Bennett Marine Insurance

Prepce
Lloyd's Market Association for permission to quote from and reproduce various
Institute and International clauses; to Xchanging Group for permission ro
reproduce and/or quore from the Ins-sure Companies Marine Policy and associ-
ated schedules; and to the Britannia Steam Ship Insurance Association Ltd for CONTENTS-SUMMARY
similar permission in respect of the Association)s rules.
I am also extremely grateful to Lord Mance, whose judgments have contributed

so significantly to the development of insurance contract law in the period since
Foreword V
the first edition, for graciously agreeing to contribute a foreword.
Preface Vll
On a personal note, I should like to thank my wife, Fouzia, who has provided Table ofCases XXXl
unfailing support and warm encouragement, and has tolerated an author's pre- Table ofStatutes !xxvii
occupation with indulgence and good humour. Special acknowledgements are Table ofStatutory Instruments Ixxxiii
due also to our daughter, Sonia, who has become accustomed to a laptop Table ofInstitute and International Clauses lxxxv
computer accompanying her to ballet lessons, and our little son, Adam, who
has lived his entire life with the project, blithely unawate of the challenge posed Introduction to the Law of Marine Insurance 1
by the doctrine of utmost good faith to the sleep-deprived.
Formation of Marine Insurance Contracts 29
I have endeavoured to stare the law as at 31 October 2005. Attention should, Insurable Interest, Illegality, and Public Policy 67
howevet, be dtawn to the commercially sensitive judgment ofAikens J in
The Doctrine of Utmost Good Faith 99
Enter-prise Oil Ltd v Strand Insurance Co Ltd [2006] EWHC 58 (Comm)
indicating (obiter) a disinclination to follow the reasoning of Colman J in Marine Insurance Brokers 183
Lumbermens Mutual Casualty Co v Bovis Lend Lease Ltd (discussed at 21.16 Premiums 217
below) on global
settlement and claims undet liability policies. Needless to say, responsibility for An Introduction to Modern Marine Cover 235
. . ..
any errors or omISSIOns remaIns ffime. Inrerpretation and Rectification ofInsurance Contracts 261
Principles of Causarion 301
Howatd Bennett
Nottingham Marine Risks 331
Halloween, 2005 The Inchmaree Clause 365
Collision and Contact Losses 393
War Risks 403
Srrikes Risks 437
Excluded Losses 451
Cover Provided by Mutual Insurance Associations 483
Duration of Cover 493
Attachmenr and Alreration of Risk 513
Sub-standard Shipping 565
Rights of Third Parties 597
Losses 631
Claims and Claims Handling 681
Vll1
Contents-Summary
← Measures ofIndemnity 729

← Averting and Minimizing Loss 747
← Subrogation 775
← Double Insurance and Contribution 809 CONTENTS
Appendices 841 -
Foreword V
Preface Vll
Index 973 """ Table ofCases XXXI
Table ofStatutes lxxvii
Table afStatutory Instruments lxxxiii
Table ofInstitute and International Clauses lxxxv
1. Introduction to the Law of Marine Insurance

A. Marine Insurers 1.03
(1) The Early Evolution of Lloyd's 1.04
(2) The Rise of Lloyd's to Prominence within the
Marine Market 1.09
(a) The Vansittart scandal 1.10
(b) The South Se, Bubble 1.12
(c) The effect of the Bubble Act on the marine insurance
market 1.15
(d) The marine insurance market and Lloyd's 1.17
(3) The Institute of London Underwriters and the International
Underwriting Association of London 1.19
(4) The Mutual Insurance Associations 1.22
(5) Government Involvement in Marine War Risks Insurance 1.27
(a) The origins of government involvement in war risks
insurance 1.28
(b) Modern government-backed war risks cover: Queen's
enemy risks 1.31
B. Marine Insurance Law 1.34
← From Law Merchant to Common Law: Early Development of
Marine Insurance Law 1.34
(2) Lord Mansfield 1.41
(3) Codification 1.44
C. The Nature of Marine Insurance 1.50
(1) Insurance of Losses Incident to Marine Adventure 1.51
(2) Extension to Mixed Land and Sea Adventures 1.58
x Xl
Contents Contents
2. Formation of Marine Insurance Courracrs (2) The Concept of Insurable Interest 3.20
(a) The concept of insurable interest prior to the Marine
A. Contract Formation in a Subscription Matket 2.04 Insurance Act 1906 3.21
B. Contract Formation outside the London Market 2.25 (b) The concept of insurable interest in the Marine
Insurance Act 1906 3.26
C. Obligatory and Facultative Agreements 2.28 (c) The relationship between insurable interest
(I) Floating Policies 2.29 and wagering 3.31
(2) Facultative/Obligatory Covers 2.38 (d) Defeasible, contingent, and partial interests 3.37
(3) Facultative Covers 2.43 (3) Insurable Interest in Particular Types of Insurance 3.40
D. Leading Underwritet Agreements 2.44 (a) Property insurance 3.41
(I) IdentifYing rhe Leader 2.45 (h) Insurance on freight, hire, and profits 3.52
← Extent of a Leader's Power to Bind the Following (c) Liability insurance 3.56
Marker 2.47 (4) Limited Interests 3.57
(a) Amendments to cover 2.48 (5) Pervasive Interests 3.58
Impacr of the LMP reforms 2.51 B. Embodiment in a Policy 3.65
(h) Declarations under open covers 2.55
C. Illegality of the Insured Adventure 3.70
(c) Claims 2.56
(3) Legal Nature of a Leader's Power 2.57 D. The Impact of War on Contracts of Insurance 3.78
(4) Termination of a Leader's Power 2.61
E. Delegated Authorities 2.62 4. The Doctrine of Utmost Good Faith
(1) Binding Authorities 2.63
← Evolution and Framework of the Doctrine of Utmost
(2) Line Slips 2.66
Good Faith 4.02
F. Joint and Composite Policies 2.69 (1) Misrepresentation and Non-disclosure in General Contract Law 4.03
(1) Definition ofJoint and Composite Insurance 2.70 (2) Insurance as a Contract Uberrimae Fidei 4.05
(2) Legal Structure of Composite Policies 2.77 (3) Utmost Good Faith in the Marine Insurance Acr 1906 4.08
(3) Contractual Status Under Composite Policies 2.79 (4) Voidable, not Void 4.10
(a) Authorized agency 2.81 ← Source ofthe Doctrine and the Remedy ofAvoidance: Common
(h) Ratification 2.86 Law or Equity? 4.11
← Is Classification as Joint or Composite Insurance a Matter
(6) Avoidance and Rescission 4.22
of Law or Contract? 2.92
B. The Definition of Materiality 4.23
(1) Materiality Prior to Pan Atlantic v Pine Top in the House
3. Insurable Interest, Illegality, and Public Policy of Lord, 4.27
(2) Materiality in rhe Honse of Lord, in Pan Atlantic v Pine Top
A. Insurable Interest 3.02 and Beyond 4.35
(1) The Legal Matrix 3.03
(a) The evolution of the law on insurable interest prior to C. Inducement 4.41
the Marine Insurance Act 1906 3.04 (1) Establishing the Requirement for Inducement as a Matter of
(h) The insurable interest requirements of the Marine Legal Principle 4.42
Insurance Act 1906 3.08 (2) The Meaning ofInducement 4.44
The contract formation requirement 3.D9 (3) Proof of Inducement 4.53
The time of loss requirement 3.12 (a) The so-called 'presumption' of inducement 4.54
(c) The Marine Insurance (Gambling Policies) Act 1909 3.16 (h) Unknown information 4.60
(d) The general law on gaming and wagering contracts 3.17 (4) Inducement in a Subscription Market 4.61
Xli Xlll
Contents Contents
(5) Negating Inducement 4.64 M. Co-insurance 4.184

D. Circumstances Requiring Disclosure 4.66 N. Utmost Good Faith after the Formation of the Contract 4.193
(1) The Physical Hazard 4.67 O. Basis Clauses 4.205
(2) The Moral Hazard 4.69
(3) Other Circumstances Relevant to Assessment of the Risk 4.72 5. Marine Insurance Brokers
E. Information 4.79 A. Agency 5.02
F. Misleading or Inaccurate Circumstances 4.82 (1) The Broker as Agent of the Assured 5.03
G. Circumstances not Requiring Disclosure 4.89 (2) Liability ro Third Parties 5.05
(1) Diminution of the Risk 4.90 B. Brokers and Sub-Agency 5.09
(2) Within the Insurer's Actual or Presumed Knowledge 4.91 (1) Contract 5.10
(3) Waiver 4.99 (2) Tort 5.15
(4) Warranties 4.106 C. The Scope of the Broker's Duty to the Assured 5.16
(5) Application to Misrepresentation 4.108
D. The Standard of the Broker's Duty 5.20
H. Knowledge of the Assured 4.111
E. Duties of Brokers 5.23
(1) Who is the Assured? 4.113
(1) The Broker's Duty to Obtain Cover 5.23
(2) Constructive Knowledge 4.117
(2) The Broker's Duty to Ensure Proper Presentation of the
I. Brokers and the Doctrine of Utmost Good Faith 4.122 Risk to the Insurer 5.30
(1) Independent Duties 4.123 (3) The Broker's Duty in Placing the Cover 5.36
(2) The Relevant Brokers 4.124 (4) The Broker's Duty when Assisting in Making Claims 5.40
(3) Scope of Disclosure Duty 4.125 5.42
F. Remedies for Breach of Duty
(4) Relationship Between the Duties of the Assured and the
(1) Measure of Damages: Basis ofAssessment 5.43
Placing Broker 4.129
(2) Cost ofAlternative Insurance 5.50
]. Actionable Misrepresentations 4.130
G. Causation Defences 5.51
(1) Representations of Fact 4.131
(2) Representations of Expectation or Belief 4.133
(1) The Risk was Uninsurable on Terms the Assured would
have Accepted 5.52
Marine Insurance Act 1906, Section 17: Pre-formation (2) The 'Two Defence' Problem 5.58
Utmost Good Faith Beyond Sections 18-20 4.147
H. Contributoty Negligence 5.62
(1) Fraudulent Misrepresentation and Non-disclosure by
the Assured 4.148 I. Brokers' Rights to Remuneration 5.74
(2) Non-material Misrepresentation and Non-disclosure 4.150 J. Brokers' Security for Sums Due 5.76
(3) Mistake by the Insurer, Known to the Assured 4.151
(4) The Insurer's Pre-formation Duties of Dtmost Good Faith 4.152 6. Premiums
L. Remedies 4.154 A. Whether and When Premium is Earned 6.02
(1) Avoidance 4.155
B. Time of Payment 6.09
(a) Nature of the Remedy 4.156
(b) Proportionality in General Contract Law 4.158 C. Consequences of Failure to Pay on Time 6.13
(c) Loss of the Right ofAvoidance 4.163 (1) At Common Law 6.14
(d) Post-formation Revelations 4.168 (a) Renunciation 6.15
(e) The Consequences ofAvoidaI1ce 4.172 (b) Substantial failure of performance 6.17
(2) Damages 4.173 (2) Premium Default Clauses 6.18
XV
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Contents Contents
D. Brokers and Premiums 6.21 (g) Business common sense 8.26
(I) Liability of the Broker for Premium 6.21 (h) Validity rathet than invalidity 8.32
(2) Consequences of the Broker's Liability for Premium 6.24 (i) Taking advantage of one's own wrongdoing 8.33
(a) Default 6.25 0) Context outside the contract 8.34
(b) Set-off 6.27 Evolutionof the modern approach to admissibility 8.35
(c) Premium default clauses 6.29 Restrictions on admissibility of extrinsic evidence 8.39
(d) Payment of premium and issuance of policy 6.32 The utility of extrinsic evidence 8.42
(3) The Position as Between Broker and Assured 6.33 Context excluding extrinsic evidence 8.50
(4) Displacing the Brokers' Premium Liability Rule 6.35 (k) Ambiguity 8.51
(I) Estoppel by convention 8.58
(5) Market Recapitalization 6.37
(3) Contractual Interpretation and the Doctrine of Precedent 8.59
E. Mutual Insurance 6.38
B. The Slip as an Aid to Interpretation of the Policy 8.63
F. War Risks and Additional Premium Areas 6.41 (I) General Admissibility but Variable Evidential Value 8.64
(2) The Rule ofLaw Approach 8.72
7. An Introduction to Modern Marine Cover
(a) Inadmissibility of contractual negotiations 8.73
A. The SG Policy 7.02 (b) The patol evidence rule 8.74
B. The Separation of Marine and War Risks Cover 7.03 (c) Marine Insurance Act 1906, section 89 8.75
C. Modern Cover 7.07 C. Rectification 8.77

(1) The Policy 7.08
9. Principles of Causation
(2) Cargo Cover 7.10
(3) Hull Insurance 7.15 A. Remote, Immediate, and Proximate Causes 9.03
(4) The Eiusdem GenerisClause 7.23 B. Leyland Shipping v Norwich Union 9.08
D. Valued aud Uuvalued Policies 7.24 C. The Contextual Nature of Proximity; also of Complex Causes 9.12
(I) The Significance of an Agreed Value 7.26
D. Concurrent Proximate Causes 9.20
(2) Determining Whether a Policy is Valued: Agreed Value
(1) One Proximate Cause or More? 9.21
v Sum Insured 7.33
(2) Concurrent Causes, One Cause Specifically Included, None
(3) Re-opening an Agreed Value 7.38
Specifically Excluded 9.22
E. Burden aud Standard of Proof 7.48 (3) Concurrent Causes, at Least One Specifically Excluded 9.25
(1) General Principles 7.48 (4) Exceptions or Exclusions? 9.30
(2) 'All Risks' Covet 7.54
E. Applying the Effectiveness Test of Proximate Cause 9.33
(3) Exclusions 7.58
F. Apprehension of a Peril 9.46
8. Interpretation and Rectification ofIusurance Contracts G. Mistaken Belief ofPetil 9.55
A. Principles ofInterpretation 8.02 H. Response to Perils 9.56
(I) The Intention of the Parties 8.04
I. The Language of Causation 9.59
(2) Factors Taken into Account in Interpreting Contracts 8.06
(1) The Adhesiveness of the Proximate Cause Rule 9.60
(a) The natural meaning of the words 8.07
(b) Specialist meaning 1: technical legal meaning 8.12 (2) Displacing the Proximate Cause Rule 9.61
(c) Specialist meaning 2: custom and usage 8.14 (al Displacement by a Combination of Wording and Other
(d) Schedule 1 rules of interpretation 8.15 Circumstances 9.62
(e) Context within the contract 8.16 (b) Displacement by Simple Change of Language 9.65
(f) Excessive unreasonableness 8.23
XV! XVll
Contents Contents
10. Marine Risks B. The Due Diligence Proviso 11.66
A. Hull and Freight Insurance 10.02 ← Relationship Between the Cover Provided under the
(I) Perils of the Seas, Rivers, Lakes, or Other Navigable Waters 10.03 Inchmaree Clause and that Provided in Respect of
(a) Fortuitous accidents 10.04 Maritime Perils 11.73
(b) Of the seas 10.18
(c) Proof 10.26 12. Collision and Conract Losses
(d) Causation 10.43
(2) Fire and Explosion 10.60 A. Loss of or Damage to the Subject-matter Insured 12.02
(I) Contact 12.03
(3) Violent Theft by Persons from Outside the Vessel 10.69
(4) Jettison 10.70 (2) Aircraft, Helicopters, and Satellites 12.04
(5) Piracy 10.74 (3) Accidents in Cargo Handling 12.06
(4) Cargo Insurance 12.08
B. Cargo Insurance 10.77
B. Third Parry Liability 12.09
(I) 'All Risks' Cover Under the Institute Cargo Clauses (A) 10.78
(2) Named Perils Cover Under the Institute Cargo Clauses (I) Collision Liability under Hull Policies 12.10
(B) and (C) 10.81 (a) 'Legally liable by way of damages' 12.11
(b) 'Any sum Or sums paid' 12.13
(c) 'Three-fourths' 12.14
11. The Inchmaree Clause (d) 'Vessel' 12.15
A. Covered Perils under the Inchmaree Clause 11.03 (e) 'Coming into collision' 12.18
(I) Bursting of Boilers, Breakage of Shafts, and Latent Defects (f) Basis for the assessment of liability 12.20
in the Machinery or Hull 11.03 (g) Limitations and exclusions 12.21
(a) 'Shafts' 11.04 (h) Legal costs cover 12.22
(b) 'Latent defect' 11.05 (2) Collision Liability under Cargo Insurance 12.23
'Defect' 11.06
13. War Risks
'Latent' 11.13
(c) Requirement of consequential loss or damage 11:14 A. Perils of War, Uprising, and Hostility 13.05
Damage 11.16 (I) Perils ofWar 13.05
Timing of the damage 11.21 (a) Warlike operations 13.06
Causation 11.24 (b) The modern perils of 'war' and 'civil war' 13.18
(d) Measure of indemnity 11.25 (2) Revolution, Rebellion, and Insurrection 13.31
(e) 'Additional perils' cover 11.28
(3) Civil Strife arising Thereform 13.37
(2) Negligence 11.29
(4) Any Hostile Act By or Against a Belligerent Power 13.38
(a) No defence of opetational negligence of the master
or crew 11.30 B. Perils of Deprivation and Inhibition on Use 13.43
(b) Negligence as a covered peril 11.37 (I) Capture and Seizure 13.45
(3) Barratry of Masters, Officers, or Crew 11.43 (2) Arrest, Restraint, and Detainment 13.48
(a) Prejudice 11.44 (3) The Consequences Thereof 13.53
(b) Who is the owner? 11.47 (4) Any Atrempt Thereat 13.55
(c) Fraudulent or criminal conduct 11.54 (5) Confiscation or Expropriation 13.58
(d) Barratry of mariners 11.57 (6) Restrictions on Scope of Cover 13.62
(e) Causation 11.58 (a) Clause 5.1.2: requisition and pre-emption 13.64
(f) Burden of proof 11.60 (b) Clause 5.1.3: order of government Or public or local
(g) Proof of complicity 11.64 authority 13.70
(h) Relationship with war and strikes cover 11.65 (c) Clause 5.1.4: arrest restraint detainment confiscation or
XVl11 XIX
Contents Contents
expropriation under quarantine regulations or by (b) Causarion 15.57

reason of infringement of any customs or trading
(c) Insuring against inherent vice 15.59
regulations 13.71 (3) Rats or Vermin 15.61
(d) Clause 5.1.5: ordinary judicial process, failure to
provide security or to pay any fine or penalty or any D. Inevitable Losses 15.64
financial cause 13.75 E. War and Strikes Risks 15.70
(e) Characterization and burden of proof 13.80 Effecting the Distinction Between Marine and
C. Derelict Weapons 13.84 Non-Marine Risks
15.72
(2) The War and Strikes Risks Exclusions 15.74
14. Strikes Risks
The Marine Risks Exclusion in War and Strikes Clauses for
A. Perils ofIndustrial Disturbance or Civil Unrest 14.03 Hulls or Freight 15.78
(I) Loss or Damage Caused by Participants 14.04
G. Radioactivity and Non-Conventional Weapons 15.80
(2) Strikers 14.06
(3) Locked-out Workmen 14.10 16. Cover Provided by Mutual Insurance Associations
(4) Persons Taking Part in Labour Disturbances 14.1 I
(5) Persons Taking Part in Riots 14.12 A. Protection and Indemnity Cover 16.03
(6) Persons Taking Part in Civil Commotions 14.15 B. War Risks 16.14
B. Terrorism and Associated Perils 14.18 (1) Government Reinsurance 16.14
(I) Any Tertorist 14.19 (2) Queen's Enemy Risks 16.15
(2) Persons Acting Maliciously 14.20 (3) Further Cover Available under the British War Risks Rules 16.19
(3) Politically Motivated Persons 14.28 C. Defence Cover 16.20
17. Duration of Cover

15. Excluded Losses
A. Voluntary Conduct of the Assured 1.5.04 A. Time and Contracts of Marine Insurance 17.02
(I) The General Voluntary Conduct Limitation 15.05 B. Cargo Insurance 17.11
(2) Wilful Misconduct 15.10 C. War and Strikes Risks Cargo Insurance 17.22
(a) Wilful 15.11
(b) Causation 15.14 D. Voyage Policies on Hulls 17.28
(c) Standard of proof 15.18 E. Voyage Policies on Freight 17.38
(d) Scuttling 15.19
F. Time Policies on Hulls and Freight 17.46
(e) Pleading 15.25
(3) Co-Insurance 15.27 G. War Risks Hull Insurance 17.49
B. Delay 15.29 H. Continuation Clauses 17.51
(I) Losses 'Consequent On' Delay 15.30 I. Mutual Insurance 17.55
(2) Delay and the Proximate Cause Rule 15.33
(3) Perils of Deprivation and Inhibition on Use 15.38 18. Attachment and Alteration of Risk
C. Losses that Occur in rhe Natural Course of Events 15.42 A. Failure of Risk to Attach in Voyage Policies 18.02
(I) Ordinary Wear and Tear, Ordinary Breakage, and (I) Failure to Embark upon the Route of the Designated Voyage 18.03
Ordinary Leakage 15.46 (2) Delayed Commencement of the Designated Voyage 18.20
(2) Inherent Vice or Nature of the Subject-matter InsufG-d 15.50
B. The General Doctrine ofAlteration of Risk 18.27
(a) The meaning of inherent vice 15.51
C. Alteration of Risk in Voyage Policies 18.30
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Contents Contents
(I) Change ofVoyage 18.31 (3) Stowage 19.14

← Deviation 18.34 (4) The Relative Nature of Seaworthiness and Cargoworthiness 19.18
← Delay 18.38 B. Seaworthiness in Voyage Policies 19.20
← Excuses for Deviation or Delay 18.41
(I) Rationale for the Warranty 19.22
D. Promissory Warranties 18.54 (2) Time of Compliance and the Doctrine of Stages 19.23
← The Legal Characterization of Promissory Warranties 18.55
C. Seaworthiness in Time Policies 19.30
← Identifying Promissory Warranties 18.61
(1) Privity 19.32
← Interpretation and Breach 18.66
(2) Who is the Assured? 19.39
← Interpretation generally 18.67
(3) Causation 19.40
← Breach 18.71
(a) Unseaworthiness and the doctrine of proximate cause 19.41
←
Timing 18.75
(b) The causation test of section 39(5) 19.47
←
'Uninsured' warranties 18.80
(4) Multiple Instances of Unseaworthiness 19.49
←
The additional insurances warranty under
the Institute and International hull clauses 18.83 D. Proof of Unseaworthiness 19.51
← Sailing warranties 18.87 The Relationship Between Unseaworthiness and Cover
← Causation 18.89 under the Inchmaree Clause 19.56
← Materiality 18.90
The Relationship Between Unseaworthiness, Inherent
← Cure 18.92
Vice, and Ordinary Wear and Tear 19.60
← Breach Excused 18.93
← Waiver 18.94 G. Cargo Policies 19.61
← Mitigating the Law of Promissory Warranties 18.97 H. Contractual Responses to Sub-standard Shipping 19.64
(a) Contractual drafting 18.98 (I) The Due Diligence Proviso to the Inchmaree Clause 19.65
Navigation limits 18.99 (2) Ownership, Management, and Flag 19.66
Severable cover Held 18.101
covered clauses
(3) Classification 19.71
18.104
← Alternative interpretations (4) The International Safety Management Code 19.78
18.105
E. Held Covered Clauses 18.110
← Examples of Held Covered Clauses 20. Rights of Third Parties
18.111
← Scope 18.114 A. Contracts (Rights of Third Parties) Act 1999 20.02
← Additional Premium 18.115 B. Assignment 20.07
← Amendment ofTerms 18.117
← Notice (1) Assignment of the Subject-matter Insured 20.08
18.119 . (2) Assignment of the Benefit of the Contract of Insurance 20.12
← Option or Obligation?
18.123
← Utmost Good Faith (3) Assignment of rhe Policy 20.14
18.125 (4) Protection of the Insurer 20.21
(5) Contractual Restrictions on Assignment 20.27
← Sub-standard Shipping
C. Third Parties (Rights against Insurers) Act 1930 20.33
A. The Concepts of Seaworthiness and Cargoworthiness
19.03 (1) Insurance Policies Covered 20.36
← Seaworthiness (2) QualifYing Events for a Transfer of Rights 20.40
19.03
← Physical condition
19.04 (3) The Timing of a Transfer of Rights 20.42
← Master and crew
19.06 (4) Anti-avoidance Provisions 20.44
← Documentation
19.10 (5) The Rights that are Transferred 20.48
← Cargoworthiness
19.11 (a) An enforceable right to claim under a liability policy 20.49
XXll xxiii
Contents Contents
(b) Defences 20.56 (2) Relationship Between Loss of Freight and Loss of Vessel
Notification and claims co-operation provisions 20.57 or Cargo 21.93
Dispute resolution procedures 20.60 (3) Whether Total Loss of Freight is Actual or Constructive 21.96
Restrictions on the scope of cover 20.61
E. Loss of Adventure 21.97
Pay first clauses 20.62
Liabilities and set-off 20.65 F. Finality of Losses and the Doctrine ofAdemption of Loss 21.98
Limitation 20.68 G. Successive Losses 21.109
(6) Distriburion ofInadequate Fund 20.73 (1) Successive Losses: Cumulative Recovery 21.110
(7) Ptovision ofInformation 20.74 (2) Successive Unrepaired Losses 21.1 12
(a) Section 2(1): disclosure by persons othet than an insurer 20.75
(3) The Doctrine of Merger of Unrepaired Partial Losses 21.1 15
(b) Section 2(2): disclosure by an insurer 20.80
(4) Successive Total Losses 21.123
(8) Relationship Between Assured and Third Party in rhe Light
of a Statutory Transfer of Rights 20.81
(9) Relationship Between Insurer and Assured in the Light 22. Claims and Claims Handling
of a Statutoty Transfer of Rights 20.82
A. Claims Handling in a Subscription Market 22.02
(10) Recovety of the Assured 20.83
B. Liabilities in a Subscription Market 22.04
21. Losses C. Occurrence Notification Obligations 22.05
A. The Concept of a Loss 21.02 (1) Notification Provisions in Marine 'Policies 22.06
(1) Ptoperty Insurance 21.03 (2) The Consequences of Non-compliance with Notification
(2) Liability Insurance 21.14 Provisions 22.12
(a) Condition precedent 22.13
B. Attaching Losses to Periods of Cover 21.18 (b) Suspensive condition 22.18
(1) Ptoperty Insurance 21.19 (c) Watranty 22.19
(2) Liability Insurance 21.31 (d) Condition or innominate term 22.20
C. The Classification of Losses 21.36 (e) Severable innominate term 22.21
(1) Actual Total Loss 21.37 (3) Non-compliance Under Marine Wordings 22.25
(a) Destruction 21.38 D. The Doctrine ofAbandonment and the Notice of
(b) Damage so as to cease to be a thing of the kind insured 21.39 Abandonment Procedure 22.30
(c) Itretrievable deprivation 21.46 (1) The Doctrine ofAbandonment 22.31
(d) Applicability of the de minimis principle 21.52
(2) Abandonmenr and Notice of Abandonment Distinguished 22.33
(2) Constructive Total Loss 21.53
(3) When Notice of Abandonment is Not Required 22.35
(a) Constructive total loss based on reasonable abandonment 21.54
(4) Insurers' Rights upon Acceptance of Abandonment 22.36
(b) Constructive total loss based on deprivation of
(5) The Impact of Abandonment on the Assured's Rights 22.45
possessIOn 21.59
Deprivation of possession 21.60 (a) Unilateral divesring of rights 22.46
Unlikelihood of recovery 21.62 (b) Does abandonment deny unilateral divesting? 22.49
(c) Constructive total loss based on damage to insured (c) Consequences of improper divesting 22.51
(6) Form of Notice ofAbandonment 22.52
ptoperty 21.74
(d) Calculating whether insured property is a constructive (7) Time for Giving a Notice of Abandonment 22.53
total loss 21.77 (8) Acceptance and Refusal of a Notice of Abandonmenr 22.58
(3) Partial Losses 21.84 (9) Changing an Election 22.61
D. Loss ofFreight 21.90 E. Limitation 22.62

(1) Whether Freight Lost 21.91 (l) Ptoperty Insurance 22.64
XXiV xxv
Contents Contents
(2) Liability Insurance 22.68 24. Averring and Minimizing Loss

