Ltd S9::+T 9 "' +69 $1!,. The decisive influence test unfortunately
re.ected. !ord /ustillD " circumstance is material if it was one which would influence the
.udgment of a prudent insurer in fixing the premium, or determining whether he will take
the risk. 3t is not necessary to show that the disclosure would have had a decisive or
conclusive influence. " circumstance may be material even though a full and accurate
disclosure of it would not in itself have had a decisive effect on a prudent underwriterBs
decision whether to accept the risk and if so at what premium. The insurer must also show
that he was in fact induced to enter the contract on the relevant terms $the actual
96
inducement test,. 3n other words, the proposer must disclose not only the facts which he
actually knows but rather the facts which in the ordinary course of business he ought to
have known $so called constructive kno-ledge,.
Better )ie(: the insurer could only escape liability if the undisclosed matter was
something which would have partially induced a hypothetical prudent insurer to refuse the
risk or accept it on different terms $#. )errington,.
;nother possi!le solution: the precise Fuestionnaires.
Which circumstances need not to !e disclosed: any circumstance which diminishes the
risk, which is known or presumed to be known to the insurer, etc.
.emedies: $9, common la-D 3f the duty of utmost good faith is breached ( avoidance of
the contract ab initioK $5, civil la-D also possibility of increasing the premium, damages.
&he dut# of insureds and !rokers not to misrepresent: 3n practice the law of
misrepresentation exists in close alliance with that of non@disclosure. The difference
should be abolished.
&he dut# of disclosure of insurers: e.g. BanAue Binanciere de la Cite SA v. Westgate
Insurance Co Ltd S9::9T 5 "' 5%:.
12. THE POLICY
&he contract must !e em!odied in a polic#: the absence of a marine policy means that the
contract can only operate voluntarily without the aid and remedial powers of the courts or
arbitrators. #ee sections 55@=9of /3" 9:6*.
.ules for construction of polic#: see 2irst #chedule of /3" 9:6*.
M;. 21: all the standard 3nstitute 'lauses may be used only with the current !loydBs
/arine -olicy $/"? :9, and the 3nstitute of !ondon 4nderwriters 'ompanies /arine
-olicy 2orm $/"? :9,, both of which are sub.ect to the exclusive .urisdiction of the
Hnglish 'ourts, except as may be expressly provided herein to the contrary.
What a polic# must specif#: the name of the insured, the sub.ect@matter, the risks, the
voyage or period of time covered by insurance, the sum insured and the name of the
insurer.
Signature of insurer: a marine policy must be signed by or on behalf of the insurer,
provided that in the case of a corporation the corporate seal may be sufficient. Where a
policy is subscribed by or on behalf of two or more insurers, each subscription, unless the
contrary be expressed, constitutes a distinct contract with the insured.
%esignation of su!Aect matter: with reasonable certainty.
&#pes of policies: time, voyage, valued, unvalued, floating, etc.
99
&ime polic#: for a definite period of timeK a policy may be a mixed time and voyage
policy. " specific date for the commencement and termination of the risk must be stated in
the policy. 3t is generally understood that a day starts from 66D66 and ends at 5%D66 $or
5=D+:D+:,. " policy on ship is nowadays almost invariably insured for a period of time,
whereas cargo is usually insured by a voyage policy.
2xtension or cancellation clauseD a policy for a period of time does not cease to be a
time policy merely because the period of time may be extended or abridged pursuant
to one of the policyBs contractual provisions. %he 2urysthenes S9:AAT 9 V& %: $'",.
%he navigation clauseD see clauses 9.9., 9.5. and 9.=. of 3T'1$:+,. 'overage at all
times, towage and salvage warranty, the use of helicopters, loading and discharging
operations at sea, scrapping voyages.
%he continuation or Cheld coveredD clauseD the vessel is only held covered if, at the
expiry of the policy, the vessel is $9, at sea and in distress or missingK or $5, in port
and in distress. #ee cl. 5 of 3T'1$:+,.
Automatic terminationD see clauses +.9 and +.5. of 3T'1$:+,. H.g. change of
'lassification #ocietyK change, suspension, discontinuance, withdrawal or expiry of
the shipBs classK overdue periodic survey, change of ownership or flag. The net result
of breach of warranty or termination of insurance is the sameD the underwriter is freed
from liability as from the date of breach. 'ompare to %he ECaribbean SeaF S9:;6T 9
!loydBs ?ep. ==;. " pro rata daily return of premium shall be made.
Bo#age polic# on ship: from or at and from one place to another.
BromD Where the sub.ect@matter is insured from a particular place, the risk does not
attach until the ship starts on the voyage insured $rule 5 of the ?ules for 'onstruction
of -olicy, /3" 9:6*,. With respect to the voyage see sections %5@%: of /3" 9:6*.
At and from &ship)D see rule =. Where a ship is insured at and from a particular place,
and she is at that place in good safety when the contract is concluded, the risk attaches
immediately. With respect to good safety see $armeter v Cousins $9;6:, 5 'amp
5=+. The standard of good $physical, safety is lower that that of seaworthiness.
Implied condition as to the commencement of riskD the adventure shall be commenced
within a reasonable time, otherwise the insurer may avoid the contract.
Alteration of port of departureD the risk does not attach.
Sailing for different destinationsD the risk does not attach.
Change of voyageD the insurer is discharged from liability as from the time of change.
/anifest intention to change the voyage is sufficient. #ee %asker v Cunningham
$9;9:, 9 &ligh. ;A. There must be a voluntary change of destination. #ee .ikkards v
Borrestal &56G:) AC ?7
*eviationD the insurer is discharged from liability as from the time of deviation $non@
contractual route,.
Several ports of dischargeD proceed in the order designated by the policy. 3f not Q
deviation.
*elayD the adventure must be prosecuted with reasonable despatch.
2xcuses for deviation or delayD authorisation $held covered provisions,, safety of the
ship, saving human life, beyond masterBs control, etc.
Bo#age polic# on goods:
cl ;&5) of ICCD it sets out the general rules relating to attachment and termination of
the insurance $the transit clause,K
95
cl ;&:) of ICCD it covers the particular circumstance where a change of destination
occurs after the completion of the sea voyageK
cl ;&=) of ICCD in declaring that the insurance shall remain in force confirms that
the events listed therein $e.g. delay beyond the control of the insured, deviation, forced
discharge, will not terminate the insurance. 3ts purpose is to dispel any doubts which
one might have as regards the continuance of the cover should any one of the
enumerated events arise $#. 1odges,K
cl 6 of ICCD it relates specifically to a termination, not of the contract of insurance, but
of the contract of carriage and its effects on the insurance contractK
cl 57 of ICCD the change of voyage clause states that a change ordered by the
insured is covered.
Balued polic#: it specifies the agreed value of the sub.ect matter, which is conclusive in
the absence of fraud. 7alued policies are almost universal in marine insurance. #ee Irving
v Manning $9;%A, 9 1! 'as 5;A. 1owever, the value must not go beyond what is
reasonable and fair, and the insured is meant only to have an indemnity, the very basis
of a contract of insurance. What constitutes excessive over@valuation is a Fuestion of fact.
=n)alued polic#: it leaves the insurable value to be subseFuently ascertained $see s. 9* of
/3" 9:6*,D
insurance on ship9 freight and any other sub!ect matter other than cargoD the insurable
value is the value at the inception of the riskK
insurance of goods or merchandiseD prime cost $price paid by the insured, e.g. '32,.
Floating polic# !# ship or ships: it allows the insured to insure an unascertained cargo on
an unspecified vessel $open covers,.
13. CONTRACTUAL TERMS
&erms defining the risk and exclusions from risk: general principle, all risks covers.
Warranties -see sections 33-51 of MI; 1208/:
nature of -arrantyD it must be strictly and exactly complied with. 4pon breach, even if
non@causative or immaterial, the insurer may repudiate the contract as from the date of
the breach of the contract, i.e ex nunc. #ee $a-son v Watson $9AA;, 5 'owp A;+K
'verseas Commodities v Style $9:+;, 9 !!? +%*K Horkshire Insurance v Campbell
$9:9A, "' 59;K 1esta v Butcher S9:;:T 9 !!? ==9K Iohn $ratt v Aigaion Insurance
Co SA S566;T HW1' %;: $"dmiralty,.
how an underwriterOs liability is automatically discharged for breach of warrantyD %he
#ood Luck S9::5T 9 "' 5==.
-hen is a breach of -arranty excusedD The held covered provision $e.g. the &reach
of Warranty clause under the 3T'1$:+,,. Cotice, additional premium.
express warranties.
implied warranties.
warranty of neutrality.
no implied warranty of nationality.
warranty of good safety.
9=
-arranty of sea-orthiness of shipD difference between time and voyage policyM 3n a
voyage policy there is an implied warranty that at the commencement of the voyage
the ship shall be seaworthy for the purpose of the particular adventure insured. 3n a
time policy, however, there is no implied warranty that the ship shall be seaworthy at
any stage of the adventure, but where, with the privity of the insured, the ship is sent
to sea in an unseaworthy state, the insurer is not liable for any loss attributable to
unseaworthiness. 3f the shipowner deliberately refrains from examining the ship in
order not to gain direct knowledge of what he has reason to believe is her unseaworthy
state, he is privy to the ship putting to sea in that unseaworthy state $the blind eye
knowledge,. " finding of negligence to a very high degree does not suffice for a
finding of privity. #ee %he Star Sea S5669T 9 !loydBs ?ep. =;: $1!,.
no implied warranty that goods are seaworthy.
warranty of legality.
'onditions precedent: e.g. sections %5@%; of /3" 9:6* $the voyage,. "voidance of the
contract.
Mere conditions: e.g. the avoidance of delay clause in the 3nstitute 'argo 'lausesK the
notice of claim provisions in the 3nstitute Time 'lauses 1ulls. )amages.
Interpretation of marine insurance policies: common intention. #ee ?ules for
'onstruction of -olicy, 2irst #chedule, /3" 9:6*.
14. ASSIGNMENT OF POLICY
When and ho( a polic# is assigna!le: /arine policies, unlike other policies of indemnity,
are assignable unless there are express terms to the contrary. They can be assigned before
or after the loss, by endorsement or in some other customary manner. 3f the assignor loses
insurable interest, the policy lapses and there is nothing to assign. 3n the converse case,
where the insured assigns the policy without assigning the sub.ect@matter, the assignee has
no insurable interest and is thus unable to sue on the policy. #ee sections +6@+9 of /3"
9:6*K Lloyd v Bleming $9;A5, !.?. A V.&. 5::.
&he effect of assignment: where a marine policy has been assigned so as to pass the
beneficial interest in such policy, the assignee of the policy is entitled to sue thereon in his
own name $e.g. in a typical case of cargo claim,. The defendant $the insurer, is entitled to
make any defense arising out of the contract which he would have been entitled to make if
the action had been brought in the name of the person by or on behalf of whom the policy
was effected.
"oss pa#a!le clause: "n insurance provision authoriPing payment in the event of loss to a
person or entity other than the named insured having an insurable interest in the covered
property. 4nder a typical loss payable clause, the insurer is under no obligation to make
payment to the loss payee if payment for a loss can be denied to the insured. This clause is
common in commercial auto and personal auto policies in which one or more vehicles are
financed through a financial services company. The coverage afforded to the loss payee
under this provision is Yas its interest may appear.Y 3n other words, it will only pay the
financial institutionOs actual loss sustained, even if the value of the vehicle is greater. 3t
does not cover the financial institutionOs loss resulting from conversion, secretion, or
9%
embePPlement on the part of the named insured. 3f the insurer makes any payments to the
loss payee, the insurer obtains the loss payeeOs $subrogation, rights against any other party.
15. THE PREMIUM
When is the premium pa#a!le: unless otherwise agreed, the duty of the insured or his
agent to pay the premium, and the duty of the insurer to issue the policy to the insured or
his agent, are concurrent conditions, and the insurer is not bound to issue the policy until
payment or tender of the premium. #ee sections +5@+% of /3" 9:6*.
If no arrangement is made: a reasonable premium is payable, e.g. by reference to the
market rate for the degree of risk in Fuestion $see s. =9 of /3" 9:6*,.
*olic# effected through a !roker: the broker is directly responsible to the insurer for the
premium. 3t is a rule uniFue to marine insurance and to other policies issued by !loydBs
$?. /erkin,. #ee $o-er v Butcher $9;5:, 96 &. G '. =5: and (niverso of Milan v
Merchants Marine Insurance S9;:AT 5 V.&. :=.
9ffect of receipt on polic#: the brokerOs failure to settle obliges the underwriter to look to
the broker or its liFuidator, and not to the insured.
.eturn of premium: see sections ;5@;% of /3" 9:6* $enforcement of return, return by
agreement, return for failure of consideration,.
16. MEASURE OF INDEMNITY
%efinition: the measure of indemnity is the sum which the insured can recover in respect
of a loss on a policy by which he is insured. #ee sections *A@A; of /3" 9:6*.
9xtent of lia!ilit# of insurer for loss:
unvalued policyD the insured can recover to the full extent of the insurable value.
valued policyD most policies are valuedK the insured can recover to the full extent of the
value fixed by the policy.
&otal loss:
valued policyD the measure of indemnity is the insurable value of the sub.ect@matter
insured.
unvalued policyD the measure of indemnity is the insurable value.
*artial loss of ship: the reasonable cost of the repairs less the customary deductions, but
not exceeding the sum insured in respect of any casualtyK the reasonable depreciation
arising from the unrepaired damage, but not exceeding the reasonable cost of repairing
such damage $e.g. cl. 9; of 3T'1$:+, and cl. 9* of 37'1$:+,,.
*artial loss of freight: the measure of indemnity is such proportion of the sum fixed by
the valued policy, or of the insurable value in the case of an unvalued policy, as the
proportion of freight lost by the insured bears to the whole freight at the risk of the insured
under the policy.
9+
*artial loss of goods+ merchandise+ etc1: see s. A9 of /3" 9:6*.
;pportionment of )aluation: see s. A5 of /3" 9:6*.
Ceneral a)erage contri!utions and sal)age charges: see s. A= of /3" 9:6*, cl. 5 of
3''$;5,, cl. 96 of 3T'1$:+, and cl. ; of 37'1$:+,.
"ia!ilities to third parties: the measure of indemnity is the amount paid or payable by the
insured to the third party. H.g. cl. ; of 3T'1$:+, and cl. * of 3 7'1$:+,.
*articular a)erage (arranties: an 2.-.". warranty confines the insured to recovering for
total losses only, sub.ect to the ordinary rules concerning the recovery of general average
losses and salvage charges.
Successi)e losses: the insurer is liable for such losses even though the total amount of
successive losses may exceed the sum insured.
Suing and la!ouring -sue and la!our/ clause: it covers the charges properly and
reasonably incurred in pursuance of the insuredBs duty to minimiPe the loss. The sums
payable under the clause are additional to the policy indemnity. #ee cl. 9* of 3''$;5,, cl.
99 of 3T'1$:+, and cl. : of 37'1$:+,.
%educti!le and franchise: participation of the insured in the loss, the purpose of which is
more care on the insuredBs side and lower premium. #ee cl. 95 of 3T'1$:+, and cl. 96 of
37'1$:+,. They are not used for total losses. 2xampleD $9, if the deductible is 96 and the
loss is :, the insurer does not pay anythingD if the loss is 99, the insurer pays 9, etc.K $5, if
the franchise is 96 and the loss is :, the insurer does not pay anythingD if the loss is 99, the
insurer pays 99, etc. Thus, the franchise does not really motivate the insured to minimiPe
or prevent the loss.
=nder-insurance: where the insured is underinsured under an unvalued policy and suffers
a partial loss, he may recover only that proportion of his loss which the sum insured bears
to the insurable value of the sub.ect@matter. 2xampleD if the value of the sub.ect@matter
insured is 966, the sum insured is +6 and the actual loss is =6, the insured will recover 9+
only. 3n the case of total loss the insured will recover +6.
:)er-insurance: the sum insured is higher than the agreed value of property insured,
especially vessels $hull insurance,. 3t is sometimes allowed and used in practice for
insuring old ships which are still in use.
%ou!le insurance:
definitionD it is over@insurance where the sums insured of two or more policies exceed
the indemnity allowed, which is against the principle of indemnity. #ee s. =5 of /3"
9:6*K e.g. %he #unford Case S9:99T "' +5: $1!,K
conseAuencesD each insurer is bound to contribute rateably to the loss in proportion to
the amount for which he is liable under his contract. The assured may, at his
unfettered discretion, proceed against any one or combination of insurers for the whole
9*
sum due, leaving any insurer who pays more than his rateable proportion of the loss to
recover contribution from the other insurers $&ennett, p. %5+,.
17. LOSS AND ABANDONMENT
'o)ered losses: the insurer is liable for any loss proximately caused by a peril insured
against. #ee sections ++@*= of /3" 9:6*.
*roximate cause: causa proxima non remota spectatur. #ee %he Leyland Case $9:9;, "'
=+6 $1!,K #lobal $rocess Systems Inc and another v Syarikat %akaful Malaysia Berhad
&%he Cendor M'$(), S5699T 4L#' +, S5699T 9 !loydBs ?ep. +*6.
9xcluded losses: e.g. any loss attributable to the willful misconduct of the insured, delay,
ordinary wear and tear.