(3) Conrracr 1erms and Accrual of rhe Cause of Action 22.69 A. Sue and Labour Expenses 24.02
F. Insurers' Rights in Connection with Claims 22.73 (I) Conrractual Wordings 24.03
(I) Claims Co-operation Clauses 22.73 (2) Required Standard of Conduct 24.07
(2) Appoinrmenr of Surveyor and Average Adjuster 22.74 (3) Persons Falling within rhe Sue and Labour Docrrine 24.09
(3) Approval Provisions 22.75 (4) Duty or Liberty? Consequences of Non-compliance with
(4) Murual Insurance 22.76 Secrion 78(4) 24.10
(5) Joinr and Composite Insurance 24.18
G. Fraudulent Claims 22.77
(6) Negligence Cover and tbe Sue and Labour Doctrine 24.19
(1) The Concept ofFraud 22.78
(7) Entitlement to Reimbursement of Expenses 24.25
(2) Fraud of the Assured 22.80
(8) Supplemenrary Nature of the Sue and Labour Reimbursemenr
(3) Types of Fraudulenr Conduct in rhe Malting of a Claim 22.81
Undertalting 24.29
(4) Relevance to the Claim 22.90
(9) Suing and Labouring in Anricipation of a Peril 24.30
(5) Temporal Limits on the Fraudulenr Claims Jurisdiction 22.96
(10) Relationship Between the Period of Cover and the Sue and
(6) Joint and Composite Policies 22.100 Labour Doctrine 24.33
(7) Remedies for Fraud in a Claim 22.101
(11) Expenses Recoverable under a Reimbursement Undertaking 24.37
(a) Rejection of the claim 22.102
(b) Contract termination 22.106 B. General Average 24.41
(8) Fraudulenr Claims Clauses 22.109 (1) General Average Losses and Liabilities 24.44
(2) Insurance of General Average Losses and Liabilities 24.48
H. Good Faith in the Malting of Claims 22.113
C. Salvage 24.56
I. Making Payment of Loss Moneys 22.115
(I) Salvors' Remuneration 24.58
(I) Method of Payment 22.115
(2) Insurance of Liability fot Salvage Remuneration 24.62
(2) Time of Payment 22.120
(a) Article 13 salvage award 24.63
(b) Special compensation 24.67
23. Measures ofIndemnity (c) Life salvage 24.69
A. Loss of or Damage to Property 23.02 D. Under-insurance 24.70
(1) The Yardstick fot Calculating the Measure ofIndemnity 23.03 (I) Sue and Labour 24.71
(a) Agreed and insurable values 23.03
(2) General Avetage and Salvage 24.73
(b) Displacing the insurable value in modern unvalued
(3) Insurance Against a Shortfall by Reason of Under-insurance 24.75
policies 23.06
(c) Vessels inrended for scrap 23.11
Subrogation
(2) Toral Losses 23.12
(3) Parrial Losses 23.14 A. The Doctrine of Subrogation (I): Access to the Assured's
(a) Damage to a vessel 23.15 Rights Against Third Parties 25.09
(b) Partial loss of goods 23.28 (I) Actual Payment a Pre-requisite to Operative Subrogation Rights 25.10
(c) Partial loss offreight 23.35 (2) Subrogarion Affords the Insuret Access to the Assured's Cause
(d) One agreed value covering several species of property 23.37 ofAction 25.12
B. Thresholds to Recovery 23.38 (3) Conrrol and Conduct of Claims Against Third Parties 25.16
(1) Particular Average Warranties 23.39 (4) Third Patty Defences to Subrogation Actions 25.25
(2) Deducribles 23.40 (5) Joint Insurance and Co-insurance 25.27
(3) Franchise Clauses 23.48 The Doctrine of Subrogation (2): Insurer's Entitlement
C. Under-insurance 23.49 to the Benefit of Dimunitions of Loss 25.36
XXV! XXVll
Contents Contents
(I) Proceeds of Third Party Action by the Assured 25.37 (4) Voluntary Payments 26.58
(2) Benefits Voluntarily Conferred on the Assured 25.38 (5) Non-satisfaction of a Contribution Claim by Reason of
(3) Non-monetary Benefits 25.42 Insolvency 26.61
(4) Mixed Purpose Benefits 25.43 F. Quantifying Liability in Contribution 26.62
(5) Settlements 25.44 (1) Bases for QuantifYing Liability in Contribution 26.63
The Distribution of Sums Received or Recovered from (2) Marinelnsurance Act 1906 26.69
Third Parties 25.46 (3) The Case Law 26.73
(1) Assured Fully Compensated by tbe Insurance Indemnity 25.47
(2) Assured Not Fully Compensated in Fact by the Insurance Appendix 1: Marine Insurance Act 1906 843
Indemnity 25.49 Appendix 2: Marine Insurance (Gambling Policies) Act 1909 863
(a) General ptinciple 25.50 Appendix 3: Third Parties (Rigbrsagainst Insurers) Act 1930 865
(b) Deductibles 25.60 Appendix 4: Ins-sure Companies Marine Policy 867
(c) Under-insurance 25.61 Appendix 5: Ins-sure Mar91 Schedule 868
(d) Valued policies 25.67 Appendix 6: Institute Cargo Clauses (A) (1/1182) 869
(e) Deductibles in the Institute and International
Appendix 7: Institute Cargo Clauses (B) (111182) 874
hull clauses 25.72
Appendix 8: Institute Cargo Clauses (C) (1/1182) 879
D. The Nature of the Insurer's Restitution Rights Against the Appendix 9: Institure War Clauses (Cargo) (1/1182) 884
Assured 25.73 Appendix 10: Institute Strikes Clauses (Cargo) (111/82) 888
← The Nature of the Assured's Restiturion Rights Against the Appendix 11: Institute Time Clauses Hulls (1110/83) 892
Insurer 25.80 Appendix 12: Institute Voyage Clauses Hulls (1111/95) 901
Appendix 13: International Hull Clauses (01111103) 911
Appendix 14: Institute Voyage Clauses Hulls (1/11195) 931
26. Double Insurance and Contribution Appendix 15: Institure War and Strikes Clauses (Hulls-Time) (1110/83) 941
A. The Concept of Double Insurauce 26.02 Appendix 16: Institute War and Strikes Clauses (Hulls-Time) (1111/95) 943
Appendix 17: Institute Time Clauses Freight (118/89) 946
B. Double Insurance and Policy Terms 26.05 Appendix 18: Rules of the Britannia Steam Ship Murual Insurance
(I) Terms Relating to Cover 26.06 Association Ltd (extracts)
(2) Rateable Proportion Clauses 26.07
(a) Time of double insurance 26.09
(b) 'Existence' of another insurance 26.10 Index 973 -\'
(c) 'Covering the same loss' 26.15
(3) Clauses Excluding Liability if Loss Covered by
Another Insurance 26.16
C. Valued and Unvalued Policies and Double Insurance 26.19
D. Return ofPtemium 26.28
E. The Right to Contribution 26.32
(1) Sources of Law 26.33
(2) Time When the Right to Conttibution Arises: Impact on
Contribution of Defences to Claim by Assured 26.40
(a) Marine Insurance Act 1906, section 80 26.41
(b) The common law 26.43
(3) Primacy of Liability 26.57
XXV111 xxix
TABLE OF CASES
AfS Ocean v Black Sea & Baltic Genetal Insutance Co Ltd (1935) 51 LlLRep 305 8.54, 8.57
Abel v POttS (1800) 3 Esp 242 22.55
Abtam Steamship Co Ltd v Westville Shipping Co Ltd [1923J AC 773 .4.04
Abt Rasha, The [2000J 2 Lloyd's Rep 575 24.53
AdamSteamship Co Ltd v London Assurance Corp (1914) 20 Com Cas 37 1.59
Adamastos Shipping Co Ltd v Anglo-Saxon Pettoleum Co Ltd [1959) AC 133 8.22
Adamson & Sons v Liverpool &,London & Globe Insurance Co Ltd [1953] 2 Lloyd's
Rep 355 22.27
Adelaide Steamship Co Ltd v Attorney-Genetal (No 2) [1926J AC 172 12.09, 15.72
Adelaide Steamship Co Ltd v R (The Watilda) [1923] AC 292 13.12
Admital C, The [1981J I Lloyd's Rep 9 22.116
Admitalty Commissionets v Btynawel Steamship Co (1923) 17 LlLRep 89 13.11
Aegeon, The [2002J EWHC 247, [2003J QB 556 22.78, 22.82, 22.89, 22.91, 22.92,
22.93,22.95,22.98,22.103,22.107,22.108
Aegeon, The (No 2) [2002J EWHC 1558 (Comm), [2003] Lloyd's Rep IR54 .. .4.195, 18.95
Agapitos v Agnew (The Aegean) [2002J EWHC 247, [2003J QB 556 22.78,22.82,
22.89,22.91,22.92,22.93,22.95,22.98,22.103,22.107,22.108
Agapitos Laiki Bank (Hellas) SA v Agnew (The Aegeon) (No 2) [2002J EWHC 1558
(Comm), [2003J Lloyd's Rep IR 54 .4.195, 18.95
Agathon, The (No 2) [1984J 1 Lloyd's Rep 183 2L13
Agip SpA v Navigazione Aha halia SpA (The Nai Genova and Nai Supetba) [1984J
1 Lloyd's Rep 353 8.79,8.80
Agnew v Lansf6tsaktingsbolagens AB [2001J 1 AC 223 .4.01, 4.175
Aiken v Stewart Wtightson Membets Agency Ltd [1995] 2 Lloyd's Rep 618 5.55
Aikshaw, The (1893) 9 TLR 605 8.83,8.87
Aiolos, The [1983J 2 Lloyd's Rep 25 _ 25.14, 25.15
Aitchison v Lohte (1879) 4 App Cas 755 _ 24.12,24.38,24.63
Ajum Golam Hassen & Co v Union Marine Insurance Co [1901]
AC 362 _ 10.28,19.04,19.54
Al-jubail IV, The [1982J 2 Lloyd's Rep 637 18.41
Alati v Ktuget (1955) 94 CLR 216 _ _. _ _ .4.03, 4.04
Albion Insurance Co Ltd v Government Insurance Office of New South Wales (1969)
121 CLR 342 _ _ 26.04
Aldrich v Norwich Union Life Insurance Society [2000] Lloyd's Rep IR 1 .4.74
Aldtidge v Bell (1816) 1 Statk 498 22.56
Alexandet v Cambell (1872) 41 LjCh 478 .4.131
Alexion Hope, The [1988] 1 Lloyd's Rep 311 1065
Alfted McAlpine pic v BAl (Run-Off) Ltd [1998J 2 Lloyd's Rep 694 22.05, 22.13,
22.14,22.16,22.21,22.22,25.21
Algussein Establishment v Eton College [1988J 1 WLR 587 8.33
Aliza Glacial, The [2002J EWCA Civ 577, [2002J 2 Lloyd's Rep 421 9.21,9.60,
13.63,13.72,13.75,13.76,13.78,13.79,13.83,15.41,21.73, 21.82, 21.83
Allen v Robles [1969J 1 WLR 1193 .4.167
Allen v Sugrue (1828) 2 B & S 456 21.77
Allen v Univetsal Automobile Insutance Co Ltd (1933) 45 LlLRep 55 _ 18.91
xxxi
Table ofCases Table ofCases
Allgemeine Versicherungs-Gesellschaft Helvetia v Administrator of German Property Aquarius Financial Enterprises Inc v Certain Underwriters at Lloyd's (The Delphine) [2001]
[1931] IKB 672 22.32, 22.36 2 Lloyd's Rep 542 7.48,7.56,15.23
Allianz Marine Aviation (France) v GE Frankona Reinsurance Ltd London [2005] Arab Bank pic v Zurich Insurance Co [1999] I Lloyd's Rep 262 2.78, 2.95, 4.185,
EWHC 101 (Comm), [2005] Lloyd's Rep IR437 8.58 4.188,22.98
Allied Irish Bank pIc v Byrne [1995] 2 FR 325 .4.04 Arawa, The [1980] 2 Lloyd's Rep 135; [1977] 2 Lloyd's Rep 416 14.04, 14.ll
7 Arburhnott v Fagan [1996J Lloyd's Rep IR 135 8.ll, 8.44
A1llcins v Jupe (1877) 2 CPD 375 3.1
A1lobrogia, The [1979J I Lloyd's Rep 190 20.44 Arcangelo v Thompson (1811) 2 Camp 626 9.20
Almojil (M) Establishment v Malayan Motor & Genera! Underwriters (Private) Ltd Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] I QB 374 3.71
(The Al-Jubail IV) [1982J 2 Lloyd's Rep 637 18.41 Ardgantock, The [1921] 2AC 141 13.11
Alps, The [1893] P 109 9.58 Argentino, The (1889) 14 App Cas 519 , 15.35
Aluminium Wire & Cable Co Ltd v Allstate Insurance Co Ltd [1985] 2 Lloyd's Aries Tanker Corp v Total T;ansport Ltd [1977J I WLR 185 20.25
Rep 280 , 8.21,9.27 Arkwright v Newbold (188 I) 17 ChD 20 I .4.53
Amalgamated Investment & Property Co Ltd v Texas Commerce International Armar, The [1954] 2 Lloyd's Rep 95 23.23
Bank Ltd [1982J QB 84 8.40,8.41,8.58 Arnus, The (1924) 19 LlLRep 186 15.22,15.24
Amazonia, The [1990] I Lloyd's Rep 236 8.58 Arrow Shipping Co Ltd v Tyne Improvement Commissioners (The CryStal) [1894)
American Airlines Inc v Hope [1973] I Lloyd's Rep 233 2.07,8.51,8.54 AC 508 22.47
American International Marine Agency of New York Inc v Dandridge [2005] EWHC Arthur Average Association for British, Foreign and Colonial Ships, Re (1875) LR 10
829 (Comm), [2005] I CLC 1102 ······· ···· .. ··· .2.15 Cb App 542 1.23
American Surety Co v Wrighrson (1910) 16 Com Cas 37 26.04, 26.32, 26.51, 26.74 Arthur Barnett Ltd v National Insurance Co of New Zealand Ltd [1965]
Amoco International Financial Corp v Iran (1987) 15 Iran-UCCTR 189 13.59 NZLR874 25.16,25.51
Anderson v Fitzgerald (1853) 4 HLC 484 6.06,6.07,8.53, 18.90 Asfarv Blundell [1896] I QB 123 .4.101, 21.39, 21,93
Anderson v Matten [1907]2 KB 248 13.46 Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488 8.62
Anderson v Morice (1876) I App Cas 713; (1875) LR 10 CP 609; (1874) LR 10 Aspden v Seddon (1874) LR 10 Ch App 394 8.62
CP 58 3.36, 3.44, 3.45,10.28,19.60 Assicurazioni Generali di Trieste v Empress Assurance Corp Ltd [1907J 2 KB 184 25.07,
Anderson v Pacific Fire & Marine Insurance Co (1872) LR 7 CP 65 4.10, 4.140 25.37,25.73
Anderson v Royal Exchange Assurance Co (1805) 7 East 38 5.40,22.56 Assicurazioni Generali SpA v Arab Insurance Group (BSC) [2002] EWCA Civ 1642,
Anderson v Thornton (1853) 8 Ex 425 6.06,6.07 [2003] Lloyd's Rep IR 131 2.25, 4.45, 4.50, 4.52, 4.55, 4.56, 4.64
Andreas Lemos, The [1983] I All ER 590 ···.· .. · .10.76, 14.14, 15.76 Assicurazioni Generali SpA v Ege Sigorta AS [2002] Lloyd's Rep IR 480 8.70
Andree v Fletcher (1787) 2 TR 161 3.07 Assievedo v Cambridge (1712) 10 Mod 77 3.06
Andros Springs (Owners) v World Beauty (Owners) (The World Beauty) Associated Japanese Bank International Ltd v Credit du Nord SA [1989] 1 WLR 255 .4.18
[1970] P 144 ······ ·· .. ······ .. ·········· .24.26 Associated Oil Carriers Ltd v Union Insurance Society of Canton Ltd [1917J 2 KB 184 4.24,
Aneeo Reinsurance Underwriting Ltd v Johnson & Higgins Ltd [2001] UKHL 51, 21,93,21,96,21,97
[2002] I Lloyd's Rep 157; [1998J I Lloyd's Rep 565 2.14, 2.38, 4.55, 4.63, Astrovlanis Compania Naviera SA v Lina (The Gold Sky) [1972] 2 Lloyd's Rep 187 .... 15.20,
5.29,5.46,5.49 15.21,15.25,24.14
Angel Bell, The [1979J 2 Lloyd's Rep 491 20.01, 20.19 Athel Line Ltd v Liverpool & London War Risks Insurance Association Ltd (The
Angel v Merchants' Marine Insurance Co [1903] 1 KB 811 21.74 Atheltemplar) [1946] KB 117 13.11
Anghelatos v Northern Assurance Co Ltd (The Olympia) (1924) 19 LlLRcp 255 15.22, Atheitemplar, The [1946] KB 117 13.11
15.23,15.24 Athens Maritime Enterprises Corp v Hellenic Mutual War Risks Association (Bermuda)
Anglo-African Merchants Ltd v Bayley [l970J I QB 3ll 5.03 Ltd (The Andreas Lemos) [1983] I All ER 590 10.76, 14.14, 15.76
Anita, The [1971] I WLR 882; [1970] 2 Lloyd's Rep 365 7.04,13.61, 13.71, 13.74, Atlantic Lines & Navigation Co Inc v Hallam Ltd (The Lucy) [1983J 1 Lloyd's
13.75,13.83,21.47,21,49, 21.103, 22.57 Rep 188 .4.04,4.51
Annefield, The [1971] P 168 8.61 Aclantic Maritime Co Inc v Gibbon [1954] I QB 88 9.58, 11,59, 15.40, 15.41
Annen v Woodman (1810) 3 Taunt 299 6.02, 6.04,17.32,18.19,19.24 Atlantic Mutual Insurance Co v King [1919] I KB 309 13.39
Anning v Anning (1907) 4 CLR 1049 20.28 Attorney-General v Ard Coasters Ltd (The Ardgantock) [1921] 2 AC 141 13.11
Anonima Petroli Italiana SpA v Marlucidez Armadora SA (The FHiatra Legacy) [1991] Atrorney-General v De Keyser's Royal Hotel [1920] AC 508 13.65
2 Lloyd's Rep 337 15.18 Attorney-General's Reference (No I of 1992) [1993J I WLR 274 13.56
Ansoleaga Y Cia v Indemnity Mutual Marine Insurance Co Ltd (The Leonita) (1922) Atrwood v Small (1838) 6 Cl & F 232 .4.41, 4.64
13 LlLRep 231 15.23, 15.24 Atry v Lindo (1805) I Bos & Pul (NR) 236 17.39
Anstey v Ocean Marine Insurance Co Ltd (1913) 19 Com Cas 8 23.29 AubertvGray(l862)3B&SI69 3.78
Antaios, The [1981] 2 Lloyd's Rep 284 6.41 Austin v Drewe (1816) 6 Taunt 436 10.62
Antaios, The [1985] AC 191 8.26 Austin v Zurich General Accident & Liability Insurance Co Ltd (1944) 77 LlLRep 409 26.16
Antaros Compania Naviera SA v Salen Rederierna AB (The Antaios) [1985]AC 191 8.26 Australasian Insurance Co v Jackson (1875) 33 LTNS 286 3.71, 1l.54
Aqua Design & Play International Ltd v Kier Regional Ltd (2002) EWCKCiv 797, Australian Agricultural Co v Saunders (1875) LR 10 CP 668 18.68, 18.85
[2003] BLR III , 8.09 Avon Insurance pIc v Swire Fraser Ltd [2000] Lloyd's Rep IR 535 .4.49
xxxii xxxiii
Avondale Blouse Co Ltd v Williamson (1948) 81 L1LRep 492 """""",,,,,,,,,,,,5 . 56 Batard v Hawes (1853) 2 El & Bl 287 ",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,.,,,,,,,,,26,61
Axa General Insurance Ltd v Gottleb [2005] EWCA Civ 112, [2005J Lloyd's Rep Bates v Hewitt (1867) LR 2 QB 595 , , " , , " , " , " , , ", , " , , " , , ", . " , ", , ,4,95, 4,97
IR369 ",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, ,22.102 Battley v Faulkner(1820) 3 B & AId 288 , , , " , " , , , , , , " , , " , , , , , , , , , . " , , " , " , 22,62
Axel Johnson Petroleum AB v MG Mineral Group AG [1992] 1 WLR 270 """""",6,27 Baxendale v Fane (The Lapwing) [1940J P 112 '"'''''''''''''''''''' 10.14,10,25,11.39 Baxendale v
Ayrey v British Legal & United Provident Assurance Co Ltd [1918] 1 KB 136 .4.165 Harvey (1859) 4 H & N 445 """""""" . """, . " . """"",18,29
Bayview Motors Ltd v Mitsui Marine & Fire Insurance Co Ltd (2002J EWCA Civ
Bah Lias Tobacco & Rubber Estates v Volga Insurance Co (1920) 3 LlLRep 155 18.26 1605, [2003J 1 Lloyd's Rep 131; [2002J EWHC 21 (Comm), [2002J 1 Lloyd's
Bahamas International Trust Co Ltd v Threadgold [1974] I WLR 1514 , , , , , " , , , , , , , , ,8,59 Rep 652""""""",."",,13.47,13.58,17,14,17,16, 17.19,21.25,21.65,24,08 Bean v Stuparr
Bain v Cove (1829) 3 Cat & P 496 , , " , , ", , , , , , , , , " , , , , , , " " , , , , , , , , , , , ", , , 18,39 (1778) 1 Douglll ",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,18.54
Bainbridge v Neilson (1808) 10 East 329 ' , , , " , , , , " , , , , " " , , , , , , , , , " " , , , , , ,2LlOO Beatson v Haworth (1796) 6 TR 531 """"",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,18,36
Baines v Holland (1855) 10 Exch 802 "",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 18,74 Baker v Adam (1910) 15 Beattie v Lord Ebuty (1872) LR 7 ChApp 777""""",,,,,,,,,,,,,,,,,,,,,,,, ,4,133 Becker, Gray &
Com Cas 227 """"",,,,,,,,,,,,,,,,,,,,,,,, ,20,19,20,26 Balfour v Beaumont [1982J 2 Lloyd's Rep Co v London Insmance COtp [1918J AC 101 ,,,,,,,,,,,,,9.04,9,53, 13.50 Beckett v West of
493"",,,,,,,,,,,,,,,,,,,,,,,,,, ,2,66,17.47 Ballantyne v Mackinnon [1896J 2 QB 457 England Insurance Co Ltd (1872) 25 LTNS 739 """ . """, 1.54, 17,45 Bedouin, The [1894J
"""",,,,,,,,, .. ,,,,,,,,,,,,,,,,,,,19.48 Bamburi, The [1982J 1 Lloyd's Rep 312 . ", ,9.46, 13,50, 21.53, PI"""""""",,,,,,,,,,,,,,,,,,,,,,,,, ,4,148, 4,150, 9,58
21.61, 21,64, 21.70, 2Ll02 Bamcell II, The (1984) 150 DLR (3d) 7; (1982) 133 DLR 727 Beley v Pennsylvania Mutual Life Insurance Co 95 A 2d 202 (1953) ..... , . , ,. , " .... . 13.23
""",,10,14,18,107,18,109 Bell v Bell (1810) 2 Camp 475 """"""",,,,,,,,,,,,,,, . ,,,,,,,,,,,,, . ,,,,17,34
Bank of America National Trust & Savings Association v Christmas (The Kyriaki) [1993] Bell v Ca"tairs (1810) 2 Camp 543 ""', . ",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 4,62 Bell v Nixon (1816)
1 Lloyd's Rep 137 """"""'''"" . """",,,,'''''''''' ,22,66, 22.70, 23,39 Bank of Athens v Royal Holt 423 '''''''''',,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, ,21.38 Bell v Tinmoutb (1988) 53 DLR (4th) 731
Exchange Assurance (The Eftychia) (1937) 59 L1LRep 67; (1937) """"""""""""""""""" ,5.31 Belle ofPorrugal, The [1970J 2 Lloyd's Rep 386 """""""", ..
57 L1LRep 37 """""",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 15,23, 15.24 Bank ofAustralasia v """",10,65,11.40
Palmer [1897J AC 540 """"""",,,,,,,,,,,, . ,,,,,,,,,,,8,74 Bennett Steamship Co v Hull Mutual Steamship Protecting Society [1914J 3 KB 57 ... , . 12.16
Bank of Boston Connecticut v European Grain & Shipping Ltd (The Dominique) [1989] Bennett v Axa Insurance pic [2003J EWHC 86 (Comm), [2004J Lloyd's Rep IR 615 ",,18,72
AC 1056 """"""""""""""""""""""""""""""" ,4,17 Bensaude v Thames & Metsey Marine Lloyd's Rep [1897) AC 609 "",,,,,,, . 15.31, 15.39,
Bank afCredit & Commerce International SA v Ali [2001] UKHL 8, [2002] 15.40,
1 AC 251 ",,, . ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, , , 8,03, 8,37 18,65 Benson v Chapman (1849) 2 HLC 696 """""" . "" . """, . " ,21.84, 22,61, 23,14
Bank of England v Vagliano Btos [1891J AC 107""", .. """"""""",,,,,,, 1,49 Beresford v Royal Insurance Co Ltd [1938J AC 586 """'" ,3,73, 3,74,15,05,15,07,15,09
Bank Leumi Le Israel BM v British National Insurance Co Ltd [1998] 1 Lloyd's Rep 71 .. .4.63 Berger & Light Diffuse" Pty Ltd v Pollock [1973J 2 Lloyd's Rep 442 """,2.43,4.42,21.39
Bank Line Ltd v Arthur Capel & Co [1919] AC 435 """"",,,,,,,,,,,,,,,,,,,,22 .09 Bank of New Berk (FW) & Co Ltd v Style [1956] 1 QB 180 "'"""""""",,,,, 7.54, 15.55,24,27 Bermon v
South Wales v South British Insutance Co (1920) 4 L1LRep 266 ' , ", , , , , , 20,23 Woodbridge (1781) 2 Dougl781 ""'''''''''''''''''''''''''''' ,5,04, 19,23
Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Berns & Koppstein Inc v Orion Insurance Co Lrd [1960] 1 Uoyd's Rep 276 ... " ... ,.,18.76
Good Luck) [1990J 1 QB 818 """" ,4,203,18,55,18.56,18.57,18,58,18,94,20,12 Banke" Berridge v Man on Insurance Co Ltd (1887) 18 QBD 346 , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Insurance Co Ltd v South [2003] EWHC 380 (QB); [2004] Lloyd's Rep IR 1 ,. ,22,23 3,17 Beutsgracht, The [2001] EWCA Civ 2051, [2002J 1 Lloyd's Rep 574
Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990J I QB 665" , """,2,31,2,32,2.33, 2.35,2,36,2.39,6,17,22,22 Beu"gracht, The (No 2) [2001] 2 Lloyd's Rep
4,14,4,152, 4,160,4,174,4,176,4,182,4,196,5,44,20,22 608 """", .. """"" . "", ,2,31, 2.35
Banque Moneteca & Carystuiaki v Motor Union Insurance Co Ltd [1909J 1 KB 785 .... 10.74 BICC pic v Burndy Corp [1985J Ch 232 , , , , , , ", , , , , , " " , , " , , " , " , , " , , " , ,,20,25
Banque Sabbag SAL v Hope [1972] 1 Lloyd's Rep 253 " , , , , , ", , , , , , , , , , , , , , , , , "" 8,85 Biccard v Shepherd (1861) 14 Moo PC 471 """""",,,,,,,,,,,,,,,,,,,,,,,,,,19,61
Bara Bi, The (1923) 16 LlLRep 45 """,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,15,23,15.24 Barbel' v Fleming Bigl Estate v Alberta (1989) 60 DLR (4tb) 438 "'''""""""""""",,,,,,, ,25.52 Bird v Appleton
(1869) LR 5 QB 59 " , , , , , , , , , " , , , , , , , , , , , , , , , , , , , , , , . ,,3.52, 17.39 (1800) 8 TR 562 ", , " , , , " , , " , , , , , , , " , , " , , , " , " , " , , , " ",3,77 Bitd's Cigatette
BatbervFletcher(I779) 1 Dougl305 """"""" . """"""""",,,,,,,,, ,4,62 Manufacturing v Rouse (1924) 19 LlLRep 301 ,,,,,,,,,,,,,,,, ,7,53, 15.58
Barclay Holdings (Australia) Ltd v British National Insurance Co Ltd (1987) 8 Birmingham & District Land Co v London & North-Western Railway Co (1886)
NSWLR 514 "",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 4,31 Barclay v Stirling (1816) 5 M & 34 ChD 261 " , " , " , , " " , , " , " , , , " , , " " , " " " , , , " , , " , " , , , " , ,,22,64 Birrell v
S 6 " , , " , , , , , " , " " , , , , , , , , , , , , , , , , " , , , , , , , ,17.45 Bating v Christie (1804) 5 East Dyer (1884) 9 App Cas 345 " , , , , , , , " , , , " " " , , , " , , , , , , .8.56, 18.30, 18,109 Bishop v
398 """""""" . """""""""""",,, 18,64 Baring v Claggett (1802) 3 Bos & Pltl201 ,,, " , , . " , , , , " Pentland (1827) 7 B & Cr 219 ",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,11.31 Bissett v Wilkinson [1927J
, , , , , , , " , , , , , , , " , , , , , 18,64 Barker v Blakes (1808) 9 East 283 , , , " , , , "", , , " , , , , , , " AC 177 ' , " , , , , , , , , " , , , , , , , , , , , , " , , , " , , , , , ,4,133, 4,134 Blaauwpotv Da Costa
, , , , , , " " , , , , , " , , , , 22,56 Barker v Janson (1868) LR 3 CP 303 ",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, , (1758) 1 Ed 130 """'''"""""" . """,,,,, ,,25.75, 25.76 Black King Shipping Corp v Massie (The
7,28, 7.39 Barlee Marine Corp v Mountain (The Leegas) [1987J 1 Lloyd's Rep 471 , , , , , " . , Lirsion Pride) [1985] 1 Lloyd's Rep 437 ., , , , ,4,123,
, , 2.50,2,59 Barnett's Trusts, Re [1902] 1 Ch 847 """",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,13 . 58 4,200,4,203,6.41,18,120,20.22,22,35,22.52,22,88,22,1l3
Barraclough v Brown [1897] AC 615; (1895) 1 Com Cas 329; (1895) 1 Com Cas 262" .22.48 Blackburn, Low & Co v Haslam (1888) 21 QBD 144 """"""""""" ,4,121, 4,125 Blackburn,
Barrett Bros (Taxis) Ltd v Davies [1966J 1 WLR 1335 """""""""""""" ,20.58 Barrlett & Low & Co v Vigo" (1887) LR 12 App Cas 531 , " , , . " , , , , ,4,116, 4,1l9, 4,121,
Parrne" Ltd v Meller [1961] 1 Lloyd's Rep 487 """"""""""""" ,8,54 Bartlett v Pentland (1830) 4,122,4,175
lOB &Cr760 "",,,,,,,,,,,,,,,, . ,,,,,,,,,,, "", , 22,1l7 Batton v Armstrong [1976J AC Blackburn Rove" Football & Athletic Club pic v Avon Insurance pic [2004] EWHC
104 ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,:,,,,,,,,,,,,, ,4.47 2625 (Comm), [2005] Lloyd's Rep IR 239 """"",,,,,,,,,,,,,,,,,,,,,,,,,8,26
Blackburn v Liverpool, Brazil & River Plate Steam Navigation Co (1902] 1 KB 290 ' .. , .10.14
Baston & Firminger Ltd v Nasima Enterprises (Nigeria) Ltd [1996J"CLC 1902 ." .... Blackett v Royal Exchange Arsurance Co (1832) 2 Cr & J 244 , , ", , , , " , , , , " , , . " , ,,8.53
".5.13
XXXIV xxxv
Table ofCases
Table ofCases
Blackhurst v Cockell (1789) 3 TR 360 18.76,18.90
Britis~': Foreign Marine Insurance Co Ltd v Sanday & Co [1916]
Blackpool & Fylde AetO Club Ltd v Blackpool Botough Council [1990J 1 WLR 1195 2.43 C650 .
Blane Steamships Ltd v Minister of Transport [1951] 2 KB 965 22.48 British & Foreign Marine Insu~~~~~ C.. 'G' '['19'.. ']" .. " 1.49, 21.54, 21.97
Blascheck v Bussell (1916) 33 TLR 74 7.34 ov aunt 21 lAC41 4.92,7.54,7.59,
Boag v Economic1nsutance Co Ltd [1954] 2 Lloyd's Rep 581 26.06 British Sugarplc v NEI Power Projects Ltd (1997) 87 BLR 42' 10.78, 10.79, 15.06,24.20
Boaed ofTtade v Hain Steamship Co [1929] AC 534 9.29, 13.11, 13.42 Bnnsh-Amencan Tobacco Ltd v HG Poland (1921) 7 LiLRe i·······················8.60
BOC GtOUP pIc v Cemeon IIc [1999] 1 All ER (Comm) 970 8.03 Broad & Montague Lrd v South E. . P 08 18.39
Boggan v MOtOt Union Insutance Co Ltd (1923) 16 LlLRep 64 14.17 Broadmayne, The [1916] P 64 . ast Lancashtre Insurance Co Ltd (1931) 40 LILRep 3286.06
Boiler Inspection & Insurance Co of Canada v Sherwin-Williams Co of Canada [1951] Brocklebank v Sugrue (1831) 1 !vi &'R,;b'l'oi 13.64
AC 319 '" '" " 10.68 Brooking v Maudsley (1888) 38 ChD 636 :: :: '" 21.91
Bolam v Priem Barnet Hospital Management Committee [1957] 1 WLR 582 5.20 Brooks v MacDonnell (1835) 1 Y&CEx ··· .. ··· .. ···· .. · .. · 4.10
Bolitho v City & Hackney Health Authority [1998] AC 232 5.21 Broom v Batchelor (1856) 1 H & N 255 .500 2 1.111
Bombay & Persia Steam Navigation Co v Shipping Comroller(1921) 7 LlLRep 226 " 13.64 Brothersron v Barber(1816) 5 M & S 418 8.32
Bond Air Services Ltd v Hill [1955J 2 QB 417 7.58 Brotherton v Aseguradora COlseguros SA (No 2) [2003]' EWCA·C:················ ;21.101
Bondrerr v Hemigg (1816) 1 Holt 149 _ 9.37,21.49 Rep 1R 746 .. .. .. ... . . IV 705, [2003] Lloyd s
Bonner v Cox Dedicated Corporate Member Ltd [2005J EWCA Civ 1512; [2004] Brotherton v Aseguradora Cols~~;o~·SA(N~3)[i(;O;iEwti~'lir(~·85, 4.86, 4.156, 4.169
EWHC 2963 (Comm); [2005] Lloyd's Rep lR 569 2.07, 2.21, 2.67, 4.201,15.69 Lloyd's Rep IR 762 1 omm), [2003]
Boon & Cheah Steel Pipes Sdn Bhd v Asia Insurance Co Ltd [1975] 1 Lloyd's Rep 452 21.52 Brough v Whitmore (1791) 4 TR 206 ················ 4.63,4.81,4.89,4.92
Booth v Gair (1863) 15 CB(NS) 291 24.27 Brown Bros v Fleming (1902) 7 Com C~~ '2;'..: " .. '"." " .. 7.02
Bosma v Larsen [1966J 1 Lloyd's Rep 22 22.71 Brown v Howard (1820) 2 Brod & B 73 5 2 1.07
Boston Fruit Co v British & Foreign Marine Insurance Co [1906] AC 336 2.83 Brown v Raphael [1958] Ch 636 . . 22.62
Bosworth (No 3), The [1962) 1 Lloyd's Rep 483 24.69 Brown v Tayleur (1835) 4 A & E 24'1'" '" . '" " .. " 4.134, 4.138
BottOmley v Bovill (1826) 5 B & C 210 , 11.54, 18.31 Brown v Vigne (1810) 12 East 283 17.08
Bouillon v Lupton (1863) 15 CB(NS) 113, (1863) 33 LJCP 37 18.43,19.25,19.26,19.27 Brownlie v Campbell (1880) 5 A C;;· 17.35
BoultOn v Houlder Bros & Co [1904] 1 KB 784 1.59, 1.60,4.200 '11 Hid' Ld pp I 925.. C .. .. .. .. .. . 4182
BrownSVI e 0 mgs t v Adam' .
Bousfield v Bames (1815) 4 Camp 228 26.20, 26.22, 26.24, 26.27 Rep 458 " Jee nsurance 0 Ltd (The Milasan) [2000] 2 Lloyd's
Bavis Construction Ltd v Commercial Union Assurance Co pIc [2001] Lloyd's Rep Bruce v Jones (1863) 1 H & C 769· .. ······ .. ·· .. ····· .. ··· .. ···· .. · .7.55,15.18,15.22
lR 321 26.04, 26.38, 26.58 Brutus v Cozens [1973] AC 854. ··············· 26.24,26.25,26.26,26.27
Bovis Lend Lease Ltd v Saillatd Fuller & Parmers [2001] 77 Con LR 134 26.38 Bryant & May Ltd v London Assu;a~c~'C~;. (i886)i TLR59i " .. 8.59
Bowden v Vaughan (1809) 10 East 415 4.134 Buckeye State, The (1941) 39 F Su 344 P 10.81
Bowring (CT) & Co Ltd v Amsterdam London Insurance Co (1930) 36 LlLRep 309
Boyd v Dnbois (1811) 3 Camp 133
15.57
'10.80
Bucks Priming Press Ltd v Prudent!JAssur~~;~ '(994) .; '6; Re'LR2i9' 10.60
Bldchow Vaughan & Co v Compania Minera (1916) 32 TLR 40 22.79
BP Exploration Operating Co Ltd v Kvaemer Oilfield Producrs Ltd [2004] EWHC 999 Bunge Seroja, The [1998] HCA 65, [1999] 1 Llo d's Re 12 4 13.52
(Comm), [2005] 1 Lloyd's Rep 307 8.07 Burges v Wickham (1863) 3 B & S 669 Y P5 10.07
BP pIc v GE Frankona Reinsurance Ltd [2003] EWHC 344 (Comm), [2003] 1 Lioyd's Burke v LFOT Pry Ltd [2002] HCA 17 19.18,19.19
Rep 537
Braconbush, The (1945) 78 LlLRep 70 ,
2.32, 2.39, 2.40, 2.41, 2.42
7.52
Burmah Oil Co Ltd v Lord Advocate [196'5'] 'AC 75' 26.33
Burnand v Rodocanachi Sons & Co (1882) 7 A C······· .. ·· .. ··· .. ·· .. ·· .13.65,13.66
Bradbourn v Great Western Railway (1874) LR 10 Ex 1 25.01 Burston Finance v Speirway Lrd [1974] 1 WLlf64;s 333 ····· 25.38,25.40
Bradford v Levy (1825) Ry & Mood 331 11.54 Burron v English (1883) 12 QBD 218 6.34
Bradford v Symondson (1881) 7 QBD 456 6.05 Business Computers Ltd v Anglo Af' ..L··:·······..····..··········.. 1.01,24.45
Bradley (FC) & Sons Ltd v Federal Steam Navigation Co (1926) 24 LlLRep 446 19.18 Busk v Royal Exchange Assuranc: C~(~~1;)s~,,:~O~~77] 1 WLR 578 20.25
Bradley, Re [1912] 1 KB 415 22.15 Burler v Wildman (1820) 3 B & Ald 398 '" 73 10.63, 10.65, 11.31
Bradley v Eagle StarInsurance Co Ltd [1989] AC 957 20.33,20.50,20.53,21.14 Burlin's Sertlement, Re [1976) Ch 251 ············ 7.23,10.70,10.72,13.57
Bragg v Anderson (1812) 4 Taunt 229 17.08 ........................................... 8.77
Brandeis, Goldschmidt & Co v Economic Insurance Co Ltd (1922) 11 LlLRep 42 24.48 Cadogianis v Guardian Assurance CO [1921J 2 AC 125
Brandon v Curling (1803) 4 East 410 3.80 Cale~o~;~ ~?r~ Sea Ltd v British Telecommunications ~l~ i200i) UKHL 4: [2ooij ..... 1890
Brentwood, The [1975] 2 SCR 477 11.68, 11.71 Y s ep 553 .
Brine v Featherstone (1813) 4 Taunt 869 , 4.62 Calico Printers As~o~iation v Bardays 'B~ki.'td·(·1'930)' 36 'c~~ c'.,,., .".. '..25.02,25,03
Bristol & West Building Sociery v May, May & Merrimans (No 2) [1998] 1 WLR 336 25.02 Callaghan v Domlmon Insurance Co Ltd [1997] 2 LIo d's Re 54~ 71 ······· . ·· 5.11
Btitain Steamship Co Ltd v R (The Petersham) [1921] 1 AC 99; [1919] Callaghan v Thompson [2000] Lloyd's Re IR 474Y P ." 22.66,22.70
Callender v Oelrichs (1838) 5 Bin (NG) p 4.164
2 KB 670 '" 13.06, 13.08, 13.40
British & Foreigh Steamship Co Ltd v R (The St Oswald) [1918] 2 KB 879 13.10 Cambridge v Anderron (1824) 211 & C 6~~ 5.29
British & Foreign Insurance Co Ltd v Wilson Shipping Co Ltd Canada Rice Mills Ltd v Union Marine & Ge~~~~'I~~~~~~~~ C~ L~d'['194'1']' . , , .. , '. , .. 21.38
[1921] 1 AC 188 21.116, 21.118 AC 55............ 956
............................... ,10.10,10.14,10.44,10.45
XXXVI xxxvii
Canada Steamship Lines Ltd v The King [1952J AC 192 4.110 Century Insurance Co of Canada v Case Existological Laboratories Ltd (The BamcelllI)
Canadian Imperial Bank of Commerce v Insurance Corp of Ireland Ltd (1991) 75 DLR (1984) 150 DLR (3d) 7; (1982) 133 DLR 727 10.14,18.107,18.109
(4th) 482 20.01 Cepheus Shipping Corp v Guardian Royal Exchange Assurance plc (The Capricorn)
Canadian Transport Co Ltd v Court Line Ltd [1940J AC 934 25.25 [1995] 1 Lloyd's Rep 622 3.35, 3.55
Candler v London & Lancashire Guarantee & Accident Co of Canada (1963) 40 DLR Chandris v Argo Insurance Co Ltd [1963] 2 Lloyd's Rep 65 22.65
(2d) 408 15.12 Chandris v Isbrandtsen-Moller Co Inc [1951J 1 KB 240 '" 8.Q3, 8.17
Cane v Moye (1658) 2 Sid 121 1.37 Chapman GA) & Co Ltd v Kadirga DenizciIik ve Ticare' [1998] Lloyd's Rep IR 377 6.02,
Canterbury GolfInternational Ltd v Yoshimoto [2002] UKPC 40 , 8.40
6.04,6.22,6.30,6.33,6.35,6.36
Cantiere Meccanico Brindisino v Janson [1912] 3 KB 452 4.107 Chapman v Walton (1833) 10 Bing 57 '" 5.20
Caparo Industries pic v Dickman [1990] 2 AC 605 5.45 Charente Steamship v Director of Transports (1921) 9 LlLRep 355 , .. , .. ", .. ,.,,13.10
Cape plc v Iron Trades Employers Insurance Association Ltd (1999) [2004] Lloyd's Rep Charles Brown & Co Ltd v Nitrate Producers' Steamship Co Ltd (1937) 58 LlLRep 188 .. 11.13
m~........... 8n Charlton v Fisher [2001] EWCA Civ 112, [2002] QB 578 15.05, 15.09
Capital Coastal Shipping Corp v Hartford Fire Insurance Co (The Cristie) [1975] Charman v New Cap Reinsurance Corporation Ltd [2003J EWCA Civ 1372, (2004J
2 Lloyd's Rep 100 10.06, !l.40, 19.46, 19.54 Lloyd's Rep IR373 6.30
Capital Finance Co Ltd v Stokes [1969] I Ch 261 6.34 Charter Reinsurance Co Ltd v Fagan [1997] AC 313 8.05,8.07,8.10,8.16,8.24,20.62
Capricorn, The [1995] I Lloyd's Rep 622 3.35, 355 Chatenay v Brazilian Submarine Telegraph Co [1891] 1 QB 79 859
Captain Panagos DP, The [1985J 1 Lloyd's Rep 625 1.57, 7.33, 7.34, 23.07, Cheng v Governor of Pentonville Prison [1973] AC 931 . '" 14.28
23.08, 23.09 Cheshire(Thomas) & Co v Vaughan Bros [1920] 3 KB 240 3.11
Captain Panagos Dp, The (No 2) [1989] 1 Lloyd's Rep 33; [1986] 2 Lloyd's Rep 470 ... 10.65, China Traders' Insurance Co Ltd v Royal Exchange Assurance Corp (1898J 2 QB 187 ,.,,1.59,
11.62,11.64,11.73,15.18,15.19
1.60,4.200
Car & Universal Finance Co Ltd v Caldwell [1965] I QB 525 4.04 China Transpacific Steamship Co v Commercial Union Assurance Co (1881) 8
Carihhean Sea, The [1980] 1 Lloyd's Rep 338 11.08, 11.13, 11.24 QBD 142 1.59
Carius v New York Life Insurance Co 124 F Supp 388 (1954) 13.23 Chitty v Selwyn (1742) 2 Ark 359 18.20
Carras v London & Scottish Assurance Corp Ltd [1936J I KB 291 21.91, 21.93 Christensen v Sterling Insurance Co 284 P 2d 287, 22 ILR 893 ' , .. , , 13,23
Cattery Boehm (1766) 3 Burr 1905 .4.05, 4.10, 4.13, 4.89, 4.92, 4.153, 4.178 Christie v Secretan (1799) 8 TR 192 . 19.22
Cartwright v MacCotmack [1962] 2 Lloyd's Rep 328 , 17.47 Christin v Ditchell (1797) Peake Add Cas 141 18.89
Carvill America Inc v Camperdown UK Ltd [2005] EWCA Ciy 645, [2005J 2 Lloyd's Ciampa v British India Steam Navigation Co Ltd (1915J 2 KB 774", .. , .. , " . , .. 19.13
~m................5~6~
Citadel Insurance Co v Adantic Union Insllrance Co SA [1982] 2 Lloyd's Rep 543 "', .. 2.21,
Case v Davidson (1820) 2 Brod & B 379; (1816) 5 M & S 79 , 22.38
- 2.41,2.42
Cassel v Lancashire & Yorkshire Accident Insurance Co Ltd (1885) 1 TLR 495 , ' ,22.14 Clan Line Steamers Ltd v Board of Trade (The Clan Matheson) [1929] AC 514 .... 9.05, 13.15
Casson v Osrley Ltd [2001J EWCA Civ 1013, [2003J BLR 147 8.05 Clan Line Steamers Ltd v Liverpool & London War Risks Insurance Association Ltd
Castellain v Preston (1883) 11 QBD 380 357,25.05,25.06,25.07,25.10,25.39, [1943] KB 209 13.10
25.40,25.65 Clan Matheson, The [1929J AC 514 ............................... 9.05,13.15
Castelli v Boddington (1852) 1 El & Bl66 6.27 Clapham v Cologan (1813) 3 Camp 382 .. 18.64
Castle Insurance Co Ltd v Hong Kong Islands Shipping Co Ltd (The Potoi Chau) Clapham v Langton (1864) 34 LJQB 46 19.19
[1983] 2 Lloyd's Rep 376 22.66,24.45 Clarke v Dumaven (Earl of) (The Satanita) [1897] AC 59 2.67
Catariba, The [1997] 2 Lloyd's Rep 749 21.111,21.1 14,23.21,23.23 Clay v Harrison (1829) 10B&C99 3.12
Cates (Captain JA) Tug & Wharfage Co Ltd v Franklin Insurance Co [1927] Clilford v Hunter (1827) Moo & M 103 19.09
AC 698 21.48,21.69,21.106,22:59 Clough v London & North Western Railway Co (1871) LR 7 Ex 26 4.04,4.20,4.167
Catherine Chalmers, The (1874) 32 LT 847 , 10.44 Clyde Marine Insurance Co, Re (1924) 17 LlLRep 287 3.68
Cator v Western Insurance Co of New York (1873) LR 8 CP 552 21.05 Co~operativeRetail Services Ltd v Taylor Young Partnership Ltd [2001J Lloyd's Rep
Cawley v National Employers' Accident & General Assurance Association Ltd (1885) IR 122 25.33,25.34,25.35, 26,54
1 TLR255 22.14, 22.15 Coast Ferries Ltd v Century Insurance Co of Canada (The Brentwood) [1975] 2
CazaletvStBarbe(1786) 1 TR187 21.107 SCR 477 11.68, 11.71
CCR Fishing v Tomenson (The La Pointe) [1986] 2 Lloyd's Rep 513 2.42, 9.23, 10.14 Coates v Modern Methods & Materials [1982] ICR 763 14.09
Cee Bee Marine Ltd v Lombard Insurance Co Ltd [1990] 2 NZLR 1 553,8.21,8.47,9.27 Cobb & Jenkins v Volga Insurance Co Ltd of Petrograd (1920) 4 LlLRep 130 751
Central Bank of India Ltd v Guardian Assurance Co Ltd (1936) 54 LlLRep 247 22.86 Cobequid Marine Insurance Co v Baneaux (1875) LR 6 PC 319 .. , ' , .. , , .. " .21.42
Central Insurance Co Ltd v SeacaifShipping Corp (The Alolos) [1983] 2 Lloyd's Coca~ColaFinancial Corp v Finsat International Ltd [1998J QB 43 , " .. ,., .. 6.40
Rep 25 " 25.14,25.15 Cock, Russell & Co v Bray, Gibb & Co Ltd (1920) 3 LlLRep 71 5.36
Central Railway of Venezuela v Kirsch (1867) LR 2 HL 99 , 4.64 Cockey v Atkinson (1819) 2 B & AId 460 17.08, 17.48
Centre Reinsurance International Co v Curzon Insurance Ltd [2004] EWHC 200 (Ch), Cockrane v Fisher (1835) I Cr M & R 809; (1834) 2 Cr & M 581 , 18.87
[2004] Lloyd's Rep IR 622 " 20.41, 20.43,20.45,20.46,20.81 Cohen (George), Sons & Co v Standard Marine Insurance Co Ltd (1925) 21
Centre Reinsurance International Co v Frea1tley [2005] EWCA Civ 115, [2005] Lloyd's LlLRep 30 , 21.69
Rep IR 303 20.43, 20.44 Cohen, Sons & Co v National Benefit Assurance Co Ltd (1924) 40 TLR 347 '" .10.14, 1950
XXXV111 XXXIX
Coker v Bolton [1912] 3 KB 315 22.44 Constance v Noble (1810) 2 Taunt 403 17.09
Colby v Hunter(1827) M &M 81 ··· .. ···· .18.68 Constitution Insurance Co of Canada v Kosmopoulos (1987) 34 DLR (4th) 208 3.33
Colby v Machell (1827) 3 Car & I'7 6.05 Container Transport International Inc v Oceanus Mutual Underwriting Association
Coleman's Deposiraries Lrd, Re [1907] 2 KB 798 22.15 (Bermuda) Ltd [1984] I Lloyd's Rep 476; [1982) 2 Lloyd's Rep 178 .4.09,4.25,
Coles v Sir Frederick Young (Insurers) Ltd (1929) 33 LlLRep 104 5.22 4.27,4.28,4.31,4.32,4.33,4.34,4.35,4.37,4.38,4.39,4.42, 455, 4.69,
Colledge v Harty (1851) 6 Ex 205 18.109 4.101,4.127,4.150,4.176,4.177
Collinge v Heywood (1839) 9 A & E 633 22.68 Conrinenral Grain Co Ltd v Twitchell (1945) 78 LlLRep 251 958
Collingridge v Royal Exchange Assurance (1877) 3 QBD 173 25.01 Continental Illinois National Bank & Trust Co of Chicago v Alliance Assurance Co Ltd
Cologan v London Assurance Co (1816) 5 M & S 447 21.101 (The Captain Panagos Dp) (No 2) [1989) I Lloyd's Rep 33 [1986) 2 Lloyd's
Colonial Insurance Co of New Zealand v Adelaide Marine Insurance Co (1886) 12 App Rep470 10.65, 11.62, 11.64, 11.73, 15.18, 15.19
Cas 128 3.45 Continental Illinois National Bank & Trust Co of Chicago v Bathurst (The Captain
Colonia VersicherungAG v Amoco Oil Co [1997] I Lloyd's Rep 261 24.45,25.06 Panagos) [1985) 1 Lloyd's Rep 625 1.57,7.33,7.34, 23.Q7, 23.08, 23.09
Comber v Anderson (1808) 1 Camp 523 5.24, 5.40 Cook v Dtedging & Construction Co Ltd [1958] 1 Lloyd's Rep 334 12.16
Commercial & Estates Co of Egypt v Ball (1920) 36 TLR 526 13.66 Coolee Ltd v Wing, Heath & Co (1930) 47 TLR 78 5.35
Commercial & Estates Co ofEgypt v Board of Trade [1925] 1 KB 271 l3.66 Cooper v General Accident Fire & Life Assurance Corp (1923) 128 LT 481 . " 14.17
Commercial Trading Co v Hartford Fire Insurance Co [1974] 1 Lloyd's Rep 179 .. 11.44,11.54 Copernicus, The [1896J I'237 17.15
Commercial Union Assurance Co v Lister (1874) LR 9 Ch ApI' 483 25.16, 25.18 Corcoran v Gurney (1853) 20 LTOS 221 10.81
Commercial Union Assurance Co v Niger (1921) 7 LlLRep 239 .4.194 Cornfoot v Royal Exchange Assurance Corp [1904] I KB 40 17.36
Commercial Union Assurance Co Ltd v Hayden [1977] QB 804 26.49,26.71,26.77, Cornhillinsurance Co Ltd v L & B Assenheim (1937) 58 LlLRep 27 .4.156
26.78,26.80,26.81 Cory & Sons v Butr (1883) 8 ApI' Cas 393 9.29,11.58,11.59,13.45,13.47, 15.Q3
Commercial Uoion Assurance Co pIc v Sun Alliance Insurance Group pIc [1992] 1 Lloyd's Cotyv Patron (1872) LR 7 QB 304 2.21
~m......................··········8.W Cory v Patron (No 2) (1874) LR 9 QB 577 2.21
Commercial Uoion Assurance Co v NRG Victory Reinsurance [1998] 2 Lloyd's Cossman v West (1887) 13 ApI' Cas 160 21.49, 21.93
Rep 600 21.14 Costain-Blankevoort (UK) Dredging Co Ltd v The Davenport (The Nassau Bay) [1979]
Commission for the New Towns and Cooper (Great Britain) Ltd [1995] Ch 259 8.79 1 Lloyd's Rep 395 12.03, 1353, 13.84
Commonwealth Construction Co Ltd v Imperial Oil Ltd (1977) 69 DLR Coulouras v British General Insurance Co Ltd (The Katina) (No 2) (1922)
(3d) 558 358,25.27 LlLRep 220 15.23
Commonwealth Insurance Co of Vancouver v Groupe Spinks SA (1983] 1 Lloyd's County & District Properties Ltd v Jenner (C) & Son Ltd [1976) 2 Lloyd's Rep 729 22.68
Rep67 5.31 COUrt Line Ltd v R (The Lavington Court) [1945] 2 All ER 357 21.54, 22.33
Commonwealth Shipping Representatives v Peninsular & Oriental Branch Service (The Courrney & Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 WLR 297 2.43
Geelong) [1923J Ac 191 13.10, 13.11 Cousins (H) & Co Ltd v D & C Catriers Ltd [1971) 2 QB 230 25.24
Commonwealth Smelting Ltd v Guardian Royal Exchange Assurance Ltd [1986] 2 Lloyd's Cousins v Nantes (1811) 3 Taunt 513 3.07
Rep 121 8.59, 10.67 Coven SpA v Hong Kong Chinese Insurance Co [1999] Lloyd's Rep lR 565 21.08, 21.09,
Commonwealth, The [1907] I'216 25.61, 25.63, 25.64, 25.66, 25.72 2UO, 21.20
Compania Columbiana de Seguros v Pacific Navigation Co [1965] 1 QB 101 ,25.15, 25.48 Covington v Roberts (1806) 2 B & pNR 378 1057
Compania Maritima of Barcelona v Wishart (1918) 23 Com Cas 264 ., 7.52 Cox v Bankside Members Agency Ltd [1995) 2 Lloyd's Rep 437 4.201,20.42,20.66,20.67,
Compania Maritima San Basilio SA v Oceanus Mutual Underwriting As~ociation 20.73,22.14,22.76
(Bermuda) Ltd (The Eurysthenes) [1976J 2 Lloyd's Rep 171 17.03,17.04,19.34, Coxe v Employers' Liability Assurance Corp Ltd [1916] 2 KB 629 9.60,9.65
19.38,19.49 Coxwold, The [1942] AC 691 8.09,9.04,9.06,9.34,9.45, 13.11, 13.12, 13.16, 13.17
Compania Maritime Astra SA v Archdale (The Armar) [1954] 2 Lloyd's Rep 95 23.23 Craighall, The [1910] I'187 12.16
Compania Naviera Martiartu v Royal Exchange Assurance Corp [1923] 1 KB 650 7.50, Credit Agricole Indosuez v Muslim Commercial Bank Ltd [2000] 1 Lloyd's Rep 275 5.24
10.30, 11.47, 11.60 Crew, Widgety & Co v Great Western SS Co Ltd [1887J WN 161 13.75
Campania Naviera Martiartu v Royal Exchange Assurance Corp (The Arnus) (1924) 19 Crippen, Re [1911) I'108 3.74
LlLRep 186 ··········· .15.22, 15.24 Cristie, The [1975] 2 Lloyd's Rep 100 10.06, 11.10, 19.46, 19.54
Compania Naviera Santi SA v Indemnity Mutual Assurance Co Ltd (The Tropaioforos) Crocker v General Insurance Co Ltd of Trieste (1897) 3 Com Cas 22 17.37
[1960] 2 Lloyd's Rep 469 15.20 Crocker v Srurge [1897) 1 QB 330 17.37
Compania Naviera Vascongada v British & Foreign Marine Insurance Co Ltd (The Gloria) Crooks v Allan (1879) 5 QBD 38 24.45
(1936) 54 LlLRep 35 15.18,15.21, 15.24, 19.33 Crowley v Cohen (1832) 3 B & Ad 478 3.69
Company of African Merchants Ltd v British & Foreign Marine Insurance Co Ltd (1873) Crown of Leon (Owners) v Admiralty Commissioners [1921] 1 KB 595 13.64
LR 8 Ex 154 18.27, 18.39 Crows Transport Ltd v Phoenix Assurance Co Ltd [1965) 1 WLR 383 , 17.11
Comunidad Naviera Baracaldo v Norwich Union Fire Insurance Society (The Bara Bi) Cruikshank v Janson (1810) 2 Taunr 301 17.10
(1923) 16 LlLRep 45 15.23,15.24 Ctystal, The [1894] AC 508 22.47
Confederation Life Insurance Co v Causton (1989) 60 DLR (4th) 372 ':' 25.52 CTN Cash & Carry Ltd v General Accident Fire & Life Assurance Corp pte [1989]
Conohan v Coopetators 2002 FCA 60,2004 AMC 1661 , 12.13 1 Lloyd's Rep 299 1857
x) xli
Cullen v Butler (1816) 5 M & S 461 10.15, 25.01 Depaba v Ludlow (172!) 1 Comyns 360; (I720) I Com Rep 360 1.39, 3.06
Cunard v Hyde (No 1) (1859) 29 LJKB 6 3.76 Deposit & General Life Assurance Co v Ayscough (1856) 6 El & BI 761 .4.20
Cunard Steamship Co Lrd v Marten [1902J 2 KB 624 23.51, 24.02, 24.37, 24.71 Derry v Peek (1889) 14 App Cas 337 .4.03, 5.07, 22.78
Cunliffe-Owen v Teather & Greenwood [1967J 1 WLR 1421 8.14 Deutsche Ritckversicherung AG v Wa!brook Insurance Co Ltd [1995] 1 WLR 1017 4,123
Currie (MR) & Co v Bombay Native Insurance Co (1869) LR 3 PC 72 22.54,24.12,24.13 Deutsche-Australische DampfSchiffsgesellschaft v Sturge (1913) 30 TLR 137 17.17
Curtis & Sons v Mathews [1918J 2 KB 825 13.26,13.29,13.30,13.34 Devaux v rAnson (1839) 5 Bing NC 519 1.54,3.52, 17.41, 17.44
CVG Siderurgicia del Orinoco SA v London Steamship Owners' Mutual Insurance DG Finance Ltd v Stott [1999J Lloyd's Rep IR 387 3.57
Associarion (The Vainqueur Jose) [1979J 1 Lloyd's Rep 557 20.57,20.61 Diamond, The [1906J P 282 10.60
Dias, The [1972J 2 QB 625 10.36, 15.21, 15.26
Da Costa v Scandrer(1723) 2 P Wms 170 6.07 Dibbens, Re [1990] BCLC 577 3.57
Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko Voivoda) [2003] Dick Bentley Producrions Lrd v Harold Smith (Motors) Ltd [1965J 1 WLR 623 4.179
EWCA Civ 451, [2003J 2 Lloyd's Rep I; [2002J EWHC 1306 (Comm), [2002J 2 All Dickinson v Jardine (1868) LR 3 CP 639 25.01
ER (Comm) 560 8.21 Dickson v Devitr (1916) 86 LJKB 315 5.64, 5.65, 5.66, 5.70
Dairy Contractors Ltd v Tasman Orient Line CV (The Tasman Discoverer) [2004] Dina Services v Prudential Assurance [1989] 1 Uoyd's Rep 379 , 10.69
UKPC 22, [2005J 1 WLR 215 8.50 Direct Line Insurance v Khan [2002] Lloyd's Rep IR 364 22.100,22.102
Dalzell v Mair (1808) 1 Camp 532 6.05, 6.33 Direct Travel Insurance v McGeown [2003] EWCA Civ 1606, [2003J Lloyd's Rep
Daneau v Luarent Gendron, Ltee [l964J I Lloyd's Rep 220 .4.165 m5~.......,.............8.~
Daniels v Harris (1874) LR 10 CP I 19.17,19.20,19.61 Ditbrie v Hilton (1868) LR4 CP 138 21.39
DarbishirevWarran [1963J 1 WLR 1067 24.11 Dixon v Hovill (1828) 4 Bing 665 5.37
Darrell v Tibbitts (1880) 5 QBD 560 25.42, 25.73 Dixon v Sadler (1839) 5 M & W 405 11.36,19.20
Davidson v Bumand (1868) LR4 CP 117 10.14, 10.23, 19.51 Dixon v Whitwortb (1879) 4 CPD 371 24.37
Davidson v Gwynne (I810) 12 East 381 11.48 Dodwell & Co Ltd v British Dominions & General Insurance Co Ltd (1918) [1955]
Davidson v Willasey (I 813) I M & S 313 17.39 2 Lloyd's Rep 391n '" " .. 15.47
Davies v London Provincial Marine Insurance Co (1878) 8 ChD 469 _ 4.03 Doheny v New India Assurance Co Ltd [2005J EWCA Civ 1705, [2005J Lloyd's Rep
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 8.05 IR251 .4.104
Davis v Garrett (I 830) 6 Bing 716 18.34 Dome Mining Corp Ltd v Drysdale (1931) 41 LlLRep 109 22.88
Dawson v Mercantile Mutual Insurance Co Ltd [1932] VLR 380 18.107,18.109 Domingo Mumbra SA v Laurie (I924) 20 L1LRep 122 15.23
Dawsons Ltd v Bonnin [1922J 2 AC 413 .4.205,18.62,18.91 Dominique, The [1989J AC 1056 .4.17
De BusschevAlr (1878) 8 ChD 286 5.13 Don King Productions Inc v Warren [2000J Ch 291 20.27
De Costa v Scandtet (I723) 2 P Wms 170 1.42, 4.13 Dora Forster [1900J P 241 21.115
De Hahn v Hartley (I 786) I TR343 18.71, 18.92 Dora, The [1989J 1 Lloyd's Rep 69 .4.70,4.71,4.127,7.45,7.47
De Mattos v Gibson (1868) LR 3 Ex 185 3.17;9.38 Doriga Y Sanudo v Royal Exchange Assurance Corp (The Marianela) (1922) 13
De Maurier Oewels) Ltd v Bastion Insurance Co Ltd [l967J 2 Lloyd's Rep 550 .4.107, L1LRep 126 15.24
4.108,4.165,8.54,18.109 Douglas v Scougall (1816) 4 Dow 269 19.22
De Monchy v Phoenix Insurance Co of Hartford (I929) 34 L1LRep 201 15.42,15.46,15.47 Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 .4.183
De Vaux v Salvador (I836) 4 A & E 420 12.09 Doyle v Powell (1832) 4 B & Ad 267 18.39
De Wolf v Archangel Maritime Bank & Insurance Co Ltd (I874) LR 9 Qll451 .. 18.24, 18.25 DPP v Stonehouse [1970] AC 55 13.56
Deatle v Hall (1823) 3 Russ I 20.13 Drake Insurance pic, Re [2001] Lloyd's Rep IR 643 6.03
Debtor (No 627 of!936), Re a [l937J Ch 156 26.61 Drake Insurance pic v Provident Insurance pic [2003J EWCA Civ 1834, [2004J QB 601;
Decorum Investments Ltd v Atkin (The Elena G) [2001J 2 Lloyd's Rep 378 .4.79 [2003J EWHC 109 (Comm), [2003J Lloyd's Rep IR 781 .4.53, 4.156, 4.171,
Deepak Fertilisers & Petrochemicals Corp v leI Chemicals & Polymers Ltd [1999] 26.07, 26.59, 26.60
I Lloyd's Rep 387 3.36,3.63,25.30 Driefonrein Consolidated Mines Ltd v Janson [1900J 2 QB 339 3.80,13.18
Deering v Earl of Winchelsea (I787) 2 Bos & P 270 26.32 Drinkwater v London Assurance Corp (1767) 2 Wils KB 363 13.32
Delany v Stoddart (I785) 1 TR22 18.41, 18.44 Driscol v Bovill (1798) 1 B & P 313 18.44
Delbye v Proudfoot (I692) 1 Show KB 396 1.37 Driscoll, Re [1918J 11R 152 25.51
Delphine, The [2001J 2 Lloyd's Rep 542 7.48,7.56,15.23 DSG Retail Lrd v QBE Inrernational Insurance Ltd [1999J Lloyd's Rep IR 283 " 2.76
Demetra K, The [2002J EWCA Civ 1070, [2002J 2 Lloyd's Rep 581 8.78, 8.81, 8.90,10.65 Dudgeon v Pembroke (1877) 2 App Cas 284 8.20,9.23,9.33, 10.06, 19.30, 19.45, 19.60
Denby v English & Scottish Maritime Insurance Co Ltd [1998J Lloyd's Rep IR 343 ..... 2.66, Duff v Mackenzie (1857) 3 CB(NS) 16 23.39
2.67,8.54 Dufourcet & Co v Bishop (1886) 18 QBD 373 25.18, 25.37
Denison v Modigliani (I794) 5TR 580 18.27 Dunbar v AB Painters Lrd [1986J 2 Lloyd's Rep 38; [1985J 2 Lloyd's Rep 616 5.59
Dennistown v Lillie (I821) 3 Bl202 .4.133, 4.134 Dunbeth, The [1897J P 133 18.36
Denoon v Home & Colonial Assurance Co (1872) LR 7 CP 341 21.87, 21.88 Duncan v Worrall (1822) 10 Price 31 4.15
Denoyr v Oyle (I649) Style 166 :: 1.37 Dunlop Bros & Co v Townend [1919] 2 KB 127 2.34
DenrvSmith(I869)LR4QB414 18.64 Dunlop Tyres Ltd v Blows [2001J EWCA Civ 1032, [2001] IRLR 629 8.41
xlii xliii
Dunthorne v Bentley (1996) [1999] Lloyd's Rep IR 560 9.62 Esso Petroleum Co Lrd v Hall Russell & Co Ltd (The Esso Bernicia) [1989] AC 643 .... 25.14
Dutham Bros v Robertson [1898J 1 QB 765 20.13 Esso Petroleum Co Ltd v Mardon [1976J QB 801 .4.138, 5.07
Durrell v Bederley (1816) Holt NP 283 4.80 Etablissemems Georges et Paul Levy v Adderley Navigation Co Panama SA (The Olympic
Duus Btown & Co v Binning (1906) 11 Com Cas 190 25.23 Pride) [1980J 2 Lloyd's Rep 67 8.77
Dyson v Rowcroft (1803) 3 Bos & Pul473 21.43 Etherington and The Lancashire & Yorkshire Accident Insurance Co [1909]
1 KB 591 9.36,9.44
Eagle Oil Transport Co Ltd v Board of Trade (1925) 23 LlLRep 301 13.12 Eurasian Dream, The [2002] EWHC 118 (Comm), [2002J 1 Lloyd's Rep 155 19.07, 19.10
Eagle Star & British Dominion Insurance Co Ltd v AV Reiner (1927) 27 LlLRep 173 8.89 Eurodale Manufacturing Ltd v Ecclesiastical Insurance Office pic [2003] EWCA Civ 203,
Eagle Star Insurance Co Lrd v Cresswell [2003] EWHC 2224 (Comm), [2004J 1 All ER [2003J Lloyd's Rep IR444 14.19
(Comm) 508 8.02 European Asian Bank v Punjab & Sind Bank (No 2) [1983J 1 WLR 642 5.24
Eagle Star Insurance Co Ltd v Games Video Co (GVC) SA (The Game Boy) [2004] Eurysthenes, The [1976J 2 Lloyd's Rep 171 17.03, 17.04, 19.34, 19.38, 19.49
EWHC 15 (Comm), [2004J 1 Lloyd's Rep 238 7.39,7.47,22.89,22.93 Evelpidis Era, The [1981] 1 Lloyd's Rep 54 20.18
Eagle Star Insurance Co Ltd v National Westminster Finance Australia Ltd (1985) 58 Everett v Hogg, Robinson & Gardner Mountain (Insurance) Co [1973] 2 Lloyd's
ALR 165 (PC) 5.29,550 Rep 217 558, 5.60
Eagle Star Insurance Co Ltd v Provincial Insurance pIc (1994) 1 AC 130 26.47, 26.50, Everth v Hannam (1815) 6 Taunr375 11.54
2651,26.55 Everth v Smith (1814) 2 M & S 278 21.91
Eagle StarInsurance Co Ltd v Spratt [1971J 2 Lloyd's Rep 116 2.14 Ewer v National Employers' Mutual Insurance Association (1937] 2 All ER 193 22.86
Earle v Rowcroft (1806) 8 East 126 " 11.48, 11.55, 11.56 Express & Star Ltd v Bunday [1988J ICR 379 14.06, 14.10
EasrIndia Co v Oditchurn Paul (1849) 7 Moo 85 22.62 Eyre v Glover (1812) 16East218 3.55
Ebsworth v Alliance Marine Insurance Co (1873) LR 8 CP 596 3.39
Economides v Commercial Assurance Co pic [1998J QB 587 4.134,4.136,4.137,4.139,4.145, Fairbanks v Snow (1887) 13 NE 596 4.47
4.146,7.47 Falkner v Ritchie (1814) 2 M & S 290 21.99
Eden v Parkison (1781) 2 Dougl732 18.77 Fanhaven Pty Ltd v Bain Davies Northern Pty Ltd [1982] 2 NSWLR 57 5.30,556
Edgar v Bumstead (1808) 1 Camp411 " 22.119 Fanti, The [1991] 1 AC 1 16.03, 20.41, 20.63, 22.65, 22.72
Edgington v Fitzmaurice (1885) 29 ChD 459 , .4.45, 4.137 Farnworth v Hyde (1865) 34 LJCP 207 " 21.42,21.75
Edington v Jackson (1832), unreported 21.79 Farrell v Federated Employers' Insurance Association Ltd [1970] 1 WLR 1400 26.44
Edwards Oohn) & Co v Motor Union Insurance Co Ltd [1922J 2 KB 249 3.11, 25.07, Fawcus v Sarsfield (1856) 6 El & BII92 10.06, 19.30, 19.46
25.10, 25.22 Feaseyv Sun Life Assurance Corp of Canada [2003J EWCA Civ 885, [2003J Lloyd's Rep
Edwards v Foorner (1808) 1 Camp 530 " .4.134 IR637 , 3.27, 3.34, 3.36, 3.40, 3.51, 3.62
Efrychia, The (1937) 59 LlLRep 67; (1937) 57 LILRep 37 , 15.24 Federal Commerce & Navigation Co Ltd v Tradax Export SA [1978J AC 1 8.61
Egan v Static Control Components (Europe) Ltd [2004] EWCA Civ 392, [2004J 2 Feise v Parkinson (1812) 4 Taunt 640 .4.62, 6.06, 6.07
Lloyd's Rep 429 , 8.44 Felicie, The [1990J 2 Lloyd's Rep 21n 20.70,20.72
Eglantine, Credo & Inez, The [1990) 2 Lloyd's Rep 390 ., 12.18 Fenton Insurance Co Ltd v Gothaer Versicherungsbank WAG [1991] 1 Lloyd's Rep 172 .. 6.16
Eide UK Ltd v Lowndes Lambert Group Ltd (The Sun Tender) [1999J QB 199 5.76, 5.79 Ferrcom Pty Ltd v Inbush (NSW) Pty Ltd (1996) 9 ANZ Insurance Cases 76, 728 557
El Ajou v Dollar Land Holdings pic [1994J 2 All ER 685 .4.123 Field Steamship Co Ltd v Burr [1899J 1 QB 579 15.35, 21.06
Elcock v Thomson [1949J 2 KB 755 7.34,7.39,23.23,23.24,23.27 Fielding & Plarr Ltd v Najjar [1969J 1 WLR357 . " " " 3.71
Elder, Dempster & Co Ltd v Patetson, Zochonis & Co Ltd [1924J AC 522 19.11,19.15 Figre Ltd v Mander [1999J Lloyd's Rep IR 193 " 6.16,6.17
Elena D'Amico, The [1980]1 Lloyd's Rep 75 " " 24.11 Piliarra Legacy, The [1991] 2 Lloyd's Rep 337 15.18
Elena G, The [2001] 2 Lloyd's Rep 378 4.79 Fine's Flowers Ltd v General Accident Assurance Co of Canada (1977) 81 DLR (3d)
Eleyv Bradford [1972J 1 QB 155 25.01 139 5.16, 5.29
Elliott v Wilson (1776) 4 Bro PC 470 18.34, 18.36 Finlay v Liverpool & Grear Western SS Co Ltd (1873) 23 LTNS 251 13.75
Elton v Brogden (1747) 2 Str 1264 , " 18.44 Fiona, The [1993J 1 Lloyd's Rep 257 19.13
Emperor Goldmining Co Ltd v Switzerland General Insurance Co Ltd [1964] 1 Lloyd's Fireman's Fund Insurance Co v Western Australian Insurance Co Ltd (1927) 33 Com
Rep 348 24.26 Cas 36 '" 19.16
Empresa Cubana de Fleres v Kissavos Shipping Co SA (The Agathon) (No 2) [1984] Firestone v Chubb Insurance Co of Canada (1995) 21 OR (3d) 370 25.51
1 Lloyd's Rep 183 " 21.13 Firma C~Trade SA v Newcastle Protection & Indemnity Association (The Fanti) [1991]
Engineer, The [1898J AC 382 '" , 12.21 1 AC 1; [1989J 1 Lloyd's Rep 239 16.03, 20.41, 20.63, 22.65, 22.72
England v Guardian Insurance Ltd [2000J Lloyd's Rep IR 404 22,121,25.79 First National Bank of Chicago v West of England Shipowners Mutual Protection and
Enlayde Ltd v Roberts [1917J 1 Ch 109 5.25 Indemnity Association (Luxembourg) (The Evelpidis Era) [1981] 1 Lloyd's Rep 54 20.18
Equitable Fire & Accidenr Office Ltd v Ching Wo Hong [1907] AC 96 18.84 Fisher v Liverpool Marine Insurance Co (1874) LR 9 QB 418 3.68
Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 , , .4.03, 4.04 Fisher v Smith (1878) 4 App Cas 1 5.77
Esperanza, The (1822) 1 Hagg 85 13.46 Fisk v Masrerman (1841) 8 M & W 165 , ,., .. , .. 26.29
Esposito v Bowden (1857) 7 El & Bl763 " 3.78 Fitzherbert v Mather (1795) 1 TR 12 "" 4.127
Esso Bernicia, The [1989] AC 643 25.14 Fleming v Smith (1848) 1 HLC 513 22.34,2256,22.61
xliv xlv
Fletcher v Ingliss (1819) 2 B & Ald 3 I 5 10.25 General Insurance Co of TrieSte Ltd v Cory [1897] 1 QB 335 18.81
FlindtvWaters (1812) 15 EaSt 260 3.81 General Reinsurance Corp v ForsakringsaktiebolagetFennia Patria [1983J QB 856;
Flinn v Headlam (1829) 9 B & Cr 693 .4.42 [1982] QB 1022 2.13, 2.14, 2.15
Flint v Flemyng (1830) I B & Ad 45 1.53, 1.54, 17.43 General Shipping & Forwarding Co v British General Insurance Co Ltd (I923) 15
FNCB Lrd v Barnet Devaney (Harrow) Ltd [1999] Lloyd's Rep IR 43 2.78 LlLRep 175 7.25
FoleyvTabor(l861)2F&F663 19.16, 19.22 Genforsikrings Aktieselskabet (Skandinavia Reinsurance Company of Copenhagen) v Da
Foley v United Fire & Marine Insurance Co of Sydney (1870) LR 5 CP 155 3.52, 17.39 Costa [1911] I KB 137 3.68
Fomin v Oswell (1813) 3 Camp 357 5.24 George Hunt Cranes Ltd v Scottish Boiler & General Insurane Co Ltd [2001] EWCA
Fooks v Smith [1924] 2 KB 508 21.26 eiv 1964, [2002) Lloyd's Rep IR 178 8.19, 22.14, 22.15
Forbes v Aspinall (1811) 13 EaSt 323 17.42,17.43,21.86,21.87 George Wimpey UK Ltd v VI Components [2005] EWCA Civ 77, [2005]
Forder v Great Western Railway Co [1905] 2 KB 532 15.11 BLR 135 8.79,26.02
ForreSter v Pigou (1813) I M & S 9 .4.62 Gernon v Royal Exchange Assurance (1815) 6 Taunt 383 22.55
Forshaw v Chabert (1821) 3 Brod & B 158 18.75, 19.09 Gibbs v Mercantile Mutual Insurance (Australia) Ltd [2003] HCA 39, (2003) ALR 497 1.55
Forsiktingsaktielskapet VeSta v Burcher [1989] AC 852 5.42,5.67, 18.89 Gibson v Small (1853) 4 HLC 353 17.05, 19.30, 19.61
ForSter v ChriStie (1809) 11 EaSt 205 ................................. • .......... 9.48 GIO Personal Investment Services Ltd v Liverpool & London Steamship Protection &
FoSter v Wilmer (1746) 2 Str 1249 18.37 Indemnity Association Ltd unrep, Comm Ct, 27 November 1997 4.65
France Fenwick & Co Ltd v The King [1927] I KB 458 13.64 Girl Pat, The [1937) I All ER 158 21.65, 21.66, 21.102
Francis v Boulton (1895) 65 LJQB 153 21.40,23.32 Glafki Shipping Co SA v Pinios Shipping Co (The Maita) (No 2) [1986]2 Lloyd's
Frangos v Sun Insurance Office Ltd (1934) 49 LlLRep 354 19.46, 19.60 ~12.......................~,7~
Fraser Shipping Ltd v Cotton (The Shakir III) [1997] I Lloyd's Rep 586 .4.197, 18.122, Glasgow Assurance Corp Ltd v Symondson (191 I) 27 TLR 245 2.42, 4.78
18.127,21.41,21.48,24.27 Gledsranes v Royal Exchange Assurance (1864) 5 B & S 797 2.34
Fraser v BN Furman (Productions) Ltd [1967] I WLR 898 5.59,8.21,9.27 Glen Line Ltd v Attorney-General (1930) 36 Com Cas I 22.36, 22.41
Freeth v Burr(1878) LR 9 CP 208 6.15 Glencore International AG v Alpina Insurance Co Ltd [2003] EWHC 2792 (Comm),
Friends Provident Life & Pensions Ltd v Sirius International Insurance [2005] EWCA [2004] Lloyd's Rep 11 I 2.39,2.40,4.64, 4.77, 4.93
Civ 601, [2005]2 All ER (Comm) 145 22.24, 22.27, 25.21 Glencore International AG v Ryan (The Beursgracht) [2001] EWCA Civ 2051, [2002]
Fuerst Day Lawson Ltd v Orion Insurance Co Ltd [1980) 1 Lloyd's Rep 656 21.08 I Lloyd's Rep 574 2.31, 2.32, 2.33, 2.35, 2.36, 2.39, 6.17
Furness, Withy & Co Ltd v Duder [1936] 2 KB 461 12.11 Glencore International AG v Ryan (The Beursgracbt) (No 2) [2001] 2 Lloyd's Rep 608 ... 2.31,
Furness Withy (Australia) Ltd v Metal Distriburors (UK) Ltd (The Amazonia) [1990] 2.35,22.22
1 Lloyd's Rep 236 8.58 Glengate-KG Properties v Norwich Union Fire Insurance Society Ltd [1996] 1 Lloyd's
Furtado v Rogers (1802) 2 Bos & Pul191 3.80 Rep 614 3.39,3.50,3.55, 18.72
Glennie v London Assurance Co (1814) 2 M & S 371 21.52
GabayvLloyd(l825)3B&C793 8.14, 10044 Glicksman v Lancashire & General Assurance Co [1927] AC 139 .4.78
Gagliormella v Metropolitan Life Insurance Co 122 F Supp 246 (1954) 13.22 Globe & Rurgers Fire Insurance Co v Truedell [1927] 2 DLR 659 25.16
Gale v Machell (1781) 2 DougI790n 6.04 Gloria, The (1936) 54 LlLRep 35 15.21, 15.24, 19.33
Galloway v Guardian Royal Exchange (UK) Ltd [1999] Lloyd's Rep IR 209 22.85,22.102, Glowrange Ltd v CGU Insurance pIc, unrep, Comm Ct, 29 June 2001 15.49
22.107 GlynnvMargetson&Co [1893]AC351 8.21
Gambles v Ocean Marine Insurance Co of Bombay (1876) 1 ExD 141 17.03 Goddarr v Garrett (1692) 2 Vern 269 1.39, 3.04
Game Boy, The [2004] EWHC 15 (Comm), [2004] I Lloyd's Rep 238 7.39,7.47, Godin v London Assurance Co (1758) I Burr 489 26.QI, 26.03
22.89, 22.93 Gold Sky, Tbe [1972] 2 Lloyd's Rep 187 15.20,15.21,15.25,24.14
Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (Nos 2 & 3) [2001] EWCA Civ 1047, Goldcorp Exchange Ltd, Re [1995] lAC 74 25.79
[2001] Lloyd's Rep IR 667 4.201, 8.29, 8.52, 8.57 Goldschmidt v Marryat (1809) I Camp 559 1.59
Gardenet v Salvador (1831) I M & Rob 116 21.42, 21.107 Goldschmidt v Wbitmore (1811) 3 Taunt 508 11.59
Gatra v Eagle Star Insurance Co (1923) 16 LlLRep 339 1.59 Good Luck, The [1990] I QB 818 .4.203, 18.55, 18.56, 18.57, 18.58, 18.94,20.12
Gare v Sun Alliance Insurance Ltd [1995] LRLR 385 4.70,4.85 Gooding v Wbite (1913) 29 TLR 312 7.43
Gedge v Royal Excbange Assurance Corp [1900] 2 QB 214 3.17 Goole & Hull Steam Towing Co Ltd v Ocean Marine Insurance Co Ltd [1928] 1
Gee & Garnham Ltd v Whittall [1955] 2 Lloyd's Rep 562 15.55 KB 589 23.21, 25.11, 25.69, 25.71
Geelong, The [1923] AC 191 13.10,13.11 Gordon v Rimmington (1807) I Camp 123 10.66
General Accident Fire & Life Assurance Corp Ltd v JH Minet & Co Ltd (1942) 74 Gordon v Street [1899] 2 QB 641 .4.148
LlLRep I 5.23 Go" v Withers (1758) 2 Burr 683 13.46, 21.99
General Accident Fire & Life Assurance Corp Ltd v Midland Bank Ltd [1940] Goulsrone v Royal Insurance Co (1855) I F & F 276 3.50
2 KB 388 2.71, 2.72, 2.93 Grace v Leslie & Godwin Financial Services Lrd [1995] CLC 801 5.41,5.60
General Accident Fire & Life Assurance Corp v Tamer (The Zephyr) (1985] 2 Lloyd's Graham Joint Stock Shipping Co Ltd v Motor Insurance Co Ltd [1922] I KB 563 .. 1.59, 20.22
Rep 529; [1984] I Lloyd's Rep 58 2.08, 2.14, 2.16, 2.19,2.20,2.21,2.27, Graham v Belfast & Northern Counties Railway Co [1901] 2 IR 13 15.1 I
4.62,5.04,5.07,5.08,5.30,5.229 Gtainget v Marrin (1862) 2 B & S 456 21.77
xlvi xlvii
Table ofCases
Grand Union (Shipping) Ltd v London Steamship Owners Mutual Insurance Association Ltd Handelsbanken Norwegian Branch of Svenska Handelsbanken AB (PUBL) v Dandridge
(The Bosworth (No 3)) [1962]1 Lloyd's Rep 483 24.69 (The A1iza Glacial) [2002] EWCA Civ 577, [2002] 2 Lloyd's Rep 421 9.21,9.60,
Grant, Smith & Co & McDowell Ltd v Seattle Construction & Dry Dock Co [1920] 13.62,13.72,13.75,13.76,13.78,13.79,13.83,15.41,
AC 162 10.06 21.73,21.83
Gr.ntvKing (1802) 4 Esp 175 18.21 Hansson v Hamel & Horley Ltd [1922]2 AC 36 8.50
Grauds v Dearsley (1935) 51 LlLRep 203 11.45 Harbutt's 'Plasticine' Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447 9.29
Grayv Barr [197l] 2 QB 554 3.74,15.09 Harding Maughan Hambly Ltd v Compagnie Europeene de Courtage d'Assurances & de
Great China Metal Industries Co Ltd v Malaysian International Shipping Corp Berhad Reassurances SA [2000]1 Lloyd's Rep 316 5.75
(The Bunge Seroja) [1998] HCA65, [1999]1 Lloyd's Rep 512 10.07 Harding v Bussell [1905]2 KB 83 .. " . " . " 1.60,4.200
Great Indian Peninsular Co v Saunders (1861) 2 B & S 266 24.27 Hardy v Motot Insurers' Bureau [1964] 2 QB 745 3.73, 15.09
Grear North Eastern Railway Ltd v Avon Insurance pic [2001] EWCA Civ 780, [2001J Hare v Travis (1827) 7 B & Cr 14 18.37
2 Lloyd's Rep 649 8.22 Hargreaves (B) Ltd v Action 2000 Lrd [1993] BCLC 1111 6.27
Great Western Insurance Co v Cunliffe (1874) LR 9 Ch ApI' 525 6.22 Harlow, The [1922] l'175 12.16
Greci. Express, The [2002] EWHC 203 (Comm), [2002] Lloyd's Rep IR 669 4.85, Harman v Kingston (1811) 3 Camp 150 3.81
4.169,7.40,7.41,7.46,14.27,15.18,15.79,24.02, 24.14, 24.16 HarmanvVaux(1831)3Carnp429 10.81
Green Lion, The [1974] 1 Lloyd's Rep 593 10.06, 11.12, 11.13 Harmonides, The [1903] l'1 21.77
Green v British India Stearn Navigation Co Ltd (The Matiana) [1921]1 AC 99; [1919J Harrington Moror Co Ltd, ex I' Chaplin [1928] Ch 105 20.33
2 KB 670 13.06 Harris v Polana [1941] 1 KB 462 10.64
Green v Brown (1744) 2 Str 1199 7.58,10.29 Harris v Scaramanga (1872) LR 7 CP 481 24.52
Green v Elmslie (1794) Peake 278 , 9.37 Harrison v Douglas (1835) 3 A & E 396 4.165
Green v Pacific Mutual Life Insurance Co (1864) 91 Mass (9 Allen) 217 13.47 Harrisons Ltd v Shipping Controller (The Inkonka) [1921]1 KB 122 9.05,13.10
Green v Young (1702) 2 Salk 444 18.34 Hart v Standard Marine Insurance Co Ltd (1889) 22 QBD 499 8.09
Greenhill v Federal Insurance Co Ltd [1927J 1 KB 65 .4.07, 4.68, 4.101 Hartford Fire Insurance Co v War Eagle Co 295 F 663 (1924) 14.16
Greenock Steamship Co v Maritime Insurance Co Ltd [1903J 1 KB 367 18.115, Harrleyv Buggin (1781) 3 Dougl39 18.27,18.40
18.116,18.119 Harvest Trucking Co Lrd v pB Davis [1991] 2 Lloyd's Rep 638 5.38,5.53
Griffen, Re [1899]1 Ch 408 20.28 Hatch, Mansfield & Co Ltd v Weingort (1906) 22 TLR 366 25.37
Grill v General Iron Screw Collier Co (1866) LR 1 CP 600 9.22 Haughten v Empire Marine Insurance Co Ltd (1866) LR 1 Ex 206 17.32,17.35
Groom v Crocker [1939J 1 KB 194 22.76 Haywood v Rodgers (1804) 4 East 590 .4.150
Gronp Josi Re v Walbrook Insurance Co Lrd [1996]1 WLR 1152 " .. .4.09, 4.116, 4.124 Hearne v Edmunds (1819) 1 Brod & Bing 388 10.81
Groupama Insurance Co Ltd v Overseas Panners Re Ltd [2003] EWHC 34 (Camm) '" .4.197 Heath Lambert Ltd v Sociedad de Corretaje de Seguros [2004] EWCA Civ 792, [2005]
Grover & Grover Ltd v Mathews (1910) 15 Com Cas 249 2.14, 2.86 1 Lloyd's Rep 598; [2003J EWHC 2269 (Comm), [2004]1 Lloyd's Rep 495 6.10,
Gunns v Par Insurance Brokers [1997] 1 Lloyd's Rep 173 .455 6.30, 6.33, 6.35, 6.37
Hedburg v Pearson (1816) 7 Taunt 154 21.52
H, Re [1996] AC 563 : 15.18 Hedley Byrne & Co Ltd v Heller & Partners Lrd [1964J AC 465 4. I79
Hadenfayre Ltd v British National Insurance Society Ltd [1984] 2 Lloyd's Rep 393 18.28 Hedley v Pinkney & Sons Steamship Co Ltd [1894] AC 222 19.03
Hadkinson v Robinson (1803) 3 Bos & Pul388 9.47 Heilbut, Symons & Co v Buckleton [1913J AC 30 ., 4.179
Hahn v Corbert (1824) 2 Bing 205 21.124 Heintich Hirdes GmbH v Edmund [1991]2 Lloyd's Rep 546 17.47
Hai Hsuan, The [1958]1 Lloyd's Rep 351 11.53, 13.47 Helicopter Resources Pty Ltd v Sun Alliance Australia Ltd (The kebird) (1991) 312
Haigh v de Ia Cour (1812) 3 Camp 319 " 7.39 LMLN 5.33,15.55,17.13
Hair v Prudential Assurance [1983] 2 Lloyd's Rep 7 4.104 Hellenic Dolphin, The [1978J 2 Lloyd's Rep 336 19.41
Halhead v Young (1856) 6 E & B 312 3.12, 3.55 Helmsville Ltd v Yorkshire Insurance Co Ltd (The Medina Pdncess) (1965] 1 Lloyd's
Hall Bros SS Co Ltd v Young [1939]1 KB 748 12.11 Rep 361 23.21
Hall v Hyman [1912]2 KB 5 1.49, 21.66, 21.74 Helstan Securities Ltd v Hertfordshire County Council (1978] 3 All ER 262 20.27, 20.28
Halvanon Insurance Co Ltd v Compania de Seguros do Estado de Sao Paulo (1995] Henderson v Merrert Syndicates Ltd [1995]2 AC 145 1.18, 5.15, 5.42
LRLR 303 21.14 Henderson v Underwriting & Agency Association Ltd [1891J 1 QB 557 1.60
Ham v Somak Travel Ltd [1998] EWCA Civ 153 8.42 Henkle v Royal Exchange Assurance Co (1749) 1 Yes Sen 317 6.04, 8.81, 8.91
Hamilton, Fraser & Co v Pandorf & Co (1887) 12 App Cas 518; (1886) 17 QBD 670; Henry & MacGregor v Marten (1918) 34 TLR 504 9.55, 10.16, 13.41
(1885) LR 16 QB 629 10.06, 10.24, 10.52, 10.55, 10.56, 15.62, 15.63 Heritage Insurance Services Lrd v Rotch Properry Group Ltd [2003J NpC 100 (Ch) 8.48
Hamilton v Mendes (1761) 2 Burr 1198 21.99, 21.101 Herne v Bay (1842), umep 21.79
Hammond v National Life & Accident Insurance Co 243 So 2d 902 (1971), 54 Herting v Janson (1895) 1 Com Cas 177 7.28
ILR 522 13.23 Heselron v Allmm (1813) 1 M & S 46 18.37
Hammond v Reid (1820) 4 B & Aid 72 18.36 Hewitt Bros v Wilson [1915] 2 KB 739 4.100
Hampshire Land Co, Re[1896]1 Ch 743 ,c 4.118 Hewitt v London General Insurance Co Ltd (1925) 23 LlLRep 23 18.115, 18.116, 18.121
Hanak v Green [1958] 2 QB 9 , 6.27,20.25 Heyman v Darwins Ltd [1942] AC 356 18.57
xlviii xlix
Hibernia Foods plc v McAuslin General Accident Fire & Life Assurance Corp pic (The Joint Hunt v Royal Exchange Assurance (1816) 5 M & S 47 , 22.56
Frost) [1998J 2L1oyd's Rep 310 17.18 Hunter v Northern Marine Insurance Co Ltd (1888) 13 App Cas 717 17.09
Higgins v Dawson [1902J AC 1 ,. 8.51 Hunter v Potts (1815) 4 Camp 203 15.63
Highlands Insurance Co v Continental Insurance Co [1987] 1 Lloyd s Rep 109 4.144, 4.161 Hurtell v Bullard (1863) 3 F & F 445 5.37
HIH Casualty & General Insurance Ltd v AXA Corporate Solutions (2002) EWCA Hurry v Royal Exchange Assurance Co (1801) 2 Bos & Pul430 17.13
Civ 1253, [2003J Lloyd's Rep IR 1 18.94,18.95 Hussain v Btown [1996J 1 Lloyd's Rep 627 18.29, 18.79
HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003J UKHL 6, [2003J Hutchins Btos v Royal Exchange Corp [1911J 2 KB 398 11.19
2 Lloyd's Rep 61; [2001] EWCA Civ 1250, [2001] 2 Lloyd's Rep 483; [2001J 1 Hydarnes SS Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500 17.45
Lloyd's Rep 30 2.42, 2.65, 2.68, 4.01, 4.22, 4.100, 4.110, 4.129, 4.182, 5.63 Hyde v Bruce (1782) 3 Doug1213 18.70,18.71
BIB Casualty & General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA Hyderabad (Deccan) Co v Willoughby [1899J 2 QB 530 18.45, 18.115, 18.119
Civ735, [200IJ 2 Lloyd's Rep 161 ······· .8.21, 8.64, 8.69, 8.73, 8.76,18.62
HIH Casualty & General Insurance Ltd v Waterwall Shipping Inc (1998) 146 Icebird, Tbe (1991) 312 LMLN 5.33
FLR 76 9.30, 15.43 IF P&C Insutance Ltd (Publ) v Silversea Cruises Ltd [2004J EWCA Civ769, [2004J Lloyd's
Hillas & Co Ltd v Arcos Ltd (1932) 43 LlLRep 359 8.32 Rep IR696 3.53, 8.90, 9.28, 9.43,13.42,14.18
Hindustan Steam Shipping Co v Admiralty (1921) 8 LlLRep 230 13.08 Ikarian Reefet, The [1993J 2 Lloyd's Rep 68 10.65, 11.63, 15.18, 15.22
Hine Bros v Steamship Insurance Syndicate Ltd (1895) 72 LT 79 22.116 Iketigi Compania Navieta SA v Palmer (The Wondrous) [199212 Lloyd's Rep 566; [1991J
Hiscox Underwriting Ltd v Dickson Manchester & Co Ltd [2004J EWHC 479 (Comm), 1 Lloyd's Rep 400 3.11, 3.54, 7.59, 8.57,13.49,13.50,13.73,13.76,
[2004J 2 Lloyd's Rep 438 2.64 13.82, 13.83, 15.Q7, 24.27
Hitchman v Stewett (1855) 3 Drew 271 26.61 Imperial Marine Insurance Co v Fire Insurance Corp (1879) 4 CPD 166 2.34
Hobbs v Hannam (1811) 3 Camp 93 11.44 Inchmaree, Tbe (1887) 12 App Cas 484 .. , 10.18, 10.24, 11.01
Hobbs v Marlowe [1978J AC 16 25.01, 25.14, 25.75 India v India Stcamship Co Ltd (The Indian Endurance & The Indian Grace) (No 2)
Hoffman (C) & Co v British General Insurance Co (1922) 10 LlLRep 434 19.04, 19.51 [19981 AC 878 , ' 8.58,24.45
Holm v Rice (1981) 124 DLR (3d) 463 11.69 Indian Endutance, The & Indian Grace, The (No 2) [1998J AC 878 8.58,24.45
Holmes & Sons Ltd v Merchants' Marine Insurance Co Ltd (The Nefeli) [1919] Industrial Properties (Barton Hill) Ltd v Associated Electrical Industries [1977J QB 580 ... 4.51
1 KB 383 24.75 Inglis v Stock (1885) 10 App Cas 263 2.39, 3.43
Homburg Houtimport BV v Agtosin Ptivate Ltd (The Starsin) [2003J UKHL 12, [2004J Inkonka, The [1921] 1 KB 122 9.05,13.10
1 AC 715 8.20, 8.50 Insurance COtp of tbe Channel Islands v McHugh [1997J LRLR 94 .4.156, 22.70
Home Insutance Co of New Yotk v Gavel (1928) 30 LlLRep 139 18.84 Insurance Corp of the Channel Islands v Royal Hotel Ltd [1998J Lloyd's Rep IR
Hood v West End Motot Cat Packing CO [1917J 2 KB 38 5.20, 18.120 151 .4.56, 4.164
Hood's Trustees v Southern Union General Insurance Co of Australia Ltd [1928] Ch 793 20.33 Integrated Containers Service Inc v British Traders Insurance CO [1984J 1 Lloyd's
Hooley Hill Rubbet & Chemical Co Ltd, Re [1920J 1 KB 257 10.60 Rep 154 21.13, 24.23, 24.26, 24.31, 24.32, 24.35
Hopewell Ptoject Management Ltd v Ewbank Pteece Ltd [1998J 1 Lloyd's Rep 448 5.63 International Lottety Management v Dumas [2002J Lloyd's Rep IR 237 .. .4.112,4.136, 4.137
Hore v Wbitmore (1778) 2 Cowp 784 ., 18.93 International Management Group (UK) Ltd v Simmonds [2003] EWHC 177 (Comm),
8 [2004j 1 Lloyd's Rep 476 .4.23, 4.57, 4.63, 4.79, 4.205
Homal v Neubetget Ptoducts Ltd [1957J 1 QB 247 15. I
Homcastle v Stuart (1806) 7 East 400 17.39 Interpart Comerciao e Gestao SA v Lexington Insurance Co [2004] Lloyd's Rep
Horne v Prudential Assurance Co Ltd 1997 SLT (Sh Ct) 75 , 20.59 IR 690 22.93
Hotty v Tate & Lyle Refineries Ltd [1982J 2 Lloyd's Rep 416 .4.51 Inversiones Manria SA v Sphere Drake Insurance Co pIc (The Dora) [19891 1 Lloyd's
Horsc, Carriage & General Insurance Co Ltd v Petch (1917) 33 TLR 131 25.43 Rep 69 .4.70, 4.71, 4.85, 4.90, 4.127, 7.38, 7.45, 7.47
HorsIer v ZortO [1975J Ch 302 , ' 4.04 Investors Compensation System Scheme Ltd v West Bromwich Building Society [1998]
HoughvHead(1885)55LJQB43 21.11 I WLR 896 ' 8.03,8.04, 8.Q7, 8.09, 8.37, 8.39, 8.40, 8.45, 8.48, 8.49, 9.04
Houghton (RA) & Mancon Ltd v Sunderland Marine Mutual Insurance Co Ltd (The Ionides v Pacific Fite & Marine Insurance Co (1871) LR 6 QB 674 2.08, 2.21, 2.39,
Ny-Eeasteyr) [1988J 1 Lloyd's Rep 60 ····· . ·· .11.12, 11.13, 11.63, 15.18 2.42,4.135,4.141, 8.75, 8.76, 8.82
Houghton v TrafalgarInsurance [1954J 1 QB 247 8.51 Ionides v PendetCI874) LR 9 QB 531 .4.66, 7.38, 7.42
Household Global Funding Inc v Btitish Gas Trading Ltd [20011 EWHC 400 (Ch) 8.29 Ionides v Universal Marine Insurance Co (1863) 14 CB(NS) 259 5.53,9.37,9.40,
Houstman v Thornton (1816) Holt 242 22.36 13.08, 13.Q9, 13.57
Howard Marine & Dredging Co Ltd v Ogden & Sons (Excavations) Ltd [1978) Itaqi Ministty of Defence v Arcepey Shipping Co SA (The Angel Bell) [I979J 2 Lloyd's
QB 574 ························· .4.182 Rep 491 20.01,20.19
Howard v Pickfotd Tool Co Ltd [1951] 1 KB 417 , ················· .26.53 Ireland v Livingston (1872) LR 5 HL 395 5.24
Hucks v Thornton (1815) Holt 30 11.57,17.06 Iron Trades Mutual Insurance Co Ltd v Companhia de Deguros Imperio [1991] 1 Re
Hudson v Hattison (1821) 3 Biod & B 97 22.60 LR 213 .4.165,4.195
Hughes v Asset Managets pIc [199513 All ER 669 3.71 Irvin v Hine [1950J 1 KB 555 21.53, 23.15, 23.23, 24.37
Hughes v Pump House Hotel [1902J 2 KB 190 ·· .. ················ .20.13 Irving v Manning (1847) 1 HLC 287 6.27,7.27,21.79
Hull v Coopet (1811) 14 East 479 ; 18.22, 18.23 Irving v Richatdson (1831) 2 B &Ad 193 3.46, 26.22
Hummingbird Motors Ltd v Hobbs [1986J KfR 276 .4.136 Isaacs v Royal Insutance Co (1870) LR 5 Ex 296 17.47
Ii
Issaias (Elfie A) v Marinelnsurance Co Lrd (1923) 15 LlLRep 186 10.16, 11.61, Kastor Too, The [2004] EWCA Civ 277, [2004]2 Lloyd's Rep 277 21.36,21.106,
11.62, 11.63, 15.18, 15.22, 15.24 21.120,21.121,21.124,21.125,22.32,22.33,22.34,22.35,22.55
Iralia Express, The (No 2) [1992J Lloyd's Rep 281 , 6.27,22.67,22.121 Kausar v Eagle StarInsurance Co Ltd (1996) [2000] Lloyd's Rep IR 154 .4.157,
18.28,18.29
JabboudF & K) v Cusrodian of Israeli Absentee Properry [1954] 1 WLR 139 6.27, 22.62 Kawasaki Kisen Kabushiki Kaisha of Kobe v Bantham Steamship Co Ltd [1939]
Jackson (John C) Ltd v Sun Insurance Office Ltd (1962) 38 WWR 294 10.81 2 KB 544 8.09, 13.19, 13.22
Jackson v Greenfield [1998] BpIR 699 , , 20.41 Keevil & Keevil Ltd v Boag [1940] 3 All ER 346 1.59
JacksonvMumford(1902)8ComCas61 11.04, 11.07, 11.08, 11.10, 11.13 Keighley, Maxred & Co v Durant [1901] AC 240 2.87
Jackson v North American Assurance Society of Virginia Inc 183 SE 2d 160 (1971), Keir v Andrade (1816) 6 Taunt 498 3.77
54 ILR 525 , , , 13.23 Kelly v Norwich Union Fire Insurance Society Ltd [1989] 2 Lloyd's Rep 333 7.53,
Jackson v Union Marine Insurance Co (1874) LR 10 CP 125 9.58, 15.35,21.92,21.93 11.22,2Ll9
Jaglom v Excess Insurance Co Ltd [1972] 2 QB 250 2.14,2.15,8.54 Kelner v Baxted1866) LR 2 CP 174 2.89
James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] Kennedy v Panama, New Zealand & Australian Royal Mail Co Ltd (I 867) LR 2
AC572 8.41 QB 580 , .4.03
James v CGU Insurance pic [2002] Lloyd's Rep IR 206 , .455, 4.101, 15.18 Kent v Bird (1777) 2 Cowl' 583 3.06
James Yachts Ltd v Thames & Mersey Marine Insurance Co Ltd [1977] 1 Lloyd's Kenyon v Berthon (1778) 1 DougI12n 18.90
Rep 206 1.61 Kerr v Ayr Steam Shipping Co Ltd [1915] AC 217 .7.52
Jamieson & Newcastle Steamship Freight Insurance Association, Re [18951 2 QB 90 9.58, Kewley v Ryan (1794) 2 HBI 343 18.37
21.95 Khan v Ahbey Life Assurance Co [2002] NpC 5 22.93
Janson v Driefomein Consolidated Mines Ltd [1902] AC 484 3.78 Khedine, The (1882) 7 ApI' Cas 795 12
Jardine v Learhley (1863) 32 LJQB 132 22.34 Kldston v Empire Marine Insurance Co (1866) LR 1 CP 535 24.29
JEB Fasreners v Marks, Bloom & Co [1983] I All ER 583 .4.41, 4.48 King (or Fiehl) v Chambers & Newman (Insurance Brokers) Ltd [1963] 2 Lloyd's
Jenkins v Deane(1934) 47 LlLRep 342 18.84, 26.16 Rep 130 5.26,5.56
Jenkins v Power (1817) 6 M & S 282 6.22,6.32 King v Brandywine Reinsurance Co (UK) Lrd [2005] EWCA Civ 235, [2005]1 Lloyd',
JJ Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] Rep 655; [2004] EWHC 1033 (Comm), [2004] 2 Lloyd's Rep 670 8.1 1,9.62,24.26
1 Lloyd's Rep 32; [1985] 1 Lloyd's Rep 264 9.23,10.06,10.08,15.49, King v Vicroria Insurance Co Ltd [1896] AC 250 25.15, 25.26, 25.76
19.45,19.46,19.48,19.60 Kingscroft Insurance Co Ltd v Nissan Fire & Marine Insurance Co Ltd (No 2) [1999J
John Martin ofLondon Ltd v Russell [1960J 1 Lloyd's Rep 554 ····· .17.1 1,17.16 . Lloyd's Rep IR 603 .4.94, 4.118, 4.119
John Potter & Co v Burrell & Son [1897] 1 QB 97 1852 Kingsford v Marshall (1832) 8 Bing 458 10.81
John v Price Waterhouse [2002] EWCA Civ 899 8.02, 8.34 Kingston v Phelps, cited (1795) 7 TR 165 18.37
Kiriacoulis Lines SA v Compagnie d'Assurances Maritimes Ariennes et Terrestres (CAMAT)
Johnson & Co v Hogg (1883) 10 QBD 432 13.47
Johnson v Marshall, Sons & Co Ltd [1906] AC 409 15.11 (The Demetra K) [2002] EWCA elv 1070, [2002] 2 Lloyd's Rep 581 8.78,8.80,
Johnson v Sheddon (1802) 2 Easr 581 23.32 8.90, 10.65
Joinr Frost, The[1998] 2 Lloyd's Rep 310 17.18 Kirkaldy (J) & Sons Ltd v Walker[1999] Lloyd's Rep IR 410 8.52,8.53, 18.62,
Jones v Bangor Mutual Shipping Insurance Sociery Ltd (1889) 61 LT 727 .4.165, 4.167 18.63, 18.94, 18.96
Jones v Neptune Marine Insurance Co (1872) LR 7 QB 702 17.45 KJS Merc~Scandia XXXXII v Certain Lloyd's Underwriters (The Mercandian Continent)
Jones v Nicholson (1854) 10 Exch 28 , 11.48 [2001] EWCA elv 1275, [2001] 2 Lloyd's Rep 563 .4.195, 4.197, 4.198,
Jones v Randall (1774) 1 Cowp 37 : 3.04 22.22, 22.89, 22.94, 22.97, 22.114
Joseph Watson & Son Ltd v Firemen's Fund Insurance Co of San FranClsco [1922] Kish v Taylor Sons & Co [1912] AC 604 18.53
2 KB 355 9.55 Kleinwort v Shepard (1859) lEI & E1447 13.47
Joyce v Kennard (1870 LR 7 QB 78 23.51 Kleovoulos of Rhodes, The [2003] EWCA Civ 12, [2003J 1 Lloyd's Rep 138 8.12,
Jumbo King Ltd v Faithful Properties Ltd [1999J 4 HKC 707 8.45 8.60, 13.71, 13.75, 13.83
Kler Knitwear Ltd v Lombard General Insurance Co Ltd [2000] Lloyd's Rep
Kacianoffv China Traders Insurance Co Ltd [1914] 3 KB 1121 951,9.52,9.53 IR47 18.79, 18.109
Kallis (George) Manufacmrers Ltd v Success Insurance Ltd [1985] 2 Lloyd's Rep 8 (PC) ., .18.11 Knight ofSt Michael, The [1898] I'30 9.52,10.60
Kaltenbach v Mackenzie (1878) 3 CpD 467 ··.·········· .22.32, 22.33, 22.34 Knight v Cambridge (1724), cited (1743) 2 Str 1173 11.56
Kammins Ballrooms Co Ltd v Zenirh Investments (Torquay) Ltd [1971] AC 850 .4.164 Knight v Fairh (1850) 15 QB 649 21.27, 21.30, 21.117, 23.19
Kanchenjunga, The [1990J 1 Lloyd's Rep 391 4.164 Knox v Wood (1808) 1 Camp 543 3.10
Kapitan Petko Voivoda, The [2003] EWCA Civ 451, [2003] 2 Lloyd's Rep 1; [2002J Koch Marine Inc v D'Amica Societa Di Navigazione ARL (The Elena D'Amico) [1980]
EWCA 1306 (Comm), [2002] 2 All ER (Comm) 560 8.21 1 Lloyd's Rep 75 24.11
Karen Oltmann, The [1976J 2 Lloyd's Rep 708 , 858 Koebel v Saunders (1864) 17 CB(NS) 71 , 19.61
Kastor Navigation Co Ltd v Axa Global Risks (UK) Ltd (The Kastor Too) p004J EWCA Kopitoffv Wilson (1876) 1 QBD 377 19.16
Civ 277, [2004]2 Lloyd's Rep 277 21.36,21.106,21.120,21.121, Kulukkundis v Norwich Union Fire Insurance Society [1937] 1 KB 1 21.93
21.124,21.125,22.32,22.33,22.34,22.35,22.55 Kumar v AGF Insurance Ltd [1999] Lloyd's Rep IR 147 8.28
Iii liii
Kusel v Atkin (The Catatiba) [1997] 2 Lloyd's Rep 749 21.111,21.114, Lek v Mathews (1927) 29 LlLRep 141 22.78, 22.85, 22.88
23.21,23.23 Lemos v British & Foreign Marine Insurance Co Ltd (1931) 39 LlLRep 275 15.22,15.24
Kuwait Airways Corpv Kuwait Insurance Co SAK (No 1) [1997] 2 Lloyd's Rep 687; Lennard's Carrying Co v Asiatic Petroleum Co Ltd [1915] AC 705 .. , " , .. , .. ,.4.113
[l997J 2 Lloyd's Rep 687; [1996J 1 Lloyd's Rep 664 8.02, 8.18, 8.30, 8.43, Leon v Casey [1932J 2 KB 576 1.59,1.60,4.200
9.20,9.23,9.29, 13.47, 21.12, 21.47, 21.65, 24.27, 24.29, 24.71, Leonita, The (1922) 13 LlLRep 231 15.23, 15.24
25.58,25.63 Letchford v Oldham (1880) 5 QBD 538 10.81
Kytiaki, The [1993J 1 Lloyd's Rep 137 22.66, 22.70, 23.39 Letts v Excess Insurance Co (1916) 32 TLR 361 10.15
Kyzuna Investments Ltd v Ocean Marine Mutual Insurance Association (Europe) [2000] Levin v Allnutt (1812) 15 East 267 13.60
Lloyd's Rep IR 513 7.31,7.35,7.36,7.37 Levy v Assicurazioni Generali [1940] AC 791 .. , , , .. " 14.15
Lewis v Gteat Western Railway Co (1877) 3 QB 195 15.11
La Fabrique de Produits Chimiques SA v Large [1923J 1 KB 379 10.69 Lewis v Rucker (1761) 2 Burr 1167 7.26,23.29,23.32
La Poinre, The [1986J 2 Lloyd's Rep 513 2.42, 9.23,10.14 Lewis v Tressider [1985J 2 QdR 533 5.20,5.21,5.37,5.50
Lady Gwendolen, The [1965J P 294 ····· . ········· .4.114 Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350;
Lag>, The [1966J 1 Lloyd's Rep 582 14.06 [1917J 1 KB 873 9.08, 9.12, 9.14, 9.21, 9.35, 9.44, 9.56,10.15,10.60,
Lagden v O'Conllor[2003J UKHL 64, [2004J 1 AC 1067 123 15.16,15.35,15.57,15.63,15.72, 19.41, 19.42
Laing v Glover (1813) 5 Taunr 49 18.71 Liberian Insurance Agency Inc v Mosse [l977J 2 Lloyd's Rep 560 .4.68, 4.167,
L'Alsacienne Premiere Societe Alsacienne et Lorraine d'Assurances Contre l'Incendie Ies 18.115,18.117,18.121,18.122,18.126
Accidents et les Risques Divers v Unistorebrand International Insurance SA [1995] Lidgett v Secretan (1870) LR 5 CP 190 17.33
Lloyd's Rep IR 333 2.65 Lidgett v Secretan (No 2) (1871) LR 6 CP 616 7.25,7.27,7.39,21.120,23.21
Lamb Head Sbipping Co Ltd v Jennings (The Marel) [1994J 1 Lloyd's Rep 624; [1992J Lind v Mitchell (1928) 45 TLR 54 11.39, 24.21, 24.24
1 Lloyd's Rep 402 7.51, 10.06, 10.30, 10.37, 10.41, 10.42 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 ." ... , .. , .. 20,14,
Lambert v Co-operative Insurance Society Ltd [1975] 2 Lloyd's Rep 485 4.07 20.27,20.28
Lambert v Liddard (1814) 5 Taunt 480 17.08 Lindsay Blec Depots v Motor Union Insurance Co (1930) 46 TLR 572 " , 17.11
Lanasa Fruit Steamship & Importing Co Inc v Universal Insurance Co 302 US 556 Lindsay v Klein (The Tatjan.) [1911J AC 194 19.54
(1~...................··················15~ Lips, The [1988] AC 395 22.121
Lancasbire County Council v Municipal Insurance Ltd [1997] QB 897 8.32,8.53, 12.12 Litsion Pride, The [1985J 1 Lloyd's Rep 437 4.123,4.200,4.203,6.41, 18.120,20.22,
Lane v Nixon (1866) LR 1 CP 412 18.89, 19.28, 19.63 22.35,22.52,22.88,22.113
Lane (W &j) vSptatt [1970J 2QB480 8.21, 9.27, 24.22 Liverpool & Londo,n War Risks Association Ltd v Ocean Steamship Co Ltd (The Priam)
Lang v Andetdell (1824) 3 B & Cr 495 17.09, 18.88 [l948J AC 243 13.14, 13.16, 13.53
Langdale v Mason (1780) 1 Bennett's Fire Insurance cases 16, (1780) 2 Park on Liverpool & London War Risks Insurance Association Ltd v Marine Underwriters of
Imurance965 13.33, 14.15 SS Richard de Larringa [1921] 2AC 141 13.10,13.11
Langhom v Cologan (1812) 4 Taunt 330 6:02 Livie v Janson (1810) 12 East 648 9.40, 21.116, 21.117, 21.119
Langlas v Iowa Life Insurance Co 63 NW 2d 885 (1954), 21 ILR 416 13.23 Lloyd v Fleming (1872) LR 7 QB 299 20.1 0
Lapwing, The [1940] P 112 ···· .10.14,10.25,11.39 Lloyd's & Scottish Finance Ltd v Modern Cars & Caravans (Kingston) Ltd [1966]
Laroche v Oswin (1810) 12 East 133 18.29 1 QB 764 24.26
Laurie v West Hardepool Steamship Thirds Indemnity Association (1899) Lloyds TSB General Insurance Holdings v Lloyds Bank Group Insurance Co Ltd [2001]
15 TLR486 20.12, 20.28 EWCA Civ 1643, [2002J Lloyd's Rep IR 113 9.04, 9.60
Laveroni v Drury (1852) 22 LJ Ex 2 10.24 Load v Green (1846) 15 M & W 216 .4.20
Lavington Court, The [1945] 2 All ER 357 21.54, 22.33 LockyervOfHey(l786) 1 TR252 19.20,21.27
Law Guarantee Trust & Accident Society Ltd v Munich Reinsurance Co (1915) 31 Loders & Nicoline Ltd v Bank of New Zealand (1929) 33 LlLRep 70 21.89
TLR 572 2.42 Lohre v Aitchison (1878) 3 QBD 558 21.38, 21.107, 23.18
Lawrence v Aberdein (1821) 5 B & Ald 107 8.51 London & Lancashire Fire Insurance Co Ltd v Bolands Ltd [1924] AC 836 , , 8.12,
Lawrence v Accidental Insurance Co Ltd (1881) 7 QBD 216 , " ,9.06,9.60 14.13,14.14
Le Cheminant v Pearson (1812) 4 Taunt 367 ., "" " "., 21.111 London & Manchester Plate Glass Co v Heath [1913] 3 KB 411 14.16
Le Crasv Hughes (1782) 3 Doug 81 3:21 London & Provincial Leather Processes Ltd v Hudson [1939] 2 KB 724 , .. 21.25, 21.28
Ledingham v Ontario Hospital Services Commission (1979) 46 DLR (3d) 699 25.51, 25.52 London & Provincial Marine & General Insurance Co Ltd v Chambers (1900) 5 Com
Leduc & Co v Ward (1888) 20 QBD 475 18.01 Cas241 1.59
Lee v Southern Insurance Co (1870) LR CP 397 ,. " . , ,, ",, , ' , .. 24.39 London Assurance Co v Sainsbury (1783) 3 Doug 245 ' , , .. , , , 25.14
Leegas, The [1987J 1 Lloyd's Rep 471 2.50, 2.59 London Assutance v Mansel (1879) 11 ChD 363 .4.112
Lefevre v White [1990J 1 Lloyd's Rep 569 20.69, 20.71, 20.72 London Borough of Bromley v Ellis [1971] 1 Lloyd's Rep 97 5.39
Legal & General Assurance Society Ltd v Drake Insurance Co Ltd [1992] QB 887 26.10, London, Chatham & Dover Railway Co v South Eastern Railway Co [1893] AC 429 6.14
26.42,26.45,26.48,26.50,26.51,26.52,26.53,26.60 London County Commercial Reinsurance Office Ltd [1922J 2 Ch 67 1.56, 3.11, 3.16
Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 .: 8.21,9.27 London General Insurance Co v General Marine Underwriters Association [1921 J
Legge v Byas, Mosley & Co (190 I) 7 Com Cas 16 22.116 I KB 104 4.96,4.117
liv Iv
London Guarantee Co v Fearnley (1880) 5 App Cas 911 22.14,22.15 Manchester Liners Ltd y British & Foreign Marine Insurance Co Ltd (1901) 7 Com
London Steamship Owners Mutual Insurance Association Ltd v Bombay Trading Co Ltd ~U·····...........353
(rhe Felicie) [1990J 2 Lloyd's Rep 21n 20.70,20.72 Mancomunidad del Vapor Frumiz v Royal Exchange Assurance [1927] 1 KB 567 12.08
Long v Allan (1785) 4 Dougl276 " 6.04 Mandarin Star, The [1969] 2QB 449 10.69, 14.20, 14.25
Lonhro Exports Ltd v Export Credits Guarantee Department [1999] Ch 158 25.80 Man~ervCommercia1 Union Assurance Co [1998] Lloyd's Rep IR93 2.58, 2.59
Lonsdale & Thompson Ltd v Black Artow Group pic [1993) 3 All ER 648 3.31 Mamfest Shipping Co Ltd v Uni~Polaris Insurance Co Ltd (The Star Sea) [2001J UKHL 1,
Loraine v Thomlinson (1781) 2 Dougl585 6.04 [2003] 1 AC 469; [1997] 1 Lloyd's Rep 360; [1995] 1 Lloyd's Rep 651 1.59,
Lordsgate Properties v Balcombe [1985) 1 EGLR 20 5.75 1.60,4.14,4.195,4.199,4.202,4.204,10.65,10.80, 19.04, 19.06,
Lothian v Henderson (1803) 3 Bos & PuI499 · ······················ .18.64 19.08, 19.34,19.35,19.36,19.37,19.39,19.40,19.46,19.47,
Lowe & Sons v Dixon & Sons (1885) 16 QBD 455 26.61
19.48,22.80,22.89, 22.102,22.106,22.107,22.108,22.113
Lozano v Janson (1859) 2 EI & BI160 13.47, 21.50, 21.101
Mann Macneal & Steeves Ltd v Capital & Counties Insurance [1921] 2 KB 300 4.103
Luhbock v Rowcroft (1803) 5 Esp 50 9.48
Lucena v Craufurd (1803) 2 Bos & Pul (NR) 269 3.04,3.07,3.21,3.22,3.23,3.24, Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] Ac 749 8.09,
3.30,3.40,3.41,3.47,3.55 8.26,8.48
Maori King, The [1895] 2 QB 550 19.13
Luckie v Bushby (1853) 13 CB 864 , 6.27
Marc Rich & CoAG v Portman [1996) 1 Lloyd's Rep 430 .4.53, 4.57, 4.65, 4.77, 22.107
Lucy, The [1983] 1 Lloyd's Rep 188 .4.04, 4.51
March Cabaret Club & Casino Ltd v London Assurance [1975] 1 Lloyd's Rep 169 4.85,
Luke v Lyde (1759) 2 Burr 882 1.41
4.86,4.87
Lumbermens Murual Casualty Co v Bovis Lend Lease Ltd [2004] EWCA 2197 (Comm),
Mate v Charles (1856) 5 E & B 978 8.32
[2005] 1 Lloyd's Rep 494 21.15, 21.16
Marel, The [1994J 1 Lloyd's Rep 624; [1992] 1 Lloyd's Rep 402 7.51, 10.06, 10.30,
Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 8.62
10.37,10.41,1Q.42
Lydia Flag, The [1998] 2 Lloyd's Rep 652 : 9.25, 19.57
Margetts & Ocean Accident Guarantee Corp, Re [1901] 2 KB 792 '" .12.16
Lynch v Dunsford (1811) 14 East 494; sub nom Lynch v Hamilton (1810) 3 Taunt 37 .4.84
Madanela, The (1922) 13 L1LRep 126 15.24
Lynch v Narional Life & Accidentlnsurance Co 278 SW 2d 32 (1955) 13.23
Marine Craft Constructors Ltd v Erland Blomqvist (Engineers) Ltd [1953] 1 Lloyd's
Lyons v JW Bendey Ltd (1944) 77 L1LRep 335 5.31
Rep 514 12.16
Lysaght (J) Ltd v Coleman [1895] 1 QB 49 21.05
Maritime Insurance Co v Allianza Insurance Co of Santander (1907) 13 Com Cas 46 17.10
Maritime Insurance Co v Stearns [1901] 2 KB 912 18.07,18.114
MIS Aswan Engineering Establishment Co Ltd v Iron Trades Mutual Assurance Co Ltd Maritime Transport Overseas GmbH v Unitramp (The Antaios) [1981] 2 Lloyd's
[1989] 1 Lloyd's Rep 289 8.07,8.54,8.57
Rep 284 6.41
Mac, The (1882) 7 PD 126 .. " , , 12.16
Mark Rowlands Ltd v Berni 1nns Ltd [1986] 1 QB 211 , .. 3.30,25.25,25.32
Macaura v Northern Assurance Co Lrd [1925] AC 619 3.32, 3.33, 3.36, 3.46,
3.47,3.50,3.60 Markel International Insurance Co Ltd v La Republica Campania Argentina de Seguros
[2004] EWHC 1826 (Comm), [2005] Lloyd's Rep 1R 90 4.69
Macbeth & Co Ltd v Maritime Insurance Co Ltd [1908) AC 144 , 21c74
Marsden v Reid (1803) 3 East 572 4.62, 18.36
McCormick v National Motor & Accident Insurance Union Ltd (1934) 49
Marsttand Fishing Co Ltd v Beer (The Girl Pat) [1937] 1 All ER 158 21.65, 21.66,
LlLRep 361 " .4.164, 4.167, 20.56
21.102,21.106
McCowin Lumber & Export Co Inc v Pacific Marine Insurance Co Ltd (1922)
Marten v Vestey [1920) AC 307 17.37
38TLR901 22.117
Martin Maritime Ltd v Provident Capital Indemnity Fund Ltd (The Lydia Flag) [1998]
MacDowell v Fraser (1779) 1 Dougl 260 , .4.06, 4.131
2 Lloyd's Rep 652 9.25,19.57
McFadden v Blue Star Line [1905J 1 KB 697 19.23, 19.29
Martin P, The [2003] EWHC 2158 (Comm), [2004] 1 Lloyd's Rep 389 2.82, 3.27,
Mackay v London General1nsurance Co Ltd (1935) 51 L1LRep 201 18.91
3.36,3.49,4.74,4.76,4.88,4.104,4.107,4.197,6.37, 26.31, 26.34, 26.38,
Mackender v Feldia AG (1967) 2 QB 590 4.156, 18.84
26.39,26.41,26.50,26.53,26.55,26.69,26.72,26.80,26.82
Mackenzie v Coulson (1869) LR 8 Eq 369 " " .8.77, 8.81
Martin v Sitwell (1691) 1 Show KB 156 1.39, 6.05
Mackenzie v Shedden (1810) 2 Camp 431 17.39
Mason v Sainsbury (1782) 3 Dougl61 25.02,25.75
Mackenzie v Whitworrh (1875) 1 Ex D 36 3.69
Maspons y Hermano v Mildred, Goyeneche & Co (1883) 8 App Cas 874 5.77
MacMillan v AW Knorr Becker Scott Ltd [1990] 1 Lloyd's Rep 98 5.06
Mata Hari, The [1983] 2 Lloyd's Rep 449 8.91
McNealy v Pennine Insurance Co Lrd [1978] 2 Lloyd's Rep 18 5.03,5.25
Matiana, The [1921] 1 AC 99; [1919] 2 KB 670 13.06
McNeil v Law Union & Rock 1nsurance Co Lrd (1925) 23 LlLRep 314 5.75
Marthie v Potts (1802) 3 Bos & Pul 23 17.13
Magnus v Burremer (1852) 11 CB 876 · ·· .. ······· .10.12, 10.25
Matvieff v Crosfield (1903) 8 Com Cas 120 22.117
Main, The (1894) P 320 " 7.28,21.86,23.36
Mayban General Assurance Bhd v Alstom Power Plants Ltd [2004] EWHC 1038 (Comm),
Mains v London Assurance (1935) 52 LlLRep 211 15.23
[2004] 2 Lloyd's Rep 609 10.79,15.53,15.54
Maira, The (No 2) [1986) 2 Lloyd's Rep 12 7.25,7.29
Mayor, &c, of Boston v France Fenwick & Co Ltd (1923) 28 Com Cas 367 22.48
Malbi v Ahhey Life Assurance Co Ltd [1996] LRLR 237 .4.64
Mazarakis Bros v Furness, Withy & Co (1923) 17 LlLRep 113 13.12
Mallett v McMonagle [1970] AC 166 " 5.53
M'Carthy v Abel (1804) 5 East 388 21.91
Mallough v Barber (1815) 4 Camp 150 : 5.25,5.50
MDIS v Swinbank [1999] Lloyd's Rep 1R 516 21.15
Mammorh Pine, The [1986] 3 All ER 767 24.26
M'Dougle v Royal Exchange Assurance Co (1815) 4 Camp 283 10.81
Ivi Ivii
Table afCases
Table
Mead v Davison (1835) 3 A & E 303 3.13,3.65 Monarch Sreamshlp Co Ltd v Karlshamms Olje&briker [1949] AC 196 9.03, 19.42
Medina Princess, The [1965] 1 Lloyd's Rep 361 23.21 Mandel v Steel (1841) 8 M &W858 20.25
Mediterranean Freight Services Ltd v BP Oil International Ltd (The Fiona) [1993] Monksfield v Vehicle & General Insurance Co Ltd [1971] 1 Lloyd's Rep 139 26.44,
1 Lloyd's Rep 257 19.13,19.43 26.45, 26.49
Melanesian Mission Trust Board v Australian Mutual Provident Society [1996] UKPC 53, Monrgomery v Egglngton (1789) 3 TR 362 17.41,17.42
(1997) 74 p & CR297 8.08, 8.52 Monroya v London Assurance Co (1851) 6 Exch 451 10.44
Mellish v Andrews (1812) 15 East 13 21.24 Moonacre, The [1992] 2 Lloyd's Rep 501 3.17, 3.30, 3.31, 3.50, 3.62, 5.22, 5.26,
Mentz, Decker & Co v Marlrimelnsurance Co [1910] 1 KB 132 18.!!6, 18.119, 18.123 5.70,5.73
Mercandlan Continent, The [2001] EWCA Civ 1275, [2001] 2 Lloyd's Rep 563 4.195, Moor Line Lrd v Isaac King (1920) 4 LlLRep 286 9.40, 13.12
4.197,4.198,22.22,22.89,22.94,22.97,22.114 Moore Large & Co Ltd v Hermes Credit & Guarantee pic (2003) EWHC 26 (Comm),
Mercantile Marine Insurance Co v Titherington (1864) 5 B & S 765 . , .. , .. 8.20, 17.30, 17.36 [2003] 1 Lloyd's Rep 163 4.53, 4.60, 4.76, 4.104
Mercantile Steamship Co Ltd v Tyset (1881) 7 QBD 73 9.58 Moore v Evans [1918JAC 185 21.36,21.47
Merchants & Manufacturers Insurance Co Ltd v Hunt [1941] 1 KB 295 4.14, 4.175 Moore v Lunn (1923) 15 LlLRep 155 19.07
Merchants Marine Insurance v North of England Protecting & Indemnity Association Moore v Mourgue (1776) 2 Camp 479 5.27,5.28
(1926) 26 LlLRep 201 12.16 Moran, Galloway & Co v Uzielll [1905] 2 KB 555 3.31,3.46,3.48
Merchants Trading Co v Universal Marine Co (1870) (1874) 2 Asp MC 431n 10.06 Mordy v Jones (1825) 4 B & Cr 394 9.57
Meridian Global Funds Management Asia Ltd v Securities Commission [1995] Morgan v Price (1850) 4 Exch 615 ., 26.23
2 AC 500 .4.113, 4.!!4 Morgan v Provincial Insurance Co Ltd [1932) 2 KB 70 18.105, 18.109
Merrett v Capltollndemnlry COtp [1991] 1 Lloyd's Rep 169 25.41 Morley v Moore [1936] 2 KB 359 25.Ql
Metropolitan Police Commissioner v Caldwell [1982] AC 341 14.24 Morley v United Friendly Insurance pic [1993J 1 WLR 996 15.12
Meunier, Re [1894] 2 QB 415 14.29 MornlngSrar, The 1984 (4) SA 269 3.74,13.78
Meyer v Gtegson (1784) 3 Dougl 402 6.04 Morris v Ford Motor Co Ltd [1973] 1 QB 792 25.22
Meyer v Ralll (1876) 1 CPD 358 9.57 Morrison v Universal Marine Insurance Co (1873) LR 8 Ex 197 2.08, 4.10, 4.19,
Miceli v Union Marine & General Insurance Co Ltd (1938) 60 LlLRep 275 7.51 4.20,4.96,4.167
Michael, The [1979] 1 Lloyd's Rep 55 11.62, 11.64,22.88 Moses v Prarr (1815) 4 Camp 297 6.02
Michael v Gillespy (1857) 2 CB(NS) 627 . 17.06 Moss v Byrom (1795) 6 TR 379 !!.55, 18.27
Michael v Tredwln (1856) 17 CB 551 19.30 Motor & General Insurance Co Ltd v Pavy [1994] 1 WLR 462 22.13
Michael v Valentine (1923) 16 LlLRep 244 5.38 Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India (The Kanchenjunga)
Michalos (N) & Sons Maritime SA v Prudential Assurance Co Ltd (The Zinovia) (1984) [1990]1 Lloyd's Rep 391 .4.164, 18.95
2 Lloyd's Rep 264 10.16, 11.62, 11.63,15.18 Motteux v London Assurance (1739) 1 Atk 545 8.81, 8.87, 18.47
Micklefield v Hepgln (1793) 1 Anst 133 3.04 Mount v Larkins (1831) 8 Bing 108 18.23
Micklefield v SAC Technology Ltd [1990] 1 WLR 1002 8;33 MounrainvWhltrle[1921] lAC615 10.13,19.46
Middleton v Pollock (1875) LR 20 Eq 29 6.27 Moxon v Atkins (1812) 3 Camp 200 17.09
Midland Mainline Ltd v Eagle Star Insurance Co Ltd [2004] EWCA Civ 1042, [2004] M'Queen v Great Western Railway Co (1875) LR 10 QB 569 .4.59
2 Lloyd's Rep 604; [2003J EWHC (Comm) 1771, [2004J Lloyd's Rep IR 22 9.41, MSC Mediterrananean Shipping Co SA v Polish Ocean Lines (The Tychy) (No 2)
9.43, 15.49 [2001] EWCA Civ 1198, [200!) 2 Lloyd's Rep 403 8.37,8.40,8.41
Mllasan, The [2000] 2 Lloyd's Rep 458 , .. 7.57,10.30,15.22 Mudlark, The [1911] P 116 12.16
Millet, Glbb & Co Ltd, Re [1957] 1 WLR 703 25.15, 25.76 Muirhead v Forth & NonhSea Steamboat Mutual Insurance Association (1894)
Miller v Law Accidentlnsurance Co [1903] 1 KB 712 '" 9.50, 13.49, 13.50 ~n····.·.··................18.~
Miller v Woodfall (1857) 8 El & Bl493 22.37, 22.40 Mullet v Thompson (1811) 2 Camp 610 '" '" 18.70
MilIesvFletcher(1779) I Dougl231 21.101 Mullett v Sheddon (18!!) 13 East 304 '" 21.49
Minden, The [1942] AC 50 7.03,9.53, 10.66, 11.44, 11.45, 13.46, 13.50, 13.51, Muncaster Castle, The [1961J AC 807 11.n
18.31,18.46,18.47,21.63,21.67,21.68,21.97, 21.106, 22.35 Munro, Brice & Co v FW Marren (1920) 2 LlLRep 2, (1920) 36 TLR 241; sub nom
Minett v Anderson (1794) Peake 277 17.34 Munro Brice & Co v War Risks Association [1918] 2 KB 78 7.52,7.58
Mint Securiry Lrd v Blair [1982] 2 Lloyd's Rep 188 .4.165, 5.38 Murphy v Bell (1828) 4 Bing 567 3.06
Miss lay Jay, The [1987] 1 Lloyd's Rep 32; [1985J 1 Lloyd's Rep 264 9.23, 10.06, Murray v Legal & General Assurance Sociery Ltd [1970] 2 QB 495 " 20.66, 20.67
10.08,19.45,19.48,19.60 Murray v Mann (1848) 2 Ex 538 .4.20
Mitchell v Edle (1787) 1 TR 608 22.56
Mitor Investments Pry Ltd v General Accident Fire & Life Assurance Corp Ltd [1984] Nal Genova and Nal Superba, The [1984] 1 Lloyd's Rep 353 8.79,8.80
WAR365 5.18, 5.29 Nam Kwong Medicines & Health Products Co Ltd v China Insurance Co Ltd [2002]
Mitrovich Bros & Co v Merchants Marine Insurance Co Ltd (1923) 14 LlLRep 25; 2 Lloyd's Rep 591 18.12
(1922) 12 LlLRep451 7.51 Napier & Emick (Lord) v Hunter [1993] AC 713 25.16,25.54,25.55,25.58,25.60,25.63,
Mitsui Construction Co Ltd v Attorney-General of Hong Kong (1986) 33 Build LR 1 8.26 25.65, 25.n, 25.73, 25.77, 25.78, 25.79
Molr v Royal Exchange Assurance Co (1815) 3 M & S 461; (1814)4 Camp 84 18.88 Nassau Bay, The [1979] 1 Lloyd's Rep 395 12.03,13.53,13.84
Iviii lix
Table ofCases
Table
National Employers Mutual General Insurance Association Ltd v Haydon [1980] 2 Lloyd's Normid Housing Association Ltd v Ralphs [1989J 1 Lloyd's Rep 265 20.47
Rep 149 26.06, 26.16 Normid Housing Association Ltd v Ralphs (No 2) [1989J 1 Lloyd's Rep 274 .. '" 20.47
National Fite1nsurance Co v Mclaren (1886) 12 OR 682 25.52 North & $curh Trust Ce v Berkeley [1971] 1 WLR 470 5.03
National Insurance & Guarantee Corp v Imperio Reinsurance Co (UK) Ltd [1999] North Atlantic Insurance Co Ltd v Bishopsgate Insurance Ltd [1-.998] 1 Lloyd's
Lloyd's Rep lR 249 5.65,5.69 Rep459 2Ll7
National Justice Campania Naviera SA v Prudential Assurance Co Ltd (The Ibrian Reefer) North Atlantic Insurance Co Ltd v Nationwide General Insurance Co Ltd
[1993] 2 Lloyd's Rep 68 , 10.65, 11.63, 15.18, 15.22 [2004] EWCA Civ 423, [2004J Lloyd's Rep lR 466; [2003J EWHC 449 (Comm),
National Oil Co of Zimbabwe (Private) Ltd v Srurge [1991] 2 Lloyd's Rep 281 13.36 [2003J 2 CLC731 2.67
National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 1 Lloyd's Rep 582 2.82, 2.85, North Btitain, Tbe[1894] p 77 12.21
2.86,2.87,2.90,3.62,3.63,15.11,22.82,24.14, 25.29, 25.30 North British & Mercantile Insurance Co v London, Liverpool & Globe Insurance Co
Nautilus Steam Sbipping Co Ltd, Re [1936J Ch 17 12.13, 20.62 (1877) 5 ChD 569 26.Q2