9ffect of transhipment: the liability of the insurer continues.
*artial loss: see above and below.
&otal loss :
actual total lossD definition, a missing ship $after the lapse of a reasonable time,.
constructive total lossD reasonable abandonment $as the total loss appears to be
unavoidable,K the occurrence of damage which renders the vessel beyond economic
repair.
;!andonment: the insured must give noticeK otherwise the loss can only be treated as a
partial loss. 1owever, in most cases the underwriters would not accept the notice.
&ime !ar of a claim against under(riterD it depends on a marine insurance contract or
national legislation @ see Acadia v I4A., S5695T "/' 56;;.
18. PARTIAL LOSSES
*articular a)erage loss: it is a partial loss caused by a peril insured against. -articular
charges are not included $recoverable under the supplementary contract in the sue and
labour clause,, unless they are inherently related to the loss. 3n other words, with the
exception of general average and particular charges, all partial losses $including salvage
charges, are particular average losses.
Sal)age charges: the fundamental difference between salvage and general average is that
in the case of the former, the salvage service is performed by a person who intervenes
voluntarily, whereas in the latter, it is performed by a person who is specially hired or
employed by the shipowner, on a Auantum meruit basis, to save the whole adventure from
a common danger $#. 1odges,. #ee Aitchison v Lohre $9;A:, % "pp 'as A++.
Ceneral a)erage loss: it is caused by a general average act which is any extraordinary
sacrifice or expenditure voluntarily and reasonably made or incurred in time of peril for
9A
the purposes of preserving the property imperilled in the common adventure. See Birkley
v $resgrave $9;69, 9 Hast 556.
Marine insurance v. general a)erage: /arine insurance has made general average
redundantK in fact, because of the risk involved in general average, all parties now insure
against responsibility for general average contribution Z 0eneral average should
therefore be abolished and excluded from contracts Z$Tetley,.
19. RIGHTS OF INSURER ON PAYMENT
Su!rogation -see s1 02 of MI; 1208/:
total lossD where the insurer pays for a total loss, he becomes entitled to take over the
interest of the insured in whatever may remain of the sub.ect@matter insured, and he is
thereby subrogated to all the rights and remedies of the insured.
partial lossD the insurer acFuires no title to the sub.ect@matter insured, but he is
thereupon subrogated to all rights and remedies of the insured.
.ight of contri!ution and effect of under insurance: see sections ;6@;9 of /3" 9:6*.
20. LIENS FOR MARINE INSURANCE PREMIUMS
&he ke# issue: whether the insurers or the brokers have liens on the insuredBs ship or
cargo or insurance proceeds for unpaid insurance premiums $Tetley,.
The 9:5*, 9:*A and 9::= Liens and Mortgages Conventions do not specifically provide
such a lien $Tetley,.
&he 1222 ;rrest 'on)ention: Maritime claim $in respect of which arrest of the ship is
permissible, means inter alia a claim arising out of insurance premiums $including
mutual insurance calls, in respect of the ship, payable by or on behalf of the shipowner or
demise charterer $art. 9$F,,. 1owever. art. : provides that nothing in this 'onvention
shall be construed as creating a maritime lien.
"merican maritime law grants such a lien, although no such traditional maritime lien is
recogniPed in the 4.L., 'anada or 2rance. The 4.L. and 'anada provide the broker with a
possessory lien on the policy, while 2rance permits the cancellation or suspension of the
marine policy in the event of non@payment of the premiums $Tetley,.
21. CONFLICT OF LAWS
National conflicts of la(s -federal la( )1 state or pro)incial la(/: e.g. 4#", 'anada.
International conflicts of la(s: according to -rof. Tetley, the law of the marine
insurance contract should be determined by studying and weighing all the contacts,
especially express choice of the parties, as well as considerations of public order,
mandatory rules, evasion of the law, etc., as evaluated in a uniform methodology.
9;
&he contacts used to determine the properl# applica!le la( -&etle#/: express choice, the
country of contracting or the place of performance, the country in which the insurer
carries on its business, the insurance market with reference to which the contract was
made, the place where the whole process of formation of the contract occurs, policy@
holders residence, location of the risk, etc.
9uropean =nion:
Second Council *irective on direct insurance other than life insurance of Iune ::9
56;;D large risksK freedom of choice of applicable law sub.ect to mandatory rulesK
where no choice of law ( the law of the country with which the contract is most
closely connected $the most significant relationship,, being either the law of the place
where risk is situated or the law of the habitual residence or the central administration
of the policy@holder.
%hird Council *irective on direct insurance other than life insurance of Iune 5;9
566:D it amends the #econd )irective so as to widen the freedom of parties to an
insurance contract to choose the law.
%he .ome Convention 56;7D it does not apply to marine insurance risks in the H4, but
does apply to risks outside the H4 and to all reinsuranceK the three@stage process
$express choice, implied choice and the most significant relationship,. 3t was
incorporated into H4 law by the ?egulation +:=<566;.
22. INSTITUTE CARGO CLAUSES (1982)
Institute of "ondon =nder(riters -I"=/: it is an organiPation established in 9;;%,
representing the interests of member insurance companies, maintaining a close liaison
with !loydOs marine market. )rafting of clauses $hull, cargo, etc., was carried out through
the 3!4Os Technical and 'lauses 'ommittee.
International =nder(riting ;ssociation -I=;/: it was formed on =9 )ecember 9::;,
through the merger of the !ondon 3nternational 3nsurance and ?einsurance /arket
"ssociation $!3?/", and the 3nstitute of !ondon 4nderwriters $3!4,. This union brought
together the representative bodies for the marine and non@marine sectors of the !ondon
company insurance market. The 3!4Os history in the history in the marine, aviation and
transport insurance markets dates back to 9;;%. #enior members of marine insurance
companies had, since the 9;+6s, been meeting informally in the Eerusalem 'offee 1ouse
and the Eamaica Wine ?ooms near the ?oyal Hxchange to discuss policy wordings and
other matters of mutual interest. " proposal was made to establish a formal representative
underwriting association in Euly 9;;5 and two years later the new 3!4 took up offices in
the ?oyal Hxchange &uildings. !3?/" was formed in 9::9 from the merger of previous
insurance associations, established in the 9:*6s and 9:A6s, to support non@marine
insurance business and reinsurance.
;ssociation of ;)erage ;dAusters: see the ?ules of -ractice of 9::A, amended in 566; @
httpD<<www.average@ad.usters.com<?8-:A.pdf .
The introduction of the 9:;5 'lauses was a radical step that finall# li!erated cargo
policies from the old S1C1 *olic#. Their clear and accurate drafting put the fears of
possible uncertainty to rest and there has been remarkably little litigation regarding
coverage.
9:
Freedom of contract: the clauses are purely illustrative and different policy conditions
may be agreed.
9nglish la(+ practice and courts: all the standard 3nstitute 'lauses are sub.ect to Hnglish
law and practice, and may be used only with the !loydBs /arine -olicy $/"? :9, and the
3nstitute of !ondon 4nderwriters 'ompanies /arine -olicy 2orm $/"? :9,.
&he reform of the pre-1242 Institute 'argo 'lauses: the 3'' 9:*= were offered on the
basis of the old !loydOs #0 policy. The reform was driven by 4C'T").
&he 1242 -general/ clauses: risks covered, exclusions, duration $the Transit 'lause,,
claims, benefit of insurance, minimiPing losses, avoidance of delay, law and practice.
Institute Cargo Clauses -;/: all risk cover ( see Brothers v Stevens S9:6*T 5 L& **+
and %he #aunt Case S9:59T "' %9 $1!,. The insured discharges his onus by proving
that the loss was caused by some event $casualty, covered by the general expression.
The clauses include the &oth to &lame 'ollision 'lause and exclusions $e.g. wilful
misconduct of the insured, ordinary leakage, unseaworthiness, war, strikes,. #ee
httpsD<<www.lww.com<opencms<opencms<web<-H/?<-)2s<docs<instituteJcargoJclaus
esa.pdf or httpD<<www..us.uio.no<lm<institute.marine.cargo.clauses.a.9:;5<doc.html .
Institute Cargo Clauses (B): restricted &named) perils cover. ?isks coveredD e.g. fire or
explosion, collision, earthFuake, entry of sea, lake or river water into vessel,. #ee the
&oth to &lame 'ollision 'lause and exclusions $e.g. wilful misconduct of the
insured, ordinary leakage, unseaworthiness, war, strikes,. #ee the & clauses at
httpD<<www..us.uio.no<lm<institute.marine.cargo.clauses.b.9:;5<doc.html
Institute Cargo Clauses ('): restricted &named) perils cover. ?isks coveredD $there are
no clauses 9.9.*., 9.5.5. $except .ettison,, 9.5.=. and 9.=. which can be found under the
& cover,. #ee also the &oth to &lame 'ollision 'lause and exclusions $e.g. wilful
misconduct of the insured, ordinary leakage, unseaworthiness, war, strikes,. #ee
httpD<<www..us.uio.no<lm<institute.marine.cargo.clauses.c.9:;5<doc.html .
Institute War Clauses $'argo,. -lease refer to
httpD<<www..us.uio.no<lm<institute.marine.cargo.clauses.war.9:;5 .
Institute Strikes Clauses $'argo,. 2or detailed information please see
httpD<<www..us.uio.no<lm<institute.marine.cargo.clauses.strikes.9:;5 .
:ther clauses: e.g. The 'omputer /illennium 'lause, The 'argo 3#/ Hndorsement
'lause.
Special Institute &rade 'lauses:
Commodity %rades ClausesD e.g. coffee, cotton, fats, metals, oil seeds, sugarK
'ther %rades ClausesD e.g. coal, .ute, rubber, timber.
*roximate cause+ inherent )ice and perils of the sea under the I''D see #lobal $rocess
Systems Inc and another v Syarikat %akaful Malaysia Berhad &%he Cendor M'$(),
S5699T 4L#' +, S5699T 9 !loydBs ?ep. +*6.
23. INSTITUTE CARGO CLAUSES (2009)
56
The 9:;5 clauses have been re)ie(ed and updated by the Eoint 'argo 'ommittee, made
up of members of the 3nternational 4nderwriting "ssociation and the !loyds /arket
"ssociation.
The new clauses can be found on the !/" website at www.lmalloyds.com. #ee the
comparison of the 9:;5 and 566: clauses at www.rhlg.com and
httpD<<www.iirpresentations.com<a96*=<pdf<)5@969+@-rakash&hawnani.pdf .
&he scope of certain clauses has been narrowed and of some others widened. There are
also various minor changes in terminology.
With pirac# being a very much a current topic it is worth noting that a claim relating to
this risk $whether in respect of physical damage or the payment of ransom as 0eneral
"verage, remains to be covered under the " clauses only, but not under the & and '
clauses.
24. INSTITUTE TIME AND VOYAGE CLAUSES HULLS (1983, 1995, 2003)
Main amendments of the 1243 Institute &ime 'lauses ulls -I&'/ and Institute
Bo#age 'lauses ulls -IB'/: they were put into effect from 9 Covember 9::+,
introducing the 'lassification 'lause, the extension of the due diligence proviso of the
3nchmaree 'lause and a 95@month time limit for the notification of claims.
&he 1227 clauses: navigation, continuation, breach of warranty, classification,
termination, perils, pollution haPard, three fourths collision liability, sistership, general
average and salvage, new for old, bottom treatment, wages and maintenance, agency
commission, unrepaired damage, constructive total loss, freight waiver, assignment,
disbursements warranty, returns for lay@up and cancellation, war exclusion, strikes
exclusion, malicious acts exclusion, radioactive contamination exclusion clause.
&he market has not accepted the 1227 clausesD the shipowners still want to insure under
the 9:;= clauses, mostly because of the strict warranty regarding the classification, which
is provided by the 9::+ clauses $cl. %.5 of 3T'1$:+, and =.5. of 37'1$:+,,.
%escription of certain 1227 clausesD &A Mandaraka"Sheppard)
2nglish la- and practice &preamble)D an express choice of Hnglish law and practice to
the insurance contract has been declaredK the exclusive .urisdiction of the Hnglish
courts is separately provided for in the new /"? policy form.
4avigation &clause 5 in both I%C, and I1C,)D it prescribes and defines the scope of
the liabilities accepted by the insurer with respect to the hull policy, within which the
insured risks operateK assistance to ships in distressK ship to ship transferK scrapping
voyages.
Continuation clause &clause : I%C,)D this is a straightforward held covered
provision provided certain conditions existK the insured may have the cover extended,
provided prior notice is given, only if the ship is at sea and in distress or missing.
Breach of -arranty &clauses = I%C, and : I1C,)D the held covered provision $a
conditional waiver of the insurerOs automatic discharge from liability for breach of a
warranty or change of voyage, being sub.ect to prior notice,.
59
Classification &clauses G I%C, and = I1C,)D the insured has to ensure throughout the
period of insurance that the vessel is classed with a 'lassification #ociety agreed by
the insurers and that her class is maintained, etc.
%ermination &clause ? I%C,)D the clause is designed to protect underwriters from
drastic changes in the risk undertaken $e.g. a change of the vesselOs classification
society, ownership, flag, etc.,K the importance of periodic surveysM
Assignment &clauses :5 I%C, and 56 I1C,)D a notice must be endorsed on the policy
and produced prior to the payment of a claim or return of premiumK nemo dat Auod
non habet
$erils &clauses 8 I%C, and G I1C,)D
perils not sub!ect to due diligence provisoD perils of the seas, rivers or other
navigational watersK fire or explosionK violent theft by persons from outside the
vesselK .ettisonK piracyK breakdown of or accident to nuclear installations or
reactorsK contact with aircraft or similar ob.ects, or ob.ects falling there from, and
conveyance, dock or harbour eFuipment or installationK earthFuake, volcanic
eruption or lightningK accidents in loading, discharging or shifting cargo and fuel.
perils sub!ect to the due diligence proviso &the Inchmaree Clause)D bursting of
boilers<breakages of shafts or latent defects in machinery or hullK negligence of
master, officers, crew or pilotsK negligence of repairers or charterersK barratry. #ee
%he Inchmaree $9;AA, 95 "' %;% $1!,.
Importance of statutory exclusionsD the 3T'1 and the 37'1 do not have a general
exclusion clause, so s. ++$5, of /3" 9:6* will apply $e.g. wilful misconduct of the
insured, delay, ordinary wear and tear,. "ll the exceptions can be contracted out but
the one regarding the wilful misconduct $no man can take advantage of his own wrong
( per #almon E, Slattery v Mance S9:*5T 9 "ll H? +5+,.
$ollution haJard &clauses < I%C, and ? I1C,)D it covers the risk of loss or damage to
the insured vessel arising from the activities of governmental or state authorities aimed
at the prevention or mitigation of pollution haPards.
Collision liability &clauses ; I%C, and 8 I1C,)D the insurer pays three Fuarters of any
sums paid by the insured to third parties in conseFuence of legal liability arising from
a collision.
Sistership &clauses 6 I%C, and < I1C,)D it provides cover against collision and
salvage services rendered to or by a ship within the same management as the insured
vessel.
4otice of claim and tenders &clauses 5= I%C, and 55 I1C,)D the notice must be given
to underwriters promptly after the date on which the insured, owners or managers,
become or should have become aware of the loss or damage and prior to surveyK a 95@
month time limit.
:ther time clauses -hulls/: restricted perils, total loss, general average and three fourths
collision liabilityK total loss onlyK disbursements and increased valueK excess liabilitiesK
war and strikesK war and strikes ( limited conditions.
:ther )o#age clauses -hulls/: total loss, general average and three fourths collision
liabilityK war and strikes.
&he Institute Mortgagees Interest 'lauses ulls -1248/: to protect his interest fully, a
mortgagee would be well@advised to take out these clauses.
55
&he ne( International ull 'lauses 1E11E2003: published on +
th
Covember 566=. The
new clauses are designed to update both the 9<96<;= and the 9<99<:+ 3nstitute Time clauses
( 1ull and the earlier version of these new clauses, the 9<99<5665 version. These clauses
are designed to compete with clauses found in other marine insurance markets. The 34"
has all but removed reference to the Hnglish [warrantyB from the hull clauses. The
navigational limits clause is no longer referred to as a warranty, and the conseFuences of
its breach are now spelled out @ in a way similar to the change of class<management
clauses. The effect of a breach of navigational limits clauses is now suspension of cover
for the duration of the breach $even in relation to loss or damage not caused by the breach
of warranty, but cover is restored on remedy of the breach. #ee
httpD<<www.geocities.com<1eartland<1ollow<+***<form5.html.
.
25. UNCTAD MODEL CLAUSES ON MARINE HULL AND CARGO
INSURANCE (1984)
=N'&;%: the 4nited Cations 'onference on Trade and )evelopment was established on
)ecember =6, 9:*+, by a 4C 0eneral "ssembly resolution as a permanent organ of the
0eneral "ssembly, with the purpose to promote international trade especially amongst
emerging nations.
Ne( standard insurance clauses: they were drafted in order to decrease the monopoly
of the !ondon market and its 3nstitute 'lauses. (nfortunately9 they have remained a
Edead letterF as they are not used in practice.
Marine ull Insurance -;ll .isks 'o)er/: coverage, general exclusions, additional
coverage, period of coverage, duties of the assured, measure of indemnity, claims
settlement, annex of additional coverage which may be available under all risks cover
$extended cover clause,.
Marine ull Insurance -Named *erils 'o)er/1
'argo Insurance -;ll .isks 'o)er/: coverage, general exclusions, additional coverage,
period of coverage, measure of indemnity, insurable interest.
'argo Insurance -Intermediate 'o)er/1
'argo Insurance -.estricted 'o)er/1
26. SHIPBUILDERS RISKS INSURANCE CONTRACT