Naviera de Canarius SA v Nacional Hispanica Aseguradora SA (The Playa de las Nieves) North British Fishing Boat Insurance Co Ltd v Starr (1922) 13 LlLRep 206 4.78, 4.92
[1978] AC 853 15.32, 15.35, 15.37 North Eastern 1aDA Steamship Insurance Association v Red Sea Steamship Co Ltd
Navone v Haddon (1850) 9 CB 30 21.108 (1906) 12 Com Cas 26 6.05
Naylot v Palmer (1853) 8 Ex 739 10.75 North of England Iron Steamship Insurance Association v Armstrong (1870) LR 5
Naylor v Taylor (1829) 9 B & C 718 21.100 QB 244 25.68,25.69,25.71,26.27
Near East Relief v King, Chasseur & Co Ltd [1930] 2 KB 40 , , .. 5.77 North of England Pure Oil~Cake Co v Archangel Maritime Insurance Co (1875) LR 10
Nefell, The [1919] 1 KB 383 24.75 QB 249 '" '" 20.09, 20.10
Nelson v Salvador (1829) M & M 309 18.87 North Star Shipping Ltd v Sphere Dtake Insurance pIc (No 2) [2005] EWHC 665 (Comm)
Nema, The[1982] AC 724 , 8.59 [2005] 2 Lloyd's Rep 76 .4.40, 4.69, 4.76, 4.85, 11.65, '15.79
Nesbitt v Lushington (1792) 4 TR 783 10.76 North Star Shipping Ltd v Sphere Dtake Insurance pic (The North Star) [2004] EWCA 2457
Neter (NE) & Co Ltd v Licences & General Insurance Co Ltd (1944) (Comm), [2005] Lloyd's Rep IR 404 24.29
77 LlLRep 202 7.51, 10.Q7 North Star, The [2004] EWCA 2457 (Cemm), [2005] Lloyd's Rep lR 404 24.29
Netherlands Insurance Co Est 1845 Ltd v Karl Lijunberg & Co AB (The Mammoth Pine) Northumbrian Shipping Co Ltd v Timm (E) & Son Ltd [1939J AC 397 19.27
[1986J 3 All ER 767 24.26, 25.22 Norton v Royal Fire & Life Assurance Co (1886) 1 TLR 460 22.86
Neue Fischmehl Vertriebsgesellschaft Haselhorst mbH v Yorkshire Insllrance Co Ltd (934) Norwegian American Cruises AlS v Mundy (The Vistafjotd) [1988J 2 Lloyd's Rep 343 8.58
50 LlLRep 151 19.04 Norwest Refrigeration Services Pry Ltd v Bain Dawes Pty Ltd (1984) 157 CLR 149 5.26
New Hampshire Insurance Co v MGN Ltd [1997] LRLR 24 2.74, 2.93, 2.96, 4.40, Norwich Union Fire Insurance $cciery Ltd v Price (WH) Lrd [1934] AC 455 22.52,22.58
4.64,4.102,4.185,4.187,4.192,4.194,8.40,8.69 Notaro v Henderson (1872) LR 7 QB 225 '" 18.48
New South Wales Leather Co Pty Ltd v Vanguard Insurance Co Ltd [1991] Noten BV v Harding [1990] 2 Lloyd's Rep 283 8.09, 15.56, 15.57
NSWLR699 3.14 NottS Patent Brick & Tile Co v Buder (1886) 16 QBD 778 .4.03
New York Life1nsurance Co v Bennion 158 F 2d 260 (1946), 13 ILR 224 13.22, 13.23 Nourse v Liverpool Sailing Ship Owners' Mutual Protection & Indemnity Association
Newby v Reed (1763) 1 Black W 416 26.01 [1896] 2 QB 16 24.69
Newcastle Fire Insurance Co v Macmorran & Co (1815) 3 Dow 255 18,54,18.90 Nukila, The [1997] 2 Lloyd's Rep 146 lLl5, 11.16, lLl7, lLl9, 11.20, 11.21,
Newton's ofWembley Ltd v Williams [1965] 1 QB 560 '" .4.156, 18.84 11.23,11.26,15.68, 2Ll9, 21.20, 24.39
Nickels & Co v London & Provincial Marine & General Insurance Co Ltd (1900) Nurt v Bourdieu (1786) 1 TR 323 11.44
6 Com Cas 15 9.48, 13.57 Ny-Eeasteyr, The [1988J 1 Lloyd's Rep 60 ILl2, lLl3, 11.63, 15.18
Nicol's Case (1859) 3 De G &J 387 .4.20,4.47
Nigel Upchurch Associates v Aldridge Estates Investment Co Ltd [1993] 1 Lloyd's 0& RJewellers Ltd v Terry [1999] Lloyd's Rep lR436 5.30, 5.61
Rep 535 20.42,20.76 O'Btien v Hughes-Gibb & Co Ltd [1995] LRLR 90 5.17, 5.28
Niger Co Ltd v Guardian Assurance Co (1922) 13 LlLRep 75 18.39 Oceanic Steam Navigation Co Ltd v Evans (1934) 40 Com Cas 108 22.48
Nima SARL v Deves Insurance pic (The Prestrioka) [2002] EWCA Civ 1132, [2002J Oceanic Steamship Co v Faber (1907) 13 Com Cas 28; (1906) 11 Com Cas 179 11.23
Lloyd's Rep IR 752 17.12,18.12,18.13,18.15,18.18 O'Cennor v BDB Kirby & Ce [1972] 1 QB 90 5.72
Nishina Trading Co Ltd v Chiyoda Fire & Marine Insurance Co Ltd (The Mandarin Star) O'Connor v Hart [1983] NZLR280 4.04
[1969] 2 QB 449 10.69, 14.20, 14.25 Oei v Foster [1982] 2 Lloyd's Rep 170 9.65
Nissan v Attorney-General [1970] AC 179 13.64, 13.65 Office Appliance Trades Association of Great Britain & Ireland v Roylance (1940) 67
Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602 (Comm), LlLRep 86 9.48
[2004] 1 Lloyd's Rep 38 5.12,20.03 Ogden & Ce Pry Ltd v Reliance Fire Sptinkler Ce Pry Ltd [1975] 1 Lloyd's Rep 52;
Nittan (UK) Ltd v Solent Steel Fabrication Ltd [1981] 2 Lloyd's Rep 633 8.47 [1973] 2 NSWLR 7 " 5.32
Nohel's Explosives Co v Jenkins;& CO [1896J 2 QB 326 18.48,18.49 O'Kane v Jones (The Martin P) [2003] EWHC 2158 (Comm), [2004] 1 Lloyd's
Noble Resources Ltd v Greenwood (The Vasso) [1993] 2 Lloyd's Rep 309 24.14,24.16 Rep 389 2.81, 3.27, 3.36, 3.49, 4.76, 4.88, 4.104, 4.107, 4.197, 6.37, 26.31,
Nohle v Kennoway (1780) 2 Doug KB 510 4.92 26.34,26.38,26.39,26.41,26.50,26.53,26.55,26.69, 26.72, 26.80, 26.82
Nocton v Kruger [1914] AC 932 ~ .4.03, 4.64 Okeanis, The [1986] 1 Lloyd's Rep 195 5.11, 22.117
Normhurst Ltd v Dornoch Ltd [2004] EWHC (Comm), [2005J Lloyd's Rep IR 27 .... 22.121 Oliverson v Brightman (1846) 8 QB 781 17.35
Jx !xi
Table ofCases Table _£'r. -
Olympia, The (1924) 19 LlLRep 255 15-22, 15.23, 15-24 Patterson v Harris (1861) 1 B & S 336 15.65
Olympic Pride, The [1980] 2 Lloyd's Rep 67 8.77 Patterson v Ritchie (1815) 4 M & S 392 _.. _ 21.101
Orakpo v Barclays Insurance Services [1995] LRLR 433 _.. 22.86,22-102,22.107,25.75 Pawson v Watson (1778) 2 Cowp 785 .4.06, 18.90
O'Reilly v Gonne(1815) 4 Camp 249 _ 18.50 PCW Syndicates v PCW Reinsurers [1996] 1 WLR 1136 . 4.09,4.118,4.119,
O'Reilly v Royal Exchange Assurance (1815) 4 Camp 246 18.50 4.123, 4.124, 4.126
Orient Co Ltd v Brekke & Howlid [1913] 1 KB 531 _. - -. _.. 20.15 Pearson & Son Ltd v Dublin Corp [1907] AC 351 .4.110
Osman v J Ralph Moss Ltd [1970] 1 Lloyd's Rep 313 _ - . - .. 5.37 Pedley v Avon Insurance [2003] EWHC 2007 (QB) 4.60, 4.69
O'Sullivan v Management Agency & Music Ltd [1985] 1 QB 428 _ .4.04 Pellas (E) & Co v Neptune Marine Insurance Co (1879) 5 CPD 34 _ _6.27, 20.26
Oswell v Vigne (1812) 15 East 70 - 18.27, 1830 Pelly v Royal Exchange Assurance(1757) I Burr341 _1.42, 17.13
OT Compute", Re [2004] EWCA Civ 653, [2004] Lloyd's Rep lR 669 _ 20.38, Pelton SS Co Ltd v North of England Protecting & Indemnity Association (1925) 22
20.39,20.42,20.77 LlLRep 510 12.16
Outhwaite v Commercial Bank of Greece SA (The Sea Breeze) [1987]1 Lloyd's Rep 372 ... 18.86 Pendlebury v Walker(184 I) 4 Y & C Ex 424 _ 26.32
Ove"eas Commodities v Style [1958J 1 Lloyd's Rep 546 15.59,17.15,18.64, Pesquerias y Secaderos de Bacalao de Espana SA v Beer (1949) 82 LlLRep 501 _ 13.26,
18.68,18.72,18.119,18.126,21.05 21.125,22.32
Overseas Marine Insurance Co, Re (1930) 36 LlLRep 183 3.11 Petersham, The [1921J 1 AC 99; [1919J 2 KB 670 13.06, 13.08, 13.40
Owners of Cargo on Ship 'Maori King' (The Maori King) [1895] 2 QB 550 19.13 Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127 2.75,3.58,3.60,25.28,26.02
Owners of the Steamship Gracie v Owners of the Steamship Argentino (The Argentino) Petro~ecInc v Petroleo Brasileiro SA Petrobas [2004] EWCA Civ 156, [2004] 1 Lloyd's
(1889) 14 App Cas 519 15.35 ep 629 _ _. _ 8.02, 8.05
Owne" of Steamship 'Larchgrove' v R (1919) 1 LlLRep 408 _ 13.12 Petromec Inc v Petroleo Brasileiro SA Petrobas (No 2) [2004] EWHC 127 (Comm) .. , 8.40
Peyman v Lanjani [1985] Ch 457 4.164
P&S Platt v Crouch [2003] EWCA Civ 1110, [2004J 1 p & CR 18 _, 839,8.40 Phelps,James&CovHill [1891] 1 QB605 18.48
Pacific & Generallnsutance Co Ltd v Hazell [1997] LRLR 65 6.16 Phelps v Auldjo (1809) 2 Camp 350 18.47
Padrelsland, The [1984] 1 Lloyd's Rep 408 _ 20.60 Phillips v Barber(182I) 5 B &Ald 161 _ _ 10.26
Padre Island, The (No 2) [1989J 1 Lloyd's Rep 239 20.41,20.63,22.73 Phillips v Irving (1844) 7 Man & G 325 _ 18.39
Page v Scottish Insurance Corp (1929) 140 LT 571 _.. 25.11 Philpott v Swann (1861) 11 CB(NS) 271 _.956
Pagnan SA v Tradax Ocean Transportation SA [1987] 2 Lloyd's Rep 342 8.21 Phoenix Assurance Co v Spooner [1905] 2 KB 753 25.18
Palamisto General Enterprises SA v Ocean Marine Co Ltd (The Dias) [1972] Phoenix General Insurance Co of Greece v Halvanon Insurance Co Ltd [1985]
2 QB 625 10.36,15.21, 15.26 2 Lloyd's Rep 599 _ " . '" .4.201, 22.22
Palitana, The (1924) 20 LlLRep 74,140 _ 15.23 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 , 18.57
Palmer v Fenning (1833) 9 Bing 460 _ _ 18.21 Phynn v Royal Exchange Assurance Co (1798) 7 TR 505 _ _.. _ 11.55, 18.44
Palmet v Ma"hall (1832) 8 Bing 317 _ 18.22 Pickersgill & Sons Ltd v London & Provincial Marine & General Insurance Co [1912]
Pan American World Airways Inc v Aetna Casualty & Surety Co [1975] 1 Lloyd's 3 KB 614 22.64
Rep 77 · .. ···· .. ···· .. ··· .13.30,13.35,14.19 Pickup v Thames & Mersey Marine Insurance Co Ltd (1878) 3 QBD 594 19.52
Pan Atlantic Insurance Co Ltd v Pine Top Insutance Co Ltd [1995] lAC 501; [1993] 1 Piermay Shipping Co SA v Chester (The Michael) [1979] 2 Lloyd's Rep 1 11.62, 11.64,
Lloyd's Rep 496; [1992]1 Lloyd's Rep 101 1,47,1.49,4.16,4.25,4.26,4.33, 22.88
4.35,4.39,4.40,4.42,4.44,4.51, 4.54, 4.55, 4.58, 4.83, 4.89, 4.105, Pieschell v Allnutt (1813) 4 Taunt 792 _ _ 3.77
4_108,4.142, 4.148, 4.157. 4.161,4.177, 4.178 Pilkington United Kingdom Ltd v CGU Insurance pic [2004J EWCA Civ 23, [2004]
Panamanian Oriental Steamship Corp v Wtight (The Anita) [1971] 1 WLR 882, [1970] Lloyd's Rep IR 891 _ 11.15
2 Lloyd's Rep 365 7.05,9.60,13.61, 13.71, 13.74, 13.75, 13.83,21.47,21.49, Pim v Reid (1843) 6 Man & G 1 18.28
21.103,22.52,22.57 Pindos Shipping Corp v Raven (The Mata Hari) [1983] 2 Lloyd's Rep 449 8.91
Pangood Ltd v Barclay Brown & Co Ltd [1999J Lloyd's Rep IR 405 5.11,5.14,5.15 Pink v Fleming (1890) 25 QBD 396 9.06,15.34,15.35,15.36,15.37
Papademittiou v Hende"on (1939) 64 LlLRep 345 15.13 Pintada, La [1985] AC 104 6.14, 22.121
Papera Traders Co Ltd v Hyundai Merchant Marine Co Ltd (The Eurasian Dream) Pioneer Concrete (UK) Ltd v National Employers Mutual General Insurance Association
[2002] EWHC 118 (Comm), [2002] 1 Lloyd's Rep 719 19.07,19.10 Ltd [1985] 1 Lloyd's Rep 274 20.57, 22.13, 22.15
Parente v Bayville Marine Insurance [1975] 1 Lloyd's Rep 333 11.13 Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 8.59, 8.61, 8.62
Park v Hammond (1816) 6 Taunt 495 5.23 Piper v Royal Exchange Assurance (1932) 44 LlLRep 103 .7.43
Parkin v Dick (1809) 2 Camp 221 3.76 Pipon v Cope (1808) 1 Camp 434 11.46
Parmeter v Cousins (1809) 2 Camp 235 _ 1731 Pitman v Universal Marine Insurance Co (1882) 9 QBD 192 23.19, 23.21, 23.22, 23.23
Parry v Cleaver [1970] AC 1 25.01 Pirtegrew v Ptingle (1832) 3 B &Ad 514 18.69,19.26
Parry v Great Ship Co Ltd (1864) 4 B &S 556 _ 8.81, 21.101 Platform Home Loans Ltd v Oysron Shipways Ltd [2002] 1 AC 190 5.45
Pasquali & Co v Traders & General Insurance Association (1921) 9 LlLRep 514 7.54 Playa de las Nieves, The [1978] AC 853 15.32,15.35,15.37
Pateras v Royal Exchange Assurance (The Sappho) (1934) 49 LlLRep 400 15.21 Polpen Shipping Co Ltd v Commercial Union Assurance Co Ltd [1943] 1 All ER 162 ... 12.15
Paterson Steamships Ltd v Canadian Co~operative Wheat Producers Ltd (1934] Polurrian Steamship Co Ltd v Young (1913) 19 Com Cas 143 21.06, 21.62, 21.65,
AC 538 _ 19.16, 19.43 21.66,21.102,21.106,21.107
lxii ]xiii
Polzeath, The [1916] I' 117 16.15 R v Gullefer [1990] 1 WLR 1063n '" 13.56
Popham & Willett v St Petersburg Insurance Co (1904) 10 Com Cas 31 10.11 R v jones [1990J 1 WLR 1057 13.56
Popi M, The [1985] I WLR 948; [1984] 2 Lloyd's Rep 555; [1983] 2 Lloyd's R v Oshorn (1919) 84jp63 13.56
Rep 235 7,49,7.56,7.57,10.28,10.31, 10.33, 10.38, 10,41, lQ.42, 19.55 R v Savage [1992] lAC 699 14.24
Post Office v Norwich Union Fire Insurance Co [1967] 2 QB 363 ' 20.50,20.51, Rafsanjan Pistachio Producers Co~operative v Bank Leumi (UK) pIe [1992] 2 Lloyd's
20.56 Rep 512 .4.148
Potoi Chau, The [1983) 2 Lloyd's Rep 376 22.66,24,45 Raiffeisen Zentralbank Osterrieh AG v Five Star Trading lie [2001] QB 825 12.13,
Powell v General Electric Co [2005] EWCA 644 (QBD) 8.22
20.12,20.14,20.16
Powell v Hyde (1855) El & Bl607 13,46, 13,47 Raine v Bell (1808) 9 East 195 18.29
Power Packing Casemakers Ltd v Emst [1983] ICR 292 14.11 Ralli v johnson (1856) 6 El & BI422 23.39
Power v Burcher (1829) 10 B &Cr 329 6.21, 6.22 Randal v Cockran (1748) 1 Yes Sen 98 25.38, 25,40, 25.75, 25.76
Powles v Innes (1843) 11 M & W 10 20.09, 20.10 Rankin v Porter (1873) LR 6 HL 83 17.39, 21.91, 21.93, 21.96, 22.33, 22.34,
Praet Gulian) et Cie SA v HG Poland [1960] 1 Lloyd's Rep 416 2.07
22.35,22.36,22.61
Prenn v Simmonds [1971] 1 WLR 1381 8.35,8.40 Rawson v Samuel (1841) Cr & Ph 161 6.27, 20.25
Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc [1998] 2 Lloyd's Rep 326 5.11, Rayner v Godmond (1821) 5 B & AJd 225 10.81
5.13,5.14,6.22,6.29 Rayner v Preston (1881) 18 ChD I 20.09
President ofIndia v La Pintada Campania Navigacion SA (La Pintada) [1985] Raynor v Ritson (1865) 6 B & S 888 1.59, 4.200
AC 104 6.14, 22.121 Read v Bonham (1821) 3 Brad & B 147 22.55
Presidem of India v Lips Maritime COtp (The Lips) [1988] AC 395 22.121 Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] I WLR 989 8.04,8.36,
Prestrioka, The [2002] EWCA Civ 1132, [2002] Lloyd's Rep IR 752 17.12, 18.12,
8.39, 18.35
18.13,18.15,18.18 Red Sea, The [1896] I'20 22,40
Priam, The [1948] AC243 13.14,13.16,13.53 Redgrave v Hurd (1881) 20 ChD I .4.03, 4.64
Ptide of DonegaL The [2002] EWHC 24 (Comm), [2002] I Lloyd's Rep 659 11,41, Redman vWihon (1845) 14M &W 476 ~ 11.31,19,44
19.04,19.05,19.10,19.23 Redmond v Smith (1844) 7 Man & G 457 3.70, 3.71
Prinrpak v AGF Insurance Ltd [1999] Lloyd's Rep IR 542 18.103 Reed (AE) & Co v Page, Son & East Ltd [1927J 1 KB 743 19.11,19.24
Prohatina Shipping Co Ltd v Sun Insurance Office Ltd [1974] QB 635 1.59 Reese Silver Mining Co v Smith (1869) LR 4 HL 64 .4.04
Ptoject Asia Line Inc v Shone (The Pride of Donegal) [2002] EWHC 24 (Comm); [2002] Regina Fair Co Ltd v Blossom [1958] 2 Lloyd's Rep 425; [1957] 2 Lloyd's Rep 466 10.35
1 Lloyd's Rep 659 11,41,19.04,19.05,19.10,19.23 Reid v Standard Marine Assurance Co Ltd (1886) 2 TLR 807 21.21
Ptomet Engineering (Singapore) Pte Lrd v Sturge (The Nukila) [1997] 2 Lloyd's Reimer v Ringrose (1851) 6 Exch 263 21.75
Rep 146 11.15,11.16,11.17,11.19,11.20, lUI, 11.23, 11.26, 15.68, Reinhart Co v joshua Hoyle & Sons Ltd [1961] I Lloyd's Rep 346 21.19
21.19,21.20,24.39 Reischer v Barwick [1894] 2 QB 548 9.05,9.24,9.36,9,44
Property Insurance Co Ltd v National Protector Insurance Co Ltd (1913) 18 Com ./ Reliable Distributors Ltd v Royal Insurance Co of Canada [1984] 6 WWR 83 14.26
Cas 119 4.100 Reliance Marine Insurance Co v Duder [1913] I KB 265 8.03
P1Oudfoot v Monrefiore (1867) LR 2 QB 511 .4,1 19,4.120 Rendall v Combined Insurance Co of America [2005J EWHC 678 (Comm), [2005]
Provincial Insurance Co of Canada v Leduc (1874) LR 6 PC 224 22.59,22.60 1 CLC 565 .4.134, 4.146
Provincial Insurance Co v Morgan [1933] AC 240 18.70 Remon (GH) & Co Ltd v Black Sea & Baltic General Insurance Co Ltd [1941]
Prudent Tankers Ltd SA v Dominion Insurance Co Ltd (The Caribbean Sea) [1980] I KB 206 17.15
1 Lloyd's Rep 338 11.08, 1LI3, 11.24 Republic of Bolivia v Indemnity Mutual Marine Insurance Co Ltd [1909]
Pryke v Gibbs Hartley Cooper [1991] 1 Lloyd's Rep 602 2,42,2.65 1 KB 785 10.74,10.76
Punjah National Bank v de Bainville [1992] 1 WLR 1138 5.05 Republic of China v National Union Fire Insurance Co of Pittsburgh (The Hai Hsuan)
[1958] I Lloyd's Rep 351 .. ·· .. ·· .. ······· 11.53, 13,47
Quebec Marine Insurance Co v Commercial Bank of Canada (1870) LR 3 PC 234 ..... 18.65, Reynolds v Phoenix Assurance Co Ltd [1978J 2 Lloyd's Rep 440 .4.85,4.86,7.33
18.75,19.23,19.26,19.29 Rhesa Shipping Co Ltd v Edmunds (The Popi M) [1985] I WLR 948; [1984] 2 Lloyd's
Queensland National Bank Ltd v Peninsar & Oriental Steam Navigation Co [1898] Rep 555; [l983J 2 Lloyd's Rep 235 7.49,7.56,7.57,10.28,10.31,
I QB 567 19.13
10.33,10.38,10,41,10,42,19.55
Quinta Communications SA v Warrington [2000] Lloyd's Rep IR 81 8.67 Rhodes, Re (1887) 36 ChD 586 21.21
Quorum v Schramm [2002] Lloyd's Rep IR 292 7.34,8.27,21.04 Richardson, ex I' Governors of StThomas's Hospital, Re [1911] 2 KB 705 22.65, 22.68
Rickards v Porestal Land, Timher & Railways Co (Tbe Minden) [1942J AC 50 7.03,
R v Bottrill, ex p Kuechenmeister [1947] KB 41 13.19 9.53,10.66, 11.44,11.45,13,46,13.50,13.51,18.31,18,46,18,47,
R v Cunningham (1957) 41 Cr ApI' Rep 155 14.24 21.53,21.63,21.67,21.68,21.97, 2LI06, 22.35
R v Dagnall [2003] EWCA Civ 2441, (2003) 147 SjLB 995 13.56 Rickman v Carmirs (1833) 5 B &Ad 651 17.20, 21.87
R v G [2004] I AC 1034 14.24 Ridsdale v Newnham (1815) 4 Camp III 19.26
R v Governor of Winson Green Prison, Birmingham, ex p Littlejohn [1975]'1 Rivaz v Gerussi Bros & Co (1880) 6 QBD 222 2.37,4.25,4.66
WLR 893 14.28 Rivetlate Properties Ltd v Paul [1975] Ch 133 8.79
lxiv lxv
River~Z;o~~a.t.~~.~:.~~~~.~~~~s~.i~e.~~~~~i~.g.~~.:~~~.~.U.~c~~~e.r.~~t~~). ~1.~~~]... . 11.72 St Paul Fire & Marine Insurance Co (UK) Ltd v McDonnell Dowell Constructors Ltd
[1995] 2 Lloyd's Rep 116 4.40, 4.51, 4.56, 4.58, 4.89
Roadworks (1952) Lrd v JR Charman [1994] 2 Lloyd's Rep 99 2.49, 2.57 Salem, The [1982] QB 946 7.55,9.60, 10.78, 11.44, 11.52, 13.46, 13.47,
Roar Marine Lrd v Bimeh Iran Insurance Co [1998] 1 Lloyd's Rep 423 2.45,2.59 14.26,14.27,15.16
Roberts v Anglo-Saxon Insurance Association Lrd (1926) 26 LlLRep 154 18.105, 18.109 SalrvCooper(1880) 16ChD544 4.17
Roberrs v Plaisred [1989] 2 Lloyd's Rep 341 5.34 Salvador v Hopkins (1765) 3 Burr 1707 1.42
Roberrson v Ewer (1786) 1 TR 127 11.56, 21.06 Samuel (P) & Co Ltd v Dumas [1924] AC 431 1048, 3.72, 4.184, 4.185, 9.15, 9.16,
Roberrson v French (1803) 4 Easr 130 8.07,8.14,8.20 9.18,9.29,10.14,10.15,10.16,10.17,10.58,10.59, 10.78, 11.34,
Roberrson v Hamilton (1811) 14 East 522 ··· ·················· .3.39 11.44,12.02,15.28,18.83,22.100,25.30
Roberrson v Pettos M Nomikos [1939] AC 371 3.54, 15.41,21.53,21.94,22.33 Samuel v Royal Exchange Assurance Co (1828) 8 B & Cr 119 17.35
Roberrso n v Royal Exchange Assurance Corp (1924) 17 LlLRep 17 22.59 San Roman, The (1873) LR 5 PC 301 18.49
Robinson Gold Mining Co v Alliance Assurance Co [1902] 2 KB 489 ,' 13.47, 13.50 Sanday v British & Foreign Marine Insurance CO [1915J 2 KB 781 13.50, 13.52,21.37
Rodan International Ltd v Commercial Union Assurance Co plc (1999] Lloyd s Rep Sappho, The (1934) 49 LlLRep 400 15.21
IR495 11.14 Sarginson Bros v Keith Moulron & Co (1942) 73 L1LRep 104 5.22
Roddick v Indemnity Mutual Marine Insurance Co Ltd [1895] 2 QB 380; [1895] Sarpen, The [1916] P 306 13.65
1 QB 536 18.82 Sassoon (ED) & Co v Western Assurance Co [1912] AC 561; (1923) 16 LlLRep 129;
Rodocanachi v Elliott (1873) LR 8 CP 649 9.53,21.97,21.102 (1923) 14 LlLRep 135 10.06,10.19,15.51,15.59,15.67,15.68
Rogers v Whittaker [1917] 1 KB 942 13.34, 13.35 Satanira, The [1897] AC 59 , 2.67
Roper v Johnson (1873) LR 8 CP 167 24.15 Saunders v Baring (1876) 34 LTNS 419 21.42, 25.18, 25.37
Rosa v Insurance Co of the State of Pennsylvania (The Belle of Portugal) (1970] 2 Lloyd's Scaramanga & Co v Sramp (1880) 5 CPD 295 18.51
Rep 386 10.65,11.40 Scarf v Jardine (1882) 7 App Cas 345 .4.164
RoscowvCorson(1819) 8 Taunr 684 11.55 Scheiderman v Merropoliran Casualty Co of New York 220 NYS 2d 947 (1961) 13.23
Roselodge Lrd v Castle [1966] 2 Lloyd's Rep 113 10.35 Schiffshypothekenbankzu LuebeckAG v Compton (The Alexion Hope) [1988J 1 Lloyd's
Roserto v Gurney (1851) 11 CB 176 21.75 Rep 311 10.65
Ross v Humer (1790) 4 TR 33 11.48, 11.51, 11.55, 18.43 Schloss Bros v Stevens (1905) 10 Com Cas 224 1.60, 4.92, 5.54
RotchvEdie(1795)6TR413 13.52 Schoolman v Hall [1951] 1 Lioyd's Rep 139 .4.104
Rothschild OJ Assurance pic v Collyear [1999] Lloyd's Rep IR 6 22.09 Schroder v Thompson (1817) 7 Taunt 462 18.39
Roura & Forgas v Townend [1919] 1 KB 189 21.67,21.93,21.102,22.33 Schtraks v Government of Israel [1964] AC 556 14.28
Roux v Saivador (1836) 3 Bing NC 266 21.42, 21.44, 21.50, 22.31, 22.61, Schuler (L) AG v Wickman Machine Tools Ltd [1974] AC 235 '" 8.09,8.12,8.13,
25.18,25.37 8.23,8.24,8.29,8.40
Rowcroft v Dunmore (1801), cited 3 Taunt 228 , 10.25 Scindia Steamships (London) Ltd v London Assurance [1937] 1 KB 639 11.19, 11.25
Royal & Sun Alliance Insurance pic v Dornoch Ltd [2005] EWCA Civ 238, [2005] 1 All /' Scott Lithgow Ltd v Secretary of State for Defence (1989) 45 BLR 1 22.17
ER (Comm) 590; [2004] EWHC 803 (Comm), [2004] Lloyd's Rep IR 826 8.31, SCOtr v Copenhagen Reinsurance Co (UK) Ltd [2003] EWCA Civ 688, [2003] Lloyd's
8.55,8.57 Rep IR 696 9.04,21.12,21.22,21.30,21.102,21.105
Royal Bank of Scotland pic v Ettidge (No 2) [2001] UKHL 44, [2002] 2 AC 773 10.31 Scott v Irving (1830) 1 B & Ald 605 22.117
Royal Boskalis Wesrminsrer NYv Mountain [1999] QB 674; [1997] LRLR 523 21.61, Scott v Thompson (1805) 1 B & P (NR) 181 18.44, 18.46
21.65,21.66,21.71,21.102,21.104,22.32,22.61,22.91, 24.27, 24.31, Scottish Marine Insurance v Turner (1855) 4 HLC 312 22.39
24.32,24.38,24.71 Scottish Metropolitan Assurance Co Ltd v Stewert (1923) 39 TLR 407 17.47
Royal Brompton NHS Trusr v Hammond (No 3) [2002J UKHL 14, [2002] 1 WLR Scottish Shire Line Ltd v London & Provincial Marine & General Insurance Co Ltd
1397 26.36 [1912] 3 KB 51 17.39, 21.91
Royal Exchange Assurance Corp v M'Swiney (1849) 14 QB 646 3.55 Sea Insurance Co v Blogg [1898] 2 QB 398 18.87
Royscor Trusr Lrd v Rogerson [1991J 2 QB 297 4.183 Sea Insurance Co v Hadden (1884) 13 QBD 706 22.42,25.37
Rozanes v Bowen (1928) 32 LlLRep 98 .4.07, 5.03 Sea Voyager Maritime Incv Bielecki [1999) Lloyd's Rep IR356 20.54
Russian Bank for Foreign Trade v Excess Insurance Co Ltd [1918] 2 KB 123 13.50, Seaman v Fonereau (1743) 2 Str 1183 .4.13,4.80,4.84
13.52,13.67,15.39,15.40,22.52 Searle v A R Hales & Co Lrd [1996J LRLR 68 .4.180, 5.03
Ruys v Royal Exchange Assurance Corp [1897] 2 QB 135 21.102 Seashore Marine SA v Phoenix Assurance pIc (The Vergina) (No 2) [2001] 2 Lloyd's
Rep 698 24.66
Sadler v Dixon (1841) 8 M & W 895 19.23 Seaspeed Dora, The [1988] 1 WLR 221 25.13
Sadlers' Co v Badcock (1743) 2 Atk 554 3.04 Seavision Investment SA v Evenett (The Tiburon) [1990] 2 Lloyd's Rep 418 2.55, 18.64
Safadi v Wesrern Assurance Co (1933) 46 LlLRep140 20.19 Seeburg v Russian Wood Agency Ltd (1934) 50 LlLRep 146 14.07
Sailing Ship 'Blairmore' Co Ltd v Macredie [1898] AC 593 21.48,21.77,21.107 Seligman v Eagle StarInsurance CO [1917J 1 Ch 519 3.78,3.80
Sailing Ship Garston Co v Hickie & Co (1885) 15 QBD 580 17.08, 17.09 Sellar v M'Vicar(1804) 1 Bos & Pul (NR) 23 18.04
St Machar, The (1939) 65 LlLRep 119 : 12.16 Seymour v London & Provincial Marine Insurance Co (1872) 41 LJep 193 18.68
Sr Oswald, The [1918] 2 KB 879 13.10 Shalrir III, The [1997] 1 Lloyd's Rep 586 4.197,18.122,18.127,21.41,21.48,24.27
lxvi lxvii
Sharp v Sphere Drakelnsurance pic (The Moonacre) [1992J 2 Lloyd's Rep 501 3.17, SnOwville UK Ltd v Holidaybreak pIc [2004J EWHC 1336 (Ch) 8.48
3.30,3.50,3.62,5.22,5.26,5.70,5.73 Soares v Thornton (1817)7 Taunt 627 11.44, 11.51
Shaw v Moss Emoires & Bastow (1908) 25 TLR 190 20.28 Societe Anonyme d'Intel'mediaries Luxembourgeois v Farex Gie [1995] Lloyd's Rep
Shaw v Robberds (1837) 6 A & E 75 18.27, 18.70 IR 116 2.43, 2.67, 4.09, 4.75, 4.98, 4.123, 4.128,5.04
Shawe v Felton (1801) 2 East 109 17.32 Societe d'Avances Commerciales (SA Egyptienne) v Merchants' Marine Insurance Co (The
Shelbourne & Co v Law Investment & Insurance COtp [I 898J 2 QB 626 12.02, 14.04 Palirana) (1924) 20 LlLRep 74, 140 15.23
Shell International Pettoleum Co Ltd v Gibbs (The Salem) [1982J QB 946 9.60,7.55, Socony Mobil Oil Co Inc v West of England Ship Owners Mutual Insurance Association
10.78,11.44,11.52,13.46,13.47,14.26,14.27,15.16 (London) Lrd (The PadreIsland) [1984J 1 Lloyd's Rep 408 20.60
Sbell UK Ltd v CLM Engineering Ltd [2000J 1 Lloyd's Rep 612 15.42 Socony Mobil Oil Co Inc v West of England Ship Owners Mutual Insurance Association
Shepberd v Henderson (1874) 7 App Cas 49 21.66,21.101,22.59 (London) Ltd (The PadreIsland) (No 2) [1991J 2 AC 1; [1989J 1 Lloyd's
Shogun Finance Ltd v Hudson [2003J UKHL 62, [2004J 1 AC 919 8.74 Rep 239 20.41, 20.63, 22.72
Shooter v Incorporated General Insurances Ltd (The Morning Star) 1984 (4) Solholt, The [1981) 2 Lloyd's Rep 574 24.10
SA 269 3.74, 13.78 Sotiros Shipping Inc v Sameiet Solholt (The Solholt) [1981 J 2 Lloyd's Rep 574 24.10
Shore v Benrnall (1828) 7 B & C 798(b) 11.36 South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 5.44,
Shore v Wilson (1842) 9 Cl & Fin 355 8.34
5.46,5.47,5.48
Short v McCarthy (1820) 3 B & Ald 626 22.62 South Staffordshire Tramways Co Ltd v Sickness & Accident Assurance Association Ltd
Sillem v Thornton (1854) 3 El & Bl868 18.78 [1891J I QB 402 17.47
Simmonds v Cockell [l920J 1 KB 843 18.67 Soya GmbH Mainz KG v White [1983J 1 Lloyd's Rep 122; [1982J 1 Lloyd's Rep 136;
Simmons v Gale [1957J 2 Lloyd's Rep 485 7.58 [1980J 1 Lloyd's Rep 491 15.01,15.44,15.51,15.55,15.60,15.65,15.67,15.68
Simner v New India Assurance Co Ltd [l995J LRLR 240 4.119, 4.164 Spalding v Crocker (1897) 2 Com Cas 189 8.88
Simon, Haynes, Barlas & Iteland v Beet (1945) 78 LlLRep 337 .4.167 Spectrum Plus Ltd, Re [2004J EWCA Civ 670, [2004J Ch 337 26.51
Simon, Israel & Co v Sedgwick [l893J 1 QB 303; (1892) 67 LTNS 352 17.12, 18.07, Spence v Union Marinelnsutance Co Ltd (1868) LR 3 CP 427 23.30
18.11,18.13,18.14,18.17,18.114 Sphere Drake Insurance Ltd v Euro International Underwriting Ltd [2003] EWHC 1636
Simpson & Co v Tbomson (1877) 3 App Cas 279 22.32, 25.10, 25.14, 25.25 (Comm), [2003) Lloyd's Rep IR 525 15.67,26.32
Simpson 55 Co v Premier Underwriting Association Ltd (1905) 10 Com Cas 198 18.73 Spinney's (1948) Ltd v Royal Insurance Co Ltd [1980J 1 Lloyd's Rep 406 7.59,8.09,9.66,
Sinner v New India Assurance Co Ltd [1995J LRLR 240 4.111
13.26,13.28,13.30,13.33,13.34,13.35,14.15
Sipowicz v Wimble(The Green Lion) [1974J 1 Lloyd's Rep 593 10.06, 11.12, 11.13 Spriggs v Wessington Court School [2004J EWHC 1432 (QB), [2005J Lloyd's Rep
Sir William Garthwaite (Insurance) Ltd v Port of Manchester Insurance Co Ltd (1930) 1R474 4.164
37 LlLRep 194 1.59, 1.60 Sprung v Royal Insurance (UK) Ltd [1999J Lloyd's Rep IR 111 22.75, 22.121, 22.123
Sirius International Insurance Co (PUBL) v FAI General Insurance Ltd [2004] UKHL 54, Stag Line Ltd v Foscolo, Mango & Co Ltd [1932J AC 328 18.48
[2004J 1 WLR 3251 8.09, 8.11, 8.38 Stamma v Brown (1743) 2 Srt 1173 11.55, 11.56
Sirius International Insurance Corp v Oriental Assurance Corp [1999] Lloyd's Rep Stanley v Western Insurance Co (1868) LR 3 Ex 71 7.53,9.29,9.56, 10.60
m~................................ .. 4~ Star Sea, The [2001] UKHL 1, [2003J 1 AC 469; [1997J 1 Lloyd's Rep 360; [1995J
Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 1 AC 199 2.81 1 Lloyd's Rep 651 1.59, 1.60,4.114,4.199,4.202,4.204,19.04,19.06,
Slattery v Mance [l962J 1 QB 676 15.21 19~19~1~3~19~1~~19~19~1~~1~~19~
Slazengers Ltd v Seaspeed Ferries International Ltd (The Seaspeed Dora) [1988] 22.80,22.89,22.102,22.106,22.107,22.108,22.113
1 WLR221 25.13 Srarfire Diamond Rings Lrd v Angel [1962J 2 Lloyd's Rep 217 8.07
Sleigh v Tyser [1900J 2 QB 333 18.65,19.13 Starrett Housing Corp v Iran (1984) 4 Iran-USCTR 122 13.59
Small v United Kingdom Marine Mutual Insurance Association [1897] Starsin, The [2003J UKHL 12, [2004J 1 AC 715 8.20, 8.50
2QB311 10.16, 11.49 State Government Insurance Office (Qld) v Brisbane Stevedoring Pry Ltd (1969) 123
Smit Tak Offshore Services v Youell [1992J 1 Lloyd's Rep 154 21.14 CLR 228 25.55
Smith, Hogg & Co Ltd v Black Sea & Baltic General Insurance Co Ltd [1940] State of rhe Netherlands v Youell [1998J 1 Lloyd's Rep 236; [1997J 2 Lloyd's Rep 440 3.58,
AC 997 19.16,19.43
3.64,4.191,10.78,11.41,24.09,24.15,24.23,24.24
Smirh (MH) (Plant Hire) Ltd v DL Mainwaring [1986J 2 Lloyd's Rep 244 25.14,25.15 Stare Trading Corp oflndia Lrd v M Golodetz Ltd [1989J 2 Lloyd's Rep 277 18.57
Smith New COUrt Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] Sraric Control Componenrs (Europe) Lrd v Egan [2004J 2 Lloyd's Rep 429 .. '" 8.10
AC 254 .4.183 Sreamship Balmotal Co Ltd v Marten [1902J AC 511 7.32,23.23,24.73
Smith v Chadwick (1884) 9 App Cas 187 4.56, 4.59 Steamship Calcutta Co Ltd v Andrew Weir & Co (1910) 15 Corn Cas 172 19.15
Smirh vCologan (1788) 2 TR 188n 5.29 Stearns v Village Main Reef Gold Mining Co (1905) 10 Com Cas 89 25.40, 25.73
Smirh v Land & House Properry Corp (1884) 28 ChD 7 .4.14 Steaus Romana, The 158 F 2d 260 (1946), 13 ILR 224 13.64
Smith v Lascelles (1788) 2 TR 187 5.29 Steel v State Line Steamship Co (1877) 3 App Cas 72 '" 19.03
Smith v Reynolds (1856) 1 H & N 221 3.17, 3.55 Stephen v Scottish Boatowners Mutual Insurance Association (The Talisman) [1989J
Smith v Robertson (1814) 2 Dow 474 21.100 1 Lloyd's Rep 535 24.07,24.22,24.23
Smith v Surridge (1801) 4 Esp 25 " .. 18.48 Stephens v Australasian Insurance Co (1872) LR 8 CP 18 2.29,2.32,2.34
Smirh v Wilson (1832) 3 B &Ad 728 8.14 Stephens v Cannon [2005J EWCA Civ 222, [2005J CP Rep 31 7.50
lxviii lxix
Stewart v Bell (1821) 5 B &Ald238 "'"'''''''''''''' """, . "" . """,17,13 Talbot Underwtiting Ltd v Nausch Hogan & Murray [2005J EWEC 2359 (Comm) "" ,2,81
Stewart v Greenock Marine Insurance Co (1848) 2 HLC 159 , 22.38 Talisman, The [1989J 1 Lloyd's Rep 535 """"""""""""'" ,24,07, 24,22, 24.23 Tamphn (FA) SS Co
Stewett v Aberdein (1838) 4 M & W 211 """",,,,,,,,,,,,,,,,,,,,,,,,,,,,,,22,117 Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916J 2
Stock v 1ngliss (1884) 12 QBD 565 """'"'''''''''''''''''''''''''''''''''' ,,3.35 Stockdale v Dunlop (1840) 6 M & ~m""""'",,13m
W 224 , , , " , , , ," , ' " , , , ' " , , , ' , , , , " ' , , ,3,12,3.55 Sto10s Compania SA v Ajax Insurance Co Tannenbaum & Co v Heath (1908) 13 Com Cas 264 , , , , " , , , , , , . , , , .. , , , , , , , , , .. , . L60
Ltd (The Admiral C) [1981J 1 Lloyd's Tanner v Bennett (1825) Ry & Mood 182 , .. ,"""', ... "", ... , .. " .. ", ,9,57,11,40 Tarbuckv Avon
Rep 9 ,,, . ',,,,,,,,,,,,,,,,,,,,,,,,' .... ,,,,,,, .. ,,,,,,,,,,,,, . ',,,, ,22,116 Insurance pic [2002J QB 571 """""""""""""", ,20,37, 20.39 TaskervCunninghame(1819) 1 Bligh
Stone v Marine Insurance Co, Ocean Ltd of Gothenburg (1876) 1 ExD 81 6.02, 17.30 87 "', .. , . ,", .. , .. ", .. """"",,, ",18,33 Tasman Discovetet, The [2004J UKPC 22, [2005J 1 WLR
Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1992] 2 Lloyd's Rep 578 .",,2.84, 215 ' " , , , .. , .. , , " , , . : , " ,8,50 Tate & Sons v Hyslop (1885) 15 QBD 368 """"""""""""'" A.73,
3,61,25,29 4.75, 25,19 Tatham, Bromage & Co v Burr (The Engineer) [1898J AC 382 " , , , , , , " , , ... , ,
Stoneham v Ocean, Railway & General Accident Insurance Co (1887) 19 QBD 237 .... 22.14, " , ,,12.21 Tatjana, The [1911] AC 194 "''''''''''''''''''''''"" .. """ .. " .. "", .. ,19.54 1imersall v National
22,15,22.16 Steamship Co Ltd (1884) 12 QBD 297 """"", . """"",,19,13
StoOlUvaart Maacschappy Nederland v Peninsular & Oriental Steam Navigation Co (The
Khedine) (1882) 7 App Cas 795 ' ... , , .. ' , , .. , , .. , , , , , , , , , , . ' .... , , , , , .... ,12,20 Taylor v Dunbar(1869) LR4 CP 206 """''''''''' .. , .. """, .. ,,,,,,,15,36,15,37
Stott (Baltic) Steamers Ltd v Matten [1916J 1 AC 304 " .. """"""",,,,,,,,,,,10,21 Taylor v Wilson (1812) 15 East 324 """""', .. """ .. , . "", .. """",,,,,17,06
Stowers v GA Bonus pIc [2003J Lloyd's Rep IR 402 , .. """" . """", .. """",5 . 56 Sttang v Scott Tekuol Ltd ~ International Insurance Co of Hanover Ltd [2005J EWCA Civ 845, [2005J
(1889) 14 App Cas 601 , .. " .. ",,,,,, .. ,, . ,,,,,,,,, .. ,,,,,, .. ,,,24,45 2 Lloyd s Rep 701; [2004J EWEC 2473 (Comm), [2005J Lloyd's Rep IR 358 , " , .. 8.17,
Stranna, The [1938J P 69 " .. ", .. ", .. ", .. ",,,,, .. ,.,,, .. ,,,,,,,,,,,,,,,,,10,21
8.51,9.29,9,65
Stringer v English & Scottish Marine Insurance Co (1870) LR 5 QB 599 21.21, Telfait Shipping Corp v Inersea Carriers SA [1985] 1 WLR 553 ' , , , " , ,., , " , , ,22,68, 22,71
22.34,22,60,22,61 Tempus Shipping Co Ltd v Louis Dreyfus & Co Ltd [1930J 1 KB 699 "",9.53, 10,60, 10,65
Strive Shipping Corp v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Tersons Ltd v Stevenage Development Corp [1963] 2 Lloyd's Rep 333 """""""",8,57
Grecia Express) [2002J EWHC 203 (Comm), [2002J Lloyd's Rep IR 669 ' ' , , A,85, 4,88, Tesco Stotes Ltd v Pook [2003J EWEC (Ch), [2004J IRLR 618 """"" . "" . "",,8 . 33 Teuronia,
4.169,7,40,7,41, 7,46,14,27,15,18,15.79,24,02,24,14,24,16 Srtong & Pearl v S Allinson & Co Ltd The (1872) LR4 PC 171 """"""'"",,,, .. ,,,,,,, .. ,.,,,, .. , .. ,18,49 TFL Prospetity, The [1984J 1 WLR
(1926) 25 LlLRep 504 ", . """ . """, . "",5 . 23 48 ""'''''''''''', .. """,,, .. ,,,,,,, .. ,,,8,22
Stroude v Beazer Homes Ltd [2005J EWCA Civ 265, [2005J NPC 45 """""""",8,40 Thames & Mersey Marine Insurance Co Ltd v British & Chilean Steamship CO [1915J
Strover v Harrington [1988J Ch 390 , , ' , , .. , , , , , .. , . , , , , , , " ' , , .. , , , , , , , . ,4,64 2 KB 214 ", .. ,""" .. ,"', .. "" .. """"" .. ",,,,, .. ,,,,, ,,25,68, 25,71 Thames & Mersey Marine
Structural Polymer Systems Ltd v Brown [2000J Lloyd's Rep IR 64 , , , , , , , , , , .. , , , , , , ,2L15 Insurance Co Ltd v Gunford Ship Co Ltd [1911] AC 529 .... 3.11,
Stuart v British & African Steam Navigation Co (l875) 32 LT 257 , ' , .. '" , , ,18.52 3,49,7,25,7,39,7,44,18,82, 26m, 26,56
Sumitomo Bank Ltd v Banque Btuxelles Lamberr SA [1997J 1 Lloyd's Rep 487""", . A,138 Thames & Mersey Marine Insurance Co Ltd v Hamilton, Fraser & Co (The Inchmaree)
Sun Fire Office v Hart (1889) 14 App Cas 98 "", .. " .. ", .. """ . """""",,6,03 (1887) 12 App Cas 484 , ... " .. ,", .. , .. """", .. ",' .. "" 10,18, 10,24, 1LOI Thames & Mersey
Sun Tender, The [1999J QB 199" .. " .. " .. "" .. """" ... """" .. ", ,5.76, 5,79 Marine Insurance Co Ltd v HT Van Laun & Co (l905) (l917)
Sunport Shipping Ltd v Tryg-Baltica International (UK) Ltd (The Kleovoulos of Rhodes) -- 23 Com Cas 104 """"""''''''''''", . "" .. " .. ", .. , .. "",18,34,18.37 Thellusson v Ferguson (1780)
[2003] EWCACiv 12, [2003J I Lloyd's Rep 138, ,8,12, 8,60,13.71,13.75,13.83, 2L71 1 Dougl231 """""""',,,,,, .. , .. , .,,,,, .... ,18.37 Thellusson v Fletcher (1780) 1 Doug 315
Suplhite Pulp Co Lrd v FaberCl895) 1 Com Cas 146 ''''''''''''''''''''''''''~'' A,165 "', .. ,""'"",,,,,, .. ,,,, .. ,, ,3,07, 2L107 Theodorou v Chestet [1954J 1 Lloyd's Rep 204 '''''''', .. " ..
Surrey Heath Botough Council v Lovell Construction Lrd (1990) 48 BLR 108 ",25,32,25.33 """ .. ", .. """ .1.57 Thin v Richards & CO [1892J 2 QB 141 """""", . " .. """, .. , .. , .. "",,, 19,28
Surherland v Pratt (1843) 11 M & W 296 ' , , .. , , , , , , , .. , ' , , , .. , , ' , , , .. , , ' , , , , , . , ,3,13 Thomas & Co v Brown (1899)4 Com Cas 186 '''''''', .. """, .. , .. , .. ", .. " ,25.25 Thomas Bares &
Svenssons 1hvaruaktiebolag v Cliffe Steamship CO [1932J 1 KB 490 , ..• """,19.28, 19,29 Sons Ltd v Wyndam's (Lingerie) Ltd [1981J 1 WLR 505 """,.,8,79,8,80 Thomas Chesire & Co v
Swain v Wall (1649) 1 Rep Ch 149"" .. , .. "", .. """"""", . """""" ,26.32 Vaughan Bros & CO [1920J 3 KB 240 , , , , , , , , , , , , , ... , , , , , , ,5.58 Thomas (M) & Son
Swan v Maritime Insurance Co [1907] 1 KB 116 " , . ", "" '""" .20.13 Shipping Co Ltd v London & Provincial Marine & General Insurance
Sweeting v Pearce (1861) 30 LJCP 109 ", .. ",,,,,, .. ,,,,, .. ,.,,,,,,,,,,,,,,.,22,117
Swiss Reinsurance Co v United Insutance Co Ltd [2005J EWEC 237 (Comm), [2005] Co Ltd (1930) 30 TLR 595""'''''''''''"""" .. """,,,,,,,,,,19,38,19.50 Thomas v Metropolitan Life
Lloyd's Rep IR341""" .. ", .. " . """ .. , .. "",,,,,,,,, .. ,,,,,,, ,6,02, 6,07 Insu[~nce Co 131 A 2d 600 (1957) """""""""",13 . 23
Sykes v Forster, umep, QB, 30 March 2001 ,,,,,,, .. ,,,,,,,,,, .. ,,,,,,,,,,,,,8,34,8,40 Thomas v Richatd Evans & Co Ltd [1927J 1 KB 33 , , , .. , , , .. , , ", , , , , , , , , , . " .. , .. 6.39
Symington & Co v Union Insurance Society of Canton Ltd (1928) 31 LlLRep 179 ... ,. 10.60, Thomas v Tyne & Wear Steamship Freight Insurance Association [1917J 1 KB 938 ..... 19.49
10.73, 13,57 Thomas Wilson, Sons & Co v Owners of the Cargo per the Xantho (The Xantho) (1887)
Symington & Co v Union Insurance Society of Canton Ltd (No 2) (1928) 32 12App Cas 503; (1886) 11 PD 170""""""",,10,03,10,13,10,14,10,15,10,20,
LILRep 287 , .. ' , , , , , ., ' , , , " ' , " , , , , , , , " . , , " , , , , , . , , , , , , , , , ,8,86,9,49,9,60 1051, 10.55, 10.56, 10.59, lL32, l2.02, 19,45
Syndicate 1242 at Lloyd's v Morgan Read [2003J Lloyd's Rep IR412 ""'"""',,,,' ,2,64 Sze Hai Tong Thomas Witter Ltd v TBP Industries Ltd [1996J 2 All ER 573 """""""'" A.03, 5,07
Bank Ltd v Rambler Cycle Co Lrd [1959J AC 576 ' , , " , , , , , , ,,' , ' , , , , , ,8,21 Thomas Young & Sons Ltd v Hobson & Partners (1949) 65 TLR 365 """, .. """,,5,28
Thompson v Adams (1889) 23 QBD 361 """"""""""""" . """""" ,2,14
T&N Ltd v Royal & Sun Alliance pic [2003J EWEC 1016 (Ch), [2004J Lloyd's Rep Thompson v Hopper (1856) 6 El & B1172 """",."""",,10,16,18.29,19.22,19.30
IR 106 """"'''''''''''''''''''''''''''''''''''''''' ,8.D?, 8.78, 8,80, 20,37 Thompson v Taylor (1795) 6 TR 478 , , , , " , , , .. , , , , , , , , , , " , , , .. , .. , " , , , .3.52, 17.39
T v Secretary of State for the Home Department [1996] AC 742 , 14.28 Thompson v Whitmore (1810) 3 Taunt 227 """"""'" . """""""""",10 . 25
Tait v Levi (1811) 14 East 481 , , , , , , , , " ' .. , .. , , ... ' , .. , , , , , , , .. , , , , , , .. , 1L36, 18.34 Thomson v Weems (1884) 9 App Cas 671 """""""""'" ,6,05, 1858, 18,89, 18,90
Ixx
lxxi
Thor Navigarion Inc v Ingosstrakh Insurance Co Lrd [2005] EWHC 19 (Comm), [2005J Upcerne, The [1912] P 160 12.16
I Lloyd's Rep IR 547 7.33,7.36,7.37,8.79,23.03,23.08,23.10 Upjohn v Hitchens [1918] 2 KB 48 10.64
Thorsa The [1916J P 257 19.15 Usher v Noble (1810) 12 East 639 23.05
Thrun;coe, The[1897J P 301 9.56, 10,44 UzielH & Co v Boston Marine Insurance Co (1884) 1 Lloyd's Rep 437 , , .. 22.35
Tiburon, The [1990J 2 Lloyd's Rep 418 2.55,18.64
Tierney v Etherington (1743), cited 1 Burr 348 , 17.13 Vacuum Oil Co v Union Insurance Society oECanron Lrd (1926) 25 LlLRep 546; (1925)
TL Creda Ltd v Hay Fielding Ltd, unrep, CA, 30 October 1984 5.20 24 LlLRep 188 21.07, 22.35
Tobin v Harford (1864) 34 LJCP 37; (1863) 13 CB(NS) 791 21.87, 21.88 Vainqueur Jose, The [1979] 1 Lloyd's Rep 557 20.57, 20.61
Todd v Ritchie (1816) 1 Stark 240 11.56 Vale & Co v Van Oppen & Co Ltd (1921) 37 TLR 367 5.25
Tomlinson (Hauliers) Ltd v Heppburn [1966J AC 451 3.57, 3.58 Vallance v Dewar (1808) 1 Camp 503 .4.92,18.05
Toomey v Banco Vitalicio de Espana SA de Seguros y Reasseguros (20041 EWCA Civ 622, VallejovWheeler(1774) 1 Cowp 143 11.51
[2005] Lloyd's Rep IR 423 18.62 Vandyck v Hitt (1800) 1 EaSt 96 6.07
Tor Line AB v Alltrans Group of Canada (The TFL Prosperity) [1984] 1 WLR 48 8.22 Vasso, Tbe [1993J 2 Lloyd's Rep 309 24.14, 24.16
Toronto Railway Co v National British Irish Millers Insurance Co Ltd (1914) 111 Velos Group Ltd v Harbour Insurance Services Ltd [1997J 2 Lloyd's Rep 461 5.14,5.74,
LT 555 4.165 6.02,6.35
Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd'sRep 209 8.1l Ventouris v Mountain (The Iralia Express) (No 2) [1992J Lloyd's Rep 281 6.27,
Touche Ross & Co v Baker[1992J 2 Lloyd's Rep 207; [1991J 2 Lloyd's Rep 230 2.15, 2.66 22.67,22.121,22.676
Toulmin v Inglis (1808) 1 Camp 421 11.57 Verderame v Commercial Union Assurance Co plc [1992] BCLC 793 , ,." 5.06
Ttade Indemnity Co Ltd v Workingron Harbour & Dock Board [1937J AC 1 7.02 Vergina, The (No 2) [2001J 2 Lloyd's Rep 698 24.66
Traders & General Insurance Association v Bankers & General Insurance Co (1912) Vermaas' m ScheepvaartbedrijfNV v Association Technique de l'Importation Charbonniere
9 LlLRep 223 15,47 (The Laga) [1966J I Lloyd's Rep 582 14.06, 14.07
Trading & General Investment Corp v Gault Armstrong & Keble Ltd (The Okeanis) Versicherungs und Transport AG Daugava v Henderson (1934) 39 Com Cas 312 ., 21.14
[1986J I Lloyd's Rep 195 5.11, 22.117 Village Main Reef Gold Mining Co v Stearns (1900) 5 Com Cas 246 1.60
Tramp Shipping Corp v Greenwich Maritime Inc [1975J ICR 261 14.06, 14.07, 14.08 Virk v Gan Life Holdings pIc [2000J Lloyd's Rep IR 159 22.66, 22.71
Transrhene Packaging Co Lrd v Royal Insurance (UK) Ltd [1996] LRLR 32 15.18, Visger v Prescott (1804) 5 Esp 184 3.78
22.66,22.70 Visscherij Maatschappij Nieuw Onderneming v Scottish Metropolitan Assurance Co
Tridenr General Insurance Co Ltd v McNiece Bros Pty Lrd (1987) 8 NSWLR 270 2.86, (1922) 10 LlLRep 579 15.24
2.90 ViStaf)ord, The[1988J 2 Lloyd's Rep 343 8.58
Trim Joint District School Board of Management v Kelly [1914] AC 667 10.15 Vorrigern, The [1899] P 140 19.27, 19.28
Trinder, Anderson & Co v Thames & Mersey Marine Insurance Co [1898] 2 QB 114 10.16,
11.32,15.11, 15.16,21.96 Waddle v Wallsend Shipping Co Lrd [1952] 2 Lloyd's Rep 105 19.54
Tropaioforos, The [1960] 2 Lloyd's Rep 469 15.20 Wade v Cockedine (1905) 10 Com Cas 115 19.15
Truscott v ChriStie (1820) 2 Brod & B 320 ······· .3.52,17,41,17,43 Wadsworth Lighterage & Coaling Co Ltd v Sea Insurance Co Ltd (1929) 34
TSB Bank pIc v Camfield [1995J 1 WLR 430 , .4.04 LlLRep 285 10.06, 10.13
Tudor]ones 1I v Crowley Colosso Lrd [1996] 2 Lloyd's Rep 619 5.23,5.69,5.70 Wadsworth v Lydall [1981] 1 WLR 598 22.121
Turcan, Re (1888) 40 ChD 5 20.27 Wait, Re [1927J 1 Ch 606 3,43
Turnbull v Janson (1877) 36 LT 635 , 19.19 Walker v Maitland (1821) 5 B & AId 171 11.31, 11.36
Turner v Green [1895] 2 Ch 205 .4.01 Walter & Sullivan Ltd v Murphy [1955) 2 QB 584 20.12
Tweddle v Atkinson (1861) 1 B & S 393 20.02 Waples v Eames (1746) 2 Str 1243 17.35
Tychy, The (No 2) [2001J EWCA Civ 1198, [2001] 2 Lloyd's Rep 403 8.37,8,40,8,41 Warilda, The [1923] AC 292 13.12
Tyrie v Fletcher (1777) 2 Cowp 666 6.02, 8.61 Warte v Miller (1825) 4 B & Cr 538 15.10, 17,41
Warren v Henry Sutton & CO [1976J 2 Lloyd's Rep 276 5.30,5.35
Uhde v Walters (181l) 3 Camp 16 17.09 Waterkeyn v Eagle Star & British Dominions Insurance Co Ltd (1920) 5 LlLRep 42;
Union Insurance Society of Canton Ltd v George Wills & Co [1916] 1 AC 281 2.34, (1920) 4 LlLRep 178 3,48, 5.25, 5.26
2.35, 18.b3 Waters v Monarch Fire & Life Assurance Co (1856) 5 El & Bl870 3.57
Union Marine Insurance Co v Borwick [1895J 2 QB 279 12.08, 26.06 Warson v Clark (1813) 1 Dow 336 19.23, 19.52
United Mills Agencies Ltd v Harvey, Bray & Co [1952] 1 All ER 225n 5.24,5.64 Watson v Swann (1862) 11 CB(NS) 756 2.90
United Scottish Insurance Co Ltd v British Fishing Vessels Mutual War Risks Association Watts, Warrs & Co v Mitsui & Co Ltd [1917] AC 227 18,49
Ld (The Braconbush) (1945) 78 LlLRep 70 7.52 Waugh v Morris (1873) LR8 QB202 3.71
University oEKeele v Price Waterhouse [2004] EWCA Civ 583, [2004J PNLR 43 8.21 Way v Modigliani (1787) 2 TR30 18.05
Universo Insurance Co of Milan v Merchants Insurance Co Ltd [1897] 2 QB 93; [1897] Wayne Tank & Pump Co Ltd v Employers' Liability Assurance Corp Ltd [1974J
1 QB 205 6.21, 6.22, 6.26, 6.35,10.30 QB 57 9.21, 9.29,15,49
Unum Life Insurance Co of America v Israel Phoenix Assurance Co Ltd [2002] Lloyd's WebSter v General Accident Fire & Life Assurance Corp Ltd [1953J 1 QB 520 21,47
Rep IR 374 : 2,45, 2.57, 2.61 Weddell v Road Transport & General Insurance Co Ltd [1932] 2 KB 563 26.14
]xxii lxxiii
Wedde,burn v Bell (1807) 1 Camp 1 18.08 Wilson Bros Bobbin Co Ltd v G,een [1917] 1 KB 860 24.39
Wei," Aberdeen (1819) 2 B & Aid 320 19.23 Wilson Holgate & Co Ltd v Lancashire & Chesire Insurance Corp Ltd (1922) 13
Weir v Northern Counties of England Insurance Co 4 LR Ir 689 22.18 L1LRep 486 8.86
Weissbe'g v Lamb (1950) 84 LlLRep 509 24.27 Wing v Harvey (1854) 5 De G M & G 265 , .4.165
Welch v Royal Exchange Assurance [1939] 1 KB 294 22.14 Wise (Underwriting Agency) Ltd v Grupo Nacional Provincial SA [2004] EWCA Civ 962,
Wells v Hopwood (1832) 3 B &Ad 20 10.81 [2004J 2 Lloyd's Rep 483 .4.53, 4.101, 4.103, 4.165
Wells v Owners ofG" Hoat Whhton No 2 [1897] AC 337 12.16 Wisemhal v World Auxiliary 1nsutance Co,p Ltd (1930) 38 LlLRep 54 22.88, 22.93
West of England & South Wales District Bank v Canton Insurance Co (1877) 2 Wisniewski v Cent,al Manchesm Health Authntity [1998J PIQR 324 4.59
ExD 472 1.60 Wi,h v O'Flanagan [1936] Ch 575 4.03
West of England Bank v Ba'chelo' (1882) 51 LjCh 199 26.03 Wittingham v Thornborough (1690) hec Cit 20 1.42
West of England Fi,e Insurance Co v Isaacs [1897] 1 QB 226; [1896] 2 QB 377 25.18 Wolenbutg v Royal Co-opettive Collecting Society (1915) 84 LjKB 1316 6.09
West India & Panama Telegraph Co Ltd v Home & Colonial Marine Insurance Co Ltd Wondrous, The [1992] 2 Lloyd's Rep 566, [1991J I Lloyd's Rep 400 3.11,3.54,
(1880) 6 QBD 51 10.18,10.24 7.59, 13.50, 13.73, 13.76, 13.82, 13.83, 15.07,24.27
West Wake Price & Co v Ching [1957] 1 WLR 45 20.50 Wood v Associated National Insurance Co Ltd [1985] 1 QdR 297; [1984] I QdR 507
Western Assurance Co v Poole (1903) 8 Com Cas 108 8.89 .................................................... 15.11,15.13,15.15,19.06
Western Australian Bank v Royal Insurance Co (l908) 5 CLR 533 22.18 Wood v Perfection Travel Ltd [1996] LRLR 293 20.51
Western Canada Steamship Co Ltd v Canadian Commercial Corp [1960] 2 Lloyd's Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972]
Rep 313 19.18 AC741 5.24
Westerton, Re [1919] 2 Ch 104 20.28 Woodley v Michell (1883) LR 11 QBD 47 10.20,10.51
Westminster City Council v National Asylum Support Service [2002] 1 WLR 2956 8.34 Woodside v Globe Marine Insutance Co Ltd [1896] 1 QB 105 21.121
Westminster Fire Office v Reliance Marine Insurance Co (1903) 19 TLR 668 17.11 Woolf v Claggett (1800) 3 Esp 257 18.53
Westwood v Bell (1815) 4 Camp 349 5.77 Woolfall & Rimmer Ltd v Moyle [1942] 1 KB 66 9.27
Wharton OJ (Shipping) Ltd v Mortleman [1941] 2 KB 283 13.10 Woolridge v Boydell (1778) I Dougl17 18.06,18.114
White v Bdtish Empi'e Mural Life Assutance Co (1868) LR 7 Eq 394 3.73 Woolwich Building Society v Taylor [1995] 1 BCLC 132 20.76,20.80
White v Dobinson (1844) 14 Sim 273,116 LTOS 233 25.76 Workvale Ltd (No 2), Re [1992] I WLR 416 20.53
Whittingham v Thomborough (1690) 2 Vem 206 6.06 Wunsche HandelsgeseHschaft International MBH v Tai Ping Insurance Co Ltd [1998]
Whitwell v Hattison (1848) 2 Ex 127 17.35 2 Lloyd's Rep 8 17.06,17.07
Wilhelm Schmidt, The(1871) 25 LT 34 18.49 Wynnstay Steamship Co v Board of Trade (1925) 23 L1LRep 278 13.10
Wilkie v Geddes (1815) 3 Dow 57 19.04, 19.22
Wilkinson v Hyde (1858) 3 CB(NS) 30 23.39 Xamho, The (1887) 12App Cas 503; (1886) II PD 170 10.Q3, 10.13, 10.14,
William Bros (Hull) Ltd v Naamlooze Vennootschap WH Berghuys Kolenhaandel 10.15,10.20,10.51,10.55,10.56,10.59,11.32,12.02,19.45
(1916) 21 Com C" 253 14.06, 14.07 Xenos v Fox (1868) LR 3 CP 630 12.09, 21.06, 24.37
William France Fenwick & Co Ltd v Merchants' Marine Insurance Co Ltd [1915] Xenos v Wickham (1867) LR 2 HL 296; (1863) 14 CB(NS) 435 6.22, 8.81
3 KB 290 12.19, 13.25
William France Fenwick & Co Ltd v North of England Protecting & Indemnity Association Yarm Road Ltd v Hewden Tower Ctanes Ltd [2002] EWCA 2265 (TCC), (2002) 85
[1917] 2 KB 522 10.20 Con LR 142 25.35
William Pickersgill & Sons Ltd & Provincial Marine & General Insurance Co Ltd [1912] Yasin, The [1979] 2 Lloyd's Rep 45 25.01,25.28
3 KB 614 20.22 Yasuda Fire & Marine Insurance Co of Europe v Orion Marine Insurance Underwriting
Williams, Re (1902) 19 TLR 82 22.14 Agency Ltd [1995] QB 174 5.41
Williams v Atlantic Assurance Co Ltd [1933] 1 KB81 20.17,23.05 Yates v Whyte (1838) 4 Bing (NC) 272 25.02, 25.75
Williams v British Marine Mutual Insurance Association Ltd (1886) 57 LT 27 6.38, 6AO Yorkshire Dale Steamship Co Ltd v Minister of War Transport (The Coxwold) [1942]
Williams v Notth China Insurance Co (1876) 1 CPD 757 2.86,21.86 AC691 8.09, 9.04, 9.06, 9.34, 9.45, 13.11, 13.12
Willis Steamship Co Ltd v United Kingdom Mutual War Risks Association Ltd (1947) Yorkshire Insurance Co Ltd v Campbell [1917] AC 218 18.63, 18.90
80 L1LRep 398 13.15 Yo,kshite Insmance Co v Nisber Shipping Co Ltd [1962] 2 QB 330 25.22, 25.48,
Wills & Sons v Wotld Marine Insurance Ltd (1911) [1980] I Lloyd's Rep 350n 11.25 25.73,25.75,25.76
Wilson v Boag [1956] 2 Lloyd's Rep 564 17.48 Yorkshire Water Services Ltd v Sun Alliance & London Insurance pIc [1997] 2 Uoyd's
Wilson v Cteigton (1782) 3 Dougl 132 22.118 ~21............................UU
Wilson v Ducker (1762) 3 Burt 1361 , 1.42,4.12,6.07 Youell v Bland Welch & Co Ltd (No 1) [1992] 2 Lloyd's Rep 127; [1990] 2 Lloyd's
Wilson v Forster (1815) 6 Taunt 25 , 21.49 Rep 423 8.02,8.39,8.53,8.74,8.75,8.76
Wilson v jones (1867) LR 2 Ex 139 3.28,3.29,3.30,3.39,3.46,3.55,21.47 Youell v Bland Welch & Co Ltd (The Superhulls Cover case) (No 2) [1990] 2 Lloyd's
Wilson v Maynard Shipping Consultants AB [1978] QB 665 8.41 Rep 431 2.21, 5.29, 5.42, 5.48, 5.49, 5.66, 5.68, 5.69, 8.02
Wilson v Nelson (1864) 33 LjQB 220 7.34,26.27 Young v Sun Alliance and London Insurance Ltd (1977] 1 WLR 104 , 8.17
Wilson v Raffalovich (1881) 7 QBD 553 : 25.13 Young v Turing (1841) 2 M & Gt 593 21.79
Wilson v United Counties Bank [1920] AC 102 9.56 Young v Waterloo Mutual Fire Insurance Co [1955] 5 DLR 35 10.62
Ixxiv lxxv
Table ofCases
Zamora, The [1916] 2 AC 75 11.69, 13.66

Zemco Ltd v Jerrom-Pugh [1993] BCC 275 6.27
Zephyr, The [1985] 2 Lloyd's Rep 529; [1984] 1 Lloyd's Rep 58 2.08,2.14,2.16,
2.18,2.20,2.21,2.27,4.62,5.04,5.07,5.08,5.29,5.30
Zeus, The [20001 2 Lloyd's Rep 587 " .. 18.63
Zeus Tradition Marine Ltd v Bell (The Zeus) [2000] 2 Lloyd's Rep 587 18.63 TABLE OF STATUTES
Zinovia, The [1984] 2 Lloyd's Rep 264 10.16, 11.62, 11.63, 15.18
Zurich General Accident & Liability Insurance Co Ltd v Morrison [1942] 2 KB 53 4.42
Zurich Insurance Co v Shield Insurance Co [1988] IR 174 26.04, 26.57
Zyxel Communications Corp v Fairbridge Communications Ltd [2004] EWCA Paragraph numbers in bold refir to material actually reproduced in either the text or the appendices
1388 (QBD) 8.45
Act concerning Matters of Assurances used (1) 5.12,20.03
among Merchants 1601 1.36 (a) 20.03
s1 1.37 (b) 20.03
An additional Act concerning (2) 5.12, 20.03
Matters of Assurance used (3) 5.12, 20.04
amongst Merchants 1662 (5) 20.05
(14 Car II, c 23) 1.37 s2
(1) 20.05
(3)(a) 20.05
Bills of Exchange Act 1882 1.45
(4) 20.05
Bubble Act 1720 (6GeoI,c 18) 1.14, (5) 20.05
1.15, 1.16, 1.17, 1.22, 5.27 s3 20.06
s1 5.27 ~) ~ln
s 12 1.15, 5.27 (~ ~ln
s 18 1.14 (5) 20.06
Convoy Act 1803 (43 G3, c 57) , .. 18.71
Civil Liability (Contribution) Act Criminal Attempts Act 1981
1978 26.36, 26.37, 26.39, 26.54 s1 13.56
s1 Customs and Inland Revenue Act
(1) 26.35, 26.36, 26.54 1867 (30 Vict, c 23) 2.09, 8.82
(3) 26.54 s7 8.75
s 2(1) 26.37,26.38 s9 8.75
s6 26.37
(1) 26.36 Employment Protection (Consolidation)
s 7(3) 26.35, 26.39 Act 1978
s 9(2) 26.39 Sch 13, para 24(1) 14.06
Sch 2 26.39 Extradition Act 1989
Companies Act 1985 s 6(1)(a) 14.28
s425 20.41 Sch 1 14.28
s 651 20.53, 25.14
(1) .......•................. 20.53 Fatal Accidems Act 1976 20.53
(2) 20.53 Finance Act 1959 3.67, 21.13
(4) 20.53 Finance Act 1970 3.67
(5) 20.53
(6) 20.53 Gambling Act 2005
Companies Act 1989 s3 3.19
s 141 20.53 s9 3.19
(3) 20.53 s334(1) 3.18
(4) 20.53 s335 3.18
Contracts (Rights of Third Parties) (1) ..........•............•.• 3.18
Act 1999 2.79, 5.12, 20.01, (2) 3.18
20.02, 20.04, 20.06 Gaming Act 1845 3.17
s1 20.06 s 18 3.17, 3.18
!xxvi Ixxvii
Table ofStatutes Table ofStatutes
Harbours, Docks and Piers Clauses Act 1847 Marine Insurance Act 1906 .... , ..... 1.47, Marine Insurance Act 1906 (com.) (c) ., 26.27
556 22.47 1.48,1.49,1.61,2.12,2.23, 4.118,4.119,4.126,4.127,4.147, (d) .. .. 26.27
2.31,3.01. 3.04, 3.21, 3.30, 4.149,4.178,4.197,4.1294.128 $ 33
Insolvency Act 1986 3.37,3.65,4.16,4.22,4.23, (1) .4.08,4.43,4.111,4.117, (I) .. 18.61
Ptl 20.40, 20.80 4.25,4.32,4.41,4.42,4.54, 4.119,4.155,4.176 (2) .. 18.65
Pt VIII 20.40, 20.80 4.154, 4.175, 4.177, 4.180, (2) 4.23, 4.25, 4.36, 4.75 (3) 18.55, 18.57, 18.70, 18.94
51A 20.55 6.07,6.32,8.84,17.04,17.30, (3) .4.89, 4.108, 4.151, 4.197 534
52(1A) 20.79 18.11,18.31. 18.34,21.75, (a) 4.90 (2) 18.92
5 5(2)(a) 20.40 21.106,23.33,23.37,26.40, (b) .4.75,4.91,4.94 (3) 3.71,18.94
56 20.54 26.72, App.1 (c) .4.99, 4.101, 4.104 s 35
5126(1) 20.52 s1 1.51,17.01,18.11 (d) .4.76, 4.106 (I) 18.62
5 130(2) 20.52 ~ ~16 (5) .4.79 (3) 18.65
5260(2)(a) 20.40 52 18.11 $ 19 4.09, 4.122, 4.123, 536(1) 18.77
5262 20.54 (I) 1.58, 4.182,18.12 4.124,4.125,4.126,4.127, s~ 18M
$ 323 22.118 (2) 1.61 4.128,4.129,4.189,4.197 $ 39
5423 20.47 53 17.01,18.11 W ~IM (I) 19.23
$651 20.41 (I) 3.70,3.75 (b) .4.128 (1)-(4) 19.20
$653 20.41 (2) 1.52, 1.55, 1.56, 1.57 $20 1.47, 4.08, 4.09, 4.10, 4.11, (2) 19.24
Sch Al 20.55 (a) 1.52 4.21,4.128,4.142,4.147,4.149, (3) 19.23, 19.29
pata 12(1)(h) 20.55 ~ 1.52 4.150,4.161,4.186,4.190,4.197 (4) 19.Q3
Interpretation Act 1978 (c) 1.55, 3.56 (I) 4.08, 4.43, 4.155 (5) 9.64,15.69,19.4,19.30,
59 17.46 54 3.12, 3.16, 3.18, 3.22, (2) .4.23,4.25 19.39,19.40,19.48,19.49,19.59
$23(3) 17.46 20.10, 26.56 (~ ~I~ 540
(I) 3.09,3.11,3.75 (4) .4.130, 4.131, 4.144 (I) 19.61
Joint Stock Companies Act 1844 ... , . . 1.14 (2) (5) .4.130, 4.139, 4.140, (2) 19.13, 19.61
(a) 3.09, 3.11 4.143,4.144,7.47 $41 3.70, 19.82
Law of Property Act 1925 (b) 3.11 0) ~IU $ 42
$ 136 20.12, 20.18, 25.15 $5 3.26 s 21 2.10 (I) 18.25, 18.26
Law Reform (Contributory (1) 3.26 $ 22 2.11, 3.65, 3.68 (2) 18.25
Negligence) Act 1945 5.66,5.67 (2) 3.26, 3.27, 3.29, 3.56 523 3.66 $C I&~
54 5.67 $6 38, 3.20, 3.22 (1) 3.66,3.68 544 18.Q3, 18.12, 18.14, 18.19
Law Reform (Married Women and (I) 3.12, 3.13, 3.14, 3.15" (2)-(5) 3.66, 3.67 545
Tortfeasors) Act 1935 (2) 3.13 524(2) 2.14 (I) 18.30
56(I)(c) 26.37 57 3.45 525 (2) 18.32
Limitation Act 1980 , 20.69 (I) 3.37, 3.38 (1) 17.02, 17.03, 17.04 546 18.48
55 22.62 (2) 3.37 (2) 3.67,21.13 (I) 11.55, 18.34, 18.92
514A 5.42 58 3.39 526 (2) 18.35
5 14 (I) 3.68 (3) 18.37
Malicious Damage Act 1861 (I) 3.46 (2) 3.69 547
$ 58 14.24 (2) 3.57 (3) 3.36, 3.69 (I) 18.36
Marine and Aviation Insurance (War (3) 3.42 527 (2) 18.36
Ri5ks) Act 1952 1.31,1.32, 515 20.09, 26.03 (I) 7.24 s 48 18.38, 18.48
1.33, 1.48 516 7.26,23.04,23.05,23.10 (2) 7.24 s 49 18.39, 18.41, 18.42, 18.43
51 16.15 (1) 23.04, 23.08, 23.10 (3) 6.09, 7.24, 7.38, 21.119, (I) 18.24, 18.48
(I) 1.31 (2) 23.04 23.50,25.10,25.67,25.69 (b) 18.44, 18.50
$2(1) 1.32 (3) 7.27,23.04,23.29 (4) 21.78 (c) 18.43
$ 10 (4) 23.04 (7) 21.80 (d) 18.44, 18.48, 18.50
(I) 1.32,16.18 517 .4.08,4.09,4.10,4.11,4.21, 5~...........2.31 (e) 18.51
(2) 1.32 4.30,4.147,4.149,4.150,4.151, (1) 2.29,2.31 (f) 18.53
Marine InsuranceAct 1745 (19GeoII,. 4.152,4.155,4.161,4.176,4.178, (3) 2.29, 2.31, 2.34 (g) 11.55, 18.43
c 37) 3, 1.40,3.06,3.07,3.08, 4.186,4.196,4.197,4.200,4.202, 532 26.41 $ 50 ., .20.14, 20.18, 20.24, 20.26, 20.28
3.09,3.17,3.55 4.203,4.204,22.113,22.114 5 32(2) 26.27 (I) 20.14, 20.28, 20.31
Marine Insurance Act 1788 1.48 $ 18 1.47,4.08,4.09,4.10,4.11, (a) 26.01 (2) 20.14, 20.20, 20.21, 20.22, 20.23
Marine Insurance Act 1824 1.16 4.21,4.114,4.115,4.116,4.117, (b) 26.27 (3) 20.18, 20.19
!xxviii !xxix
Table ofStatutes Table ofStatutes
Marine Insurance Act 1906 (cant.) (2) 24.63 Marine Insurance Act 1906 (cont.) Public Order Act 1986
s 51 20.10 s 66 24.43 (3)
s 52 3.68 (1) 24.45 s 1. 14.12
s 53 (2) 24.44 (a) 1.42, 6.02, 6.06, 6.07
(1) 6.21, 6.22, 6.23, 6.24, 6.27, (3) 24.45 (I) 14.12
(c) 3.16, 6.05
6.29, 6.32, 6.35, 6.37, 6.40, (4) 24.49, 24.53 (2) 14.12
22.116,22.118 (5) 24.50 (e) 6.09
(2) 5.76, 5.77, 5.79 (6) 24.52 (3) 14.12
(I) 6.09,26.28
,54 6.32 ,67 22.121
(4) 14.12
s 55 15.29 (2) 22.04, 23.49 ,85(2) 6.40
(1) 9.02,9.30,9.59,9.64, s 68 22.121, 23.12 (5) 14.12
10.66,15.01 (1) 25.67 s 86 2.86
(2) 9.30, 15.01, 15.02, 15.10 s 69 21.20, 23.15 s 10(2) 8.12, 14.14
s 88 18.39,18.115,21.65,22.54
(a) 9.32,9.64, 11.29, 11.33, (1) 23.15, 23.16, 23.18,
11.35, 11.39, 11.40, 11.44, 23.19, 25.69 s 89 8.72,8.75,8.76 Rehabilitation ofOffendersAcr 1974 . .4.69
s~ 1.~
15.10,15.14,15.16,19.47, (2) 21.112, 23.15, 23.19 s 7(3) .4.69
24.19,24.20,24.21,24.24 (3) 21.30, 21.112, 23.15, 23.19 ,91(2) 1.47, 4.43, 4.148, 4.176, Road Traffic Act 1988 9.62
(b) 9.30, 9.31, 9.64,15.29, s 70 23.35 4.178,21.106
,92 3.08 Sale of Goods Act 1893 1.45
15.33,15.35,15.37 s 71
(c) 9.30, 9.31, 9.64,10.24, (I) 23.29 Sch 1 7.02, 8.15, 14.14, 17.28, 17.45 s 16 3.43
15.43,15.47,15.49, (2) 23.29 rl 3.13 Sale of Goods Act 1979
15.50, 15.61 (3) 23.31, 23.32 r2 17.29 s16 3.43
r3 17.29 s20A 3.43
s 56 (4) 23.35
(I) 21.36, 21.84 s 72 23.37 r 3(c) 17.38,17.39 s 31(2) 6.04
(2) 21.36 ,75 r 3(d) 17.40,17.41,17.42 s 32(2) 5.28
(4) 21.84, 23.14 (1) 23.14, 23.19 r6 18.36 s 53(1) 20.25
(5) 23.30 (2) 7.26,21.85 r7 10.03 SrampAct 1795 3.65, 8.81, 8.82
r8 10.74 Stamp Act 1891 3.66, 3.67, 8.83
,57 s 76
(1) 21.37 (1) 23.39 r9 10.69 Summer Time Act 1972 , 17.46
(2) 22.35 (2) 23.39 rIO 13.48 Supply of Goods and Services Act 1982
s 58 ···.···· .21.21, 22.37 (3) 23.39 r 11 7.59, 11.50 s13 5.2
s59 · .. · .. · .. ··· 18 .
111
(4) 23.39 rI2···· 7.23 Supreme COUrt Act 1981
r 15 1.52 ,35A 6.14
s 60 21.53, 21.53, 21.56 s77
(I) 21.53, 21.58, 21.77, 21.96 (I) 21.110,21.113,21.114 r16 1~ Supreme Court ofAdjudicature Acts
(2) 21.53, 21.77, 21.96 (2) 21.115 rI7···· 1.52 1873 and 1875 4.03, 4.17
21.59, 21.69 s78 24.02,24.16 Sch 2 3.08
(i)
(a) 21.62, 21.67, 21.71 (I) 24.25, 24.29 Marine Insurance (Gambling Terrorism Act 2000
(ii) 21.74 (2) 24.64 Policies) Act 1909 1.48, App.2 ,1 14.19
(iii) 21.76 (3) 24.27 s1 " 3.16 Third Panies (Rights against Insurers)
s 61 22.33, 22.50 (4) 24.Q2, 24.Q7, 24,09, 24.10, (5) 3.16 Act 1930 1.48, 2.95, 5.06,
,2 1.49 8.54,12.13,16.04,20.01,
,62 24.12,24.13,24.14,24.15,
Maritime Conventions Act 20.33,20.35,20.36,20.39,
(I) 22.33, 22.50 24.16,24.20,24.21,24.24,
(2) 22.52 24.25, 24.26, 24.29 1911 12.09, 26.39 20.40,20.41, 20.48, 20.49,
(i) 21.60 Merchant Shipping Act 1894 20.50,20.51,20.52,20.53,
s79 25.10, 25.69
(3) 22.33, 22.53 (1) 22.32, 25.38, 25.69 ,742 12.15 20.54,20.55,20.57,20.58,
Merchant Shipping Act 1995 20.62,20.66,20.68,20.69,
(4) 22.58 (2) 25.69
(5) 22.59 s 80 26.01,26.34,26.35,26.39,26.42 s 187 12.09, 26.39 20.72,20.73, 20.74, 20.81,
(6) 21.102,22.58,22.61 (1) 26.34, 26.41, 26.42, 26.69, Sch 11, Pt II, para 2 24.56 20.83,22.97,25.79, App.3
(7) 21.71,21.96,22.35,22.58 26.71,26.72 MisrepresenrationAct 1967 .4.162 s1 20.40, 20.50
s2 (I) 20.46, 20.47, 20.48,
(8) 22.35, 22.58 (2) 26.34, 26.60, 26.61
(9) 22.35 s 81 23.49, 25.61, 25.66 (I) .4.179, 4.182, 4.183 20.63, 20.83
s 63(1) 22.32 s 84 5.50 (2) 4.04, 4.158, 4.159, 4.160, (3) 20.44,20.45, 20.46, 20.63
s 65 (1) 1.42, 6.04, 6;07,15.49,18.08 4.162,4.182 (4)
(1) 24.63 (2) : 6.04 (a) 20.82
Offences Against the Person Act 1861. .. 14.24 (b) 20.81
(5) 20.36
Policies of Marine Insurance 1868 (31 & 32 (6)(.) 20.40
Vict, c 86) 1.44 s2 20.74
sl 20.14 (1) 20.75,20.79,20.80
lxxx
!xxxi
Table ofStatutes
20.80 (2) ............ 20.40