The shipbuildersB risks insurance contract is a contract of marine insurance and is
governed by the rules of maritime law $remember the lectures by )r. "driana -adovan,.
The risk of accidental loss of or damage to the new building $ship, rests with the builder
until the moment of delivery to the buyer. 1aving an insurable interest on the sub.ect
matter of the shipbuilding contract, the builder is under an obligation to procure insurance
which would cover the eventual risks of construction, launching, final works and sea
trials.
5=
The most common used insurance clauses are the !ondon 3nstitute 'lauses for &uilderBs
?isks.
27. OTHER EXAMPLES OF STANDARD MARINE INSURANCE TERMS
AND CONDITIONS
Marine Insurance *olic# of ;nt(erp put into Force on 1
st
Ful# 1472 -G 'lauses 1200+
modified in 1231/: nowadays the policy is only used for cargo.
&he Nor(egian Marine Insurance *lan 1228+ Bersion 1222 -NS*"/: an agreed
document established by the Corwegian marine insurance market to regulate insurance of
ships and offshore structures $-G3 insurance no longer included,. #eparate conditions
were adopted for cargoD Conditions .elating to Insurance for the Carriage of #oods9
566?.
%&B 'argo Insurance 'onditions 2000 -%&B 'argo 2000/: the most modern
conditions for cargo insurance in the world today. "ll riskK !imited 'overK 8pen -olicyK
War 'lausesK #trikes, ?iots and 'ivil 'ommotions 'lauseK 'onfiscation 'lauseK
'ontingency and )3' 3nsurance 'lausesK 'lassification and "ge 'lause. #ee also the
566: clauses @ httpD<<www.tis@gdv.de<tis<bedingungen<avb<see<)T7@")#J566:.pdf .
28. PROTECTION AND INDEMNITY INSURANCE (P & I)
Mutual insurance: one where two or more persons mutually agree to insure each other
against marine losses. #ee s. ;+ of /3" 9:6*.
:rigins: - G 3 insurance came into common use after the 9;=+ case of *e 1aux v.
Salvador 999 Hng.?ep. ;%+ $L.&.9;=*,D collision liability was not a peril of the sea and
thus not covered under the basic !loydOs #.0. policy.
.unning %o(n 'lause: it covers only three fourths of the collision liability.
* ? I clu!s -mutual insurance societies/: they were founded to cover the remaining one
fourth of the collision liabilityK now they also cover other third@party risks and risks not
covered by hull policiesK approximately 5+ - G 3 clubs in the world, a large ma.ority
located in the 4.L. $the largest club is 4.L. -G 3 'lub with approx. +666 vessels insured,.
9= 'lubs are members of the 3nternational 0roup of -I 3 'lubs $a special pool,.
*ro!lems regarding competition la(: the Huropean 'ommission adopted two formal
decisions clearing the co@operative arrangements between the 3nternational 0roup of -G3
'lubs $9:;+, 9:::,.
9xamples of risks co)ered: personal in.ury to or illness or loss of life of crew members,
passengers and others, loss of personal effects, life salvage, collision liabilities, pollution,
towage contract liabilities, wreck liabilities, cargo liabilities.
5%
H*a# to !e paidI: the - G 3 clubs only indemnify the insured if he has paid the third party
claimant, is up@to@date in his calls and has complied with the other exigencies of club
membershipK no direct action in the 4.L. and the 4.#.
29. MARINE REINSURANCE
%efinition: the insuring of a risk or part of a risk by the principal insurer $the insurance
company, the ceding company, the cedant, the reinsured, with another insurer $the
reinsurer, the reinsurance company,. The insurer under a contract of marine insurance has
an insurable interest in his risk and may reinsure in respect of it $s. :$9, of /3" 9:6*,. 3n
simple words, reinsurance is insurance of insurance.
%ifference !et(een reinsurance and co-insurance: the latter is effected by a number of
insurers and it is based on the principle of .oint and several liability.
&he role of reinsurance: $9, providing capacity, $5, creating stability and $=,
strengthening finances.
Marine reinsurance contract: it is based on the principles laid down in law for the
conduct of direct marine insurance $insurable interest, utmost good faith, proximate cause,
indemnity, subrogation,.
No legal relationship !et(een the insured and the reinsurer: unless the policy otherwise
provides, the original insured has no right or interest in respect of reinsurance $s. :$5, of
/3" 9:6*,.
&he H'ut-&hroughI clause.
Forms of reinsurance:
facultativeD each risk is considered separately by the reinsurer. *ra-backsD e.g. the
large amount of clerical work, the time taken to place a risk, lower commission.
$urposesD e.g. to reinsure special risk or excess of the existing treaty limitsK
treatyD the reinsurer no longer examines each risk individually and he has no power to
decline or rate a risk as long as it falls within the scope of the treaty. There are also
facultative obligatory treaties and open covers.
'ategories -t#pes/ of reinsurance:
proportionalD Fuota share, surplusK
non"proportionalD excess of loss, stop loss, aggregate excess of loss.
.etrocession: reinsurance of reinsurance.
Fronting reinsurance: one reinsurer fronts for another reinsurer.
&onners policies: this is a contract between two underwriters whereby one reinsures with
the other the likelihood of total losses in certain classes of vessel over an agreed period.
30. ETHICS IN INTERNATIONAL MARITIME LAW
5+
; good+ skillful and moral la(#er: she or he would feel and know it which international
goals are of such a planetary and ethical importance they need to be achieved by
mandatory rulesK how to construe legally and ethically certain norms, standards and
principlesK how to implement international treaties in practiceK how to ad.udicate disputes
in the name of .ustice and how to be professional, fair, honest and compassionate at all
time. #ee Appendix III
31. CONCLUSION: THE SUGGESTED BIBLIOGRAPHY
Books
&arlow, !yde G 0ilbert, .einsurance $ractice and the La-, !loydBs of !ondon -ress
!td., !ondon, 9:::.
&ashford ".#., #uidelines to Charter $arties9 %o-age Contracts and %heir Insurances,
Witherby G 'o. !td., !ondon, 9::A.
&ellerose ?.-., .einsurance for the Beginner, =
rd
Hdition, Witherby G 'o. !td., !ondon,
9:;A.
&ennett 1.C., %he La- of Marine Insurance, 8xford -ress, 8xford, 9::*.
&rown ?.1., Introduction to Marine InsuranceK %raining 4otes for Brokers, #econd
Hdition, Witherby G 'o. !td., !ondon, 9::+.
&rown ?.1., %he Cargo Insurance Contract and the Institute Cargo ClausesK %raining
4otes for Brokers, Witherby G 'o. !td., !ondon, 9::+.
&rown ?.1., Marine InsuranceK ,ull $ractice, 7olume Three, #econd Hdition, Witherby
G 'o. !td., !ondon, 9::=.
&rown ?.1., %he Institute %ime Clauses ,ulls 566?, Witherby G 'o. !td., !ondon, 9::*.
&rown ?.1., Marine InsuranceK Cargo $ractice, 7olume Two, +
th
Hdition, Witherby G
'o. !td., !ondon, 9::;.
&rown ?.1., ?eed -.&., Marine .einsurance, Witherby G 'o. !td., !ondon, 9:;9.
)unt E., International Cargo Insurance, 3nforma !aw, !ondon, 5695.
)unt E., Marine Cargo Insurance, 3nforma !aw, !ondon, 566:.
2elice@-ace E., Marine Cargo ClausesK A Collection of 4on"Institute Clauses, Witherby G
'o. !td., !ondon, 9::A.
0ilman E.'.&., Arnould3s La- of Marine Insurance and Average, #weet G /axwell,
!ondon, 9::A.
0ilmore 0., &lack '.!., %he La- of Admiralty, 5
nd
Hdition, The 2oundation -ress, 3nc.,
/ineola, Cew York, 9:A+, pp. += ( :5 $'hapter 33D /arine 3nsurance,.
0olding '.H., !ouw L.7., #oldingK %he La- and $ractice of .einsurance, Witherby G
'o. !td., !ondon, 9:;A.
1aPelwood #.E., #emark )., $+I Clubs La- and $ractice, %
th
Hdition, 3nforma !aw,
!ondon, 5696.
1ill '., ?obertson &., 1aPelwood #., Introduction to $+I, 5
nd
Hdition, !loydBs of !ondon
-ress !td., !ondon, 9::*.
1odges #., La- of Marine Insurance, 'avendish -ublishing !imited, !ondon, 9::*,
reprinted in 5669.
1odges #., Cases and Materials on Marine Insurance La-, 'avendish -ublishing
!imited, !ondon, 9:::.
5*
1udson 0., "llen E.'., %he Institute Clauses, =
rd
Hdition, !loydBs of !ondon -ress !td.,
!ondon, 9:::.
1uybrechts /. $Hd.,, Marine Insurance at the %urn of the Millennium, 7olume 9, 5,
Huropean 3nstitute of /aritime and Transport !aw, "ntwerp 4niversity, )epartment of
!aw, 3ntersentia, "ntwerpen, 9:::, 5666.
/erkin ?./. $Hditor,, Colinvaux3s La- of Insurance, *
th
Hdition, #weet G /axwell,
!ondon, 9::6, pp. =:9 @ %59 $'hapter 5=D /arine 3nsurance,.
/erkin ?./., Marine Insurance Legislation, %
th
Hdition, 3nforma !aw, !ondon, 5696.
/iller /.)., Marine War .isks, =
rd
Hdition, 3nforma !aw, !ondon, 566+.
8BCeil T., Woloniecki E.W., %he La- of .einsurance in 2ngland and Bermuda, #weet G
/axwell, !ondon, 9::;.
?odi\re ?., du -ontavice H., *roit maritime, )ixi\me >dition, )"!!8], -aris, 9:;*, pp.
*9:@A%9 $'inFui\me partieD "ssurances maritimes,.
?ose, 2.). Marine InsuranceK La- and $ractice, 5
nd
Hdition, 3nforma !aw, !ondon, 5695.
#choenbaum T.E., Admiralty and Maritime La-, West -ublishing 'o., #t. -aul, /inn.,
9:;A, pp. ++* ( +:5 $'hapter 9;D /arine 3nsurance,.
#choenbaum T.E., /ey *ivergences Bet-een 2nglish and American La- of Marine
InsuranceK A Comparative Study, 'ornell /aritime -r., 9:::.
#haw, 0., %he LloydDs Broker, !loydBs of !ondon -ress !td., !ondon, 9::+.
#oyer &., Warranties in Marine Insurance, 5
nd
Hdition, 'avendish -ublishing !imited,
!ondon, 566*.
Tetley W., International Maritime and Admiralty La-, &!"3# 3nternational #hipping
-ublications, 'owansville, 5665, pp. +AA ( *55 $'hapter 9+D /arine 3nsurance,.
Tetley W., International Conflict of La-sK Common9 Civil and Maritime, &!"3#
3nternational #hipping -ublications, 'owansville, 9::%, pp. ==9 ( =;= $'hapter R3D
/arine 3nsurance,.
Tetley W., Maritime Liens and Claims, #econd Hdition, &!"3# 3nternational #hipping
-ublications, 'owansville, 9::;, pp. ;5+ @ ;%A $'hapter 5=D !iens for /arine 3nsurance
-remiums,.
Thomas ).?. $Hditor,, %he Modern La- of Marine Insurance, !loydOs of !ondon -ress,
!ondon, 9::*.
Thomas ).?. $Hditor,, %he Modern La- of Marine Insurance, 5
nd
Hdition, !loydOs of
!ondon -ress, !ondon, 5665.
Thomas ).?. $Hditor,, Marine insuranceK %he La- in %ransition, !loydOs of !ondon
-ress, !ondon, 566*.
Articles
'lift ?., Braudulent Insurance Claims, S566AT+ HT! +A9.
)errington #., 4on"disclosure and misrepresentation in contracts of marine insuranceK a
comparative overvie- and some proposals for unification9 S5669T !/'!V **.
1emsworth /.'., %he nature of the insurer3s obligation reconsideredK property and
liability insurance, S5669T !/'!V 5:*.
/argetson, C., Cendor M'$( L Inherent 1ice or $eril of the SeaM, HE''! = $5699, +;.
#oyer &., %he Star Sea L a lode starM, S5669T !/'!V %5;.
Other Sources
5A
*%1 Cargo Insurance Conditions :777 &*%1 Cargo :777), 0esamtverband der
)eutschen 7ersicherungswirtschaft e.7., :<::.
.eference Book of Marine Insurance Clauses, *:
th
Hdition, Witherby G 'o. !td., !ondon,
9::A.
(4C%A* Model Clauses on Marine ,ull and Cargo Insurance, T)<&<'.%<3#!<+6<?ev.9,
4nited Cations, 0eneva, 9:;:.
32. INTERESTING WEBSITES
Maritime Law
Australian la-D httpD<<www.alrc.gov.au<
httpD<<www.law.uF.edu.au<cml
httpD<<www.aar.com.au<services<insurance<index.htm
British Mar La- As.D httpD<<www.bmla.org.uk
Chinese maritime la-D httpD<<www.Fis.net<chinalaw<prclaw5;.htm
CMID httpD<<www.comitemaritime.org<
2( la-D httpD<<europa.eu.int<eur@lex<
#erman transport la-D httpD<<www..ura.uni@hamburg.de<^issr<K
httpD<<www.transportrecht.org<
IM'D httpD<<www.imo.org
IM' IMLID httpD<<www.imli.org
International la- etc.D httpD<<www.lexadin.nl
httpD<<lexmercatoria.org<
Italian la-D httpD<<www.altalex.com<
httpD<<www.giustiPia.it<
Legal bro-serD httpD<<www.lawguru.com<
Maritime la-D httpD<<www.admiraltylaw.com
%etley3s La-D httpD<<tetley.law.mcgill.ca<
(4 " La-D httpD<<www.un.org<law<
(4CI%.ALD httpD<<www.uncitral.org<
(4C%A*D httpD<<www.unctad.org
(4I*.'I%D httpD<<www.unidroit.org<
(S Congress LibraryD httpD<<www.loc.gov<harvest<Fuery@lc.html
Insurance
Institute Cargo ClausesD httpD<<www.lmalloyds.com , httpD<<www.rhlg.com .
Insurance bro-serD httpD<<www.ambest.com<directory<ascdir.html
Int (nder-riting Assoc.D httpD<<www.iua.co.uk<
Int (nion of Mar Ins.D httpD<<www.iumi.com
Lloyd3s of LondonD httpD<<www.lloydsoflondon.com
Loss $reventionD httpD<<www.containerhandbook.de
Marine insuranceD httpD<<www.swissre.com $search for Marine insurance
and see the excellent publication which can be
downloaded in Hnglish,
httpD<<www.admiraltylaw.com
5;
httpD<<www.insurance@marine.com<
httpD<<www.lsso.com<
httpD<<www.members.tripod.com
httpD<<www.llplimited.com
httpD<<www.brs@paris.com
httpD<<www.geocities.com<1eartland<1ollow<+***<form5.
html.
httpD<<www.marineinsureservices.com<c%5.html
Munich .eD httpD<<www.munichre.com
Mutual insurance &%% Club)D httpD<<www.ttclub.com<
4orvegian marine ins planD httpD<<exchange.dnv.com<nmip<index.htm
South African Ins InstituteD httpD<<www.iisa.co.Pa<
S-iss .eD httpD<<www.swissre.com
(/ Ins AssociationK httpD<<www.abi.org.uk<
Freightforwarding
httpD<<www.altalex.com
httpD<<www.amacarga.org.mx<search.htm
httpD<<www.apat.pt<eJ"-"T.html
httpD<<www.bifa.org
httpD<<www.btl.se<schenkerJbtl<schenkerJbtlJdenmark<about<english<nsabJ+f5666.html
httpD<<www.cargolaw.com
httpD<<www.cargolog.com
httpD<<www.ciffa.com
httpD<<www.effa.com<
httpD<<www.e@tlf.com<index.htm
httpD<<www.fedespedi.it<index.htm
httpD<<www.fenex.nl
httpD<<www.feteia.org
httpD<<www.fiata.com
httpD<<www.fog.it
httpD<<www.forwarderlaw.com
httpD<<www.gestiv.com<podmienkyJen.html
httpD<<www.haffa.com.hk
httpD<<www.handylex.org
httpD<<www.iifa.ie<conditions.doc
httpD<<www.intracen.org<
httpD<<www.mantraco.com.tw<stc.htm
httpD<<www.maxx.be<tradeJconditions<index.html
httpD<<www.otenet.gr<syndde<indexen.htm
httpD<<www.sla.org.sg<
httpD<<www.sslcPech.cP<index.en.html
httpD<<www.ssvschweiP.com
httpD<<www.user.ro<
httpD<<web.uPt.kiev.ua<uPt<
5:
Combined transportation
httpD<<www.uirr.com<
Interesting videos
'n marine insuranceK httpD<<www.youtube.com<watch?vQ@/7R&'TgaW;
Costa ConcordiaK httpD<<www.youtube.com<watch?vQ)hwW*2l!:ow