(2)
(3) 20.67,20.78 Treason Act 1351 ....... 13.32
s3 20.44, 20.47
War Risks Insurance Act 1939 1.31
s3A Workmens' Compensation Act 1906 .. 10.15
(1) .. .. 20.40
TABLE OF STATUTORY INSTRUMENTS
Civil Procedure Rules 25.13 Lloyd's Delegated Underwriting Byelaw

r 31.12 1.59 (No 1 of 2004) 2.64
r 58.14 1.59
r 58.14(2) 1.59 Merchant Shipping (International
Safety Managemenr (ISM)
Insolvency Rules 1986 Code) Regulations 1998,
r 4.90 22.118 SI1998/1561 19.78
Insolvent Partnerships Order 1994 20041
Insurance Brokers Registration
Council (Code of Conduct)
Approval Order 1978
example 14 5.73
\xxxiii
Ixxxii
TABLE OF INSTITUTE AND
INTERNATIONAL CLAUSES
Paragraph numbers in bold refer to material actually reproduced in either the text or the appendices
Institute Additional Expenses Clauses d 9.2 18.111

(Cargo-War Risks) 21.97 d 10 18.11118.112,18.117
Institute Additional Perils Clause-Hulls d12 21.51
(lil0/83) 11.28, 11.37 d 13 21.75,21.76
d 1.2 11.37 d 14 26.08
(I/Il!95) 11.28 d 16 24.05 24.16, 25.22,
d 1.2 11.37 26.55
Institute Cargo Clauses (1912) 1.20 d 16.1 24.05
d 11.1 3.12, 3.15 d 16.2 24.Q5 25.20
d 11.2 3.15 (B) 7.10,9.18,9.59,10.44,
(111/82) 10.60,10.77,10.81,10.82,
(A) 7.10, 7.11, 7.12, 7.59,10.77, 10.83,12.08,14.04,14.22,
10.79,11.44,12.08,13.61, 15.76,17.23, 24.52,App 7
14.04,14.22,15.03,15.06, d 4.2 18.111
15.63,15.76,17.23,18.12, d 1.1 9.63
21.76,24.52, App 6 d1.1.4 12.08
d 1.1 9.63 d 1.2.2 10.82
d 1.3 17.13 d 1.2.3 9.13,10.82
d2 24.49,24.51,24.52, d1.3 10.82,17.13
24.65,24.74 d3 ' .. 12.23
d3 , 12.23 d4.1 15.10
d4.1 15.10 d 4.3 15.55
d 4.2 7.59, 15.46 d4.4 15.50
cl4.3 7.59, 15.55 d 4.5 9.59,15.33
d 4.4 , 15.50 d 4.7 10.83, 14.22
d 4.5 9.59, 15.33 d 5.1 19.61 19.63
d 4.7 14.22 d 5.2 19.61 19.62
d 5.1 19.61 19.63 d7 9.63
d 5.2 19.61 19.62 d8 17.11,17.12
d 6.2 13.61 d8.1 18.lll
d7 9.63 cI8.1.1 17.11
d8 17.18 d 8.1.2 17.11
d8.1 17.11, 17.20, 18.111 d 8.1.3 17.11
d 8.1.1 17.11 17.14, 17.15, 17.16 d 8.3 18.30, 18.111 18.112
d 8.1.2 17.11 17.14, 17.15, d9 18.11118.112, 18.117,
17.16,17.17 18.124
d 8.1.3 17.11 17.14,17.18, d9.1 18.111
17.19 d 9.2 18.111
d 8.3 17.13,18.30,18.111 d 10 18.11118.112,18.117
18.112 dI2 21.51
d9 18.11118.112,18.117, cl13 21.75, 21.76
18.124 cl14 26.08
d9.1 18.111 d 16 24.05 26.55
1xxxv
Table ofInstitute and International Clauses Table ofInstitute and International Clauses
Institute Mortgagees' Interest Institute Time Clauses Freight el 18,1 .. ", """, . , ... 23.25
Institute Cargo Clauses (cont.) el 18.2 , ", ,21.122, 23,25
Clauses (1/3/97) 11.44 (1/8/89) (cont.)
elI6.1 24.05
elU 10.17 (11l1/95) , ., ' , , ., , 7.25 el18.3 .. ,' , 21.122, 23.25
el16.2 , .24.0525.20
el2.1.4 10.17 d4 , , ", 18.113 el19 " " .. , .. ,21.80
(C) 7.10, 7.11, 7.12, 9.18,10.60, d7,1 , .. , , , 10.02 el 19,1 . "" """"" .21.74
10.77,10.81,10.82,10.83, Institute Notice of Cancellation,
Automatic Termination of eI 7,2 .. , .. , " .. " , .11.01 el21,l.,,, ,,,,,.,,,.,.18.83
12.08,14.04,14.22,15.76,
Cover and War and Nuclear ellU " , .. " ,,24,74 d2L2 ,,,, ,,,, 18.83
17.23,21.97,24.52, App 8
Exclusions Clause-Hulls ellL2 , , .. , ".2451 el22 .. ,' ',.,' 6.03,6.20
el1.1. 7.11,9.63
7 11 (1/11/95) 17.49, 17.560 d 11.3 , .. , , .. ,24.52 (1/11/95) , 7.21,7,36, 11.65, 12,06,
dU.1. ····· .. ····· .
d 12 , .. , ,', 23.48 23.08, App 12
d1.L2 7.11,9.13 Institute Strikes Clauses (Cargo)
7 11 (11l/82) 7.14,14.02, eI 14 , 15.29, 21.95 elU ... , .. " "." .. ,,, 18.100
d1.1.3 ··········· .
14.11, App 10 el14.1 " ", .. , .. 23,36 el1.5 .. "., " ... ,." .. 23.11
d1.1.4 .7.11, 12.08
7 11 ell 14.01 el14,2 .. , , .. " ....... 26.08 el 3 , , ,,,,.,,, .. 18.113
d1.1.5 · .. ······· .. ···· . el2 24.52 el16,1 , .. ", ,3.54, 7,21, 21.94 el 4 , . , . , , " , , " , . '" ... 23.26
dL2 ······ .. ······ .. 7.11 15 10 d16.3 , .. , ',., ,21.94 el 5,2 ", .. ".,,, 13,68,19,67,20.11
d 1.2.1. 7.11 el3.1 ···· .. ····· .
el3.2 15.46 el 17 , ,,.,' ,,., 6.03 el 6.1 " ", 10,02
eI 1.2.2 7.11
elB 1555 dI3.2 , "", 26.07 el 6.1.8 , 12,06
el3 12.23
el3.4 15.50 Institute Time Clauses Hulls el 6.2 .. ",' , .. ,., 11.01
el4.1 15.10
el3.5 15.33 (1/10/83) "",7,15,7,16,7,17, el 10 .... " , .. " .. , .. ,24,65
dO 15.46
el3.7 14.04 8,90, 9,25, 12,06, 16.04, App 11 d10.1 " ,,,,, ,24.49, 24.74
el4.3 15.55 elU " " .. ,.18.100 dl0.2, " , 2451
cl4,4 .759, 15.50 el3.8 21.97
el3.9 15.80 eI 1.2 ' . ',' " .12.07, 12.21 el 10.4 "" ,2452, 24,66, 25.72
el4.5 · ·959 ,15.33 el1.3 .. , " ,23.11
el4 , .19.61 el 10.5.1 . " . " . " .... ,' . " . ,24.67
el4.7 10.83, 14.22
el5.3 18.112 el2, ,., 1752, 17.53 el 10.5.2 "." ,.",,,, 24.54
el5.1. 19.61,19.63 18 112
el7 ···· .. ······· . el3 ", .. " " .18.113 diU", . , ", 24,04
el5.2 19.61, 19.62
el9 26.08 el4 ", 19.69, 20.11, 23.26 ell1.2 " ,.,,, 24.37, 24.40
el7 9.63
elll 24.05, 26.55 el4.2 .. , "",13.68,19,67 el 11.3 , ,,, ,, 22.60
el8 17.11, 17.12
18 111 el1L2 25.20 el5 ' .. , ,' 19,69, 20,19 ellI.4 ,." " .. ",24.72
el8.1 ······ .. .
eI 8.1.1. 17.11 Institute Time Clauses-Hulls eI 6,1 , .. , .. , ,.10,02 el 1I.5 .. "", "",,,,,, .24.28
Disbursements and Increased el6.1.7 .. , .. ,' ", .. , .. 12.04 el 11.6 . "" .. , .. ,,,, ........ 24,29
el8.L2 ··· .. ·······17.11 el6.2 .. , .. " , .. " 11.01 eI 12.1 " ",23.40, 23.47, 24.40
el8.1.3 17.11 Value (Total Loss only,
including Excess Liabilities) el6.2,l , ,., ,12.06 el12.2 ' , .. ,,, 23.44
el8.3 18.30, 18.111, 18.112
(11l0/83) 24.75 d 6,25 , .. , .. , ,. 12,05 el12.3 , .. , , .. "",25.72
el9 18.111, 18.112, 18.117,
18.124 (1/11/95) ,' .24,75 ell0,2 ,'., " .. , .. 23.17 elI3,l " """".22.28
Institute Time Clauses-Hulls ell0.3 ." .. , , " .. ,23.17 el13.2 " .. , ,.""" .... 23,17
el9.1 ······ .. ··· 18.111 el10.4 ,' , " .. , 22.25 el 13.3 ,,,, ,,,,,,,,, .. ,, .. 23.17
el9.2 18.111 Excess Liabilities
(1110/83), ,' ,", .. '" .24,75 eI 11 . , ' , .. , 24,65 el 14." , .. ,,,,,,, 23.18
el10 18.111,18.112,18.117
(1/11/95) , ,' ' , .. ' .12,21, 24,75 ellU " . ' .. , 24.49, 24.74 elI5, ,." ,23,18
el12 21.51
el 11.2 .. " . "" " .. ,24.51 el 16, , ,." ,,, ,23,18
el13 21.75, 21.76 Institute Time Clauses Freight
(1/8/89) , , . , .. ' , , 7.25, App 17 el 11.4 .,.", 24.52, 24.66 el 18.2 .. ,.", ,'.', ,,2U22
el14 26.08
el4.,., .. " " .. ",." .. 18.113 el 12.1 ,., 23.40, 23.47, 24,40 el 19 .. , .. , , .. " . " .. 21.80
el 16 24.05,26.55
el7,l ", , , .. 10,02 d12,2 " '", " 23.44 el 19.1 ", , .. " . " 21.74
el16.1 24.05
el16.2 24.05,25.20
eI 7.2 .. , .. " " " .. , .11.02 el 12.3 , ,.,,,, ,.,,.,25.72 el 21 .. " ,' . ' . " 20,19
eI 11 ,' ', ' , , ,24,65 el 12.4 "" "", ,25,72 el 23 , .. "", . , 6.03, 6.20
Institute Commodity Trades Clauses el 13.1 , . " . " ", ...... 24,04 Institute Voyage Clauses Freight (1/8/89)
ellU , , .. "", ', .. 24.74
(A) 21.08, 21.09
d 11.3 " ", .. ,,24.52, 24,66 d13,2 " "." .. 24.37, 24,40 d3 "" " ... 18.30,18.113
d5.3 19.62
el12 .. , ' , , , .. , , , ' , .. ' ,23.48 el 13.3 , ,,,'., ,,, ,22.60 el5.1 ,,,, .. , .. ,, 10.02
(B)
el13.1 .. " ', .. " 23,36 el 13.4 "., ,,'., ,24,72 el5.2 ., , .. , ,11.01
eI 5.3 19.62 el 13.5"" """, .24.28 el 10., .. " . " . " ,,, ,23.48
el14" , ", , .. ,21.95
(C) el 13,6., ", 24,29 diU,,,,, ,,,,, .23.36
el5.3 19.62 d15 , .. " " 21.94
elI5.1" ", .. " .. ,.,3.54,21.94 elI4,,, , .. ,.,, ,,. ,23,18 dl1.2 , ",' .. ,24.51, 26.08
Institute General Average-Pollution elI5 ".,,,, ,,, ... ,23.18 elI2, .. , "",,,, 21.95
cl15.2 .. " ', .. ,., 21.94
Expenditure Clauses-Hulls el 16., .. ",,,.,, ,,,,,,, .23.18 el 13,1 ", 3.54,21.94
(1/ll/95) 24.54 el15.3, .. ", . , . ": . ,, . "'" .21.94
el 18"".", "", ...... 23,25 el 13,2 ,,,, ' , .26,08
el16 , ' , ... , ' ... ' , , ..... 6,03,21.94
Institute Malicious Damage Clause 14.22
!xxxvi Ixxxvii
Table ofInstitute and International Clauses Table ofInstitute and International Clauses
Institute Voyage Clauses Freight cl 5.1.2 17.24 Institute War and Strikes Clauses
cl6.1.3 12.10
(1/8/89) (cont.) el 5.1.3 17.24 (Hulls-Time) (1/10/83) (COnt.)
el6.2 12.21
cl13.3 21.94 cl 5.1.4 17.24 cl5.1.3 13.6213.70 cl6.2.2 12.21
(1111/95) el 5.2 17.26 cl5.1.4 7.59, 13.62, 13.71-74 13.82 cl6.3 12.22
cl3 18.30,18.113 cl5.3 17.26 cl5.1.5 7.59, 13.62, 13.75-79 el6.4 12.21, 15.Q3
cl5.1 10.02 el 5.4 17.27 13.82,15.41 cl6.4.1. 12.21
cl5.2 11.01 el5.5 18.112 el 5.1.6 15.75 cl6.4.2 " 12.21
clIO , .. 23.48 el6 18.112 cl5.2···· 17.50 el6.4.3 12.21
cll0.1 23.36 el9 , 26.08 cl 5.3 11.65 cl6.4.4 12.21
cl10.2 26.08 el11 24.05,26.55 cl5.5········· 24.48 cl6.4.5 12.21
cl12 15.29, 21.95 Institute War and Strikes Clauses el6.1···· 17.50 cl8 23.41,24.65
cl12.1 3.54,21.94 (Freight-Time) (1/10/83) cl6.2 17.50 cl8.1 24.49, 24.74
cl12.3 21.94 cl3 '" " 21.95 cl6.2.2 13.68 cl 8.2 24.51
Institute Voyage Clauses Hulls cl4.5 21.95,21.97 Institute War and Strikes Clauses
cl 8.4 · 24.52, 24.66
(1/10/83) 7.16,7.17,11.67 (1/11/95) (HullS-Voyage) (1110/83)
el 8.5.1 24.67
el2 18.30, 18.113 cl3 21.95 cl3 21.70
el8.5.2 24.54
cl4.1 10.02 cl4.5 21.95 (1/11/95)
cl 8.6.2 24.54
cl4.2 11.01 cl4.6 21.97 cl3 21.70 cl9 23.41,23.47
cl14 23.18 Institute War and Strikes Clauses Institute Yacht Clauses (1111/85) 7.35
el9.1··.· 24.04
cl16 , 23.25 (Freight-Voyage) (1/10/83) ..... 21.95 International Hull Clauses
el9.2 24.37,24.40
cl16.2 21.122 cl4.5 21.95, 21.97 (1/11/02) 7.19,11.27,11.67,12.05 el9.3 22.60
cl17.1 21.74 (1/11/95) cl2.1.9 12.05 el9.4 24.28
cl17.2 21.18 d3 21.95 el 2.2.1 11.27 cl9.5 24.29
(1/11/95) App 14 cl4.5 21.95 cl 2.2.2 11.27 cll0.1 18.99, 22.07
cl1.1 18.52 cl4.6 21.97 d 2.3 11.27 cl10.2 18.100
el2 , 18.30, 18.113 Institute War and Strikes Clauses el 2.4 , 11.27 el10.4 12.07, 12.21
cl4.1 10.02 (Hulls-Time) (1/10/83) 7.22, d41······ 11.28 elll 12.07, 12.21, 18.99,
cl4.2 11.01 15.Q7, 16.19, App 15 el43.1 22.07
cl14 23.19 cl1 7.05, 14.01 18.100
el46.1 22.07 el12 17.54
cl16 23.25 cl1.4 14.01 (01/11103) 21, 6.03, 7.19, 7.22, el13 19.73, 19.75, 19.76,
cl16.2 21.122 cl1.5 " " 14.01 7.26, 11.27, 11.28, 11.65, 19.81,19.82
el17.1 21.74 cl1.6 14.01
12.05, cl13.1 19.73,19.74,22.07
cl17.2 21.81 cl2 17.51
22.33,22.83,24.72, App cl13.1.1. 19.73
Institute War Clauses (Cargo) cl3 , .. 21.70
cl13.1.2 19.7319.74
(1/1/82) 7.14,13.61,13.63, cl4.1.3 13.62 13
el13.1.3 " 19.73 19.77
13.67,17.22, App 9 cl4.1.4 13.62 el2 21.81, 23.41
el13.1.4 19.81
c 11.2 " 25.20 cl4.1.5 13.62 el2.1 10.02 el13.1.5 19.81
cl1 13.02 cl4.1.6 13.62 d 2.1.1 10.02
el13.2 19.74,19.75,19.81
cll.l 13.02 13.47 cl4.1.7 15.75 cl2.1.2 10.02 el14 23.26
cl1.2 " ., 13.02 13.44 cl4.2 15.78 cl 2.1.3 10.02
el14.1 13.68,19.67,20.11
d 1.3 13.0217.27 cl4.4 15.41, 24.48 cl2.1.4 10.02
cl14.2 19.68, 23.11
cl2 , 24.52 cl5.2.3 13.68 cl 2.1.5 10.02
el14.3 19.69
cl3 " 13.63 cl12 15.78 cl2.1.6 " 10.02 12.02 cl14.4 19.70, 19.76, 19.77
cl3.1 15.10 (1/11/95) '" .App 16 cl2.1.7 10.02 cl14.4.1. 19.76
cl3.2 15.46 cl1 14.Ql cl2.1.8 10.0210.22, 12.06 el14.4.2 19.70
cl3.3 15.55 cl 1.4 14.Ql el2.1.9 10.02 12.02
eI 15 23.40-23.47
d 3.4 15.50 cl 1.5 11.65, 14.01 cl2.2 " . 11.01 el15.1 23.40 23.47
el3.5 15.33 cl 1.6 14.Ql cl2.2.1. 11.01
el15.2 23.40, 23.42, 23.43, 23.47
cl 3.6 13.63 cl2 17.51 el2.2.2 11.01 el15.3 23.47, 24.40
el3.7 " 13.63 21.97 cl3 21.70 el2.2.3 11.01 cl15.4 23.44,23.45
el3.8 15.80 cl 5 '" 13.62 el2.2.4 11.01 cl15.5 23.46
el4 19.62 cl5.1 " 13.62 cl2.2.5······ 11.01 cl16 23.18
cl5 17.23,17.25 cl5.1.1 ~ 17.50 cl2.5 11.70 el17 23.18
el5.1.1 17.24 cl5.1.2 13.62, 13.64-69 17.50 cl6 " 12.21, 23.41 el18 23.18
cl6.1 12.14,12.19,12.21
cl6.1.1. 12.10
cl6.1.2 12.10
!xxxviii Ixxxix
Table ofInstitute and International Clauses
International Hull Clauses (1111102) (cont.) el 42.1 .. .. .. .. .. . .. 22.03

el20 23.25 el42.1.1. 22.03
el20.2 21.122 el42.1.2 22.03
el21.1 21.74 el42.1.3 22.03 25.17
el22 6.03, 22.43 el42.1.4 22.03
el23
el24.1
el24.2
20.19
18.83
18.83
el43.1
el43.2
el44.1
22.26, 22.27
22.26,22.27,22.83
23.17
1
el25 6.20 el44.2 23.17
el26 18.102 el44.3 23.17
el27 22.04 el44.4 23.17 INTRODUCTION TO THE LAW OF
el30 14.20 el45 22.73
el30.3 11.65,14.20 el45.1 22.73 MARINE INSURANCE
el31 15.80 el45.2 22.73
c131.1 15.80 17.50 el45.2.1. 22.73
c131.2 15.80 17.50 el45.2.2 22.73
el 31.3 15.80 17.50 el45.2.3 22.73
el31.4 15.80 el45.2.4 22.73 A. Marine Insurers
el31.5 15.80 el45.3 22.110,22.111,22.112 1.03 B. Marine Insurance Law 1.34
el32 18.99 el45.3.1 22.11022.111 (1) The eady evolution of Lloyd's 1.04 (1) From law merchant to common
el35 6.11, 6.19 el 45.3.2 22.110 22.111, 22.112 (2) The rise of Lloyd's to prominence law: early development of
el35.1 6.11 el45.4 22.112 within the marine market 1.09 marine insurance law 1.34
(3) The Institute of London
el35.2 6.19 6.31 el46 22.74 (2) Lord Mansfield 1.41
Underwriters and the
el35.3 6.19 el46.1 22.74, 23.17 (3) Codification 1.44
el46.3 22.74 International Underwriting
el35.4 6.19 6.20 C. The Nature of Marine Insurance 1.50
el35.5 6.196.20 el46.7 22.122 Association of London 1.19 (1) Insurance oflosses incident to
el35.6 6.11 6.12,6.31 el48 20.01, 22.115, 22.117 (4) The Mutual Insurance Associations 1.22
(5) Government involvement in marine adventure 1.51
el36.1 20.03 el49.1 25.20 (2) Extension to mixed land and
el36.2 20.05 el49.1.1. 25.20 marine war risks insurance 1.27
sea adventures 1.58
el37 12.05,12.17,12.18 el49.1.2 25.20
el38 12.14,12.22 el49.1.3 25.20
el 39 6.03, 6.20 el49.1.4 25.20
el40 23.41, 24.55 el49.2 .. 25.22,25.23 The need to protect investment in maritime adventure was recognized in early 1.01
el40.10 24.55 el49.3 25.22 civilizations.' Contractual transfer of risk was pioneered through loans on
el41.1.3 11.37 el49.4 25.72
the security of a vessel or cargo, repayahle at a high rate of interest should the
secured property arrive safely but otherwise not tepayable. Such maritime loans
exisred in ancient Babylon, were used by the Phoenicians, ancient Greeks, and
Romans,2 and were revived in medieval Italy. They became known as 'bottomty'
where the secured property was a vessel and 'respondentia' where the secured
property was cargo. In addition, from at least the time of commercial
prominence of ancient Rhodes, risk has been shared through the system of
general average, by which a loss incurred for the benefit of a common maritime
adventure is shared among all interests benefited by the
1 G Clayton, British Insurance (1971) Ch 1; V Dover, A Handbook to Marine Insurance (8th

edn, 1975) Ch 1; H Raynes, A History ofBritish InsuranceC2nd edn, 1964) Ch 1.
2 Although the Romans also used and may have preferred a system of loss sharing by
partnership.
xc
1
Introduction to the Law ofMarine Insurance Marine Insurers
loss. 3 In general average, however, the interesr thar sustains rhe loss must srill learning and amused his colleagues by brewing a black drink from roasred coffee
carry its share and recovery is conringenr upon orher interesrs deriving benefit berries'.' Conopius was subsequenrly expelled from Oxford by parliamenrary
visirors and rerurned to the Levanr where he became Bishop of Smyrna,' but
from the loss.'
his legacy of coffee drinking flourished. So popular did it become among
← It was in rhe fourteenth century in the ciry states of, mainly northern, Italy that the undergraduate studenrs of borh Oxford and Cambridge that in 1677 one
there developed transactions recognizable as contracts of insurance, wirh the risk Cambridge don was moved to complain: 'Why doth solid and serious learning
of mischance befalling a ship or cargo being transferred from that properry's decline and few or none now follow it in the Universiry? Answer: because of
owner to another person in rerurn for the payment of a non-rerurnable sum of coffee-houses where rhey spend all their time."
money. Insurance spread ro northern Europe, with leading cenrres initially in
The passion for coffee was not confined to the universiries. Puriran rule during 1.05
Bruges and later in Anrwerp. Meanwhile, the practice of insurance was
rhe Commonwealth saw the suppression ofmany forms ofenrertainment and the
imporred into England by merchants from the region of Lombardy, especially
new coffee houses flourished upon a pleasurable blend of caffeine and conversa-
the ciry of Florence. Restrictive legislation caused the Lombards to leave
tion. The first London coffee house was opened in 1652 in Sr Michael's Alley,
England towards the end of the fifteenth cenrury, bur London continued to
Cornhill, by one Pasqua Rosee." Coffee houses proliferated, and we know that
develop as a centre for commerce generally and marine insurance in particulat.
by 1688 one Edward Lloyd had opened Lloyd's Coffee House in Tower Street,
When Anrwerp was sacked by the Spanish in 1576, London, with strong polit-
not far from Tower Wharf and rhe Custom House. From the beginning,
ical backing, 5 inherited much of its commercial significance, including in the
Edward Lloyd seems to have targeted the shipping communiry as his clientele.
field of marine insurance.
In 1691 , Lloyd's moved to new premises at 16 Lombard Srreer where it
remained for some 80 years. By rhe rime Edward Lloyd died in 1713, leaving a
Marine Insurers subsranrial esrate, Lloyd's was well established as a cenrre for businessmen ro
meer and as a location for rhe holding of auction sales, increasingly of vessels.
← Marine insurance is roday underwtitten in England by insurers that operate The connecrion with marine underwriring seems not to have developed until 1.06
through the Lloyd's market, insurance companies that operate outside Lloyd's, the 1720s, bur in the next rwo decades Lloyd's reputation grew, during which
and by murual insurance associations. In time of armed conflict, the govern- rime it came ro enjoy a de ficto monopoly in rhe London marine insurance marker,
ment may support the market. To trace the developmenr of the marine market
a developmenr discussed below. The I750s and 1760s, however, saw Lloyd's fall
and explain this strucrure, one may start with the origins of Lloyd's, which lie iii
cc . 6 into disrepure. In 1763, rhe business passed inro rhe somewhat ineffecrual hands of
seventeenth-century COnee consumption. Thomas Lawrence." Substantial profirs during the Seven Years War gave way ro
less spectacular peacerime business, and vulrurine specu-larors exploired and
The Early Evolution of Lloyd's abused rhe insurance market as a means of indulging in
William Laud, Archbishop of Canrerbury, whose teligious policy was a major cause
of the English civil war, was elected Chancellor of Oxfotd Universiry in 1630.
In that capaciry, he was an influenrial patron of Orienral studies, in particular
endowing a lectureship in Arabic. He befriended a Cretan scholar named 7C Wedgwood, The Kings Peace (J955) 79.
Nathaniel Conopius, who was fleeing from Mohammedan rule, and brought 8H 1i:evor-Roper, Archbishop Laud (2nd edn, 1962) Ch 8.
him to Oxford, 'where, from Baliol College, he disseminated his grave ← D Gibb, LloydsofLondon (1957) 1.
← Encyclopaedia Britannica, Vol 6, 'Coffee'. Rosee had been the servant of a merchant named
Daniel Edwards who brought back the drink from his travels abroad. His house was rapidly
inundated by coffee-seeking 'friends' and, in the interests of domestic tranquility, the
------- " -- " merchant encouraged Rosee to set up in business (D Gibb, Lloyd's o/London (l957) 1-2). He
3General average was recognized by the maritime law of ancient Rhodes: Digest XlY.2. 1;
duly opened 'The Sign of Pasqua Rosee's Head', now the site of the Jamaica Wine House.
Barton v English (1883) 12 QBD 2)8, 22L 11 Lloyd's had a curious succession, not infrequently operating as a dowry. After the death of
For outline discussion of general average and exploration of insurance of losses and
Edward Lloyd in 1713, it passed to his son-in-law William Newton, one of his waiters who had
liabilities admissible in general average, see 24.41££
married his daughter in January of that year. William Newton, however, died shortly afterwards
See 1.36 below. and his widow married one Sheppard. Next in line was Sheppard's brother-in-law, Jemson, who
See also W Reynardson, 'The History and Development of P&I Insurance: The British
was followed in 1738 by Baker, the nephew of another of Sheppard's sisters. Samuel Saunders,
Scene' (1969) 43 Tul LR 457.
son-in-law of Baker, succeeded in 1754. Thomas Lawrence waS Saunders' brother-in-law.
2
3
Marine Insurers
Introduction to the Law ofMarine Insurance
Lloyd's survived (as ;ViII be seen, it had no genuine competition) and soon found,
unadulterated wagering upon the safery of property and the lives of persons in
itself basking m a penod of financial prosperity. 'Seldom, if ever, has Lloy~,~ been
which they had nO interest. The combination of such disteputable behaviour and
mote prospetous or more prominent than it was in the Napoleonic war~. Sharply
the ambition of one of Lawtence's waiters, Thomas Fielding, led to the
nsmg commodity prices led to an inctease in the demand for manne
establishment in 1769 undet Fielding's management of the rival New Lloyd's msuran~e)creating an underwriters' market where coverage commanded whatever
Coffee House at 5 Pope's Head Alley.12 premiUms the underwriters deemed necessary. In addition, the Royal Navy, which
The new premises, however, were cramped, old, and insanitary. Only rwO yeats latet, the at one stage during the eighteenth century had been reduced to a shambohc state,
underwtiters wete again looking fot somewhere new. This prompted the election in was m a better position to fulfil its convoy protection duties.
1771 fot the first time of a Committee to represent the under-writers and the
payment of a subsctiption, a step that matks the fitst significant moVe by the (2) The Rise of Lloyd's to Prominence within the Marine Market
underwritets themselves towards assumption of tesponsibility fot the otganization
The a~ove outline of the early histOry of Lloyd's does not, howevet, reveal why 1.09
of the market. Nevertheless, two years later the nine-member Committee had failed
Lloyd s came to assume such a dominant position in the marine insurance matk~t. The
to find alternative premises. Ultimately, an immigrant from the Baltic and an
~nswer lies in a combination of corruption, chance, and com-merCial expediency.
ordinary subsctibet, one John Julius Angustein,13
artanged for the lease of twO rooms in the Royal Exchange,14 to which the
underwritets moved in Match 1774. Lloyd's15 had metamorphosed from coffee (a) The Vansittart scandal
house to otganization of underwritets, although it was not until the first Lloyd's Act
At the heginning of the eighteenth centuty, thete was no centte of matine 1.10
in 1871 that thete could be said to be a structured organization regulated by
msurance.. Undeiwtiting was vety much a patt-time activity pursued by petsons
constitution. of all callmgs. The 'fixed point in a floating matket''' was provided by the
← The Wat of American Independence subjected Lloyd's to a sevete otdeal. The brokets, then known as 'office-keepets' since the term 'broker' had fallen into
official entry of France into the wat in 1778 saw its hostile maritime action escalate dlsrep~te as synonymous with a handlet of stOlen goods. The brokers knew
from privateering, and 656 ships were lost in 1779. At the time, thete was no legal whete m the City of London to find individuals prepared to assume, on their
prohibition on the insurance of enemy vessels, and Lloyd's sus-tained heavy losses personal account, a proportion of the risk in the course of their secondary
as a result of British successes as well as British revetses." The greatest disaster intetest of undetwriting. The pivotal role of the broker emerges against the
came in August 1780. Two convoys rotalling together somi: sixty-thtee merchant backgtound of a matket devoid of regulation:
vessels, and protected only by one ship of the line and a couple of ftigates, When [th~ i~surers].un~erwrote ... they usually were not acting as partners in a
encounteted the combined fleets of France and Spailt. Only eight metchantmen firm, but rIskmg thelf pnvate fortunes in such a way that there was no partnership
escaped, resulting in losses of £1.5 million. A considetable control, no common liability, no check on what was written or who wrote it It
number of Lloyd's underwriters failed to meet their obligations. Nevertheless, was ~ free-~or-aIl trade and, so long as the office-keeper was willing to accep't a
man s secunty, there ,:as no bar to the most unsuitable person committing himself
to any extent on any fisk The one binding controlling element must have been the
12 The choice of name for the new coffee house suggests the existence of a strong connection
office-keeper's judgement; and his duty to his client was not only to get a risk
between underwriting and the name 'Lloyd's'. completed at the best rate, but to mal<e sure that it was placed with reliable men
13 Elected Chairman of Lloyd's in 1795 and known to subsequent generations as the Father of whose ~eans would satisfY the claims when they arose, If his integrity and good
Lloyd's. sense faIled, then the assured must suffer and the good name ofthe Lond k
cc . h h' 19 on mar et
14 The Exchange was built by Sir Thomas Gresham in the 1560s as a meeting place for
SUner WIt 1m.
merchants. It opened in 1570 and became known as the Royal Exchange after a visit by Elizabeth
I in 1571. Ne;7ett7helessb' the 0ficcasional broker was no patagon of virtue. Scandal erupted 1.11
15 The 'New' was dropped in 1794. The original Lloyd's went out of business by about 1785: C
ill ,1. A rol<or nding himself short of £200 of cover on a vessel called the
Golding and D King-Page, Lloyds (1952) 12-13. Lloyd's, however, is not rhe only modem commercial
institution to have its_.roots in a London coffee house. The Stock Exchange is the descendant of Vanstttart added two fictitious insurers. Had the vessel completed its voyage
Jonathon's Coffee House and the Shipping Exchange started life as the Baltic
Coffee House.
16 Much Dutch shipping and goods was insured at Lloyd's, which sustained considerable losses
after Holland declared war on Britain. For the impact of war on insurance contracts today, 17 D Gibb, Lwyds ofLondon (1957) 50. 18 ibid 19. 19 ibid 21.
sed.78ff below.
5
4
Introduction to the Law ofMarine Insurance Marine Imurers
safely, the fraud would have passed undiscovered, bur the Vansittart was lost The bubble of deceit was pricked in 1720. The incorporared company was 1.14
and the truth emerged. The ensuing widespread recrimination and the levying the key to having stock amenable ro specularion and, at that time, incorpor-
of accusations against brokers generally were fuelled in part by a campaign ro arion was by Royal Charter or by Act of Parliament alone. 22 As the success of
introduce chartered insurance companies to replace or compete with the a petition for a charter was dependent primarily upon extensive tactical brib-
individual underwriters. Questioning of the system appears legitimate since ery, a number of companies resorted instead ro purchasing obsolete charters
merchants' livelihoods would depend upon individuals not known personally to from firms rhat had ceased trading. Although charters granted the right to
them assembled by the broker. However, the clamour for the introduc-tion of pursue a particular trade, such resrrictions were then cavalierly ignored. How-
chartered companies was raised in no small measure by company speculators ever, in March 1720, a House of Commons committee met to investigate
seeking access ro the insurance marker in the era of the South Sea Bubble. fraudulent schemes for the subscription of capital, including the acquisition
of obsolete charters. The result of its report was the preparation and passing
in June 1720 of the Bubble Act," which, inter alia, rendered illegal the
← The South Sea Bubble raising of public subscriptions either in the absence of authority of charter or
24
In 1711, faced with serious national debt problems, the government established a Act of Parliament, or under an obsolete charter. The institution of proceed-
company, the Sourh Sea Company, to exploit a trading monopoly conferred by ings against companies with a view ro forfeiture of their obsolete charters,25
charter in return for taking over £9 million of the debt. Holders of govern-ment combined with the adverse publicity engendered by the passing of the Bubble
securities could exchange them for shares in the company, which would receive Act, triggered a srock market crash of unprecedented devastation in September
reduced interest from the Treasury. In return, the shareholders were to benefit 1720. In the course of that month, shares in the South Sea Company itself
from an assurerlly and increasingly profitable investment in the South Sea fell from 780 to 180 per cent. Although the company was roo entwined with
Company. The flaw was that, in reality, the company's trading monopolies the nation's finances to be permirred to fail totally, it never regained public
were of little if any value, consisting of dealings in unwrought iron with
confidence. 26
Spanish subjects, some vague fishing rights, and trade with Spanish South
America, which never blossomed. By way of comparison, one commentator (c) The effict ofthe Bubble Act on the marine insurance market
has postu-lated a company floated in London in 1943 'ro develop British trade
with Japan, ro buy and sell base metals with Germany, and ro run a fleet of Throughout the eighteenth century and beyond, the bursting of the Sourh Sea 1.15
trawlers ro Iceland'.'o Bubble retarded the development of incorporated companies. New charters and
authorizing Acts of Parliament for any type of company were few and far between.
← Between 1711 and 1720, when the company took over another £31 million of Bur the Bubble Act itself had a more direct impact upon the evolution of the marine
the National Debt, every speculator's trick was employed to maintain the appar- insurance market. At the time of preparation of the Act, charters were being sought
ent buoyancy of Sourh Sea Company stock, its £100 srock rising ro a height of for a new marine insurance corporation and for an under-writing company
£1,000. But the government-sponsored gambling on Sourh Sea srock spread: operating under the purchased obsolete Elizabethan charters of the combined Mines
A perfect rage for speculation seized the entire country: fraudulent companies of Royal and Mineral and Battery Works. The petitions to Parliament for charters
every conceivable description were floated, and however absurd their ostensible proving unavailing, the promoters appealed unto Caesar, 'or rather (to be more
purpose, they found people willing to invest in them" .. The crowning imposition accurate) they offered Caesar a bribe and Caesar accepted
of all ... was a scheme 'for carrying on an undertaking of great advantage, but
nobody to know what it is.' The ingenious deviser of this idea asked for a capital of
half a million, and provided that every investor paying down two guineas per cent
was to have £100 per annum for every £100 so subscribed. Extravagant as this
sounds, the projector received 1000 subscriptions in a single morning, and 22 Incorporation by registration was introduced by the Joint Stock Companies Act 1844.
decamped with his 2000 guineas in the afternoon. The nominal value of all 23 6 Geo I, c 18. 24 ibid s 18.
these 'Bubbles,' as they were called, was £500,000,000-about rwice the 25 It is generally believed that these proceedings were instituted by directors of the South Sea
Company as other public companies were rivals for potential investors and the success of the
value of all the land in England. 21 South Sea Company itself depended upon continued confidence and investment in its stock. If this
view is accurate, the move backfired disastrously.
26 Sir William Holdsworth records that the company 'dragged out a struggling existence till
20 ibid 26. 21 B Drew, The London Assurance: A Second ChroniCle (1949) 24. 1807; and the faded splendours of its South Sea House survived long enough to secure
immortality in the Essays ofElia', A History ofEnglish Law (2nd edn, 1937) Vol VIII. 210.
6 7
it'.27 An impecunious government had fallen into arrears of £600,000 on the restrictive terms and conditions. 29 Individual underwriters helped themselves
Civil List. The Prime Minister, Robert Walpole, engineered a scheme whereby to over 90 per cent of the marine market. 30
the promoters of each of the two petitions would pay the government £300,000
for the award of chartets granting exclusive rights to cotpotate marine undet- (d) The marine insurance market and Lloyd's
writing. The ensuing support of the King, George 1,28 led to the grant of What, then, led to the marine marker adopting Lloyd's as its centre? Edward 1.17
exclusive charters to the Royal Exchange Assurance and the London Assurance, Lloyd esrablished a maritime connection but nor an underwriting tradition. As
the relevant provisions being included in the Bubble Act. Permission for two already seen, however, the Bubble Act creared a de ftcto monopoly of individual
charters was gtanted by section 1 of the Act, each of the beneficiaries being underwrirers with respect to marine insurance. The 1730s and 1740s saw an export
required by section 2 to pay £300,000 'into the Receipt of the Exchequer ... for boom together wirh a correlative growth in rhe demand for marine insurance. A
the Use of the King's Majesty, in order to discharge the Debts and Expences of leading criticism of the marine marker prior to 1720 had been irs scattered narure.
his Civil Government'. The crucial provision, however, was section 12, which Commercial expedience dictated concentration and Lloyd's became the centre,
prohibited 'all other Corporations or Bodies Politick, before this time erected or probably because of the development of the coffee house by
established, or hereafter to be erected or established, whethet such Corporations its proprietors as a centre for shipping intelligence, exemplified by the estab-
or Bodies Politick, or any of them, be sale or aggregate, and all such Societies lishment in 1734 of the shipping-oriented newspaper Lloyd's List, which has
and Partnerships as now are, or hereafter shall or may be entered into by any been published continuously ever since. 31
Person or Persons, for assuring Ships or Metchandizes at Sea' from entering into
any contract of marine insurance. Nevertheless, section 12 also declared that The repeal of the corporare duopoly in 1824 saw the introduction of corporate 1.18
'any private Petson or Persons shall be at Liberty to write or underwrite any competition, but the ever-developing insurance market proved large enough to
Policies, or engage himself or herself in any Assurances of [marine insurance] accommodate both Lloyd's and the companies. The modern Lloyd's remains an
insurance (and reinsurance) market of global importance, although the latter
as fully and beneficially as if this Act had not been made, so as the same be not
upon the Account or Risque of a Corporation or Body Politick, or upon the part of the twentieth century saw rhe market experiencing severe troubles and
Account or Risque of Persons acting in a Society or Partnership for that undergoing something of a metamorphosis. Until rhen, the capital basis of the
Purpose), market was srill provided by individuals, called 'names', who staked their entire
fortunes for the right to join one or more insurance syndicates managed by
At face value, therefore, the impact of the Bubble Act was threefold. First, individual professional underwriters. Catastrophic losses falling upon the names caused by
underwriting via brokers remained unfettered. Secondly, competition was a combination of bad luck and incomperence of market professionals" led,
introduced in the form of the Royal Exchange Assurance and the ~ondon Assurance. however, to rhe introduction of corporate capital to the market in order to
Thirdly, the marine insurance market was closed absolutely except to individual compensate for the reduction in individual capital as names were bankrupted or
underwriters and the two corporations. The reality, however, was that for more than voluntarily left the market. 33
one hundred years, from the passing of the Bubble Act in 1720 until the repeal of
the corporate duopoly by the Marine Insurance Act 1824, individual underwriting
enjoyed an almost total monopoly. The stock market collapse of 1720 led the two
corporations to default on their £300,000 sratutory debrs. Fifty per cent remissions
enabled rhem to survive, but they made lirtle impact on the marine market. They ← Report of the Select Committee on Marine Insurance (1810) PP, IV; B Supple, The Royal
Exchange Assurance (1970) 189-90.
were nor competitive; rhey imposed a limir ← In 1809, the Royal Exchange Assurance and London Assurance underwrote respectively only
of £1 0,000 on the sum assured; they were reluctant to accepr risks attached to £3.91m and £2.25m of marine risks from a total of £162.5m: Report of the Select Committee on
voyages between two overseas ports (known as 'cross risks') or to cover neutral Marine Insurance (1810) PP, IV; 4-5.
ships againsr the war risk of captute in enemy ports; and they rended to impose 31 Edward Lloyd himself had earlier published the short-lived Lloyd's News from
1696
umi11697.
32 A name is advised as to appropriate syndicates, placed thereon, and given general advice
by a 'member's agent'. The underwriting of a syndicate is entrusted to a 'managing agent'.
← D Gibb, Lloyds afLondon (1957) 30. An agent who combines both functions is called a 'combined agent'. For the legal duties
← For the text of a letter from George I to the House of Commons, see B Drew, The owed by agents to names, see Henderson v Merrett Syndicates Ltd [1995] 2 AC 145.
London Assurance: A Second Chronicle (1949) IS. 33 For an account of the recent disastrous history of Lloyd's, see A Raphael, Ultimate Risk
(1994).
8
9
Introduction to the Law ojMarine Insurance Marine Insurers
← The I\lstitute of London Underwriters and the International detailed work still being done by the joint committees of representatives from
Underwriting Association of London the IVA and Lloyd's.38
← The lifting in 1824 of the restrictions on corporate participation in marine

(4) The Mutual Insurance Associations"
insurance heralded a number of corporate ventures into the market. For over
thirty years, however, nearly all proved abortive and it was not until the 1860s, The post-Bubble Act de ftcto monopoly on marine insurance enjoyed by indi- 1.22
when the American civil war prompted a significant upturn in marine insurance vidual underwriters centred on Lloyd's was not to the liking of all shipowners.
business, that a number of new corporations successfully entered the market. Dissatisfaction developed, fuelled by a variety of concerns. First, shipowners
On 5 June 1884, the Institute of London Underwriters was incorporated as a based not in London but in provincial ports, such as Bristol, Liverpool, and
forum for co-operation between these corporate participants in the market. 34 Manchester, found the London underwriters remote and unsympathetic.
Originally, it had been intended that the Institute should embrace Lloyd's Secondly, premium rates at Lloyd's were unrestrained by any effective competi-
underwriters as well, but it proved impossible ro accommodate them within the tion. Thirdly, the solvency of any given individual underwriter could not be
memorandum and articles of association of the Institute. assumed, as graphically illustrated in the wake of the disastrous loss of most of a
← From its inception, a particular feature of the work of the Institute was its large convoy in 1780.40 In consequence, shipowners came together to constitute
unincorporated associations to provide mutual hull insurance.
involvement in the drafting of standard clauses for adoption in marine policies.
An amended form of the Running Down Clause (governing third party collision Despite doubts as to whether they were illegal insurance companies in disguise,41 1.23
liability)35 was promulgated only six months after the Institute's incotpotation. the hull clubs initially proved populat but declined in the face of improved
Four years later the first set of 'Institute clauses' was promul-gated: the 1888 competition from Lloyd's and the new corporate insurers entering the market
Time Clauses 'recommended by the Institute of London Underwriters for after 1824, combined with pOOt quality conttol on membetship.42 The mechan-
adoption in the year's policies on hulls'. They wete widely taken up, with about ism, however, was established, and the advent of a variety ofthird party liabilities
80 per cent of hull policies that year incorporating the recommended clauses. In to which shipowners were subject, and which the London market of Lloyd's and
1893, separate Institute hull clauses for time and for voyage were introduced, the insurance companies did not cover, saw rhe birth of a new generation of
and the first 'Institute Cargo Clauses' followed in 1912. To ensure maximum mutual insurance associations. These developed into the modern protecrion and
market acceptability of the clauses, joint committees including representatives indemnity associations (or P&I clubs).43 Today, mutual insurance provides cover
from the Lloyd's Underwriters' Association were established to oversee the against principally three categories of risk, namely P&I, war, and defence risks.
drafting ofsuccessive generations of clauses. The Joint Hull Committee came These are outlined in Chapter 16 below. As a general rule, the London market
into existence in 1910 and the Joint Cargo Committee followed in 1942. offers marine property insurance together with some collision liability cover,
while other marine liability insutance is the province of the P&I clubs. In the
← The focus of the Institute of London Underwriters was marine, aviation, and context ofwar risks, rhe associations offer both property and liability insurance.
transport insurance. In 1998, the desire to give the London insurance marker The association members are shipowners and other operators of ships, such as 1.24
one voice saw the merger of the Institute with the London International charterers. Control of the association is vested in a committee or board of
Insurance and Reinsurance Market Associarion" to form the International
Underwriting Association of London (IUA)." It is under the auspices of this
organization that new market forms and clauses are now promulgated, with the
← The modern forms and clauses are introduced in 7.07ffbe1ow.
← See generally.S Hazelwood, P&l Clubs: Law & Practice (3rd edn, 2000).
← See 1.08 above.
← See generally C Hewer, A Problem Shared: A History 0/the Institute a/London Underwriters ← An issue not resolved until Re Arthur Average Association for British, Foreign and Colonial
1884-1984 (1984). Ships (1875) LR lOCh App 542, when it was held that associations with more than 20 members
← For discussion of the modern equivalent, see 12.1 Off below. were in law companies requiring registration under me companies legislation.
← Itself the product of a merger"'in 1991 of organizations that focused on non~marine and Unscrupulous owners entered poor quality tonnage, thereby trading at the expense of the more
reinsurance business. reputable owners. Once better competition was established, the latter reverted to fixed premium
37 The IUA formally came into existence on 31 December 1998. insurance leaving me hull clubs full of rUSt buckets.
The first such club, the Shipowners Mutual Protection Society, was founded in 1854. In
1876 it amalgamated with a number of other associations to form the Britannia club.
10 11
directors, elected by the members from among themselves. However, consider-able reinsurance cover, controlling by tegulation both premium rates and settlement
management responsibility is delegated to the club managers, who may be of claims. As regards catgoes, the government opened a State Insurance Office
employees of the club or an independent management company.44 The relationship offering ptimary insurance directly to metchants fot cargoes in British hulls at a
between the club and its members is governed by the club rules, which detail unifotm rate for all voyages. The government, howevet, did not appropriate to
membership rights and obligations, the operation of the club, and the cover itselfany monopoly and permitted the private sector to compete for cargo covet.
provided.
The effect of the scheme was that the government ended up covering poor cargo 1.29
Market insurance and mutual insurance do not share the same ethos. Market insurance risks, while Lloyd's and the companies undercut it with tespect to the better
consists of a purely financial bargain whereby cover is purchased for a fixed tisks and made considetable ptofits. Since the purpose of the scheme was not to
premium from a profit-making entity. Mutual insurance associations are non-profit enable the government to patticipate in the insurance market but to ensure the
making organizations that permit the pooling of losses over a given period at the continuance of certain voyages, the result was not without justification. But it
cost of a contribution thereto, the amount payable depending therefore on the led to abandonment of the unifotm rate for cargoes. Overall, the government
magnitude of the losses that actually occur." The associations, moreover, provide a made a ptofit of £32 million on hulls insurance against a £7.5 million loss on
valuable claims-handling service and advice on a wide range of matters concerned cargo cover. The State Insurance Office covered approximately 27 per cent of
with or incidental to the operation of ships. the total value of wartime catgoes, while the temaindet, with a value of about
£6,000 million, went to the private sectot.
An application to enter a ship in a dub is made to the managers, who are given the
discrerion to accept or reject. If the application is successful, the managers issue a The Second World Wat saw a different scheme. The government entered into a 1.30
certificate of entry attesting, inter alia, to the terms and conditions on which the gentlemen's agreement (which was duly observed) with Lloyd's and the com-
ship has been accepted for insurance and the date of commencement of cover. panies. This agreement divided war risks into two groups. With respect to
voyages to or from a United Kingdom port, the private sector underwrirers
← Government Involvement In Marine War Risks Insurance agreed to quote only rates higher than the government's. As regards voyages
between two overseas pons, the underwriters were left unfettered. To a certain
While the London market and the mutual insurance associations offer cover against war
extent, the government was protected against competition while foteign nation-
risks that might be incurred in the ordinary course of trading, war risks cover in the
als were not compelled to subscribe to United Kingdom government insurance.
context of a significant armed conflict involving the United Kingdom is a different
'It was a sensible arrangement which at once protected the British tax-payers,
commercial proposition. Government involvement [s then required to sustain the
preserved an invisible export, and brought us during the war millions of
maritime activity of an island nation at war.
pounds worth of foreign currency. It also guatanteed the survival of our marine
← insurance market after the war was over. '47
The origins ofgovernment involvement in war risks insurance46
In 1903, the government appointed a committee, under the chairmanship of Austen (b) Modern government-backed war risks cover: Queen senemy risks
Chamberlain, to consider whether private enterprise could accommodate marine
The current statutory framework for government wat risks insurance is provided 1.31
insurance in time ofwar involving the United Kingdom. The committee concluded 48
by the Marine and Aviation Insurance (War Risks) Act 1952. By virtue of this
that it could, but losses from the Russo-Japanese War, which con-firmed the
Act, the Board of Trade is empowered to reinsure ships and catgoes against wat
efficacy of the torpedo, together with the growing power of the German navy
risks. If, however, the ship is not a British ship, the wat tisks must arise either
prompted a considerable retreat from war risks cover by both the London market
during the continuance of a wat or other hostilities in which rhe United King-dom
and the associations. Consequently, in 1913 a second commit-tee, chaired by Huth
is engaged or after any such war or hostilities in consequence of things done Ot
Jackson, drew up the scheme adopted by the government on 5 August 1914. With
omitted during such events.49 The Board is also empowered by section 2(1) to carty
respect to hulls, the government offered 80 per cent
on business:
44 The Britannia club is managed by Tindall, Riley (Marine) Ltd while the United Kingdom P&I club ← ibid 229.
is managed by Thomas Miller P&I. ← Repealing and replacing the relevant provisions of the War Risks Insurance Act 1939.
45 See 6.38-6.39 below. " See generally D Gibb, Lloyds ofLondon (1957) Ch 12. ← Marine and Aviation Insurance (War Risks) Act 1952, S 1(1).
12 13
Introduction to the Law ofMarine Insurance Marine Insurance Law
← at any time when it appears to the Board that reasonable and adequate facil-ities mercantile community and administered by specialist tribunals. 54 These tri-
for the insurance of British ships or British aircraft against war risks, or bunals consisted mainly of merchants' COUtts at fairs and seaports. The exped-
any description of such risks, are not available, for the insurance by the Board
itious nature of their proceedings was both part of their attraction to the
of such ships ... against such risks Of, as the case may be, that description
thereof; commercial community and the reason why so few records of their proceedings
(b) during the continuance of any war or other hostilities in which Her Majesty is survive. The fourteenth century saw the birth of the Court ofAdmiralty, a court
engaged, for the insurance by the Board of ships and aircraft (wherher British that gradually came into competition with the seaport courts for jurisdiction in
or not); maritime matters. The Court of Admiralty, however, seems to have made little
← at any time when it appears to the Board that reasonable and adequate facil-ities contribution to the evolution of insurance law. Marsden observes that: 'Insur-
for the insurance of cargoes carried in ships or aircraft against war risks, or
any description of such risks, are not available, for the insurance by the Board
ance law alone owes little to Admiralty judges. The court ofAdmiralty does not
of such cargoes against such risks or, as the case may be, that description thereof; seem to have given satisfaction to underwriters Or merchants. With the excep-
tion of a few cases which found their way into the court during the latter half
← during the continuance of any war or other hostilities in which Her Majesty is of the sixteenth century ... there is little to be found on the records relating
engaged, for the insurance by the Board of cargoes carried in ships or aircraft; to insurance.'55
← during the continuance of any such war or hostilities, for the insurance by the
Board of goods consigned for carriage by sea or by air, while the goods are in Insurance litigation was affected by the politicization of commerce during 1.35
transit between the premises from which they are consigned and the ship or the reign of Elizabeth I. The national importance of international trade saw
aircraft or between the ship or aircraft and their destination ...
the active intervention of the Privy Council. 'Of marine insurance, during the
← However, no insurance may be provided under paras (b), (d), or (e) unless, in the period from 1571 to 1577, there are no less than twenty-one recorded minutes.
interests of the defence of the realm or the efficient prosecution of any such war or The Privy Council took a very strong line in fostering the health of marine
hostilities as described above, it is necessary or expedient so to do. 50 The insurance in the City of London.''' On occasion, the Privy Council would be
key term 'British ship' is not defined but also encompasses ships ofIndia and of the petitioned to intervene in insurance disputes, and a practice appears to have
Republic of Ireland. 51 The statutoty definition of 'war risks' reflects the insurance evolved of referring these disputes for arbitration by the Lord Mayor of London
terminology of the time. For the purposes of the 1952 Act, it means" 'risks arising and knowledgeable merchants. In 1576, this ad hoc system of arbitration was
from any of the following events, that is to say, hostilities, tebellion, revolution and formalized by a resolution of the Court of Aldermen of the City of London.
civil war, from civil strife consequent on the happening of any of those events, or Seven merchants, termed Commissioners, were appointed on an annual basis to
from action taken (whether before or after the outbreak of any hostilities, rebellion, adjudicate on insurance disputes. They sat to hear dispures evety Monday and
revolution or civil war) for repelling an imagined attack or preventing or hindering Thursday in the newly created Chamber of Assurance within the Royal
the carrying out of any attack, and includes pitacy'. Exchange. One consequence of the establishment of this specialist court was to
draw insurance litigation away from the Court ofAdmiralty.
← Pursuant to the 1952 Act, the government has standing agreements with ten Btitish
mutual war risks associations. This is outlined in Chapter 16 below. 53 Before long, however, it appears that a number of insurers refused to submit to 1.36
the speedy jurisdiction of the Court of Commissioners. Insurers unwilling to
meet claims were doubtless attracted by the protracted and more costly pro-
← Marine Insurance Law cedures of formal litigation, which might induce a settlement on terms more
favourable to the insurer or even dissuade an assured from pursuing a claim
← From Law Merchant to Common Law: Early Development of Marine
altogether. Assured merchants, in conttast, regarded this atrenuation of dispute
Insurance Law
← Marine insurance law originally formed part of the law merchant, that body of
transnational commercial law generated by the latgely autonomous medieval 54 On the law merchant, its institutions, and its absorption into the common law, see generally
Sir William Holdsworth, A History ofEnglish Law (7th cdn, 1956), Vol I, Ch VII: T Scrutton,
'General Survey of the History of the Law Merchant' in E Freund, W Mikell, and J Wigmore
(cds) Select Essays in Anglo-American Legal History Vol III (1909) Ch 47.
50 ibid proviso to s 2(1).
" ibid s 10(2). 52 ibid s 10(1). 53 See 16.15 5S Introduction to Select Pleas in the Court ofAdmiralty (Selden Society) Vol II, lxxx.
below.
56 H Raynes, A History ofBritish Insurance (2nd edn, 1964) 41.
14 15
resolution as unacceptable and petitioned the Privy Council. This led, in 1601, to Unfortunately, the common law courts," to which litigation in mercantile mat- 1.38 ters
'AnAct concerning Matters of Assurances used among Merchants', 57 which sought gradually moved, lacked expertise in the law merchant. Initially, indeed, the
to reinvigorate the arbitration system by establishing a new Court of Commissioners law metchant was administeted as custom tather than law, retarding the evolu-tion
to adjudicate on disputes arising out of insurance contracts by reference to the law of commercial law doctrine. 66 A major contributory factor was a division in the
merchant. legal profession between membets of the Inns of Court, who practised in the courts
of common law and equity, and the civil lawyers, who wete members of Doctors
← The Commissioners were the Admiralty judge, the Recorder of London, two
Commons and specialized in the law merchant. Samuel Pepys recorded his
doctors of civil law, two common lawyers, and eight 'grave and discreet mer-
amusement at the difficulty encountered by bench and bar in grappling with a
chants'." They were required to sit at least once a week 'without Formalities of
matine insurance case heard in King's Bench on 1 December 1663.67 For
Pleadings or Proceedings' in panels of five. Originally, it had been intended to
many merchants, the incompetence of the common law courts in mercantile
confer jurisdiction on the High Court of Chancery, but the length of Chan-cery
mattets elicited disgust tather than amusement, resulting in the courts being
litigation and the absence of specialist knowledge on the part of Chancery judges
fotsaken in favour of ptivate arbittation." This combination oflack of expertise and
led to the retention of a specialist commercial tribunal, 59 ,Jbeit coupled with a right
resultant scarcity of disputes being btought before the courts retarded the
of appeal to the High Court of Chancery. In 1662, the powers of the new Court of
development of the common law in mercantile matters, and insurance law in
Commissioners were extended and the quorum reduced to three,'O considerably
particular was poorly served. Writing originally in 1786, Park stated:"
enhancing the ability of the court to meet the requirements of the commercial
community. Despite these reforms, however, the court did not survive into the But though the Court of Policies of Assurances70 has been long disllsed; though it
eighteenth century as an effective tribunal. Along with the other tribunals of the law is near a century since ,questions of this nature became chiefly the subject of
merchant, including the Court of Admiralty, it fell victim to the aggressively common law jurisdiction; yet I am sure I rather go beyond bounds ifI assert that in
all our reporters from the reign of Queen Elizabeth ro the year 1756 ... there are
expanding jurisdiction ofthe common law courts. 61
sixty cases upon matters of insurance. Even those cases which are repofted, are such
The Court of King's Bench held that the jurisdiction of the Court of Commis- loose notes, mostly of trials at Nisi Prius, containing a short opinion of a single
sioners was confined to 'things merchantable'," thereby excluding policies of life Judge, and, very often, no opinion at all, but merely a general verdict, that little
63
insurance, and to actions by the assured against the insurer. Most signifi-cantly, information can be collected upon the subject.
it held that an unsuccessful action in the Court of Commissioners did not bar a
54
Not only was there a paucity of authority and exposition of principle, there was 1.39 also
fresh action at common law. a diversity of jurisdiction. The primary common law aggressor against the tribunals of the
law merchant was the Court of King's Bench, but the occasional insurance case can also
be found in Common Pleas. Moreover, as was clear from
57 The preamble to the Act describes the reason for this legislative intervention in the following
terms; 'And whereas heretofore such Assurers have used to stand so justly and precisely upon their
credits, as fewor no Controversies have arisen thereupon, and if any have grown, the same have ← In the following discussion, a distinction is drawn between the COUrtS of common law and
from Time to Time been ended and ordered by certain grave and discreet Merchants appointed by tribunals that administered the law merchant. For these purposes, courts of equity qualify as
the Lord Mayor of the City of London, as Men by reason of their Experience fittest to understand, common law courts in that they did not administer the law merchant.
and speedily to decide those Causes; until of late years that divers persons have withdrawn ← T Scrutton, 'General Survey of the History of the Law Merchant', in E Freund, W Mikell,
themselves, from that arbitrary Course, and have sought to draw the parties assured to seek their and J Wigmore (eds) Select Essays in Anglo-American Legal History (1909) Ch 47, 13.
Monies of every several Assurer, by Suits commenced in Her Majesty's Courts, to their great ← R Latham and W Marthews (cds), The DiaryofSomuelPepys (1971) Vol IV, 403: 'There was all
Charges and Delays ... ' the great counsel in the kingdom in the case ... But it was pleasant to see what mad sort of
58 ibid s L testimonys the seamen did give, and could not be made to speak in order; and then their terms such
59 See the extract from the speech of Francis Bacon, introducing the Bill in Parliament, cited by as the Judge could not understand; and to hear how sillily the Counsel and Judge would speak as to
H Raynes, A History ofBritish [mutance (2nd edn, 1964) 52. the terms necessary in the matter would make one laugh.'
60 By 'An additional Act concerning Matters of Assurance used amongst merchants' 1662 ← See C Fifoot, Lord Mansfield (1936) 7-8. cf also the response to the inadequacies of the
(14 Car II, c 23). Queen's Bench that led to the establishment of the Commercial Court in 1895: V Veeder, 'Mr
61 On the expansion of the jurisdiction of the common law courtS, see generally G Hand and Justice Lawrance: The "True Begetter" of the English Commercial Court' (1994) 110 LQR
D Bendey (eds). Radeliffi & Cross, The English Legal System (6rh edn, 1977) 241ff. On the 292,298-9.
69 F Hildyard (ed), Park, A System o/the Law o/Marine Insurances (8th edn, 1842) lxxxix-Ixc. On
demise
of the Court of Commissioners, see F Hildyard (ed), Park, A System of the Law of Marine the difficulty of deriving principle from earlier proceedings, see also Vallejo v Wheeler (1778) 1
Insurances (8th edn, 1842) lxxxvi-lxxxviii. Cowp 143, 153.
62 Denoyt v Oyle (1649) Sryle 166, 172. 63 Delbye v Proudftot(1692) J Show KB 396. 70 A reference to the Court of Commissioners established by the 1601 Act.
64 Cane v Moye (1658) 2 Sid 121.
17
16
the 1601 statute, the COUrt of Chancery, notwithstanding its lack of expertise, was reforming civil procedure in the interest of efficient resolurion of disputes and,
considered an appropriate forum for insurance litigation and reports survive of a .informed and assisted by the advice ofspecial jurors drawn from the ranks oflead-
number of late seventeenth- and early eighteenth-cenrury Chancery insur-ance ing merchants, established principles of law that attracted the approval of both
71
cases. Thus, cases on insurable interest, for example, can be found in King's lawyers and merchants. Only six decisions were ever reversed by the House of
Bench in 1691,72 in Chancery in 1692,73 and in Common Pleas in 1721.74 Lords. For its part, the commercial communiry never felt compelled to petition
1.40 By the middle of the eighteenth century, therefore, the position appears to be as Parliament for legislation to overtide judicial antipathy to mercantile practice," and
follows. There was no clear, coherent, and comprehensive corpus of insurance was happy to bring its dispures before courts that inspired its confidence.
contract law. A number of rules had been developed by the law merchant. However, The result was a transformation of English commercial law in general and 1.42 marine
the abiliry ofthe common law courts that had appropriated jurisdiction in insurance insurance law in particular. Lord Mansfield was a firm believer in the
matters to absorb and develop their law merchant inheritance was limited. need for the law to promote commercial certainty, especially with respect to
Moreover, jurisdiction was claimed by several common law courts, engendering commercial transactions where the law consisted of default principles from
possible confusion through different views emerging on the same issue. Legislation which the commercial communiry was free to derogate by appropriately
was confined to invalidating certain waget policies" and prohibiting the insurance of worded agreemenr.80 Subject to that constraint, he was prolific in expounding
enemy properry.76 What was needed was a person possessed of a legal mind of the principle and, within the constraints of precedent, quite prepared to depart from
first calibre; who undersrood, was sympathetic towards, and supportive of earlier aurhoriry in favour of what he considered a more appropriate principle.
commercial practice; and who had the time and power to articulate and imbue with In Wilson v Ducket,81 following underwriters were induced to subscribe to a risk
authoriry principles of law that were intellectually rational and reflected business
by fraud in the form of a decoy duck leading underwriter. 82 The question was
practice.
whether on avoidance of the policy premium paid to following underwriters was
forfeit by reason of the fraud or rerurnable to the assured. Counsel for the assured
← Lord Mansfield
submitted that there was no common law aurhoriry on the point, bur that the courts
On 25 May 1756, Sir Dudley Ryder, Chief Justice of the King's Bench, died of common law and equiry had concurrent jurisdiction, that in equiry authoriry
unexpectedly. By custom, the vacant position could be claimed by the Attorney- established that the premium should be repaid," and that the two jurisdictions
General. The then Attorney-General, William Murray, duly demanded the pos-ition should resolve the same question in the same way. Lord Mansfield accepted that
the premium was repayable in equiry but enquired whether there was any
and the peerage that traditionally accompanied it. Despite every attempt by the
corresponding common law authoriry. No such authoriry being produced, he
leading minister, the Duke of Newcasrle, to keep him in the government, Murray
departed from the equitable approach and held the premium forfeit to the
remained adamant until the Duke of Newcastle finally relented. On 8 November
insurers.84
rhat year, Murray was sworn in and immediately afterwards was cre-ated Baron
Mansfield in rhe County of Nottingham." Three days later, on 11 November, Lord
Mansfield took his place as ChiefJustice of the King's Bench. He remained in office
for rhirty-two years, resigning on 4 June 1788. In rhe field 79 As it had when faced with the resolute opposition of Lord Holt to recognizing
of commercial law, he devored a formidable intellecr and profound learning" to promissory notes as negotiable instruments: C Fifoor, Lord Mansfield (1936) 18-19.
80 C Fifoot, LordManifield (1936) 99-100, referring to 1'e11:y v Royal Exchange Assurance(1757)
1 Burr 341; Salvador v Hopkins (1765) 3 Burr 1707.
(1762) 3 Burr 1361.
In a subscription market, following underwriters subscribe, at least inter alia, on the
71 See the authorities collected ar 1 Eq Cas Abr 371; 2 Eq Cas Abr 635. strength of the expertise and size of line taken by the leading undelwriter. A leader acting as
"MartinvSitwell(1691) 1 ShowKB 156. a decoy duck fraudulently agrees with the assured that, in return for lending his name to the
73 Goddart v Garrett (1692) 2 Vern 269 (from the comment of Park, at 1.38 above, this is insurance, the leader will not accept any risk but will instead share in loss moneys paid by
unlikely to have been an appeal from the Court of Commissioners). . the following underwriters. The operation of the London subscription market and the role of
" DepabavLudlow(I721) 1 Comyns360. leading underwriters is discussed in Ch 2 below.
75 Marine Insurance Act 1745 (19 Geo II, c 37), discussed at 3.06-3.07 below. Wittingham v Thornborough (1690) Prec Ch 20. Reliance was placed also on De Costa v
76 21 Geo II c 4. 77 In 1776 he was created Earl of Mansfield. Scandret (1723) 2 P Wms 170, although it is unclear whether the non-disclosure in that case
78 See C Fifoot, LordMansfield(1936) 27-30. Fot an example of Lord Mansfield's ptepared- (of a report of the capture of a ship described in terms that matched the insured vessel) was
ness to draw on a wide range of SOurces in seeking the most appropriate legal principle, see Luke fraudulent in the modern common law sense of the term fraud.
v Lyde (1759) 2 Burr 882. 84 The forfeiture rule Is now codified in MIA 1906, s 84(1), (3)(a), see 6.06-6.07 below.
18 19
1.43 So comprehensive was Lord Mansfield's propounding of principle in the area of and consisted of representatives of shipowners, average adjusters, and insurers,
marine insurance rhat, by 1786, Sir James Park was able ro offer to rhe public a as well as Mackenzie Chalmers. After Lord Herschell's death in March 1899,
treatise entitled A System ofthe Law Relating to Marine Insurance, dedicated to Lord Halsbury reintroduced the Bill into the House of Lords but did not
Lord Mansfield with the statement: 'Any treatise upon the subject must be admitted proceed with it. After further comments had been obtained," the Bill was again
ro be rhe exclusive property of your Lordship.' The first edition of Joseph Arnould's reintroduced in 1900. A further representative committee of shipowners, aver-
authoritative text, Law ofMarine Insurance and Average, followed in 1848. age adjusters, and insurers, chaired by Lord Halsbury, then considered the Bill
clause by clause, after which it was finally passed by the House of Lords. It
was, however, repeatedly blocked in the House of Commons, apparently 'by
← Codification one obsrinate member',92 until 1906 when, with various amendments
← Throughout the nineteenth century, marine insurance remained predominantly introduced in committee, it was finally passed by the Commons. The House of
the subject of principles developed by the common law courts. Further legisla- Lords accepted the amendments, and the Bill received Royal Assent on 21
tive intervention remained piecemeal, concerned with facilitating assignment of December 1906. It entered into force on 1 January 1907.
marine policies" and formalities, largely in connection with the imposition of The Marine Insurance Act 1906, although wide-ranging, is confined to issues 1.47
stamp duty on marine policies." The second half of the nineteenth century saw a addressed by previous case law relating to marine insurance contracts. However,
movement for the codification of areas of commercial law, motivated by a belief section 91(2) also provides for the applicability to marine insurance contracts
that a clear statement of legal principle would benefit the commercial of the 'rules of the common law, including the law merchant, save in so far as
commnnity by reducing rhe need for litigation or confining the scope of litiga- they are inconsistent with the express provisions of the 1906 Act. The reference
tion to the application of legal principle to a particular set of facts without the to 'common law' in this context includes rules of equity. For example, the avail-
need first to elucidate the relevant principle. 'Itis cheaper to legislate than to ability of the equitable remedy of rectification in marine insurance law is not in
litigate.'87 Codification of an area of commercial law required, therefore, that doubt despite the fact that it receives no mention in the Act." Conversely, many
the case law had achieved a settled and comprehensive set of principles. 88 of the principles codified in the Act are not confined to contracts of marine
← insurance, but rather constitute principles of general insurance contract law
The first area of commercial law selected for codification was the law of negoti-
applicable to all forms of insurance contract, whether direct cover or reinsur-
able instruments, resulting in the Bills of Exchange Act 1882. Sale of goods was the
ance, marine or non-marine. In post-1906 non-marine insurance litigation, the
second, with the Sale of Goods Act following in 1893. Marine insurance was the
provisions of the 1906 Act are often accepted and analysed as accurate formula-
third, and (as it proved) final, area selected. All three statutes were the work of the
tions of the relevant law. Indeed, many of the leading post-1906 authorities on the
same draftsman, Mackenzie Chalmers. The Marine Insurance Bill, a distillation of
principles codified in the Act, and thereby the interpretation of the Act, do
over 2,000 cases, was first introduced into the Honse of Lords in 1894 by the Lord 94
Chancellor, Lord Herschell, whose chambers Chalmers had joined in 1875 and who not themselves concern marine insurance contracts.
had encouraged Chalmers in his work of codification. 89 The Bill, however, The 1906 Act repealed all prior legislation. 95 Three years later, the Marine 1.48
underwent a tortuous passage through Parliament. 9O Insurance (Gambling Policies) Act 1909 was passed to render criminal certain
contraventions of the requirements of the 1906 Act with respect to insurable interest.
Af1er its inirial introduction, it failed to gain the support of the House of Lords and
The two Acts may be cited together as the Marine Insurance Acts 1906
was referred by Lord Herschell for consideration by a committee. This was
chaired initially by the Attorney-General and later by Lord Herschell himself
91 From Lord Justice Mathew (who had been the first judge of the Commercial Court,
85Policies of Marine Insurance Act 1868. 86 See 3.65ffbelow. when it was established in 1895) and Sir Arthur Cohen KC.
87 M Chalmers, Digest of the Law of Marine Insurance (lst edn, 1901), Introduction, 92 M Chalmers, 'Codification of Mercantile Law' (1903) 19 LQR 10,140.
reproduced in E Ivamy, Chalmers 'Marine Insurance Act 1906 (10th edn, 1993) ix. For discussion of rectification, see 8.77ffbelow.
M Chalmers, 'Codification of Metcantile Law' (1903) 19 LQR 10, 11. eg the non~marine reinsurance case of Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co
Lord Herschel! had been instrumental in the passage through Parliament of both the Bills of Ltd [1995] 1 AC 501 is a leading authority on the interpretation ofMLA 1906, ss 18 and 20.
Exchange and Sale of Goods Bills. 95 In the case of the Marine Insurance Act 1788, only in so far as it related to marine insurance.
M Chalmers, Digestofthe Law ofMtlrine Insurance (lSt edn, 1901), Introduction. Despite its title, it applied also, and continues to apply, to non-marine policies on goods.
20 21
Introduction to the Law ofMarine Insurance The Nature ofMarine Imurance
96 insurance law strives to avoid the assured beil1g unjustly enriched rhtough any
and 1909. Subsequent legislative intervention has addressed the position of
third parties to liability policies" and government intervention in war risks recovery in excess of the measure of indemnity provided by law. '04
98
insurance.
The subject-matter of any contract of marine insurance is a marine adventure, 1.52
← The passing of rhe 1906 Act inevitably changed the nature of the legal enquiry three instances of which are detailed by section 3(2) of the Act. First, a marine
in any case where the relevant legal principles wete codified in the Act. The adventure exists whete: 'Any ship '05 goods'06 or other moveables ate exposed to
primary focus of any enquiry falls inevirably upon the statutory wording. 99 maritime perils."o, Such propetty is tetmed 'insurable property'. Secondly, there
However, where the statutory language gives rise to doubt as to the correct is a marine adventure where: 'The earning or acquisirion of any freight, passage
interpretation of a codifYing provision, the pre-existing common law affords money, commission, profit, or other pecuniary benefit, or the security for any
the best evidence of Parliament's intention.'oo There is, indeed, no sign of advances, loan, or disbursements, is endangered by the exposure of insurable
forbear-ance by reason of any preclusionary principle from recourse to pre-Act property to maritime perils. '108
case law whenever it is felt that such recourse mighr be useful.'o'
As observed by Lord Tenterden in Flint v Flemyng, the term 'freight' in insur- 1.53
ance law comprehends three separate financial interests: '09 'Itis the same thing
to the shipowner whether he receives that benefit of the use of his ship by a
← The Nature of Marine Insurance
money payment from one person who charters the whole ship, or from various
← A contract of marine insurance provides cover against losses incident to marine persons who put specific quantities ofgoods on board, or from persons who pay
adventure. In addition, the concept of marine insurance may be extended to certain him the value ofhis own goods at the port of delivery, increased by their carriage
other risks. in his own ship.'
Charrered freight is 'a fixed sum stipulated to be paid to the shipowner by the 1.54
← Insurance of Losses Incident to Marine Adventure terms of a charterparty for the use of his ship (or parr of it) on an entire voyage
According to section 1 of the Marine Insurance Act 1906: 'A contract of marine therein described'"° In its classic sense, fteight is the money paid by an owner
insurance is a contract whereby the insurer undertakes to indemnifY the of cargo for the carriage of his goods on a ship owned or hired by another.
assured, in a manner and to the extent agreed, against marine losses, that is to say, the However, freight also 'includes the profit derivable by a shipowner from the
losses incident to marine adventure.' Fundamental to the nature of a contract of employment of his ship to carry his own goods or moveables': '"
marine insurance is its characteristic as a contract of indemnity. As discussed Whether the ship~owner carry his own goods or the goods of another person is
elsewhere,'02 no claim can be made under a contract of insurance by a person with immaterial to him. In either case he has to pay the whole expense of the ship, of
no connection to the insured property recognized in law as an insurable interest. provisions, and ofwages; he may fairly expect to reimburse himselfout of the profit he
Insurance is not permitted to function as pure financial speculation on may derive from carrying goods being his own property, or that of others, and
the continued safety of the insured property. Moreover, the instirer's liability to
the assured is confined to indemnification of the loss sustained, '03 and marine
See the discussion in later chapters of abandonment (22.31 below), subrogation (Ch 25), and
double insurance (Ch 26).
By virtue of MIA 1906, Sch 1, r 15, subject to contrary intention, the term 'ship' has the
Marine Insurance (Gambling Policies) Act 1909, s 2. The 1909 Act is discussed at 3.16 following non-exhaustive definition: 'the hull, materials and outfit, stores and provisions for the
below. officers and crew, and, in the case of the vessels engaged in a special trade, the ordinary fittings
Third Parties (Rights against Insurers) Act 1930, discussed at 20.33 below. requisite for the trade, and also, in the case of a steamship, the machinery, boilers, and coals and
Marine and Aviation Insurance (War Risks) Act 1952, discussed at 1.31-1.33 above.
engine stores, if owned by the assured',
" Bank ofEngland v v"gliano Bros [l8911 AC 107, 145; Hall v Hayman [1912J 2 KB 5, 12. By virtue of MIA 1906, Sch 1, r 17, subject to contrary intention, the term 'goods' is defined as
British & Foreign Marine Insurance Co Ltd v Sanday 6oCo [1916J 1 AC 650, 672-3.
'00 'goods in the nature of merchandise, and does not include personal effects or provisions and stores
See, eg, the extensive discussion of pre~Act case law and secondary sources in Pan Atlantic for use on board'.
Insurance Co Ltd v Pine 70p Insurance ,Co Ltd[1995] 1 AC 501. '" MIA 1906, S 3(2)(a). '" ibid s 3(2)(b). '09 (1830) I B & Ad 45. 48.
See 3.02ffbelow.
Arnauld, Law o/Marine Insurance & AverageSir Michael Mustill and JGilman (eds) (16th
The practice of concluding valued policies, discussed at 7.24ff below, whereby the measure of edn, 1981) para 572.
indemnity is quantified by reference to a conclusive agreement on, the value of the subject-matter MIA 1906, s 90, Sch 1, r 16. It does not include passage money. See also Devaux v j'Anson
insured,incroduces a significant element of conventionaHndemnity. (1839) 5 Bing (NC) 519; Beckett v West ofEngland Insurance Co Ltd (I 872) 25 LfNS 739, 742.
22 23
Introduction to the Law ofMarine Insurance The Nature ofMarine Insurance
h y insure that profit under the name of freight, whether it accrue from the determine the measure of the insurer's liability on a bank's mortgagee's interest
e. ~apaid for the carriage of the goods of others, or from the additional value
pnc . . 112 policy, Mustill J had to decide whether the policy was one of marine insurance.
conferred on his own goods by thelf carnage. Observing that a literal reading of the closing words of section 3(2) would
1.55 The third instance of marine adventure contemplated by section 3(2) occurs where: be 'absurd', he held that only exposure of property to periJs consequent on
'Any liability to a third party may be incurred by the owner of, or other person or incidental to the navigation of the sea could lend an adventure a marine
interested in or responsible for, insurable property, by reason of h 118 Th 1" •
.. '1 '113 c aracter. e po ICy m question presented considerable difficulties of charac-
mantime pen s.
terization, but its 'general tenor and shape' were held to be more consistent with
Inte ral, therefore, to the concept of a marine adventure is the risk of maritime insurance against damage to the vessel rather than financial loss to the mort-
1.56
peri~. According to section 3(2): ":Maritime perils" means the perils .con- gagee through default of the insurer on the principal policy. Accordingly, the
sequent on, or incidental to, the navlgat~on of the sea, that IS to say, penIs of policy was held to be one of marine insurance.
the seas, fire, war perils, pirates, rovers, thIeves, captures, seIzures, restraints,
a~d detainments of princes and peoples, jettisons, barratty, and any other penIs, (2) Extension to Mixed Land and Sea Adventures
either of the like kind or which may be designated by the policy.' The final hrase of
this definition, part of which is now obsolete, '14 has occasioned ;ome difficulty Although a contract of marine insurance must insure a marine adventure, 1.58
since, read literally, it permits any peril to be designated as a matitime peril despite section 2(1) of the Marine Insurance Act 1906 permits its extension by express
a complete absence of any maritime connection. How-ever, although the concept of term or usage to cover 'losses on inland waters or on any land risk which may
maritime perils serves to define a manne adven- be incidental to any sea voyage'. Standard modern cargo insurance, for example,
ture the courts restrict the definition of the former by reference to the latter. offers cover from the time the goods leave their place of storage at the named
, O'ih L d,115' , place of commencement of transit. '19 Any casualty in the course of transit
In Re London County Commercial Reinsurance ~J,ce t remsurance peace bur prior to shipment on board a vessel for carriage by sea will still be treated as
olicies' drafted in marine insurance form provided for indemnification against
a marine loss and the measure of indemnity will be calculated according to
~otal losses 'in the event of peace not being declated between Great Britain and principJes of marine insurance law.
Germany on or before 31 March, 1918'. Since the trigger to indemnifica-tion was
obviously not a loss incident to a marine adventure, the failure to declare peace
The meaning of 'incidental' has arisen in the context of the order for ship's 1.59
e
could not be a maritime peril and the contract could not be 0g of marine papers, a form of, traditionally pre-defence, disclosure developed at common
insurance. law'20 and embracing all documents relating to a ship that had suffered a
Where a vessel is mortgaged, the mortgagee will normally take an assignment of the
benefit of the mortgagor's hull insurance. However, as a safeguard against
failure of the principal insurance, the mortgagee may also take out a separate
mortgagee's interest policy.'" In The Captain Panagos DP, '17 in order to ibid 631-2. See also Theodorou v Chester [1954J 1 Lloyd's Rep 204, 218.
See 17.llffbelow.
The order for ship's papers originated in the eighteenth cemury, at which time discovery orders
were available only in courts of equity. Since actions on a policy of marine insurance are brought
'" Flint v Flemyng(l830) 1 B & Ad 45. 48-9 per Bayley J. . ... at common law, to obtain discovery an insurer would have to accept the delay and expense
113 MIA 1906, s 3(2)(c). The High Court of Australia has held that ins~rance agamst lIabIlIty attendant upon the additional litigation involved in seeking an order in equity: Gold-schmidt v
incurred in connection with a business offering paragliding over the estuanne wate~s of the Swan Marryat (1809) 1 Camp 559; Leon v Casey [1932J 2 KB 576, 579. The rationale for
River in Perth is marine insurance: Gibbs v Mercantile Mutual Insurance (Austrafta) Ltd [2003] granting discl?sur.e at the p~e-~efence stage appears to lie in the extreme difficulty historically
HCA 39, (2003) ALR 497. ,,' .,. faced by .manne lllsur~rs wIshmg to defend a claim arising from a casualty that might have
114 Modern marine policies do not refer to rovers or to restramts and detamments of pnnces occurred m a geographIcally remote location, involved property under the control of the assured,
and peoples'. a?d generated a severe !nformation imbalance between assured and insurer with respect to the
," [1922J 2 Ch 67. .. CIrcumstances surroundlllg the casualty. In consequence, before committing itself to a potentially
Assignment is discussed at 20.12ff below. The insurance may fad b~cause the msurer
116 spurious defence, the insurer was held entitled to the fullest possible disclosure from the assured in
becomes insolvent, or the insurer has an equity or right ofset~offopposable agamst the mortgagee: order to evaluate the claim: Rdynor v Ritson (1865) 6 B & S 888; China Iranspacific Steamship Co v
see 20.21-20.26. ... . Commercial Union Assurance Co (1881) 8 QBD 142; Boulton v Houlder Bros 6'CO [1904J 1 KB
Continental Illinois National Bank 6'Trust Co ofChicago v Batkurst (The Captam
117 784, 792; Harding v Bussell [1905J 2 KB 83; Sir William Garthwaite (fnsurance) Ltd v Port of
Panagos Manchester Insurance Co Ltd (1930) 37 LlLRep 194; Probatina Shipping Co Ltd v Sun Insurance
DP) [1985J 1 Lloyd's Rep 625. Office Ltd [1974J QB 635. The order may today be granted at any stage of the proceedings: CPR.
r 58.14(2).
24 25
Introduction to the Law ofMarine Insurance The Nature ofMarine Insurance
12 Since the order for ship's papers is unique ro marine insurance,126 applications 1.60
casualty of any possible relevance to the resulting claim. ' Once granted to
for the order have on occasion been resisted on the basis that the contract in question
marine insurers as a matter of course,'" since 1936 its availability has been a
is not one of marine insurance. The decisive question is whether the subject-matter
matter of judicial discretion.'" Theoretically available in any action, in practice
the order is largely bur not exclusively confined to cases where the underwriter insured is substantially a marine adventure. Insurance of cargo, warehouse to
wishes to raise a wilful misconduct defence.'24 The court'S discre-tion extends warehouse, by land from Cairo to Alexandria and thence by sea
to an accompanying stay of ptoceedings pending compliance with the order.'25 to Jaffa was held to be a marine policy.'" In contrast, an order for ship's papers
was refused in respect of a policy substantially on land carriage although includ-
. . k'28 d I' h . f d C
mg a sea flS an a po ICy on t e carnage 0 goo s Irom the ocean pOtt
. _ ------- _.. __ ...._ ---
'" Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2001) UKHL 1,
of importation inland by rail, river steamer, and mule into the interior of
Columbia.
12
'
[2003}1 AC 469, para. The order is potentially extremely wide rangmg. It m,ayextend,beyond
documents relating to the subject-matter insured to documents concerned with other m,tcrests in Section 2(2) of the Marine Insurance Act 1906 also contemplates a marine 1.61
the adventure, such as the cargo, and material to show perhaps that the voyage was Illegal: policy being used to insure 'a ship in course of building, or the launch of a ship,
China Transpacific Steamship Co v Commercial Union Assurance Co (1881) 8 QBD 142. It ~as
or any adventure analogous to a marine adventure'. In such a case, the contract
been held, however, that the order may not be used to obtain disclosure of documents revealmg
the general financial position of an assured shipowner, ,even whe.re th~ insurer wis~es to defend a is governed by the provisions of the 1906 Act 'in so far as applicable'. A ship-
claim for loss of a vessel by perils of the sea by allegmg scuttlmg WIth the ~o~mvance of t~e builder's risk policy covering a hull together with its machinely and fittings
owner and desires disclosure of the documents for the purpose of establishmg a finanaal motive: under construction qualifies, therefore, as a marine policy. EO
GatTa v Eagle Star Insurance Co (1923) 16 ~ILRep 33~. It is good pra~dce for t~e
parties to agree, if possible, a form of order appropnate to the Issues and reflectmg any dl~~
closure already made: Probatina Shipping Co Ltd v Sun Insurance Office Ltd (1973] 2 Lloyd s
Rep 520, 528.
12.2 Sir William Garthwaite (Insurance) Ltd v Port ofManchester Insurance Co Ltd (1930) 37
LlLRep 194. Contrast China Traders'Insurance Co Ltd v Royal Exchange Assurance C"orp [1898] 2
QB 187, 193 (order available when 'wise and right'). .
1.23 The order provided potential for abuse as a device for delayi~g payment. In 1932: It wa~
forcefully criticized by Greer L] as an 'unfair and unjust weapon m the hands of the mS~l'er
and an 'instrument of oppression': Leon v Casey [1932J 2 KB 576, 588, 589. See also Keevtl & Keevil Ltd v
e
Boag [1940] 3 All ER 346. In 1936, rules of cou~t.restricted the availability of t3
order to cases of necessity or expedience and rendered the deClSlOn whether to grant an ord~r a
matter of judicial discretion. Today, the order is governed by CPR, r 58.14. Upon an applica-tion
for specific disclosure under CPR, r 31.12, the court may or~er a pa~ty to produce aU 1.26 Wi-stofEngland & South \,%!es District Bank v Canton Insurance Co (1877) 2 fuD 472, 474;
ship's papers and require that party to use best endeavours to obtam and dlsclose documents that China 7raders'Insurance Co Ltd v Royal Exchange Assurance Corp [1898] 2 QB 187, 190; 'Em-
are not or have not been in that party's possession. In the latter case, merely a formal request of nenbaum & Co v Heath (1908) 13 Com Cas 264; Manifest Shipping Co Ltd v Uni-Polaris Insurance
and refusal by a third party in possession of a relevant docuqtent will not suffice: Co Ltd (The Star Sea) [2001} UKHL 1, [2003) 1 AC 469, para 58; CPR, r 58.14. On rhe ground
Graham Joint Stock Shipping Co Ltd v Motor Union Insurance Co Ltd [192211 KB 563. In that the availability of the primary insurer's defences should be matched by equal discovely rights,
London & Provincial Marine & General Insurance Co Ltd v Chambers (l900) 5 Com Cas 241, the order is available also to a reinsurer of a marine risk (China 7raders' Insurance v Roya!
244-5, in response to a reinsurer's order for ship's pape~s, the da~mant underwriter wro~e to h~s Exchange Assurance) and to a marine rerrocessionaire: Sir William Garthwaite (Insurance) Ltd v
fellow underwriters informing them of the order, statmg that It covered documents m thelr Port of Manchester Insurance Co Ltd (1930) 37 LlLRep 194, Moreover, an insurer may seek an
possession, and continuing:. 'If there is no objection to such documents being produced we s.hall order for ship's papers where claiming resritution of money paid in setdement of a claim on the ground of
be much obliged by your letting us have them for the purpose.' When the feHow underwrlt~rs misrepresentation by the assured as to the extent of the loss. The action in substance is a claim on the
declined to give disclosure, it was held that the claimant's acts were insufficient to comply wlth the policy and the underwriter should not be prejudiced by having failed to defend the original claim in the
ship's papers order. Being a form of disclosure, the ship's papers jurisdiction, does not, however, light of being misled by the assured: Boulton v Houlder Bros & CO [1904J I KB 784 (fraudulent
override the rules of privilege: Adam Steamship Co Ltd v London Assurance Corp (1914) misrepresentation of the cost of repairs of the insured ship).
20 Com Cas 37. m Leon v Casry [1932} 2 KB 576; (1932) 48 TLR 452. See also Harding v Bussell [19051 2
Probatina Shipping Co Ltd v Sun Insurance Office Ltd [19741 QB 635, 649. KB 83; 10 Com Cas 184; Schloss Bros v Stevens (1905) 10 Com Cas 224. It is clear from these
CPR, r 58.14(2). A stay of proceedings clearly permits the insurer to benefit fully authorities mat, to the extent of any departure from the test of substantial marine character, reliance
from discovery of ship's papers ..pefore entering a defence, and to fulfil the requirement should not be placed upon Henderson v Underwriting & Agency Association Ltd [1891 J 1 QB
of giving particulars of any alleged scuttling (see 15.25-15.26 below). However, the 557, followed in Village Main ReefGoidMining Co v Stearns (1900) 5 Com Cas 246.
co~se 1.28 Tannenbaum & Co v Heath (1908) 13 Com Cas 264.
quent delay may outweigh the marine insurer's convenience, which is no r.n0re deservmg Schloss Bros v Stevens (1905) 10 Com Cas 224.
of protection than that of the non-marine insurer for whom pre~defen~~·dlscovery would James Yachts Ltd v Thames & Mersey Marine Insurance Co Ltd [1977] 1 Lloyd's Rep 206
be unusual although not impossible: Probatina Shipping Co Ltd v Sun f.nsurance Office Ltd [1974] (Supreme Court of British Columbia).
QB 635.
27
26
2
FORMATION OF MARINE
INSURANCE CONTRACTS
A. Contract Formation in a (3) Legal nature of a leader's power 2,57

Subscription Market 2.04 (4) Termination of a leader's power 2.61
B. Contract Formation Outside the E. Delegated Authorities 2.62
London Market 2.25 (1) Binding authorities 2.63
(2) Line slips 2.66
C. Obligatory and Facultative
Agreements 2.28 R Joint and Composite Policies 2.69
(1) Floating policies 2.29 (1) Definition of joint and composite
(2) Facultative/obligatory covers 2.38 insurance 2.70
(3) Facultative covers 2.43 (2) Legal structure of composite policies 2.77
D. Leading Underwriter Agreements 2.44 (3) Contractual status under composite
(1) Identifying the leader 2.45 policics 2.79
(2) Exrem of a leader's power to bind (4) Is classification as joint or composite
the following market 2.47 insurance a matter oflaw or contract? 2.92
In general, the formation of a contract of marine insurance is governed by 2.01 the

ordinary principles of contract law. Their application must be considered, however, in
the context of certain practices of the insurance markets. For these purposes, a
distinction needs to be drawn between the 'London market' and the 'United Kingdom
market'.
The London market operates generally on a subscriprion basis, with insurers 2.02 each
accepting a percentage of rhe risk, and is characterized by the processing
of documentation and money through centralized facilities. Participants in the
London market are the Lloyd's syndicates and those insurance companies
outside Lloyd's that choose to write business in rhat way to the extent that they
so choose. The practices of the London market are undergoing extensive reform
with the introduction of new recommended documentation, market agree-
ments, and market processes under the auspices of a reform programme known
29
Formation ofMarine Insurance Contracts Contract Formation in a Subscription Market
as LMP (standing for London Marker Principles),' designed to enhance con-tractual identified standard wordings or attached non-standard clauses. The second sec-tion
cerrainty and market efficiency and, hence, the appeal of the London market to is headed 'Subscription Agreement'. This addresses principally how Con-
potential assureds. Insurance companies ontside Lloyd's may partici-pate both in tract amendments and claims will be handled in the context of the subscription
7
the London market and also in the genetal United Kingdom insurance market with
market. The third section, headed 'Infotmation', details information provided to
documentation and money being processed in respect of each risk through the
underwriters in support of the placement of the risk. 8 The final section addresses
relevant broker at even directly with the assured and with risks often being
fiscal and regulatory matters. Standatd headings are prescribed within each section.
underwritten in rheit entirety by one insurer. Subscription risks may be spread For risk details, these are minimum headings the order of which is not currently
across the London market and insurance markets in other regulated, but for the othet three sections the headings 'must not be changed,
countries. deleted, teordered or added to in any way'.'
← In practice, hull insurance is underwritten by the London market while catgo may An underwriter who wishes to parricipate in the insurance will initial (or 2.07 'sctatch') the
be insured in either the London or the United Kingdom market. slip, stating, almost invatiably in the form of a percentage, the propottion of the risk that
the underwriter is prepared to accept." This is termed the underwriter's 'line'. In American
Airlines v Hope," Lord Diplock
← Contract Formation in a Subscription Market descnbed the process at Lloyd's whereby brokers seek to obtain underwriters'
subscriptions to the risk:
← The practice of a number of underwtiters subscribing to the same risk is centur-ies
old and offers a number of benefits. First, it permits the placing of risks toO large [The broker} takes the slip in the first instance to an underwriter whom he has
for one insurer to accept. Secondly, it enables underwriters participating in the selected to deal with as leading underwriter, ie, one who has a reputation in the
market as an exper.t in the ~nd of cover required and whose lead is likely to be
subscription market to share desirable business with other underwriters and benefit
followed by other Insurers 1ll the market. If it is the first contract of insurance
from teciprocity. By contrast, an underwriter who did not supporr the subscription co,:,eri~g.that risk in whi~h. a p.articular underwriter has acted as leading under-
market would run the risk of being severely limited in the business that underwtiter wnter It IS treated as an ongmal lllsurance. The broker and the leading underwriter
was able prudently to do. Thirdly, the subsctiption matket offers a valuable form of go through the slip rogether. They agree on any amendments ro the broker's draft
peer review of underwriting judgment. :~d. fix the pr.emium..When agreement has been reached the leading underwriter
1ll1tials the slIp for hIS proportion of the cover and the broker then takes the initialled
← The broker, an intermediary who acts as the agent of the assured,' prepares a slip round the market to other insurers who initial it for such proportion of the cover
as each is willing to accept. For practical purposes all the negotiations about the terms
memorandum of agreement, called a 'slip', in the shorrhand of the market and then
of the insurance and the rate of premium are carried on between the broker and the
approaches underwtiters seeking subscriptions to the cover.' A centtal plank of the 12
leading underwriter alone.
LMP reforms was the inttoduction of a standard form of slip,
known as the LMP slip, designed to promote clarity in the tenns of the contract. This shaping of the risk and subscription thereto by one Ot more 'leading' 2.08
4 underwriters (or 'slip leaders') renders the tisk marketable to othet 'following'
The LMP slip was released to the market in 2002 and rapidly gained wide-spread
5
acceptance. An enhanced variant, known as the LMP BRAT slip,' was
subsequently agreed and, with some limited exceptions, made compulsory within
Lloyd's as of2 January 2004. 7 For contract amendments, see discussion ofleading underwriter agreements at 2.48ffbe1ow.
For claims, see 22.02-22.03 below.
S This may assist in disputes concerning the pre-formation doctrine of utmost good faith
discussed in Ch 4 below. '
LMP or LMP BRAT slip is divided into four sections. The first section As stated on the iMP BRAT Slip.
contains the details of the risk, including contract terms either in the form of The slip may be scratched on a conditional ('subject to') basis: Bonner v Cox Dedicated
Corporate Member Ltd [2004j EWHC 2963 (Comm), [20051 Lloyd's Rep IR 569, para 25.
" [1974j 2 Lloyd's Rep 301, 304. See also Praet (julian) et Cit SA v HG Poland [1960j
Lloyd's Rep 416, 428.
12 Where the risk is placed either with insurance companies outSide Lloyd's or with a combin-
It was originally known as iMP 2001.
~tion of Lloyd's ~nderwriters and outside companies, the process is essentially the same, although
The broker's agency is discussed at 5.03 below.
III the latter case lt may be necessary to negotiate the detail of the risk with both a Lloyd's
See generally H Bennett, 'The Role of the Slip in Marine Insurance Law' (1994J LMCLQ94.
leading underwriter and a leader from the companies.
4 The first iMP slip was regiStered on 25 Februaly2002. " .
s Although there is some dispute as to the proportion of slips that. a~e truly LMP
compliant. 6 BRAT stands for Broker Reform Action Team.
30 31
underwriters whose confidence in the expertise of the leader will induce them to at the time when the Contract is concluded, or afterwards'. According to the
accept a proportion of the risk. 13 Once the broker has obtained the desired level of Act, therefore, formation of a marine insurance contract does not require
subscriptions, the slip is closed. A formal policy is frequently not prepared until embodiment of the contract in a policy but occurs upon the acceptance by the
some months later. Market practice, however, has always understood that the underwriter of the assured's offer. Where the underwriter initials the slip with-
initialling of a slip by an underwriter creates a binding contract. In Ionides v Pacific out amendment, the slip both conveys the terms of the assured's offer and
Fire & Marine Insurance CO,'4 the underwriter sought ro resist a claim on the basis evidences the underwriter's acceptance. Where the underwriter requires a
of a failure to disclose a material fact after initialling of the slip and before change of terms, this response will constitute a counter-offer that may lead to
execution of a policy. However, the non-disclosure would furnish a defence only if further negotiation, but the underwriter's ultimate initialling of the slip
it preceded a binding decision to insure on decided terms and, according to concludes a contract of insurance for the percentage indicated.
Blackburn]: 'The slip is, in practice, and according ro the under-standing of those
engaged in marine insurance, the complete and final contract between the parties, A number of issues remained unresolved by the 1906 Act. Is the risk placed 2.12
fixing the terms of the insurance and the premium, and neither party can, without through subscriptions ro a slip ultimately covered by one conrract of insurance
the assent of the other, deviate from the tetms thus agreed on without a breach of or does each subscription give rise ro a separate contracr? A relared question is
faith, for which he would suffer severely in his the status of subscriptions to the slip while rhe broker continues ro offer the risk
credit and future business.'15 to the market and whether rhe assured and underwriters remain free to resile
from the agreement until closure of the slip.
By virtue of the then stamp duty legislation an unstamped slip could not give rise to a
legally valid and enforceable contract of marine insurance,16 but it was General Reinsurance Corp v Forsakringsaktiebolaget Fennia Patria 18 concerned 2.13
nevertheless held to be admissible as evidence of the parties' intentions regard- layered reinsurance. Fennia, the insurer, reinsured the primary cover for
ing the relevance of the policy. In the light of market understanding that the 12 million Finnish marks excess of three million anyone occurrence. Further
slip constituted a contract, albeit not one enforceable in the courts, it followed reinsurance was then placed in respect ofspecific risks for 15 million in excess of
that the policy merely recorded an earlier Contract and that the alleged non- 15 million, thus producing two complementary layers of reinsurance cover.
disclosure occurred after the formation of that contract. Fennia subsequently increased the first layer to 20 million in excess of five
million, producing an overlap with the second layer from 15 to 25 million. On
The distinction between the existence of the marine insurance contract and its 11 and 12 February, a casualry occurred, resulting in a loss of approximately
enforceability was perfected by the Marine Insurance Act 1906. Section 21 27 million Finnish marks, which Fennia paid in full. On 14 February, in order
provides as follows: 'A contract of marine insutance is deemed to be concluded to restore complementary layers of reinsurance, Fennia's brokers prepared an
when the proposal of the assured is accepted by the insurer, whether the policy amendment slip altering the second layer to 15 million excess 25 million which
be then issued or not: and for the purpose of showing when the proposal was the claimants (one of twenry-eight reinsurers participating in the second layer)
accepted, reference may be made ro the slip or covering note or other initialled that same day. The issue was whether that amendment was binding,
cusromary memorandum of the contract, although it be unstamped.'17 the relevance being whether the claimants were liable for a share of 2 or
12 million marks of the loss.
Moreover, although the contract remains unenforceable unless embodied in a policy,
section 22 provides that the policy 'may be executed and issued either In Jaglom v Excess Insurance Co Ltd,19 Donaldson] expressed the view, obiter, 2.14
that an underwritet's subscription constitutes an offer on the terms of the slip as
initialled, but that remains susceptible to modification to accord with any vari-
13 British & Foreign Marine Insurance Co Ltd v Sturge (1897) 2 Com Cas 244, 247; General
ation of terms introduced by underwriters taking subsequent lines. However,
Accident Fire & Life Assurance Corp v ranter (The Zephyr) [1984]1 Lloyd's Rep 58, 66. In practice,
indeed, a broker that has obtained the subscription ofa respected London market leader will often place
contrary expressions of judicial opinion" and heavy academic criticism, based
much of the remainder of the risk in international markets that will follow the London lead largely on the market understanding that initialling of the slip produces an
but offer cover at discounted rates,
14(l87l) LR 6 QB 674, .ffd (1872) LR 7 QB 517.
lS(1871) LR 6 QB 674, 684-5. See also Morrison v Universal Marine Imurance Co (1873) " [19821 QB 1022, rvsd [1983] QB 856. 19 [19721 2 QB 250
, 257-8.
w ~
LR8 Ex 197, 199. T"ompson v Adams (1889) 23 QBD 361; Grover & Grover Ltd v Mathews (1910) 15 Com
Customs and Inland Revenue Act 1867, 30 Viet, c 23. Cas 249 (both non~marine cases); Eagle Star Insurance Co Ltd v Spratt [1971J 2 Lloyd's
Marine insurance contracts are no longer subject to stamp duty. Rep 116, 127.
32
33
immediately binding contract, led Staughton J at fitst instance in Fennia Patria Fennia Patritl9 Staughron J expressed no doubt that underwriters generally
to reject the view articulated by Donaldson J in favour of holding that the act of would agree ro cancellation, particularly if the assured had a good reason so to
initialling a slip constitutes an immediate acceptance of the assured's offet." request, although they might require time on risk premium if risk had attached.
Nevertheless, on the basis of a cusromary right of the assured to cancel rhe Fourthly, the insurer will be bound by the terms of the slip as it stands when
contract until closure of the slip, Staughron J held that Fennia could hold the initialled by that insurer and is neither bound by nor entitled to the benefit of
plaintiffs ro the unamended reinsurance contract, but was overruled by the any s~bsequent variation in its terms introduced at the instigation of a later
Court of Appeal on the ground of insufficient evidence ro establish the alleged subscnber. In the event of such variations, the slip will embody contracts on
cusrom." Alrhough there was no appeal against the conclusion of Staughton J different terms. Although such a prospect has been judicially denigrated as
with tespect ro the status of the underwriter's initialling of the slip, Kerr LJ 'daft', productive of 'considerable administrative difficulty',3D and 'absurd',31
expressly affirmed that 'the presentation of the slip by the broker constitutes the differences in terms do arise. For example, in American International Marine
offer, and the writing of each line constitutes an acceptance of thiS offer by the Agency ofNew York Inc v Dandridge,32 the terms of subscription among the
underwriter pro tanto',23 each subscription thus giving rise to a separate, distinct following market differed with respect to the scope of the leading underwriter
contract between the assured and the initialling underwriter.24 clause.
The custom in the London market is not necessarily to close the slip on obtain- 2.16
This analysis of the slip method of contract formation has several consequences.25
mg 100 per cent subscription. The broker is entitled to continue collecting
First, where the resulting contracts contain options open ei~her to the
underwriters or the assured, there is, unless the contracts upon theIr true subscriptions with the end result that the cover reflected by the slip exceeds that
construction provide ro the contrary, no obligation on the underwriters ro act in which the broker has been authorized to obtain. By virtue of market cusrom,
harmony in either exercising or declining the option, and, correspondingly, the however, on the closure of the slip, each subscription is automatically subject to
assured is free to exercise any option selectively against the underwriters partici- a pro rata reduction so that the aggregate of all the subscriptions rotals exactly
pating in the overall cover." Secondly, in the event of ~ claim, the unde":,,riters 100 per cent. This process is called 'signing down'. The proportion of risk for
are entitled ro diversiry of response. They may pay m full, compromise, or which the insurer is liable and the proportion of premium to which the insurer
contest in whole or in part independently of one another." Thirdly, neither party is entitled is the signed down percentage. Consequently, an underwriter who
can unilaterally cancel the cover once the slip has been initialled, even if the wishes to secure a certain percentage of the risk and the premium needs to know
broker fails ro obtain full subscription." A fOrtiori, the assured has no rig!:t at what point the broker will close the slip in order ro allow for signing down of
unilaterally ro resile from the contract once full subscription has been obtained, the percentage for which he actually initials the slip. A slip leader will, therefore,
regardless of whether the underwriters have come on risk. Neverth$,less, in invariably ask the broker for a 'signing indication', a statement of the percentage
ro which rhe subscribed lines are expected ro be signed down. 33 A following
underwriter may do the same or may determine the size of line merely by
reference to the lines subscribed by leading underwriters. 34
" [1982] QB 1022, 1038.
22 The expert testimony yielded only one instance of cancellation of a subscription and that In principle, a signing indication is merely a statement of opinion by the broker 2.17
was at the request of the broker who had failed to obtain 100% subscription, not of the extent ro which the risk may attract subscriptions. It will generate
demanded as of a collateral contract between broker and underwriter, whereby the broker
right: [1983] QB 856, 875.
23 At 866 (Slade and Oliver L]] concurring).
" MIA 1906, s 24(2); Genera/Accident Fire & Lift Assurance Corp 0 Tanter (The Zephyr) [1984]
1 Lloyd's Rep 58, 66, [1985] 2 Lloyd's Rep 529, 531; Aneto Reinsurance Underwriting Ltd v
Johnson [1998] 1 Lloyd's Rep 565, 590 .. .. " [1982J QB 1022, 1039. 30 ibid.
In addition to those considered m the followlOg text, see also the Issue of lOducemem by " Jag/om v Excess Insurance Co Lcd [1972] 2 QB 250, 257.
pre~formation, non~disdosure, or misrepresentation: 4.61ffbelow. ← [2005] EWHC 829 (Comm), [20051 Lloyd's Rep IR 643 paras 12,44.
Touche Ross & Co v Saker [1991] 2 Lloyd's Rep 230, affd [1992] 2 Lloyd's Rep 207 where ← -A broker who believes the risk will sign down to give subscribing insurers 80% of
the argument focused upon whet~~r the wording of the policies prohibited selectivity. the line for which they initial will normally say the risk is 'signing eighty'.
← General Reinsurance Corp v Forsakringsaktiebolaget Fennia Patria {l983] QB 856, 864. ← However, a foll0W:in~ u~derv:riter who does nOt ask for a signing indication cannot
← The analysis adopted by Donaldson Jin]aglom v Excess Insurance Co Ltd[1972] 2 QB 250, subsequently rely on the mdlcatlon given to the leader: GeneralAccident Fire & Life
at 2.14 above, was designed to avoid two 'absurd consequences'. A binding contract in the Assurance Corp v Tanter (The Zephyr) [1985J 2 Lloyd's Rep 529, discussed at 5.08 below.
absence of 100% subscription was one, while the other was the prospect of the slip
enibodying a series of contracts on different terms, as to which see below.
34 35
undertakes to use best endeavours to obtain the indicated level of subscriptions. slip of 'signing no more than' a specified amount." Conversely, an underwriter
It may also import implied statements that the broker has reasonable grounds to concerned ~o guarant~e a minimum level of participation in what is perceived
support the opinion exptessed and that the broker does in truth hold the opin-ion to be a good nsk may stipulate that he is to receive 'NLT' (not less than) a certain
represented, giving rise iffalse to tortious liability in negligence as to the first percentage. Thus, the line '10% signs NLT 50%' means that the underwtiter is
tepresentation and deceit as to the second. It does not, however, qualify the size securing at least five per cent of the risk.
ofline assumed and the contract concluded between underwriter and assured." The practice of procuring by brokers of oversubscription of slips has been stated 2.20
Suppose, therefore, that an underwriter signs for 40 per cent in response to an to have the following advantages.40 It enables brokets to show their business to
indication that the slip will sign down to 50 per cent. Pending signing down, the more underwriters, .al:ho~gh the extent of this benefit is reduced by the writing
subscription constitutes a legally binding commitment to the full extent of the line of larger hnes m antICIpatiOn of signing down. These larger lines, however, make
taken. Consequently, should the broker fail to achieve subscriptions total-ling at the risk appear more attractive to following underwriters and, in addition,
least 100 per cent, the underwriter will be liable fot the full petcentage for which enable the broker to reach 100 per cent subscription, and therefore full cover for
the slip is initialled. Where the broket obtains more than 100 but less than 200 per the assured, more quickly. Moreover, should the assured subsequently wish to
cent, the underwriter's line will be signed down, bur not to the extent anticipated. In mcrease the value msured, the initial commitment of underwriters to a larger
either case, the insurer may seek redtess against the broker." Under no percentage than ultimately obtained provides an indication ofwhere some spare
circumstances, however, can the amount of the final line exceed the percentage for capacity may be found.
which the underwritet initials the slip. Signing up does not exist.
Certain risks are of such a magnitude or nature that underwriters will subscribe 2.21
41
only if simultaneously offered reinsurance. In such a case, the broker will
← Clearly, a broker may not achieve precisely the level of subscription to produce
first prepare a slip fot. the reinsurance cover and approach reinsurers seeking
exactly the indicated amount of signing down. A market custom allows a toler-
subscnptlOns. A remsurer who initials such a slip thereby makes an offer of
ance of 10 per cent on the level of signing down. For example, if an underwriter
reinsurance on the terms stated therein to such insurers as subscribe to the
subscribes for 20 per cent on a signing indication of 80 per cent, the under-
direct cover, even though they may at that stage be unidentifiable. 42 The legal con-
writer is accepting a final line of anything between 14.4 per cent and 17.6 per
sequences of such an offer have yet to be authoritatively considered. 43 Since the
cent.37 Should the signed down percentages fall outside such tolerance, in law
the undetwriters are bound. However, in practice there will be further negoti, ations reinsurance is being arranged in advance, the broker has no insurer as its
between rhe broker and rhe slip leader and potentially relevant followi~g princi-pal when dealing with the reinsurer. Consequently, any contract concluded
on the reinsurer's initialling of the slip cannot be a contract of reinsurance; at most
underwriters. While rhe matter has not been tested in the courts, there would
rhere may be a contract between the reinsurer and the broker, or the assured through
appear to be no reason why the btoker should not be tegarded as having the the agency of the broker, for the future provision of reinsurance to a third party on
assured's implied actual authority to vaty the amount of risk accepted by the
the terms of the slip.44 A separate contract of reinsurance 4s will
various underwriters on their concluded contracts, provided ihat the assured's
overall cover is not prejudiced.
← Occasionally, the extent of signing down will be affected by a statement on the 39 ie the line to be no more than the specified amount after signing down.
slip. If the signing indication is noted on the slip, it takes effect as a contractual 40General Accident Fire & Life Assurance Corp v 7tmter (The Zephyr) [1984] 1 Lloyd's
term, so that signing down to thar extent is then ensured. 38 An underwriter Rep 58, 68.
concerned to limit the maximum size of the line might insert a limitation on the " See, eg, Youell v Bland Welch & Co Ltd (The Superhulls Cover case) (No 2) [19901 2 Lloyd's
Rep 431.
42 GeneralAccident Fire, & Life Assurance Corp v 7tmter (The Zephyr) (1984] 1 Lloyd's Rep 58,
71-2; Bonner v Cox DedIcated Corporate Member Ltd [2004J EWHC 2963 (Comm) [2005]
35Subject to the possibility of annotation on the slip, discussed at 2.19 below. Lloyd's Rep IR 569, para 96. '
36The liability of the broker for misleading signing indications is discussed at 5.07-5.08 For some d"lSCUSSlOn, see Bonner v Cox Dedicated Corporate Member Ltd [2004] EWHC
below. 2963 (Comm), [2005] Lloyd's Rep IR 569, para 41.
37 80% ofa line 0£20% of the risk gives a signed down line of 16%. A margin of plus or
ibid para 74.
minus 10% of 16 yields a range of 14.4% to 17.6%. ,45Th'l!ecmeay, a s~rles'f'o.rems~rancecontracts between the insurer and each subscribing
remsurer: GeneralAcCldent Fzre & Life Assurance Corp v ranter (The Zephyr) [1984] 1 Lloyd's Re
38 General Accident Fire 6- Life Assurance Corp v Ttmter (The ZephyrY'(1984J 58,71~ , P
1 Lloyd's
Rep 58, 81. '
37
36
Formation ofMarine lmurance Contracts Contract Formation Outside the London Market
then be concluded each time the broker conveys the reinsurer's offer of cover ro an underwriters and the lines they have subscribed, as well as a London premium
46 advice note. 50 The function of Ins-sure is to check the contract, sign and issue the
eligible insurer and the insurer acceprs rhat offer. On thar basis, a revoca-tion of
its offer by the reinsurer ar any time will be effective to prevent the formation of policy on behalf of the insurers, and process premiums and loss moneys. Ins-sure
any further contract of reinsurance, albeit that the revocation may constitute a also issues a signing advice for each individual underwriter, which is the document
47 that informs each underwriter of precisely what proportion of the risk and,
breach of contract as against the broker.
therefore, premium that underwriter has secured after any signing down.
Once placement of the risk is complete, the broker will prepare a signing slip. This
document contains the agreed terms, a list of rhe subscribing insurers, and their
signed-down percentages. The form taken by the signing slip will depend on the The advent of electronic communication has not (as yet) altered the essential 2.24
working practice of the broking house concerned. A new document may be operation of the London subscription market. Instead, technology is increas-
produced with the agreed terms, identities of the subscribing underwriters, and ingly employed in a supportive way. Information regarding a risk may be
signed-down percentages. This will be submitted ro the slip leader ro check that it fOlwarded electronically to an underwriter so that the latter can consider the risk in
accords with the original slip. Alternatively, the signing slip may consist simply of advance of meeting personally with the broker. Alternatively, an electronic system
a phorocopy of the placing slip with the signed-down percentages entered against may be established covering less complex risks, which permits the broker ro enter
the lines of the subscribing underwriters. Since there is no possibility of a relevant information and receive an electronically generated quotation slip. The
transcription error, there is no need for checking by the slip leader. quotation will be supported by a number of underwriters subscribing ro a line slip.
51 Depending on its correct interpretation, the quotation could in law be regarded as
either an invitation to treat or an offer. The likely interpret-ation is as an invitation