=6
APPENDIX I
Case Study
3n Eanuary 5665, &est Trading 'o -ty !td contracts with )ouble 1appiness -te !td of 1ong
Long for the sale of 9+/T of stilton cheese, 9+ /T of gorgonPola cheese and =6 /T of
cheese spread in .ars, all on terms '32 1ong Long. &est trading engages #endit G 1ope
2orwarders -ty !td to arrange for door to door carriage from its /elbourne cool store to
)ouble 1appinessBs 1ong Long cool store.
The consignment of cheese is stuffed into % reefer containers by #endit G 1ope at &est
TradingBs /elbourne cool store. The stilton is in one container, the gorgonPola in another and
the cheese spread in two others. "ll of the cheese is to be carried chilled but the stilton and the
gorgonPola are to be carried at much lower temperature than the cheese spread.
&est Trading fills out an insurance certificate in the standard 3nstitute 2roPen 2ood 'lauses "
form, issued by 3nherently HFuitable 3nsurance 'o., which is in identical terms to the 'argo "
?isks form except for 'lause 9 which providesD
5 %his insurance covers9 except as provided in Clauses G9 ?9 8 and < belo-9
55 all risks of loss of or damage to the sub!ect"matter insured9 other than loss or
damage resulting from any variation in temperature ho-soever caused
5: Loss of or damage to the sub!ect"matter insured resulting from any variation in
temperature attributable to
5:5 breakdo-n of refrigerating machinery resulting in its stoppage for a period of
not less than :G consecutive hours
5:: fire or explosion
5:= vessel or craft being stranded grounded sunk or capsiJed
5:G overturning or derailment of land conveyance
5:? collision or contact of vessel craft or conveyance -ith any external ob!ect
other than -ater
5:8 discharge of cargo at a port of distress

The certificate refers to =6/T cheese spread and =6/T cheese various. &est Trading sends
a copy of the completed certificate to 3nherently HFuitable.
#endit G 1ope arranges road carriage of the four containers to /elbourne container terminal
where they remain for five days awaiting arrival of the -latter, the ship on which they are to
be carried to 1ong Long. )uring their stay at the container terminal, the settings and -artlow
charts on the containers are monitored by "mnesiac /onitors -ty !td. The weather is very
hot and unseasonably humid.
8n arrival of the -latter at /elbourne, the containers are shipped on board and Three
/onkeyBs 3nc, the operator of the -latter, issues a bill of lading naming #endit G 1ope as
the shipper. The shipBs departure is delayed for three days because of engine problems. The
weather continues to be hot and humid. 2inally, the -latter departs /elbourne.
"fter departure from /elbourne, the -latter experiences further engine trouble necessitating
a salvage tow to #ydney, the next port of call. The vessel is detained there for a week, while
=9
spares are air@freighted from #ingapore and repairs are undertaken. #ydney is now
experiencing hot and humid weather. 2inally, the -latter departs #ydney.
&y the time the vessel arrives in &risbane, nearly three weeks after leaving /elbourne, the
crew members have noticed an overpowering and unpleasant smell of decay from two of the
four containers. Three /onkeys contacts #endit G 1ope, saying that the shipBs crew is
revolting $as, by their smell, are the contents of the containers,, and that the containers should
be discharged from the ship in &risbane. #endit G 1ope contacts &est Trading. 2urther
investigation reveals three thingsD
9. that the powerful smell is coming from the two containers containing the stilton
and the gorgonPolaK
5. that the temperature setting on those two containers is at the level intended to chill
the cheese spreadK
=. that the temperature setting on the two containers containing the cheese spread is
at a level colder than that intended for the stilton and the gorgonPola.
&est Trading agrees that the two foul smelling containers should be discharged from the ship
at &risbane, saying that it wishes to protect its commercial relationship with )ouble
1appiness. 3t also reFuests the discharge of the two containers of cheese spread as it suspects
it may have been damaged by over chilling. Three /onkeyBs discharges the goods in return
for the original bill of lading which had not yet been sent to 1ong Long.
When the containers are opened in &risbane, it is found that the stilton and the gorgonPola are
in an advanced state of decay. /uch, but not all of the cheese spread has froPen solid. When
thawed, the froPen cheese spread separates into a thick curd sludge and an unpleasant
astringent whey.
)iscuss the insurance implications.
N%his problem is an adaptation of one set by $rofessor Martin *avies as an insurance
hypothetical at the MLAA4O Conference 5668 %he adaptation -as made by *r Sarah
*errington of %he (niversity of >ueensland9 %C Beirne School of La-9 BrisbaneP
=5

APPENDIX II
Utmost good faith
Based on articles and other sources summariJed by
Miss Iana .odica9 LLM &IMLID76)
Origins of the Common Law Duty of Good aith
The common law doctrine of good faith in insurance contracts originated in the 9;th
'entury.
!ord /ansfield is credited with first articulating this concept in Carter v Boehm $9A**, =
&urr 9:6+. Whilst many practitioners are aware of the reason for the celebrity of this case,
they may not be familiar with its facts. They are worth summariPing, to put the learned
EudgeBs reasoning into context.
The action was based upon a 95 month policy of insurance, commencing 9* 8ctober 9A+:,
taken out for the benefit of the governor of 2ort /arlborough, 0eorge 'arter, against the
loss of 2ort /arlborough on the island of #umatra by its being taken by a foreign enemy.
The governor also had an insurable interest in goods, which he owned, which were kept at
the fort. 3n fact the event insured against occurredD the fort was taken, by 'ount )BHstaigne,
during the policy period.
The defendant underwriter, /r 'harles &oehm denied that underwriters were liable to
indemnify the insured because of a fraud, as a result of the concealment $non@disclosure, of
circumstances which ought to have been disclosed @ particularly, the weakness of the fort,
and the probability of it being attacked by the 2rench. 3n support of the insurerBs defense,
two letters from the governor were relied upon @ one to his brother, his trustee, the plaintiff
in the case and the second to the governor of the Hast 3ndia 'ompany.
The first letter to his brother indicated that the governor was more afraid than before that
the 2rench would attack. The governor wrote to his brother that rather than remain idle,
$since they could not muster a force to relieve their friends at the coast,, the 2rench may
pay him a visit. The governor speculated to his brother that the 2rench had such an
intention the previous year. 3n the same letter he asked his brother to arrange the insurance.
3n his second letter to the Hast 3ndia 'ompany, the governor wrote that the 2rench had, in
the previous year, a plan on foot to take the fort by surprise and that they would probably
revive that idea. 1e also stated that the fort was badly supplied with arms, stores and
ammunition and expressed his view that if there was an attack by a Huropean enemy, it
could not be repelled.
The underwriters argued that they had a right to know as much as the insured himself
knows about the weakness of the fort. They asserted that if the governor had disclosed what
he knew or, what he ought to have known, he could not have obtained the insurance of the
fort. Therefore, this was a fraudulent concealment and the underwriters were not liable.
==
The 'ourt held thatZthe insurance is a contract upon speculation. !ord /ansfield
further stated that the keeping back of such circumstance is a fraud, and therefore, the
insurance policy is void. "lthough the suppression of information may happen through a
mistake, without any fraudulent intent, !ord /ansfield felt that, in such a situation, the
underwriter was still deceived and the policy is void, because the risk run is really different
from the risk understood and intended to be run, at the time of the agreement.
3n crystalliPing the duty of good faith, !ord /ansfield held thatD
%he reason of the rule -hich obliges parties to disclose9 is to prevent fraud9 and to
encourage good faith It is adapted to such facts as vary the nature of the contractQ -hich
one privately kno-s9 and the other is ignorant of9 and has no reason to suspect
8n the specific facts, the 'ourt determined that the underwriter in !ondon, in /ay 9A*6,
could make a much better .udgment about the probability of the contingency occurring than
0overnor 'arter could at 2ort /arlborough, in #eptember 9A+:. The underwriter knew the
success of the operations of the war in Hurope. 1e knew what naval force the Hnglish and
2rench had sent to the Hast 3ndies and much more. 3n these circumstances, and with this
knowledge, he insured against the general contingency of the fort being attacked by a
Huropean power. 3f there had been any plan or design on foot, or any enterprise begun in
#eptember 9A+:, to the knowledge of the governor, it would have varied the risk
understood by the underwriterK because not being told of a particular design or attack then
subsisting, he estimated the risk upon the footing of an uncertain operation which may or
may not be attempted. 1owever, the governor had no notice of any design subsisting in
#eptember 9A+:. There was no such design in fact.
!ord /ansfield found that the general state and condition of the fort, and of its strength
was, in general, well known by most people acFuainted with 3ndian affairs or the state of
the companyBs factories or settlements and could not be kept secret or concealed from
persons who should endeavor, by proper inFuiry, to inform themselves.
The noble !ord concluded that the underwriter here, knowing the governor to be acFuainted
with the state of the placeK knowing that he apprehended danger, and must have some
ground for his apprehensionK being told nothing of eitherK signed the policy, without asking
a Fuestion, etc. 3t is a withering conclusion which has valid resonance, when applied to
analogous circumstances, today.
3n conseFuence, it was clear that although the insured is under a duty to disclose material
facts to the insurer, he need not disclose facts which the insurer knows or is deemed to
know. This seems to be fair enough. 2rom its earliest days, the duty of good faith in making
insurance contracts was a mutual obligation. 3t contemplated an active process of disclosure
and Fuestioning between the insured and the insurer but, within sensible boundaries.
!he "arine #nsurance $ct %&'(
The principle of good faith and fair dealing in insurance contracts was codified in the
Marine Insurance Act 5678, $/3" 9:6*,. 4nder the ma.or heading )isclosure and
?epresentations, section 9A of the /arine 3nsurance "ct 9:6* provided as followsD
=%
5< Insurance is uberrimae fideiF
EA contract of marine insurance is a contract based upon the utmost good faith9 and9 if the
utmost good faith be not observed by either party9 the contract may be avoided by the other
party
3t is notable that at this point, the bar was raised from the standard of mere good faith
contained in the previous case law to utmost good faith in the statutory expression of the
duty. 8ne may reasonably suppose that utmost good faith means something more than
plain good faith. 8ne would ordinarily understand it to mean the highest degree of good
faith.
The fundamental components of the duty of utmost good faith are to ensure proper
disclosure of all material circumstances and to avoid making misrepresentations about
material facts, circumstances or beliefs.
4p until the mid@9:;6Bs, 'ourt time was mainly taken up with resolving disputes
concerning alleged breaches of the duty of utmost good faith, in the context of the
formation of the contract @ namely the underwriting process. )uring the last 96 @ 9+ years,
the Hnglish 'ourts have become accustomed to dealing with closely fought issues
concerning allegations of breach of the duty of utmost good faith, in the context of the
performance of the contract and particularly, the claims process. 3t is instructive to evaluate,
as the doctrine moves from the 9;th to the 59st 'entury, whether the Hnglish 'ourts are
managing to strike a fair balance between the interests of the policyholder in having
legitimate claims paid and the interests of the insurer<reinsurer in receiving the risks that
they bargained for. 3n the words of !ord /ansfieldD
%he Auestion therefore must al-ays be -hether there -as9 under all the circumstances at
the time the policy -as under-ritten9 a fair representationQ or a concealmentQ fraudulent9 if
designedQ or9 though not designed9 varying materially the ob!ect of the policy9 and changing
the risAue understood to be run.
#nter)retation of *ections %+,-' "#$ %&'(
3t is important to bear in mind that section 9A of /3" 9:6* prescribes that if utmost good
faith is shown not to have been observed by either party the contract may be avoided,
$rescinded, by the other party. The statutory duty imposed by section 9A enables the
aggrieved party to rescind the contract ab initio, thereby restoring the parties to the position
they were in, as between themselves, as if they had not entered into the contract. This may
involve a complex unravelling of numerous financial transactions. The process of putting
the parties back into their pre@contract position does not take place under the terms of the
relevant contract, because this has been rescinded but, under the law of restitution.
"ccordingly, the remedy for breach of the statutory duty of utmost good faith cannot be the
payment of damages. 3t is much more severe.
2urthermore, in avoidance, it is not simply the relevant claim which is avoided but the
whole policy. "n attempt by an insurer to keep the policy alive but argue that it is not
obliged to pay the claim on the grounds of non@disclosure, may risk the loss of the right to
avoid, as was shown in the case of West v 4ational Motor and Accident Insurance S9:++T 9
!loydBs ?ep 56A. ?escission is also retroactive. The insurer is not liable for claims arising
=+
between the making of the contract and the time of avoidance $Standard Accident v $ratt,
5A;- 5d, %;:,. 3n order to constitute a valid avoidance, the insurer must return the
premiums paid under the policy.
2or some time, the remedy of avoidance of the contract ab initio, has been criticiPed as
being too severe, in certain circumstances. 3t is said that other remedies should be available
which are proportionate to the harm or damage caused by the non@disclosure and reflecting
the culpability and conduct of the offending party.
1owever, the advocates of radical reform in this area should not lose sight of the fact that
the purpose of the doctrine is to prevent fraud and to encourage good faith, thereby
giving a fair presentation to enable the insurer to understand and evaluate the risk to be run.
" sanction which is too lenient may encourage proposers of insurance and reinsurance, $and
their agents,, to cut corners and take a chance.
#uch fluidity and the resultant uncertainty would not be in anyoneBs interests. Yet, the
Hnglish 'ourts have shown signs of interpreting the reFuirements imposed by the duty of
utmost good faith, in keeping with the standards of the times, and the nature of the
particular transaction, and the conduct of the parties, in an effort to maintain the appropriate
balance of interests and to do .ustice.
3n the formation of an ordinary contract, unless expressly stated otherwise, the legal maxim
of caveat emptor $let the buyer beware, applies, despite !ord /ansfieldBs assertion that
good faith $perhaps as distinct from utmost good faith, is applicable to all contracts and
dealings. This means that one contractual party is under no general positive duty of
disclosure to the other party. 3n the case of insurance and reinsurance contracts, the legal
duty of uberrima fides $utmost good faith, does apply.
This difference of approach $and obligation, in relation to contract formation, can
sometimes lead to misunderstandings and differences of expectation between the parties.
There are signs that this may have occurred, during the last few years, where insurers and
reinsurers have been asked to support and participate in complex specialist transactions
involving interaction with the banking and capital markets. 3n such circumstances, it is
advisable for all parties to analyPe the true nature and substance of the transaction, not only
to understand the commercial deal proposed but also to determine which legal principles
and obligations may apply.
3n view of the statutory duty of utmost good faith, imposed since 9:6* upon each
contractual party to inform the other with all material information relevant to their decision
to participate, each party must conduct themselves in negotiations and contract formation in
a more rigorous way than if they were negotiating a non@insurance contract. 8n the one
hand there is the positive obligation on the prospective insured to consider and disclose all
material facts and on the other, the burden on the prospective insurer to consider that
information and other relevant information in the public domain which need not be
disclosed but which the insurer ought to know in the ordinary course of his business, and
thereafter make all necessary enFuiries both to understand and evaluate the risk and not
waive disclosure of any important information.
=*
!he Oceanus and .an $tlantic )hase
8ver +6 years later, when the world of trade and commerce had changed very significantly,
the 'ourt of "ppeal was faced with a similar predicament in the case of Container
%ransport International v 'ceanus Mutual (nder-riting Association S9:;%T 9 !loydBs ?ep
%A*.
3n his comprehensive and well known .udgment, Lerr !.E. considered extensively the
theoretical and practical difficulties concerning the interpretation of section 9;$5, /3"
9:6* concerning materiality. 1e balanced the competing interests in the following wayD
the principle is that if a certain fact is material for the purposes of ss 5;&:) and :7&:)9 so
that a failure to dra- the under-riterDs attention to it distorts the fairness of the brokers
presentation of the risk9 then it is not sufficient that this fact could have been abstracted by
the under-riter from material to -hich he had access or -hich -as cursorily sho-n to him
'n the other hand9 if the disclosed facts give a fair presentation of the risk9 then the
under-riter must enAuire if he -ishes to have more information.
3t seems therefore, that once the threshold point has been reached, in any specific
circumstances, where a fair presentation has been made, the burden transfers to the insurer
or reinsurer to reFuest more information, if he wishes. 1owever, at that time, the insuredBs
duty of disclosure has been satisfied. 3n such a situation, the preferable view seems to be
that, after the disclosure threshold point had been reached, in any individual case, a failure
by the insurer to ask further Fuestions should not lead to an inference of wavier against the
insurer because this may result in the dangerous erosion of the duty of disclosure which
!ord Eustice #crutton feared, over +6 years previously. 3n any event, the 8ceanus case
became notorious for interpreting the definition of materiality in s. 9; /3" 9:6* in a much
criticiPed way.
The facts are as followsD 'T3 hired out containers for ocean transportation. 2reFuently,
problems occurred regarding the liability of the container lessees for repairs under the
container hire contracts. 3t was agreed that 'T3 would cover an initial part of certain repair
costs. 'T3 obtained insurance of their exposure to the cost of repairs for the containers,
initially through 'rum G 2orster. "s a result of their concerns with the claims experience,
'rum G 2orster Fuoted renewal on terms which were not acceptable to 'T3. The cover was
placed subseFuently with !loydBs but, !loydBs also became unhappy with the claims
experience @ following which the insurance was proposed to and placed with 8ceanus.
#ubseFuently, 8ceanus, became unhappy with the claims and alleged that incomplete
information concerning the claims history was presented to them, constituting a material
misrepresentation. Hxpert evidence was produced to the 'ourt, on behalf of 8ceanus, that a
prudent insurer, within the terms of s. 9; $5, of /3" 9:6*, would have been influenced in
his .udgment in determining whether he would take the risk or in fixing the premium, if he
was made aware of the full facts.
The 'ourt of "ppeal decided that the correct test of materiality was whether the fact which
was undisclosed or misrepresented was one which a notional prudent insurer would have
taken into account in reaching his decision whether or not to accept the risk or in fixing the
premium. 'ontroversially, the 'ourt of "ppeal determined that it was not necessary to show
that the actual underwriter would have been influenced by the non@disclosure or
misrepresentation to act in a different way.
=A
The decision was criticiPed in the Hnglish market because it encouraged ingenious
reinsurers to base rescission defenses on the ob.ective test of what a prudent underwriter
would have done, whilst ignoring what the actual underwriter had done. 3t was relatively
easy for an insurer to show that the facts not disclosed or misrepresented were worth
consideration by the underwriter in formulating his decision by calling expert underwriting
evidence, even though their actual underwriter would not have acted any differently if the
withheld or misrepresented facts were made known to him.
#uch was the extent of the concern in the Hnglish insurance market, immediately following
the decision, at what was portrayed as a charter to protect the incompetent underwriter, that
it was necessary to find another case, to take to the 1ouse of !ords, to re@address some of
the more unsettling aspects of that .udgment.
" landmark .udgment arrived within the next decade, in the case of $an Atlantic Insurance
Company Limited v $inetop Insurance Company S9::%T 5 !loydBs ?ep %5A. The facts were
relatively straightforward and for present purposes can be easily summariPed. "
predominantly 4# casualty account was reinsured by -ine Top with -an "tlantic, under
various excess of loss reinsurance contracts in 9:;6, 9:;9 and 9:;5. "s part of the placing
information to the underwriter of -an "tlantic, the placing broker had shown the
underwriter the loss record for the risk for 9:;6 and 9:;9. The loss record for 9:;9 was
inaccurate. 3t showed losses of 4#U 5=+,A*;, whereas, as the reinsured were aware, the true
position was that 4#U %*;,9*; of claims had been incurred.
"lso, -ine TopBs broker had failed to disclose to -an "tlanticBs underwriter the loss record
for the years 9:AA @ 9:A:. When the case was heard in the 'ommercial 'ourt, the Eudge
held that, in relation to -ine TopBs failure to disclose their loss record for 9:AA @ 9:A:, there
had been a fair presentation of the risk. 1e weighed up whether the duty of disclosure had
been fulfilled either on the right side of the borderline or, whether the doctrine of waiver
should defeat any reliance on the alleged material non@disclosure. 8n the facts, the Eudge
concluded that an underwriter knows full well that the earlier years are the only real guide
to assessing a risk and its rate. The 'ourt held, on the evidence, that the broker brought
along for the underwriter to see the history in relation to the earlier years and that history, if
the underwriter had bothered to study it, was a perfectly fair presentation of those earlier
years. The Eudge felt that the broker did not have an obligation to tell the underwriter how
to do his .ob.
The 'ourt of "ppeal agreed with the Eudge and so did the 1ouse of !ords. 3n relation to the
alleged material non@disclosure of the additional 4#U 5=6,666 of losses in respect of the
9:;9 underwriting year, @ -an "tlantic were entitled to avoid. The 'ourt of "ppeal,
applying the prudent underwriter test previously formulated in the 8ceanus case, upheld the
trial Eudge, as did the 1ouse of !ords, who adopted the conclusion of the trial Eudge thatD
If these additional losses had been brought to hisRNie the actual under-riter of $an
AtlanticPR attention in the -ay that he -as looking at this business by reference to the
short record9 it might -ell have influenced him as to the terms of the rene-al.
Hven so, the 1ouse of !ords took the opportunity of reformulating the test of materiality.
There is now a two part test which needs to be satisfied. The 1ouse of !ords did not change
the first limb. 3t is still necessary to demonstrate materiality by reference to a hypothetical
prudent underwriter. 1owever, as the second limb, it is now necessary to show that the
=;
actual underwriter was induced by the misrepresentation or non@disclosure to enter into the
contract.
"s ever, !ord /ustill gave some helpful guidelines in his speech in the 1ouse of !ords
S9::%T 5 !loyds ?ep %5A at p. %+=D
I have concluded that it is an ans-er to a defence of misrepresentation and non"disclosure
that the act or omission complained of had no practical effect on the decision of the actual
under-riter As a matter of common sense ho-ever even -here the under-riter is sho-n to
have been careless in other respects the assured -ill have an uphill task in persuading the
Court that the-ith holding or misstatement of circumstances satisfying the test of
materiality has made no difference %here is ample material both in the general la- and in
the specialist -orks on insurance to suggest that there is a presumption in favour of a
causative effect.
"lthough the .udgment was viewed as striking a fairer balance on the Fuestion of
materiality between the reinsured and the reinsurer, it is significant that ss.9A @ 56 /3"
9:6* make no reference to a concept of inducement.
Things settled down during subseFuent years, as the Hnglish 'ourts applied the refined tests
set out in -an "tlantic, in a variety of non@disclosure cases. /any of these were settled but,
Eudges became concerned about the explosion of documentation being called for in the
disclosure $discovery, process in litigation and the amount of expert evidence which they
were being asked to consider on market practice and issues of construction. 2ortunately, the
'ommercial 'ourt Eudges are generally well versed in the practices and procedures of the
Hnglish insurance market. Therefore, they were becoming increasingly keen to disallow
fishing expeditions, in the discovery process, for materials of dubious relevance and to
reserve to themselves the duty of placing a legal construction upon disputed contracts of
insurance and reinsurance. This was, after all, the function of the 'ourt.
3n Marc .ich v $ortman S9::AT 9 !loyds ?ep 55+, !loydBs underwriters alleged that the
brokers had failed to disclose the loss experience of the insured and the demurrage claims
made or paid by them as charterers to ship@owners for vessels performing voyages from
Lharg 3sland<"in #ukhana or voyages out of 'onstantPa and pleaded further non@disclosure
of particular features of the port of "in #ukhana which would be likely to give rise to
demurrage claims @ such as bad weather, difficult tides, likelihood of congestion and other
such matters. The insured argued that, even if the allegedly material facts had been
disclosed, it would not have affected the .udgment of the actual underwriter who was
described in submissions to the 'ourt on behalf of the insured as Za man who had
abrogated his underwriting functions and existed in an intellectual stupor. 3n conseFuence,
the insured asked that their insurers disclose their actual underwriterBs writings, over a
period of five years, presumably in order to try to undermine his competence.
4nderstandably, insurers had declined to agree to such broad ranging disclosure.
"t the trial, /r Eustice !ongmore $as he then was, observed that it would be most
unfortunate, as a conseFuence of the -an "tlantic caseD
ERif cases of this kind -ere to be saturated -ith inAuiries about a plethora of risks -ritten
by the actual under-riter on occasions other than the time -hen the relevant risk -as itself
-rittenR the Auestion -hether the actual under-riter -as induced to -rite the relevant
=:
risk is to be determined by reference to the actual risks under-ritten and their immediate
context %he Auestion in this case is then -hether the under-riter abrogated his functions
in relation to these risks9 not in relation to numerous other risks -ritten on different
occasions.
3n Manifest Shipping Co Limited v (ni$olaris Insurance Co Limited &%he EStar SeaF) the
insurers relied on s. 9A of /3" 9:6*, pleading that the owners of the vessel failed to
disclose facts relating to an earlier fire aboard another vessel, Lastora, at the time when the
insurersB solicitors were investigating the #tar #ea claim. 3n giving the leading speech in the
1ouse of !ords, !ord 1obhouse distinguished between a contractual obligation of good
faith in the performance of a contract and the statutory duty imposed by s. 9A /3" 9:6*.
1e pointed out that the right to avoid the contract, ab initio, in s. 9A is different from the
applicable remedy for breach of the duty of utmost good faith during the performance of the
contract. The right to rescind under s. 9A enables the innocent party to rescind the contract
ab initio thereby totally nullifying the contract and reFuiring everything done under the
contract to be undone, including any ad.ustment of the partiesB financial positions. !ord
1obhouse explained that this was entirely appropriate where the lack of good faith has
preceded and been material to the making of the contract. 1owever, when the want of good
faith first arises after the making of the contract and during its performance, he felt that it
becomes anomalous and disproportionate that a breach should entitle the aggrieved party to
avoid the contract, from inception. "ccordingly, !ord 1obhouse considered that there was a
clear distinction between the pre@contract duty of disclosure and any duty of disclosure
which may exist after the contract has been made.
The 'ourts have consistently set their face against allowing the insuredBs duty of good faith
to be used by the insurer as an instrument to enable the insurer himself to act in bad faith.
!ord 1obhouse concluded that for the insurers to succeed in avoiding the contract, ab
initio, under s. 9A /3" 9:6*, due to non@disclosure during the performance of the contract,
the insurers would have to show that the claim was made fraudulently.
3t is becoming increasingly common, in certain species of commercial insurance and
reinsurance policies, to try to exclude the full force of the conseFuences of the avoidance
remedy under s. 9A /3" 9:6*, by including an inadvertent non@disclosure clause. This
provides that the insurers can only rescind the policy for non@disclosure if the non@
disclosure arose otherwise than from fraudulent conduct or an intention to deceive.
#ometimes such clauses expressly allow insurers the right to exclude losses relating to non@
fraudulent non@disclosure, rather than allowing the policy to be rescinded, ab initio.
"s previously mentioned, it is clear that banks and financial institutions are not protected
by the common law duty of utmost good faith in their day@to@day lending and financing
business. Where serious and substantial sums of money are at stake or professional
reputations are involved $or both,, banks freFuently demand bullet@proof protection and
instant recourse, rather than run the risk of insurers seeking out a breach of some perceived
and intangible archaic utmost good faith obligation. 2urthermore, in soft market conditions
and where there is premium hungry excess capacity, insurers have been persuaded to dilute
or dispense with the all or nothing remedy of avoidance under s.9A /3" 9:6*. &anks,
capital providers and financiers often demand a less harsh approach to the conseFuences of
breach.
%6
*o where does that leave us/
Hven hardliners in the insurance industry opposed to change, may accept privately that
reform is long overdue. The duty of disclosure, as it presently stands, can operate too
harshly against the insured.
2or example, the insured may not be aware that, after giving his responses to Fuestions on a
proposal form, he is still under a duty to disclose any other material facts to which none of
the Fuestions related. "lso, in relation to renewals, an insured may not know that in law a
renewal constitutes a new contract of insurance and so his duty of disclosure arises afresh,
at every renewal, so that he is under an obligation to disclose any material facts arising in
the interim. -erhaps after all, the duty of disclosure is not too stringent but, the range of
remedies available do not adeFuately allow for different degrees of culpability which merit
different remedies, in order for the dispute to be dealt with fairly. The ultimate sanction of
avoidance should remain but, only for the ultimate breach $e.g. fraud,. "n all or nothing
sanction in the modern world should not apply regardless. 3t is perhaps for this reason, that
the &3!" report makes an additional suggestion to the effect that there should be a change
in the law so that insurers are put under a duty to ask reasonable Fuestions about a risk on
matters it considers are material and which reFuire further information. This may signal a
future and welcome market@wide emphasis on true underwriting skill and .udgment,
combined with verbal craftsmanship in documenting contracts of insurance and
reinsurance. There is still room for underwriting flair but, with discipline.
3n conclusion, it is almost impossible to do better than repeat the clearly expressed advice
and underwriting approach of /r ?obert Liln, the well known former !loydBs underwriter,
in seeking to minimiPe the risk of being involved in disputes concerning alleged non@
disclosures and breaches of the duty of utmost good faith. These comments were made in
/r LilnBs book .einsurance (nder-riting @ the first edition of which was published in
Hngland in 9:;:. /r LilnBs views are as appropriate today, as when they were first
committed to paperD
My experience during the last fe- years as an arbitrator9 expert -itness or consultant in
some seventy disputes in the reinsurance field has been any eye opener %he disputes have
involved a total of several billion dollars in total9 nearly all of them arising out of bad faith
by one or all parties allied to sheer greed or stupidity Bor example9 by reassureds and
their brokers deliberately misleading their reinsurers by Eclever -ordingsF or by non"
disclosure or veiled non"disclosure .einsurers not even reading slips9 or if they have9 not
understanding them and producing them and producing no -ordings and not asking
Auestions %he courts in the (/ &but not so in the (SA) have come do-n strongly in favour
of reAuiring disclosure of any information -hich -ould influence a prudent reinsurer %hey
have placed less stress on the duty of the reinsurer to ask Auestions
%here are t-o vie-s on most of these disputes 'ne is that some reassureds9 and in
particular placing brokers9 have deliberately and consistently taken innocent reinsurers for
a ride %he second vie- is that reinsurers have imprudently taken on contracts9 and having
deliberately done so9 are no- ratting on those contracts9 often years later for any reason
they think -ill delay payment and force a compromise9 or even a verdict9 in their favour
#ood faith and integrity9 if it ever existed9 has long gone out of the -indo- In my vie-
both vie-s have validity and both are eAually common.
%9
4ever under-rite something you do not fully understand 4ever agree to initial something
you do not understand 4ever -orry about asking Auestions9 never -orry about being
considered ignorant or foolish Much better to admit your ignorance before accepting the
business In most cases everyone -ill be ignorant too.
3t is difficult to argue with /r LilnBs good sense and long experience of both active
underwriting and reviewing the underwriting of others in his capacity as a leading
arbitrator. 1is cynicism is understandable. 2ortunately, the Hnglish 'ourts will step in
decisively, when reFuired to do so, to enforce the long standing duty of utmost good faith,
in the underwriting process. 1owever, before seeking assistance from the 'ourts, it is
advisable for insurers to have taken all reasonable steps to help themselves, in the
underwriting process, and to be able to produce evidence to demonstrate that they have
done so.
%5
APPENDIX III
Essay on Ethics in International Maritime Law
"ar0o .avliha
1
2uropean %ransport La-9 1ol 0L1II9 4o?9 :75:9 pp G85"G<:
%his essay is dedicated to
Jealous students and graduates
of IM' IMLI9 Malta
%. #ntroduction
-lanet Harth is double blue @ not only in color but also for its state of boiling sadness.
1uman beings are supposed to cherish humanity and love for nature, but the truth is terribly
different. There are unimaginable apocalyptic forms of violence, dishonesty, discrimination,
greed, hunger, thirst, pollution, climate change and other men@made inventions of decay.
"re we going to destroy the civiliPation, this time not only partially but globally?
1opefully not, however, it does not look promising. 3t is therefore urgent to start
educating our hearts, not only minds. Hthics shall dominate the third millennium rather than
technical development or scientific inventions which should serve all sentient beings and not
the other way around.
"s &lackburn put it vividly, we have all learned to become sensitive to the physical
environment, however, fewer of us are sensitive to what we might call the moral or ethical
environment, which gives us our standards of behavior.
9
1e correctly suggests that the
core of ethics is universal as every society that is recogniPably human will need some
institution of property, the norms governing truth@telling and promise@giving, the standards
restraining violence and killing, the devices for regulating sexual expression and some sense
of what is appropriate by way of treating strangers, minorities, children, the aged and the
handicapped.
5

The words ethics and morality may be used interchangeably. 3t is a $wo,manBs
intimate, inner understanding of good or bad, the moral beliefs and rules about right and
wrong, manifested by external positive or negative behavior towards all living creatures and
even more, regarding the whole surrounding world and universe. Hthics does not depend
$solely, on religion and it is not relative to the society in which one lives, nor it is merely a
matter ob sub.ective taste or opinion, but it rather points towards the course of action that has
the best conseFuences, on balance, for all affected $the so called preference
utilitarianism,.
=

_
-rofessor of !aw, 1ead of !aw )epartment, 4niversity of !.ubl.ana, 2aculty of /aritime #tudies and
Transportation $#lovenia,K 7isiting 2ellow and /ember of the &oard of 0overnors of the 3/8 3nternational
/aritime !aw 3nstitute $/alta,K #ecretary@0eneral, 'omit> /aritime 3nternational $566=@566%,, /inister of
Transport of the ?epublic of #lovenia $566%,K )eputy #peaker of the #lovenian -arliament $566%@566A,.
9
#imon &lackburn, 2thicsK A 1ery Short Introduction, 8xford 4niversity -ress, 8xford 5669, p.9.
5
Ibidem, p. 56.
=
-eter #inger, $ractical 2thics, Third Hdition, 'ambridge 4niversity -ress, 'ambridge, 5669, pp. 9@9+.
%=
&oth ethics and morality are spiritus agens of the global ethic $Weltethos9 2thiAue
plan@taire, which is much primarily practicalK it is a golden moral compass directing our
thinking and behavior. 3n this light we should remember the unforgettable /ahatma 0andhi
who summariPed his eternal wisdom in the following wordsD
Your beliefs become your thoughts, your thoughts become your words, your words
become your actions, your actions become your habits, your habits become your
values, your values become your destiny.
%

!egal practitioners and especially law professors are by far the most responsible actors
in the process of cherishing and teaching ethical values. !egal education should become much
more holistic, integrated and interdisciplinary, less aggressive and rather richer with principles
of natural law and ethics, including compassion, altruism, solidarity, honesty, .ustice,
intercultural dialogue and unconditional respect of all human rights. We must walk our
positive talks and teach others to do the same, instead of hurting each other in the name of
money and success.
0lobal ethic has been developed and spread around the world by 1ans L`ng and his
numerous publications and pro.ects.
+
*rawing on many of the worldOs religious and spiritual
traditions, the /SngDs *eclaration on #lobal 2thic identifies four affirmations being the
shared principles essential to global ethic and all people, religious and atheists, namely $i,
commitment to a culture of non@violence and respect for life, $ii, solidarity and a .ust
economic order, $iii, tolerance and a life of truthfulness and $iv, eFual rights and partnership
between men and women.
*

To describe it differently, one shall treat others as he would like to be treated by them
$positive form of the 0olden ?ule, or one must not treat others in ways that she would not
like to be treated $negative or prohibitive form,. The 0olden ?ule was probably invented by
-itakos or 'onfucius hundreds years before 'hrist and is still crucial for the modern concept
of human rights, in which each individual has a right to .ust treatment and a reciprocal
responsibility to ensure .ustice for others. "ny person attempting to live by this rule should
treat all people with consideration, not .ust members of his or her in@group. The ?ule has its
roots in a wide range of world cultures, and it is a standard different cultures use to resolve
conflicts. 3t can be found in some form in almost every ethical tradition, for example in the
ancient ?oman law emphasiPed by 4lpianus in the famous maximD
The following are the precepts of the lawD to live honestly, not to in.ure another, and
to give to each one that which belongs to him.
A
1aving explained the gist of ethics we should now turn to the law and its relationship
with morality. Their interconnection is often explained by two overlapping circles, M
$morality, and L $law, where the crossed oval part $M T L, represents illegal acts and
omissions which are at the same time also immoral. 3n simple words, whatever is against the
law is also morally and ethically condemned. The remaining part of the right circle $L,
%
3 do not know the exact source of this Fuotation which is explained in detail in /ohandas Laramchand 0andhi,
An Autobiography or the story of my experiment -ith truth, -enguin &ooks, !ondon, 566A.
+
1ans L`ng, ,andbuch WeltethosK eine 1ision und ihre (msetJung, -iper, /`nchen, 5695K
httpD<<www.weltethos.org<index@en.php .
*
)eclaration was signed at the -arliament of the WorldOs ?eligions gathering in 9::= by more than 566 leaders
from about %6 different faith traditions and spiritual communities. #ince 9::= it has been signed by thousands
more leaders and individuals around the world. "s such, it established a common ground for people of faith to
agree and to cooperate for the good of all.
A
Iuris praecepta sunt haecK honeste vivere9 alterum non laedere9 suum cuiAue tribuere. 4lp. ). 9, 9, 96, 9.
%%
symboliPes illegal behavior which is not considered immoral $for example, fishing for
survival without a license, and the remaining side of the left circle $M, shows the immoral
acts which are not against the law $for instance, screaming loud in a church,.
The ideal relation between morality and law can be pictured by two concentric circles
where the smaller one $L, represents illegal and immoral behavior $L T M, whereas the
outside area of the larger circle $M, symboliPes any human acts or omissions which are
immoral but not banned or otherwise governed by the law.
The purpose of this article is to initiate a thorough research on the role of ethics,
morality and global ethic in a very specific legal field of international maritime law, offering
perhaps one of the first steps towards a new paradigm. 3t deals, firstly, with general ethical
flavor of international law, underlining a few examples of moral standards in the law of the
sea and maritime law. #econdly, it suggests how to improve legal education with an
obligatory course on legal ethics.
;

3t is submitted that the expression international maritime law should be understood
broadly as inspired by the 3/8 3nternational /aritime !aw 3nstitute $3/8 3/!3,,
:
thus
including the la- of the sea as part of public international law, as well as the maritime la-,
also known as shipping, admiralty or marine law. The first entails issues such us the status of
internal waters, the territorial sea, the legal regime of straits, the continental shelf, the
exclusive economic Pone, the delimitation of maritime boundaries, the high seas, the
international sea bed area, the marine scientific research and the protection of marine
environment,
96
and the second includes topics like contracts of carriage of goods and
passengers, towage, collision, limitation of shipownersB liability, salvage, general average and
marine insurance.
99

&oth legal fields are interconnected and demand a holistic approach.
-. 2thical lavor of #nternational Law
3t is well known that international law receives its legal substance from the following
sourcesD $i, general or particular international conventions, establishing rules expressly
recogniPed by the participating statesK $ii, international customs, as evidence of a general
practice accepted as lawK $iii, the general principles of law recogniPed by civiliPed nations and
$iv, .udicial decisions and the teachings of the most highly Fualified publicists of the various
nations, as subsidiary means for the determination of rules of law.
95
What is often neglected,
though, is that the implementation and upgrading of international law should be constantly
refreshed by the elementary, universal ethical rules which reach beyond any boundaries of
countries, cultures, legal orders or religions.
8B'onnell asserts that the highest ethical norms of international law are mandatory
and imperative at all times, such as the prohibitions on aggression, genocide, slavery, arbitrary
killing, apartheid, torture and massive pollution of the environment.
9=
Ius cogens operates like
public policy in national law, invalidating international or national laws that directly conflict
;
3t is implied that the readers are familiar at least with the basic historical and philosophical elements of ethics,
from 'onfucius to #inger, #andel and many other scholars. Hxcellent starting point is %he 4e- 2ncyclopUdia
Britannica, 7olume 9;, /acropadia, Hncyclopaedia &ritannica, 3nc., 'hicago 9::6, pp. %:5@+59 $2thics,.
:
httpD<<www.imli.org .
96
#hort and popular introduction to the modern law of the sea has been written by ?.?. 'hurchill and ".7.
!owe, %he La- of the Sea, Third Hdition, /anchester 4niversity -ress, /anchester, 9:::.
99
#ee, eg. William Tetley, International Maritime and Admiralty La-, 3nternational #hipping -ublications,
bditions Yvon &lais, 'owansville, 5665.
95
"rticle =; of the #tatute of the 3nternational 'ourt of Eustice. httpD<<www.ic.@ci..org<documents<index.php?
p9Q%Gp5Q5Gp=Q6 .
9=
/arry Hllen 8B'onnell, International La-Ds ,igher 2thical 4orms, in )onald Harl 'hildress 333 $Hd.,, %he
.ole of 2thics in International La-, 'ambridge 4niversity -ress, Cew York, 5695, pp. A;@:;.
%+
with its norms. %he 5686 1ienna Convention on the La- of %reaties makes it clear that a treaty
is void if, at the time of its conclusion, it conflicts with a peremptory norm of general
international law which is a norm accepted and recogniPed by the international community
of states as a whole as a norm from which no derogation is permitted and which can be
modified only by a subseFuent norm of general international law having the same character.
9%
The identification of !us cogens is predominantly a matter for courts and .udges.
9+
2or better understanding of ethical core of international law it is perhaps helpful to
imagine a practical case where an international community represented by the 3nternational
/aritime 8rganiPation strives to adopt a new anti@piracy treaty because the existing national
and global rules do not suffice anymore. The !egal 'ommittee would probably send out
Fuestionnaires to various stakeholders in order to identify problems to be governed at the
international level, such as types, locations and freFuencies of attacks by pirates, safety of
ships and crews, economic conseFuences of piracy, court .urisdiction and procedures, the real
reasons for maritime crimes $poverty, survival, terrorism,, insurance implications, etc.
-otential international convention would need to deal with preventive and repressive
measures which will likely diminish piracy but not entirely eliminate it. " checklist linking
ethics to ex ante evaluations
9*
would have to be prepared, incorporating the following crucial
FuestionsD What is the real problem or the challenge? What are the choice options and
respective pros and cons? 3s it ethical for the rest of the world to tolerate for so many years a
transitional government in #omalia which is socially blind and self@sufficient, turning its deaf
ears to dying people who can survive only by stilling and robbing? What would be the ethical
purpose of the international treaty in Fuestion? Which rules should be mandatory because of
their ethical importance? What would be the ethical motives of the states and their
representatives to abide by such a convention?
"lford and Tierny have developed the moral reasoning theory of international law,
suggesting that states and their representatives employ different types of moral reasoning to
resolve ethical dilemmas, so the law and psychology perspective of compliance with
international law presents an opportunity to understand a state actorBs reasoning in complying
with international rules.
9A
They draw on the writings of !awrence Lohlberg
9;
to explore the
cognitive process of choosing between different interests, values, norms and claims.
"ccording do Lohlberg, first, the preconventional reasoning involves egocentrism
without concern of social norms. The law is obeyed to avoid punishment and to maximiPe
self@interest. #econd, the conventional reasoning focuses on the individual as a member of
society. The compliance motive is reputational, to be a good, law abiding citiPen, and it is also
based on the desire to maintain the overall functioning of social relationships and institutions.
Third, the postconventional reasoning is based on the vision how society should be
structured, what rational people think an ideal, fair and .ust society would reFuire. 3t involves
the human rights and social welfare morality arising from a social contract.
9:
?atification and compliance with the anti@piracy treaty might therefore help avoiding
sanctions from other countries, provide long@term benefits outweighing the short term costs,
and improve the reputation of the ratifying and abiding state in the eyes of other nations.
9%
"rticle += of the 7ienna 'onvention on the !aw of Treaties.
9+
#ee the case law cited in 8O'onnell9 supra, note 9=, eg. &arcelona Traction, !ight G -ower 'o. $Belg. v.
Spain,, 9:A6 3.'.E. = $2ebruary +, and $rosecutor v. BurundJi!a, 'ase Co. 3T@:+@9A<9@T, Trial Eudgment, c 9++
$3ntOl 'rim. Trib. 2or the 2ormer Yugoslavia, )ecember 96, 9:;;,.
9*
'ompare to &ert van Wee, %ransport and 2thicsK 2thics and the 2valuation of %ransport $olicies and $ro!ects,
Hdward Hlgar, 'heltenham, 5699.
9A
?oger -. "lford and Eames 2allows Tierney, Moral .easoning in International La-, published in 'hildress,
supra, note 9=, pp. 99@+9.
9;
!awrence Lohlberg, 2ssays on Moral *evelopment, 7o. 5, 1arper G ?ow, Cew York, 9:;%.
9:
"lford and Tierney, supra, note 9A, pp. 5+@5:.
%*
2urthermore, it would uphold a process of regulating the global issues by international law,
conform with existing social contracts moving toward an ideal universal order and support the
highest moral principles such as the right to life and safe and free navigation.
56

The above logical approach, however, calls for experts, politicians and other decision
makers with the highest moral values who are desperately missed and needed in the real
world. /orality should play an important role of everybodyBs life literally from birth do death,
from the cradle to the coffin, involving parents, kindergartens, schools, universities, civil
society, commercial companies and public authorities. The law faculties should contribute
much more in this regard.
3. Law of the *ea
8n 96 )ecember 9:;5, the (nited 4ations Convention on the La- of the Sea
$4C'!8#, was opened for signature at /ontego &ay, Eamaica, marking the culmination of
over fourteen years of hard work. /ore than 9+6 countries participated, representing all
regions, legal and political systems of the world. The codification and progressive
development of the law of the sea was finally achieved in the highest ethical spirit, hoping
that a new legal order for the seas and oceans would contribute to the strengthening of peace,
security, cooperation and friendly relations among all nations in conformity with the
principles of .ustice and eFual rights.
The convention is supposed to facilitate international communication and promote the
peaceful uses of the seas and oceans, the eFuitable and efficient utiliPation of their resources,
the conservation of fauna and flora, and the study, protection and preservation of the marine
environment. 3n addition, this ocean bible @ now binding 9*5 states @ shall promote the
economic and social advancement of all peoples of the world in order to realiPe a .ust and
eFuitable international economic order, taking into account the mankind as a whole and, in
particular, the special interests and needs of developing coastal and land@locked countries.
59

!egal text of the convention is woven by many ethical standards, including the
maximum breadth of the territorial sea and other maritime Pones, the right of innocent passage
by third parties, the rights of access to and from the sea and freedom of transit of land@locked
countries, the freedoms of the high seas, the principle of common heritage of mankind
applying to the seabed, ocean floor and the subsoil thereof beyond the limits of national
.urisdiction, the obligation to protect and preserve the marine environment and the obligation
to settle disputes by peaceful means.
The key ethical rule is embodied in the binding promise of state parties to 4C'!8# to
fulfill in good faith all the obligations under the convention and to exercise the rights,
.urisdiction and freedoms in a manner which would not constitute an abuse of right.
55
3n other
words, the states should exercise their rights and .urisdictions recogniPed by 4C'!8# in
such a manner as not to unnecessarily or arbitrarily harm the rights of other countries or the
interests of the international community as a whole. The provision was proposed by /exico
as a new introductory article at the very beginning of the convention, but it was later moved to
the end under the heading 0eneral -rovisions.
5=

?eference to good faith reflects the 4C 'harter which obliges all members of the
4nited Cations that in order to ensure to all of them the rights and benefits resulting from
membership, shall fulfill in good faith the obligations assumed by them in accordance with
56
Ibidem, p. =A.
59
%he La- of the Sea, )ivision for 8cean "ffairs and the !aw of the #ea, 8ffice of !egal "ffairs, 4nited
Cations, Cew York, 9::A $see 3ntroduction and -reamble,.
55
"rticle =66 of 4C'!8#.
5=
/yron 1. CordFuist $Hd.,, (nited 4ations Convention on the La- of the Sea 56;: L A Commentary, 7olume
7, /artinus Ci.hoff -ublishers, )ordrecht, 5665, pp. 9+6@9+5.
%A
the present 'harter.
5%
3t also follows from %he 1ienna Convention on the La- of %reaties that
every international convention in force is binding on the parties to it $pacta sunt servanda,
and must be performed by them in good faith.
5+
The concept of abuse of rights can be explained as the exercise by a state of a
particular right in such a manner or in such circumstances as indicated that it was for that state
an indirect means of avoiding an international obligation imposed upon that state, or was
carried out with a wrong, illegitimate purpose $in fraudem legis agere,. The concept is
accepted in international law, although there is little relevant state practice or case law.
5*
3t is not too difficult to notice the beam of the 0olden ?ule in the ancient behavioral
norm of compassion and diligence that the countries shall take all measures necessary to
ensure that activities under their .urisdiction or control are so conducted as not cause damage
by pollution to other #tates and their environment @ sic utere tuo ut alienum non laedas.
5A
3t
is possible to argue that the modern doctrine of sustainable development and environment
protection means considerably more than a mere sum of preventive, curative and repressive
measuresK it also involves a duty of states to cooperate
5;
and improve
5:
the Fuality of the
environment. 3n case of a dispute where the parties agree so, the court or tribunal decides a
case ex aeAuo et bono, according to what is right and good, giving the .udges or arbitrators
enormous potential to think ethically and creatively.
=6

#imilarly, a fresh ethical and legal standard had been created by %he Common
,eritage of Mankind *octrine which had taken place in two ma.or international agreementsD
the 56<6 Agreement #overning the Activities of States on the Moon and other Celestial
Bodies, which declares the moon and its natural resources to be the common heritage of
mankindK and the 4C'!8# of 9:;5, which declares certain areas of the oceans and their
resources to be the common heritage of mankind. Camely, in 9:*A the legendary /altese
"mbassador "rvid -ardo had proposed to the 4C 0eneral "ssembly that the seabed should
constitute part of the common heritage of mankind, a phrase that now appears in "rticle 9=*
of the 4C'!8#. This visionary achievement can be compared to -rofessor )avid E. "ttardBs
proposal in 9:;; to the 0overnment of /alta to reFuest the 4C to take action to protect the
global climate.
=9
1e was struck by the scientific work that had been carried out on climate
change as there was already the evidence on anthropogenic $caused by humans, climate
change, however, the international law was incapable of dealing with ecological threats to the
planet. "s the role of international law, in his strong believe, is to regulate international life
and protect humankind, not only against armed conflict and aggression, but also against
growing environmental threats, he reacted proactively and his proposal led to the 566: (4
Convention on the $rotection of #lobal Climate.
=5

5%
"rticle 5$5, of the 4C 'harter.
5+
"rticle 5* of the 7ienna 'onvention on the !aw of Treaties.
5*
CordFuist, supra, note 5=, p. 9+5K 'ertain 0erman 3nterests in -olish 4pper #ilesia $#ermany v. $oland,,
-.'.3.E., #er. ", Co. A, at =6 $9:5*,K 2ree ]ones case $BranceVS-itJerland,, -'3E, #er. "<&, Co. %*, at 9*A
$9:=5,K the Cuclear Tests cases $interim protection, $Australia v. BranceK 4e- Oealand v. Brance,, 9:A= 3.'.E.
?eports ::, 99;.
5A
"rticle 9:% $5, of 4C'!8#.
5;
2or instance, as to the importance of cooperation of the "driatic states and the role of &arcelona 'onvention
with its -rotocols see /it.a 0rbec, 2xtension of Coastal State !urisdiction in 2nclosed or Semi"2nclosed SeasK
An Adriatic Sea $erspective, doctoral thesis, 3/8 3/!3, /alta, 5696, pp. 55=@5*;.
5:
#ee "rticle =$=, of the Treaty on Huropean 4nion.
=6
"rticle 5:= $5, of 4C'!8#.
=9
-rofessor "ttard has been )irector of 3/8 3/!3 for many years and he is also Eudge at the 3nternational
Tribunal for the !aw of the #ea $3T!8#, in 1amburg.
=5
#ee 2rancesca 7ella, Intervie-K ClimateK the Common ,eritage of Mankind, The /alta 3ndependent 8nline,
95 Eanuary 566:, httpD<<www.independent.com.mt<news.asp?newsitemidQ;9=;: .
%;
The far most important ethical, political and legal purpose of the 4nited Cations is to
maintain international peace and security, and to that end to take effective collective
measures for the prevention and removal of threats to the peace, and for the suppression of
acts of aggression or other breaches of the peace, and to bring about by peaceful means, and
in conformity with the principles of .ustice and international law, ad.ustment or settlement of
international disputes or situations which might lead to a breach of the peace.
==
2urthermore,
the 4C must do everything possible to develop friendly relations among nations based on
respect for the principle of eFual rights and self@determination of peoples, and to take other
appropriate measures to strengthen universal peace, as well as to achieve international co@
operation in solving international problems of an economic, social, cultural, or humanitarian
character, and in promoting and encouraging respect for human rights and for fundamental
freedoms for all without distinction as to race, sex, language, or religion.
=%
-acific settlement of disputes shall be therefore treated preciously as the mother of all
ethical and international legal rules. The parties to any dispute, the continuance of which is
likely to endanger the maintenance of international peace and security, shall, first of all, seek a
solution by negotiation, enFuiry, mediation, conciliation, arbitration, .udicial settlement, resort
to regional agencies or arrangements, or other peaceful means of their own choice.
=+
When it
deems necessary, the #ecurity 'ouncil shall call upon the parties to settle their dispute by such
means.
=*
8bligation to settle disputes by peaceful means is also provided by 4C'!8#
=A
and is
found in most private international maritime law conventions. This is especially significant
if not fatal in light of the increasing tension between 'hina and Eapan regarding the
uninhabited #enkaku $)iaoyu, 3slands in Hast 'hina #ea because of the potential oil reserves.
#imilarly, the -aracel 3sland in #outh 'hina #ea are disputed by 'hina, 7ietnam and Taiwan
and the #pratly 3slands by &runei, 'hina, /alaysia, the -hilippines, Taiwan and 7ietnam. !et
us all hope for an amicable solution.
4. "aritime Law
)rafters of recent international maritime treaties appear to be somehow more inspired
by natural law, morality and ethics than their predecessors, which is a promising sign of
reviving humanity. This is particularly true in light of the environmental consciousness of the
3nternational /aritime 8rganiPation which is now shining from various conventions
including the International Convention on the Control of ,armful Anti"Bouling Systems
$5669,, International Convention on Civil Liability for Bunker 'il $ollution *amage $5669,,
International Convention for the Control and Management of Ships3 Ballast Water and
Sediments $566%,, 4airobi International Convention on the .emoval of Wrecks $566A, and
$rotocol of :757 to amend the International Convention on Liability and Compensation for
*amage in Connection -ith the Carriage of ,aJardous and 4oxious Substances by Sea9
5668.
=;
4nfortunately, too many of them have not entered into effect yet or have not been
implemented efficiently in practice.
There are also other optimistic traces of increasing awareness of ethics in maritime
law. 2or instance, the 4C 0eneral "ssembly put it expressly that the (nited 4ations
Convention on Contracts for the International Carriage of #oods Wholly or $artly by Sea $the
==
"rticle 9 of the 4C 'harter.
=%
Ibidem.
=+
"rticle == of the 4C 'harter.
=*
Ibidem
=A
"rticles 5A: and 5;6 of 4C'!8#.
=;
httpD<<www.imo.org<Lnowledge'entre<1ow"ndWhereTo2ind3/83nformation<-ages<"bbreviations8f3/8'o
nventions.aspx .
%:
?otterdam ?ules of 566;,
=:
would moderniPe and harmoniPe the rules governing the international
carriage of goods involving a sea leg, thus enhancing legal certainty, improving efficiency and
commercial predictability and reducing legal obstacles to the flow of international trade on a basis of
eFuality, eFuity and common interest, contributing to the well@being of all peoples.
%6
2rom ethical
perspective it is encouraging to note the provision that in the interpretation of this convention regard
is to be had to its international character and to the need to promote uniformity in its application and
the observance of good faith in international trade.
%9
The ?ules are composed of a number of
minimum liability provisions, codifying !us cogens and therefore embodying moral and ethical
standards.
Cext example of symbiosis of ethics and law is the Maritime Labor Convention
$/!', which was adopted in 566* under the umbrella of the 3nternational !abor
8rganiPation $3!8,
%5
in order to provide efficient and modern protection at work for the
worldBs seafarers. 3t sets out their rights to decent working conditions, aiming to apply
globally, replacing almost A6 existing conventions and regulations and benefitting shipowners
with a clear, consistent set of standards with which all must comply. The 3!8 has recently
received the =6th ratification meaning that the /!' will enter into force on 56 "ugust 569=,
ie twelve months after the date on which there have been registered ratifications by at least
thirty state parties $/embers, with a total share in the world gross tonnage of ships of
thirty@three per cent.
%=
The seafarers remain to be covered by the provisions of other 3!8 instruments and
have, of course, the fundamental rights and freedoms applicable to all persons. Hach state
party must ensure the freedom of association and the effective recognition of the right to
collective bargaining, the elimination of all forms of forced or compulsory work, the effective
abolition of child labor and the elimination of discrimination in respect of employment and
occupation.
%%
Hvery seafarer has the right to $i, a safe and secure workplace that complies with
safety standards, $ii, fair terms of employment, $iii, decent working and living conditions on
board ship and $iv, health protection, medical care, welfare measures and other forms of
social protection.
%+
The sad fact is that for the time being only 9+ per cent of the world has ratified such an
important convention. 'an we call that ethical?
"nother illustration of the legal@ethical twins is one of the oldest sets of uniFue
maritime rules named marine insurance which has been colored throughout the centuries by
morality and ethics because of its very nature. 2or instance, a contract of marine insurance is
said to be a contract based upon the utmost good faith $uberrimae fidei, meaning that
especially the insured is obliged to disclose all the material facts and must not misrepresent
them to the insurer. The principle applies prior to the conclusion of contract and also during
the contract. 3f it is not observed by either party, the contract may be avoided by the other
party.
%*

=:
httpD<<www.uncitral.org<uncitral<uncitralJtexts<transportJgoods<566;rotterdamJrules.html .
%6
#ee ?esolution adopted by the 4C 0eneral "ssembly at *Ath plenary meeting in )ecember 566;,
"<?H#<*=<955, and the -reamble of the ?otterdam ?ules.
%9
"rticle 5 of the ?otterdam ?ules.
%5
httpD<<www.ilo.org<global<standards<maritime@labour@convention<lang@@en<index.htm .
%=
"rticle 7333 of /!'. Text of the convention is available at
httpD<<www.mlc566*.com<theJconvention</!'J/aritimeJ!abourJ'onvention,J566*J< .
%%
"rticle 333 of /!'.
%+
"rticle 37 of /!'.
%*
#ee #ections 9A@59 of the 4L /arine 3nsurance "ct 9:6*K Carter v Boehm $9A**, = &urr. 9:6+K Manifest
Shipping Co Ltd v (ni"$olaris Insurance Co Ltd and La .@union 2urop@ene $The #tar #ea, S5669T 9 !loydBs
?ep. =;: $1!,K $an Atlantic Insurance Co v $ine %op Insurance Co Ltd S9::+T 9 "' +69 $1!,K BanAue
Binanciere de la Cite SA v Westgate Insurance Co Ltd S9::9T 5 "' 5%:.
+6
!ast but not least, the shipowners and other carriers have been historically entitled to
limit their liability per package or unit of damaged, lost or delayed cargo. Hven more, such a
privilege also exists in the case of in.ured or dead passengers during the carriage which is, in
my humble opinion, not ethically acceptable anymore, not even for commercial reasons as the
insurance industry is prepared to cover virtually everything. " ma.or positive step forward
was achieved by the 5666 Montreal Convention for the (nification of Certain .ules for
International Carriage by Air which was inspired by the consumersB protection movements,
private aviation sector and the H4 legislation. The convention provides a two@tier liability
regime, a genius combination of fault and strict liability without any upper limit for carrying
passengers. 3t is time to reconsider what money canBt buy, what are the moral limits of
markets
%A
and make proper amendments to the existing transport treaties.
%;
5. Conclusion: !he Crucial #m)ortance of 6)7ringing and 2ducation
3t is rather naive to expect lawyers to think and act ethically if they were not brought
up and educated under the umbrella of moral values and virtues. 8nce they enroll to the
school of law is already late if not too late but it is nevertheless strongly recommended to
introduce an obligatory course on holistic legal ethics in the first year of under@graduate legal
studies, accompanied by teaching ethical issues throughout the curriculum and perhaps an
additional syllabus on ethics in the last year of law school, as well as during post@graduate
studies and training for bar exam.
3 have already suggested elsewhere
%:
that such an approach could serve as a truly
holistic method which would cover a number of issues, such as introduction to ethics, ethics
and natural law, rhetoric and ethics, multiculturalism, eFuality, life, health, poverty, personal
integrity, environment and climate change, civil disobedience, violence and terrorism,
professional responsibility and ethical decision@making and good lawyering.
" good, skillful and moral lawyer would feel and know it which international goals are
of such a planetary and ethical importance they need to be achieved by mandatory rulesK how
to construe legally and ethically certain norms, standards and principlesK how to implement
international treaties in practiceK how to ad.udicate disputes in the name of .ustice, how to
settle disputes by peaceful means and how to be professional, fair, honest and compassionate
at all time. 3s it too much to ask?
1ope springs eternal Z
%A
#ee /ichael E. #andel, What money can3t buyK the moral limits of markets, 2arrar, #traus and 0iroux, Cew
York, 5695.
%;
2or example, the 5665 "thens -rotocol $sea,, '7? convention $road, and '37 convention $railway,.
%:
/arko -avliha, %he Significance of 2thics in Legal 2ducationK %o-ards the ,olistic Method9 #lovenian !aw
?eview, 7ol. 7333<Co. 9@5, )ecember 5699, pp. 99+@9=+. #ee also the .oundtable on Legal 2thics in Legal
2ducationK Should it be a .eAuired CourseM, !egal Hthics, 7olume 9%$9,, #ummer 5699.
+9