The broker will also draw up the poliey, the document that sets our the full contractual
to treat, so that a broker that received instructions from the client to take up the
wording that the Marine Insurance Act 1906 traditionally regards as the key ro
quotation would need ro take the slip ro the line slip leader for acceptance ih the
enforceability of the contract in a court." Should it be desired ro alter cover at this
cusromary way.
late stage, the new wording would have ro be circulated for approval by
subscribing underwriters or by the duly authorized slip leader. Otherwise, the
poliey will be submitred directly to the centralized London market policy sign-ing
B. Contract Formation Outside the London Market
office (known as 'Ins-sure'),49 rogether with details of the subscribing
Outside the London market, as characterized by the subscription system and the 2.25
centralized processing of documents and money, the legal rules governing con-
46 At 71. See also Citadel Insurance Co v Atlantic Union Insurance Co SA (1982] 2 Lloyd's Rep 543, tract formation are those of general contract law. A slip is ofren used, with the
546; Bonner v Cox Dedicated Corporate Member Ltd [2004J EWHC 2963 (Comm), [2005J contract being concluded on initialling of the slip by the underwriter, accepting in
Lloyd's Rep IR 569, paras 53, 74. If the reinsurer should, nevertheless, b~ held to undenake a
commitment binding in the eyes of the market to accept the risk at an agreed level of premium, the this case all of the risk. 52 Alternatively, brokers may approach more than one
doctrine of utmost good faith should be exhausted upon the reinsurer's initialling of the slip insurer in order to obtain competing quotations. Provided the terms of a quota-tion
regardless of whether a legally binding contract is then concluded: Ionides v Pacific Fire &
constitute an expression of willingness ro contract on terms sufficiently complete
Marine Insurance Co (1871) LR6 QB 674, affd (1872) LR 7 QB 517; Cory v Patton (1872) LR
7 QB 304; Cory v Patton (No 2) (1874) LR 9 QB 577. It appears, however, that the market may not and certain to amount to a contract if accepted, the quotation will
view the reinsurer's offer as irrevocable. In which case, the doctrine of utmost good faith contintles to
apply with respect to the subsequent conclusion of reinsurance contracts with insurers: Bonner v Cox
Dedicated Corporate Member Ltd [2004J EWHC 2963 (Comm), [2005J Lloyd's Rep IR 569,
para 52; [2005J EWCA Civ 1512, paras 15-17. saw the merger of the Institute with the London International Insurance and Reinsurance Market
47 To the extent that the offer of reinsurance binds the reinsurer either through being irrevoc~ able or Association to form the International Underwriting Association of London. In 2002, the two policy
through generating a contract with the broker, this is subject to no further material facts arising that signing offices were merged and replaced by Ins-sure Services Ltd, a joint venture between
would induce a.change of mind on the part of the reinsurer: Bonner v Cox Dedicated Corporate Lloyd's (which owns 25%), the International Underwriting Association of London (25%) and
Member Ltd [2004J EWHC 2963 (Camm), [2005J Lloyd's Rep lR 569, paras 58, 70, 80-81, 103. Xchanging BV (50%).
so ~ften known as a PAN. This sets out information such as the gross amount of the premium,
On the status of the policy, see 3.65ffbelow. deductions such as brokerage, and instalment basis if applicable.
The first market signing office was the Lloyd's Underwriters' Signing Bu~eau, established in ← Line slips are discussed at 2.66ffbelow.
1915. This was replaced in 1927 by the Lloyd's Policy Signing Office.: In 1942, the Institute of ← Assicurazioni Generali SpA v Arab Insurance Group (BSC) [2002J EWCA Civ 1642,
London Underwriters created its own policy signing office, the London Processing Centre. 1998 [2003J Lloyd's Rep lR 131, paras 51, 209.
38 39
Formation ofMarine Insurance Contracts Obligatory and Facultative Agreements
rank in law as an offer, leaving the assured, through the broker, to accept (1) Floating Policies
whichever offer it prefers. The first type of umbrella arrangement to be developed was the 'floating policy', 2.29
defined by section 29(1) of the Marine Insurance ACt 1906 as 'a policy which
← Outside the subscription market, electronic communication is increasingly common describes the insurance in general terms, and leaves the name of the ship or ships
in a number of different forms. First, there is extensive presentation of electronic slips and other particulars to be defined by subsequent declaration'. By virtue of
to insurers, instead of brokers visiting insurers in person. Sec- ondly, brokers may a usage established at common law'S and codified in section 29(3):
operate an electronic panel system, whereby risks of a certain nature are offered to
all members of a limited panel of insurers. The broker will place a risk on the Unless the policy otherwise provides, the declarations must be made in the order of
system. The panel members then have a specified period of time within which, despatch or shipment. They must, in the case of goods, comprise all consignments
possibly after some negotiation, to make an offer if they are interested in the risk. within the tetms ofthe policy, and the value ofthe goods Ot other property must be
This is widespread in the United Kingdom cargo market. Thirdly, a number of honestly stated, but an omission or erroneous declaration may be rectified even
insurers have established electronic platforms permitting potential assureds to input after loss or arrival, provided the omission or declaration was made in good faith.
details of risks and receive quotations. Whether such quotations constitute offers or The assured, therefore, is obliged to declare all eligible risks and the insurer has
invitations to treat depends entirely on the ttue no option to decline a declaration. It follows from this obligatory character of
interpretation of the terms of the quotation. a floating policy that it constitutes an immediate contract of insurance and that
Insurers that do not use the centralized processing systems may still participate in a there is no duty to disclose material circumstances that come to light after
subscription risk. In such a case, once the signing slip is approved, the broker conclusion of the floating policy but before any individual declaration.
prepares a closing advice, which states the precise share of the risk, and therefore
premium, allocated to each underwriter in the light of signing down. This is A floating policy traditionally provides cover up to a specified maximum aggre- 2.30
circulated to all subscribing underwriters, 53 often electronically. gate value. The policy is exhausted once the cumulative value of risks declared
by the assured reaches that aggregate limit, while the amount of premium
depends on the risks in fact declared. The existence of an obligation on the
C. Obligatory and Facultative Agreements assured to declare all cargoes within the terms of the cover prevents the selective
declaration of only those cargoes in peril or already the subject of a casualty.
2.28 Where a series of similar subjects are to be exposed to the same adventure, the!e is
Floating policies as traditionally drafted presented the difficulty that the assured 2.31
evident administrative advantage in being able to negotiate one agreement to cover
the series. A number of such arrangements have evolved. They are similar in that would have to be continually alert to the cumulative value of declared risks for
they all involve an initial 'umbrella' agreement defining the terms on which fear of exhausting cover and running uninsured risks. Consequently, the market
insurance is offered, with cover subsequently attaching automatically to particular developed a form of umbrella cover with no maximum aggregate but that covered
risks falling within its terms or being attached to particular risks through a all risks within the terms of the cover within a specified period of time subject to a
declaration procedure. In each case, however, a key question is whether the initial maximum limit for each risk. This was termed an 'open cover'. That expression is
agreement is a contract of insurance and therefore subject to the doctrine of utmost not, however, a term of art of marine insurance law and is found nowhere in the
good faith, which requires the assured voluntarily to Marine Insurance Act 1906. The question that arises, therefore, is whether an open
disclose and not to misrepresent circumstances material to the insurer's decision cover can be a floating policy, attracting the provisions of section 29. Certainly, an
on whether to grant cover and at what premium.54 While general contract law open cover responds to the basic definition of floating policy in section 29(1). The
grants relief against misrepresentation, it recognizes no duty of disclosure. particular method by which the insurer's maximum exposure is limited forms no
part of the statutory concept. The key to that concept, however, is the obligatory
nature of the cover. Although section 29(3) reads prima ficie as articulating a rule
that applies to contracts within section 29( 1), in truth it reveals an essential and
defining characteristic of the section 29
53 General Accident Fire & Lift Assurance Corp v Tanter (The Zephyr) [1984] 1
Lloyd's
Rep 58, 68.
54 The doctrine is discussed in Ch 4 below. SS See Stephens v Australasian Insurance Co (l872) LR 8 CP 18, 19-20.
40 41
Formation ofMarine Insurance Contracts Obligatory and Facultative Agreements
floating policy, namely its obligatory nature. If the assured were free to elect fraudulently," section 29(3) of the Marine Insurance Act 1906 provides that the
whether to declare a risk, the rules in section 29(3) would make no sense. assured may rectify the failure even after loss or the expiry of the insured adven-
Consequently, it is suggested that any obligatory umbrella agreement consti- ture. 64 In principle, therefore, rectification will afford the assured the benefit of full
tutes a floating policy within section 29, regardless of the label attached to the cover for the true risks as they should have been declared. This, however, is subjecr
agreement. In Glencore International AG v Ryan (The Beursgracht) (No 2),56 it to contrary intention, so that the assured's contractual obligation to make
was common ground that section 29 did not in terms apply to an obligatory declarations must be considered in order to determine whether the error or omission
agreement that was labelled an 'open cover'. However, HH] Hallgarten con- constirutes a basis for rejecting liabiliry in accordance with insur-ance contract law.
fessed to 'a degree of unease' as to this view and, indeed, counsel for the Thus, in Union Insurance Society ofCanton Ltd v George Wills
insurers was prepared to invoke section 29 by analogy. In the Court of Appeal, & Co," a requirement to make declarations 'as soon as possible after sailing of
in rejecting the insureis argument that the cover was facultative/obligatory,57 vessel' was construed as a promissory warranty'" in the light of evidence rhat
Tuckey L] stated that it was 'more like a floating policy'.58It was not necessary insurers might make particular reinsurance arrangements for particular declar-
to determine whether the policy was in ttuth a floating policy within section 29, ations. Consequently, breach of rhe declaration ohligation automatically pro-
bur it is suggested that it was. spectively discharged the insurer from liabiliry under the policy. It was not possible
to construe section 29(3) as implicitly denying the insurer the benefit of an
Under a floating policy, subject to conttary intention, the policy attaches to risks falling
expressly agreed promissory warranry.
within its terms as soon as they embark upon the insured adventure. Declarations
serve not to attach the policy to the risks but rather the essential contractual process In Union, the court considered that the only possible interpretations were as 2.35
of informing the insurer of the risks covered in order to either a promissory warranry or as a warranty in the sense in which that term is
enable insurers to calculate and collect premiums and determine remaining employed in general contract law, with breach sounding only in damages. 67 Modern
capaciry or the extent of exposure under the cover.59 contract law, however, has explored the possibility of greater flexibility
in the classification of tetms, causing doubt to be expressed whethet the
Unless the policy otherwise provides, declarations must be made within a rea-
conclu-sion on interpretation reached in Union would be likely to be reached
sonable time. 60 A provision for declarations to be made by monthly bordereaux
today." In The Beursgracht,69 the Court of Appeal analysed a declatation
constitutes, of itself, a requirement only that a declaration be made each month and
obligation, in the absence of contrary intention, as severable, so that remedies are
not that each risk be declared the month it attaches under rhe policy."
confined to the risk that is the subject of the relevant declatation, and innominate,
← Since it is obligatory under a floating policy to declare all qualifying risks, where so that the insurer can avoid liability for the risk in question only where the con-
the assured omits to declare a risk or makes an erroneous declaratjon, the sequences of failure to make a timely declaration are sufficiently serious to justify
insurer is always entitled to have the declarations rectified, with the result that that temedy. Conversely, whete the failure amounts to an insufficiently serious
certain risks declared by the assured under the policy may not be covered. 62 breach of an innominate term, the insurer will merely be entitled to damages
Moreover, ptovided the error or omission was made in good faith, meaning not compensating fot such loss as it can establish has been caused by the late
declaration. In The Beursgracht itself, as a result of an honest mistal<e, the
assureds' declaration was over five years late, but the obligation to make a timely
declaration was innominate and the commercial consequences of the delay wete
[200l] 2 Lloyd's Rep 608, 613. negligible. The risk would have yielded a premium of only US$250 and would
Facultative/obligatory agreements are discussed at 2.38ffbelow.
Glencore International AG v Ryan (The Beursl'acht) [20011 EWCA Civ 2051, [2002] 1
Lloyd's Rep 574, para 34.
59 Stephens v Australasian Insurance Co (1872) LR 8 CP 18, 19; Glencore International AG v Gledstanes v Royal ExchangeAssurance (1864) 5 B & S 797.
Ryan (The Beursl'acht) [200l] EWCA Civ 2051, [2002] 1 Lloyd's Rep 574 paras 29-34; BPpie v MIA 1906, s 29(3); Stephens v Australasian Insurance Co (1872) LR 8 CP 18; Imperial
GE Frankona Reinsurance Ltd [2003] EWHC 344 (Comm), [2003] 1 Lloyd's Rep 537, paras 86, Marine Insurance Co v Fire Insurance Corp (1879) 4 CPD 166.
125, 135 (facultative/obligatory cover). 65 [1916] 1 AC 281. 66 Promissory warranties are discussed at 18.54ffbelow.
60 Glencore International AG vRyan (The Beursl'acht) [2001] EWCA Civ 2051, [2002]
[1916] 1 AC 281, 286.
Glen,ore International AG v Ryan (The Beursl'acht) (No 2) [20011 2 Lloyd's Rep 608, para
1 Lloyd's Rep 574. 22.
ibid para 41. Glencore International AG v Rytln (The Beursl'acht) [2001] EWCA Civ 2051, [2002]
Stephens v Australasian Insurance Co (1872) LR 8 CP 18,20; Dunlop Bros 6- Co v Thwnend Lloyd's Rep 574.
[1919] 2 KB 127.
42 43
Formation ofMarine Insurance Contracts Obligatory and racultative Agreements
not have affected the insurers' reinsurance cover. In consequence, the delay was As with floating policies, declarations under facultative/obligatory covers serve 2.39 to
no basis for avoiding liability. In such a case, where no special loss can be proved, permit insurers to calculate and collect premiums, to monitor their financial position, and
the insurer is entitled to nothing more rhan interest on rhe amount of premium that 74
to provide information to reinsurers. In addition, however, under facultative/obligatory
the insurer should have received earlier. 70 covers, declarations constitute the mechanism whereby the assured exercises its right to
attach selected individual risks to the
Since there was no serious prejudice on the facts of The Beursgracht, the recogni-tion of
a severable innominate term analysis of a declaration obligation is obiter. Such an cover by accepting the insurer's standing offer. 75 This function was described by
analysis has been rejected in a different context because the relevant obligation was Blackburn 1 in Ionides v Pacific Fire & Marine Insurance Co" in the context of
facultative/obligatory insurance of goods as might be declared on ship or ships:
nor truly severable." A declaration obligation under a floating policy, by contrast, is
genuinely severable with the premium payable in any given accounting period The object of the declaration is to earmark and identify the particular adventure
being merely the aggregate of rhe premiums attracted by the individual declarations to which the assured elects to apply the policy. The assent of the assurer is not
required to this, for he has no option to reject any vessel which the assured may
made on the policy in that period.
select; nor is it necessary that the declaration should do more than identify the
Where the error or omission is not made in good faith, the sequence of declarations must adventure, and so prevent the possible dishonesty of a party insured, who might
intend to apply the policy to particular goods, so that they should be at the risk
still be amended. This may result in later declarations exceed-ing the contractual
of the insurers, and he should come on them if there was a loss; and then, when those
limit and falling out of the scope of the cover, bur the assured should not receive the goods had arrived safely, to pretend that he intended to apply the policy to
benefit of the correction. The insurer should not be liable for losses incurred by a another set of goods still subject to risks.
fraudulently omitted risk. Moreover, improper
selective declaration may also jeopardize cover under other insurance contracts. In The ptoposition that a declaration must be made before an insurer can come on 2.40
Rivaz v Gerussi Bros & CO,72 two existing floating policies were supplemented risk has been described as 'certainly a good starting point'." It is, however,
by two additional floating policies providing successive tiers of cover. The assured ultimately a matter of contractual interpretation: there is no reason in legal
principle why declarations should not be made retrospectively, even after a loss
acted fraudulently under the first two policies in respect of safely arrived
shipments, concealing some and undervaluing others. In consequence, the has occurred." However, it follows from the concern, identified by Blackburn l,
premiums paid under the initial policies were made to covet an undue volume of to avoid declarations only of risks thar incur losses that an assured who wishes to
cargo and the undetwriters under the additional policies were misled into believing invoke the cover in respect of any given risk should, subject to contrary inten-
that considerable spare capacity still existed under the first two policies that would tion, make a declaration before the assured gains knowledge of a 10ss.79
have to be exhausted before they would come on risk. This consti-tuted non- Where the cover has been issued in the subscription market, each declaration to 2.41
disclosure of a material circumstance that vitiated the later policies. each subscribing insurer generates a separate contract between the assured and
that insurer and, subject to contrary intention, it is necessary to make a declar-
Facultative/Obligatory Covers ation to each and every subscribing insurer for it to be bound. In particular, a
Should the insurer be obliged to accept any declaration made by the assured, bur the
assured retain the option whether or not to mal<e declarations, the cover may be
termed 'facultative/obligatory'. The insurer is committed on issuing the cover to BP pic v GE Frankona Reinsurance Ltd [2003J EWHC 344 (Comm), [2003J 1
insuring tisks of the specified type on the specified terms. Con-sequently, in Lloyd's Rep 537, paras 86,125,135.
To be effective, therefore, a declaration must adequately identifY the subject-matter to be insured:
considering whether to offer such cover, the insurer has to consider the possibility Gfencore International AG v Alpina Insurance Co Ltd [2003] EWHC 2792 (Carom),
that the assured will elect to declare only those qualifYing risks that appear likely [2004J 1 Lloyd's Rep Ill, para 273.
to incur a 10ss.73 76 (1871) LR 6 QB 674. 682-3. See also Inglis v Stock (1885) 10 App Cas 263, 269;
Glencore IncemationalAG v Ryan (The Beursgracht) [2001] EWCA Civ 2051, [2002J 1
Lloyd's Rep 574. para 32.
77 Glencore Intemational AG v Alpina Insurance Co Ltd [2003J EWHC 2792 (Comm),
70 Liability to interest as damages for late payment of premium was conceded by the assured in [2004) 1 Lloyd's Rep Ill, para 264.
The Beursgracht, to the evident approval ofTuckey LJ: at para 50. ibid paras 264-266.
71 See 22.24 below. 72 (1880) 6 QBD 222. BP pic v GE Frankona Reinsurance Ltd [20031 EWHC 344 (Comm), [2003J 1 Lloyd's Rep
73 Aneea Reinsurance Underwriting Ltd v Johnson & Higgins Ltd [2001J UKHL 51, [2002J 1 537, para 113; Glencore International AG v Alpina Insurance Co Ltd [2003]
Lloyd's Rep 157, paras 26, 71. EWHC 2792
(Comm), [20041 1 Lloyd's Rep Ill, paras 267-271.
44 45
Formation ofMarine Insurance Contracts Leading Underwriter Agreements
declaration to leading underwriters will bind the following market only if the provide merely 'a framework for such individual contracrs as the parties might
leading underwriter clause on its true interpretation covers the receipt of choose to make by the declaration and acceptance of individual risks'."
80
declarations.
Since the assured owes rhe insurer no counter-obligation, a facultative/obligatory cover
D. Leading Underwriter Agreements
must be regarded as a unilateral offer, albeit one that is regarded by market custom
as irrevocable, accepted each time the assured mal,es a declaration within the terms The efficiency of a subscription market is promoted through leading under- 2.44
ofthe cover and giving rise to a separate contract on each occasion." In writer agreements, by virtue of which one or more underwriters with particular
consequence, since rhe dOCtrine of utmost good faith is designed to ensure that the expertise in the type of business being underwritten are given the power to act
insurer makes an informed decision on the acceptability of the risk and the terms on behalf of all the underwriters subscribing to the risk. Under the LMP
ofcover, the doctrine attaches to the cover itself,82 but ir has no function to perform scheme, reference is made to a 'slip leader' rather than a leading underwriter.
in respecr of and does not attach to individual declarations."
(1) Identifying the Leader
Facultative Covers
The identity of the leader is usually clearly indicated. In the pre-LMP case 2.45
Where, under the terms of rhe cover, the insurer has the right to decline a declaration, the of Roar Marine Ltd v Bimeh Iran Insurance Co," however, there was no such
agreement may be termed 'facultative'. In such a case, each declaration the insurer clear statement and the following market disputed their obligation to follow a
accepts constitutes a separate contract ofinsurance that is concluded at the time of settlement agreed by the alleged leader, Lloyd's Syndicate 724. Nevertheless,
the insurer's acceptance. In consequence, the doctrine Mance J had no hesitation in holding that Syndicate 724 was the leader. Lloyd's
of utmost good faith attaches to each declaration. 84 The initial agreement pur-suant underwriters appeared first in a cover note and Syndicate 724 headed that list.
to which the assured makes a declaration is at most a contract whereby the insurer Moreover, Syndicate 724 had scratched both an endorsement adding the vessel
undertakes to consider properly any declararion within the parameters of the cover the subject of the claim to the cover and the claims endorsement in the box
should the assured make such a declaration." Indeed, if the initial
reserved for the leading underwriter. That Syndicate 724 had not subscribed the
arrangement also confers a discretion upon the assured as to whether to declare largest line did not prevent leader status."
eligible risks, the arrangement will not in itself constitute a contract at all, but
Under the LMP scheme, the identity of the 'slip leader' is the first item under 2.46
the heading 'Subscription Agreemenr'. If the identiry of the leader is not
BP pic v GE Frankona Reinsurance Ltd [20031 EWHC 344 (Comm), [2003].1 Lloyd's Rep known when the slip is produced, the details of the leader must be entered
537, paras 87, 128.
Citadel Insurance Co vAtlantic Union Insurance Co SA [1982] 2 Lloyd's Rep 543, 545-8; BP when that party subscribes to the slip. As a matter of common law, however,
pic v GE Frankona Reinsurance Ltd [20031 EWHC 344 (Comm), [200311 Lloyd's Rep 537, paras
there is norhing to prevent a leader from subsequently being appointed from
~K .
82 GlasgowAssurance Corp Ltd v Symondson (1911) 27 TLR 245. The logic of this decision by underwriters who have already subscribed to the slip."
Scrutton J is, it is submitted, impeccable. It is, however, placed in question by unhelpful termin-ology. In
seeking to identify the scope of the doctrine of utmost good faith, a distinction is sometimes drawn (2) Extent of a Leader's Power to Bind the Following Market
between COntracts ofinsurance, to which the doctrine applies, and Contracts fOr insurance, to which it is
said not to apply: Pryke v Gibbs Hartley Cooper [1991] 1 Lloyd's Rep 602,
The extent of the power of a leader to bind the following market depends 2.47
616; BIB Casualty & General Insurance Ltd v Chase Manhattan Bank [200n 1 Lloyd's Rep 30,
para 49. The distinction may have some validity as a generalization, but a facultative/obligatory entirely on the terms of the leading underwriter agreement. Power may be given
contract is a contract for, rather than of, insurance. Unless the doctrine applies at the stage of
presentation of the cover to the insurer, the result will be an anachronistic route to insurance cover
that completely avoids the doctrine, for which it is hard to see any justification.
86 Societi Anonyme dlntermediaries Luxembourgeois v Farex Gie [1995] Lloyd's Rep IR 116,
83 Ionities v Pacific Fire & Marine Insurance Co (1871) LR 6 QB 674; Law Guarantee Trust & Accident
Society Ltd v Munich Reirt!Urance Co (1915) 31 TLR 572; Citadel Insurance Co v Atlantic Union 148 per Hoffmann LJ. Also at 153. A contract to conclude a contract in the future is not
Insurance Co SA [19821 2 Lloyd's Rep 543, 548; CCR Fishing v Tomenson (The La Pointe) recognized in law: Courtney & Fairbairn Ltd v Thlaini Bros (Hotels) Ltd [1975J 1 WLR 297.
See further the discussion of line slips, 2.67 below.
[198612 Lloyd's Rep 513 (Supreme Court of British Columbia).
[199811 Lloyd's Rep 423.
Berger & Light DiffUsers Pty Ltd v Pollock [19731 2 Lloyd's Rep 442.
At 426. See also Unum Life Insurance Co ofAmerica v Israel Phoenix Assurance Co Ltd [2002]
cf Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council [l 990j 1 WLR 1195,
Lloyd's Rep lR 374,377.
butsee also Walford v Miles [1992] 2 AC 128 and quaere the measure of damages for breach.
89 ibid 377.
46 47
to agree wording, to amend agreed rerms of cover, to accept declarations under fot differenr classes of business, listing possible amendmenrs to covet, which
floating policies and open covers, and to make decisions in respect of claims, are in turn divided into three categoties. In the marine field, thete are three
including settlemenr. However, under LMP, wording should be agreed as part schedules, one each for hull, catgo, and liability.
of the LMP slip and phrases such as 'wording tba LlU'90 ate to be avoided.
For the GUA to be incorporated, both it and the televant schedule must be 2.52
Amendments to cover specified in the Subscription Agreement section of the LMP slip under the
heading 'Basis of Agreement to Conrtact Changes'." If the risk is written by
Leading underwriter agreements have often conferted wide-ranging powers to agree
way of a declaration to a contract for insurance or framework agreement, such
amendmenrs to the agreed terms of cover. However, despite the clear breadth of
as a line slip" or open cover, the GUA must be incorporated in both the
wording, the scope of the power thereby confetred has occasionally come as an
declaration and the contract for insurance or agreement. 97
unpleasanr sutprise to the following matket.
Under the GUA, amendmenrs in the first categOlY as listed in the relevant 2.53
In Roadworks (J952) Ltd v]R Charman,91 the leading underwriter clause was drafted
schedule can be authorized by the slip leader alone. The slip leader is the party
in rhe following broad terms: 'All alterations, additions, deletions, extensions,
so identified in the LMP slip. Amendmenrs falling inro the second category
agreements, rates and changes in conditions to be agreed by the Leading
require approval by both the slip leader and also by other underwriters specified
Lloyd's Underwriter and Leading Company Underwriter only. Such agreement
in the LMP slip, known as 'agreemenr parties'. In default of specification by the
to be binding on all Underwrirers subscribing hereon.' It was held that this
slip, the enrire following market qualifies as agreement parties. Amendmenrs
clause authorized the leading Lloyd's underwriter to waive even a contingent
condition of the contract. 92
falling into this second category do not bind any underwriter unril the final
agreement party has signed. Amendments that fall inro the third category can be
Similarly, in The Leegas,93 the leading undetwriter clause was worded as follows: 'Any approved only by each subscribing underwriter for its own line and are binding
amendments additions deletions including new and or managed and or for each as each signs.98
chartered notice of assignmenr ratings and alterations of any descriprion ro be
In case of amendmenrs falling within eirher of the first two categories, provision 2.54
agreed by Leading underwriter and to be binding on all orhers hereon.' The
is also made for all underwriters to be notified of certain amendmenrs. Notifica-
clause was held to empowet the leader to transform a policy originally on one
tion is required if either the schedule so indicates or any authorizing underwriter
vessel for a limited number of voyages over four months by successive amend-
menrs to one covering an additional vessel over a considerably extended period so requires.
and for many extra voyages. A suggested distinction between a power to agree
(b) Declarations under open covers
major and minor alterations was rejected as unworkable.
A leader may be given power to accept declarations under an open cover. Should 2.55
2.51 Impact of the LMP reforms As part of the LMP market reforms, a new leading an accepted declaration prove to fall outside the rerms of the cover, however,
undetwriter agreement, called the General Underwriters Agreemenr (GUA), was neither the leader nor the following market is liable. In The Tiburon," an
inrroduced to govern amendmenrs to cover. The GUA is designed to work together accepted declaration of a vessel fell outside the terms of the open cover because
with the LMP slip" and is inrended to replace all previous agreemenrs used in the of the nationality of the owners. Steyn J held that the declararion was invalid
market by a single, uniform, and clearer regime. It is not obligatory to use the and the underwriters consequently nor liable:
GUA, but it is the preferred agreemenr and in practice is currently adopted in at
least half of all policies. The GUA contains six schedules The open cover was an irrevocable open cover on the part of underwriters subscrib-
ing to it to accept liability for any risks declared to the leading underwriter within
the terms of the cover ... The acceptance by a leading underwriter of a declaration
is, of course, by market practice merely an acceptance that the risk is prima facie
90 'Wording to be agreed by leading underwriter'. 91 [1994]·2 Lloyd's Rep 99. declarable. Given rhat rhe declaration did not comply with the terms ofrhe offer, it
92 It was common ground that double approval was unnecessary simply because no company
underwriters had subscribed to the risk. Moreover, the intention of the leader to
scratch the waiver endorsement for his own syndicate alone was irrelevant as that
intention had not been made manifest: ibid 106-7.
GUA, d 1.1. Line slips are discussed at 2.66ffbelow.
93 Barlee Marine Corp v Mountain (The Lecgos) [1987] 1 Lloyd's Rep 47l.
9S 96
97 GUA, cll.2. 98 GUA, cl 5.
94 In the event ofany conflict between the slip and the GUA, the slipprevails: GUA, d 10.
99 Seavision Investment SA v Evenett (The Tiburon) [1990J 2 Lloyd's Rep 418.
48 49
follows inexorably that no contract of insurance ever came into existence between [the the Cover and agreed by the leading underwriter: ie the agreement of the leading
lOo underwriter acts as a 'trigger' rather than as an act of agency.
owners] and the underwriters.
Claims In othet wotds, a leading underwtiter has no true power vested in it to bind the
following matket. Instead, the following market uses the leadet in a purely
The powet of a leadet to bind the following matket in the context of claims is
ministerial capacity to bind itself.
discussed in Chapter 22 below.'o,
The merit of this analysis, and the reason fot its being propounded, is that it 2.59
Legal Nature of a Leader's Power avoids any ptospect ofa leadet incutting liability through agency status, whether
to the following market Ot the assuted. Moteovet, it has been said that the
A leadet's power to bind the following market has ttaditionally been analysed in terms
telationship between a leadet and the following market is underpinned by a
of agency. Subscription to a slip containing a leading underwriter clause by a
duty of care owed by the fotmer to the lattet.'os Such tortious language sits ill
following underwtiter both cteates a contract of insurance with the assured and
with the strict liability of an agent for exceeding authority.
confets authotity upon the leadet fot the purposes and to the extent specified in
the leading underwtiter clause.,02 The leadet's power to bind the following Ultimately, however, the status of a leader as agent Ot trigger will depend on the 2.60
market would, thetefore, take the form of an agent's authority. Two wording of the leading underwritet agreement. Even if the law settles on the
consequences could flow from such an analysis. First, a leader who exceeded trigger analysis as the natutal default analysis of leading underwtiter agreements,
the actual authotity conferred would still bind, and incur liability to, the following markets will remain ftee to adopt wording that confets agency status
following matket if acring within the scope of any apparent authority. Given, on theit leaders. Indeed, the GUA exptessly refers to the slip leadet and agree-
howevet, that in ptactice a leader's actual and appatent authority both rest solely ment parties as 'agents', and to their 'authority' and 'powers and duties',lo5
on the terms of the leading underwtiter agteement, it is unlikely that such clearly embtacing an agency analysis together with potential agency liability fOt
liability could arise.'03 Secondly, a leader who occasioned loss to an assured by the slip leader to the following market. The GUA is not, howevet, mandatory.
acting ourside the scope of its actual or apparent authority would incur liability Consequently, a leading undetwritet that wishes to conttact out of all liability to
for breach of warranty of authority. Again, however, given that the terms of the the following matket is free to use a different leading underwriter agteement.
leader's authotity are known to the assured through the broker, it is only where
those terms were misinterpteted by the leadet, and the assured through the (4) Terminarion of a Leader's Power
broker telied on that intetptetation, that liability could arise.
A leading underwriter agreement terminates on a valid avoidance of the insur- 2.61
An alternative analysis was, however, propounded by Rix J in Mander v Commercial ance conttact of which it fotms a severable part since there is no longer any
Union Assurance Co.'o, Refuring an allegation of breach of warranty insurance covet in respect of which the leader can act.'07 Otherwise, a leadet's
of authotity, namely alleged unauthotized acceptance of declarations, made power under a leading underwriter agreement will terminate in accordance
against the leading underwriter on an open cover of retrocession, Rix J, obiter, with genetal contract law and, if the agteement renders the leader an agent, in
stated as follows: accotdance with agency ptinciples. In parriculat, the leadet's power will tetmin-
ate in accotdance with the exptess tetms of the leading underwtitet agteement.
I would tentatively suggest1that a leading underwriter at any rate under an open cover
is not constituted the agent of the following market by reason merely of a leading Thus, the GUA contains provisions fot termination of authotity of the
underwriter clause ... Rather the following market agrees, by subscribing slip leadet immediately upon insolvency or cessation of business of the slip
to the Covet, that they will be bound by a declaration falling within the scope of
100ibid 422. tOt See 22.02-22.03 below. t05 Barlee Marine Corp v Mountain (The Leegas) [1987] 1 Lloyd's Rep 471, 475. See also
'" Roadworks (1952) Ltd v JRCharman [19941 2 Lloyd's Rep 99, 105; Unum Lifi Insurance Roar Marine Ltd v Bimeh Iran Insurance Co [1998] 1 Lloyd's Rep 423, 430, but cf Mander
Co ofAmerica v Israel Phoenix Assurance Co Ltd [2002] Lloyd's Rep IR 374,378. v Com-mercial Union Assurance Co [1998] Lloyd's Rep IR 93, 144-5 (duty of care owed
t03 There would not in practice be a secret restriction on the scope of the leader's authority. ifto anyone to the following market).
Liability could, conceivably, arise ifafoHowing underwriter terminated the leader's actual authority t06 GUA, introductory para and ell?, 8.
without notifying the assured. ~ 10] Unum Life Insurance Co of America v Israel Phoenix Assurance Co Ltd (2002] Lloyd's
'04 [1998] Lloyd's Rep IR 93, 143. Rep IR374.
50 51
Formation ofMarine Insurance Contracts Delegated Authorities
leader, or by notice following insolvency or cessation of business of a LMP reforms have seen the introduction of five new model LMP slip templates for
following underwriter, or by withdrawal ofthe leader's authority by notice from '12
Binding Authority Agreements, including one for marine business.
a following underwriter to the broker."8
A binding authority is not itself a contract of insurance, and it has been held 2.65
that the doctrine of utmost good faith does not attach to a broker's presentation
of even a full binding authority to an underwriter for subscription.113 A full
Delegated Authorities
binder is merely a grant of authority to conclude insurance contractS. No
Cover may also be offered under the auspices of authority delegated by under-writers. assured is a party to that relationship. The doctrine will, of course, apply to
Two types of delegation agreement will be considered: binding author-ities and presentations of risk to the coverholder. Moreover, the practical import of the
line slips. The incidence of the doctrine of utmost good faith is again a refusal to apply the doctrine of utmost good faith should not be exaggerated,
significant question. since the view has also been expressed that a broker who presents a full binding
authority to an underwriter impliedly represents that the authority contains no
'14
Binding Authorities unusual features that would not naturally be expected in such a transaction.
Failure to disclose such an unusual feature is, therefore, actionable, albeit as a
A binding authority, or 'binder', is an instrument whereby underwriters delegate to a pattial misrepresentation rather than a non-disclosure. Its
named entity, termed the 'coverholder', authority to conclude contracts of
insurance on risks that fall within specified terms. Binding authorities are (2) Line Slips
employed where the relevant market can be accessed better by the coverholder
than the underwriters. In BalfOur v Beaumont,"6 Webster J described a line slip as follows: 'A line slip is 2.66
an authority (known in the London market as a facility) given in writing by a
The coverholder is the agent of the underwriters that subscribe to the authority, and number of underwrirers which enables the leading underwriter (or writers) to
the business writren under the cover belongs to the underwriters. Accord-ingly, agree to proposals for insurance of risks within a prescribed class on behalf of all
the underwriters are entitled to all documents relating to that business, including underwriters subscribing to the line slip provided that the ptoposed insurance is
documents revealing the identity of the assureds or placing brokers with whom within the scope of the terms of the authority.' The delegation of authority in a
the coverholder has dealt in order to build up the business under the line slip facilitates the marshalling of capital within the London market behind a
cover. IO' Under a 'limited', or 'prior submit', binding authority, the coverholdeJ" single underwriter117 and also provides a mechanism whereby capital outside the
must obtain the underwriters' acceptance of each risk before agreeing cove~. London market can participate in that market through a London leader.
Under a 'full binding authority', the coverholder has authority to agree cover 2005 saw the introduction of a standard form of line slip, known as the LMP
wirhout prior referral to underwriters. An underwriter who subscribes to a full line slip, under the LMP reforms.
binding authority passes full decision-malcing power to the coverholder. Such
an authority should be granted only afier careful consideration and on carefully Provided the line slip is facultative, in that the leader has the right to decline 2.67
circumscribed terms, and should be properly monitored throughout its oper- individual risks proposed for cover under the facility, an underwriter who sub-
ation. t10 Within the Lloyd's market, binding authorities are subject to a strict scribes to such a facility does not by virtue of such subscription enter into any
regulatory scheme. I 11 Moreover, from 1 Januaty 1992, a standard market form contract of insurance. Instead, contracts of insurance are concluded each time
was mandatory for all marine binding authorities in Lloyd's. More recenrly, the . _ - _ . _ - " --
112 LMA3005 (replacing LSW1476).
113 Pryke v Gibbs Hartley Coop" [1991] 1 Lloyd's Rep 602, 616. '" ibid.
115 ibid. See also L 'Alsacienne Premiere Socihe Alsacienne et Lorraine d'.Assurances Contre
I1ncendie les Accidents et les Risques Divers v Unistorebrand International Insurance SA [1995]
GUA, ell 7-9. The clauses also address the authority of agreement parties in identical Lloyd's Rep 1R 333, 349; HIH Casualty & Generallnsurance Ltd v Chase Manhattan Bank [2001) 1
fashion. Lloyd's Rep 30, paras 52-53.
Hiscox Underwriting Ltd v Dickson Manchester & Co Ltd [2004] EWHC 479 (Corom), [1982) 2 Lloyd's Rep 493, 494. See also Touche Ross 6- Co v Baker [1992] 2 Lloyd's Rep
[2004] 2 Lloyd's Rep 438 (but not to documents relating to dealings after termination of the 207,210; Denby v English &Scouish Maritime Insurance Co Ltd[1998] Lloyd's Rep 1R 343,357.
coverholder's authority). This is particularly convenient for brokers who thereby avoid the need to place each and every
See Syndicate 1242 at Lloyd; v Morgan Read [2003] Lloyd's Rep 1R 412,para 8. qualifYing risk on an individual, subscription basis. A broker may also be able to offer a
Lloyd's Delegated Underwriring Byelaw (No 1 0£2004). participant in a line slip a certain volume of business and in return seek an additional commission.
52 53
Formation ofMarine Insurance Contracts Joint and Composite Policies
an individual proposal, or declaration, is made under the facility in the form of policy, for example, misconduct by one assured giving rise to a defence to a
what is tetmed an 'off-slip' and that ptOposal is accepted by the leader.'18 It daim is inopposable against other assureds, whereas under a joint policy it
follows that the facility is not itself a conttact of insutance. Indeed, in the provides a defence against all assureds. This section. considers the definition of
absence of any obligation on the part of any prospective assured ro make declar- joint and composite insurance, the structure of composite policies, and the
ations and any obligation on the part of the leader to accept declatations made, question of the contractual status of co-assureds under composite policies.
there is clearly no contract at all between subscribing insurers and prospective
assured.' 19 Whether the line slip is devoid of any legal force, even as between (1) Definition of}oint and Composite Insurance
the subscribing insurers, is less clear. On one view, subject to any contrary 'Joint insurance' arises where twO or more assureds share in the one and same 2.70
market custom to which the law is prepared to give effect, a participant in a line
interest that they insure for their collective benefit. Joint owners of property
slip is free at any time to revoke prospectively the authority conferred on the
can take out joint insurance on their shared interest. The assureds enjoy a unity
leader'20 Alternatively, it may be argued that a line slip constitutes a
of interest and the policy covers that unified interest. 'Composite insurance', in
multilateral contract between all the subscribers'" and that the authotity
contrast, arises where diffetent interests are brought together and, for teasons of
conferred can be tevoked only in breach of contract.
convenience, insured under the same policy but on a several basis. Common
It follows from the fact that a facultative line slip is merely a grant of authority that, as examples of a composite policy are those that embrace the interests of the ownet
with a full binding authority, the doctrine of utmost good faith does not attach to the and managers of a ship, different companies within a group, and a head contractor
presentation of such a facility to an underwritet when subscrip- and sub-contractors. The term 'co-insurance' may be employed as an umbrella
tions ate sought.'" It will attach to the subsequent making of facultative declar- term for all insurance contracts where the interests of more than one assured are
ations to the leader under the line slip by means of off-slips. On the other hand, covered, whatever the relationship between those interests. Some-times it is
a line slip is analogous to a binding authority and should attract the same ability employed interchangeably with composite insurance. Indeed, it is customaty to
to derive misrepresentation from non-disclosure.'" Thus, failure to disclose any refer to co-assureds under a composite policy.
unusual features of the proposed line slip to underwriters invited to subscribe Probably the most cited discussion of the difference between joint and compos- 2.71
should be actionable as a partial mistepresentation.'" ite insurance is found in the judgment of Sir Wilfred Greene MR in General
Accident Fire <& Life Assurance Corp Ltd v Midland Bank Ltd.'25 In this case, the
insurer paid a claim under a policy that embraced the interests of rhree assureds.
Joint and Composite Policies Having discovered the claim to have been fraudulently exaggerated, the insurer
sought restitution from two of the assureds who were innocent of the fraud. The
It is essential to distinguish between joint and composite policies. Radically different legal
consequences attach to the two types ofpolicy. Under a composite claim failed, principally because the defendants had never received the money in
such a way as to render them potentially liable to repay money as paid under a
mistake of fact. One of the arguments raised by the insurer, however, was that
the policy was a joint policy.
'" Denby v English 6- Scottish Maritime Insurance Co Ltd [1998] Lloyd's Rep IR 343, 354,
357-8. The policy covered a company's buildings, plam, and stock. The three assureds 2.72
119 At 354-5. See also Socihi Anonyme d'lntermediaries Luxembourgeois v Farex Gie [1995] were the company, which made the fraudulent claim and subsequently became
Lloyd's Rep IR 116, 148, 153; Bonner v Cox Dedicated Corporate Member Ltd [20041 EWHC
2963 (Comm), [2005] Lloyd's Rep IR 569, para 4 per Morisonj, 'a sranding offer by subscribing insolvent, and rhe two defendants, namely Midland Bank Ltd, a secured credi-
underwriters to be bound to risks accepted by the leader'. tor of the company with a floating charge over its assets, and Seoffin and
1.20 ibid,
although it was common ground in Denby that the authority was in law irrevocable. Willmott Ltd, freeholders of part of the premises occupied by the company,
See Clarke v Dunraven (Earl oj) (The Satanitll) [1897] AC 59; North Atlantic Insurance Co
Ltd v Nationwide General Insurance Co Ltd [2003] EWHC 449 (Comm), [2003] 2 CLC 731, holders of a controlling shateholding in the company, and guarantors of the
paras 41-42, [2004] EWCA Civ 423, [2004] Lloyd's Rep IR 466, para 19. bank loan under terms that they succeeded to the bank's security in the event of
HIH Casualty 6- Generaiinsarance Ltd v Chase Manhattan Bank [2001] 1 Lloyd's Rep 30,
para 49.
See 2.65 above.
As was argued in HIH Casualty 6- General Insurance Ltd v Chase Manhattan Bank [2001J 1
Lloyd's Rep 30, paras 52-53. 12S [1940] 2 KB 388.
54 55
a calion the guarantee. In rejecring the insurer's argument of a joint policy, Sir number of legal issues. These relate notably to (a) the status of co-assureds as
Wilfred Greene MRdelivered the following exposirion ofjoint and composite parties to the insurance; (b) the doctrine of insurable interest; (c) the availability of
insurance:126 a broker's lien over the policy and extent of rights over collected claims moneys;
(d) the extent to which defences arising out of the conduct of one co-assured are
That there can be a joint insurance by persons having a joint interest is, of course, opposable against other co-assureds; and (e) the operation of the doctrine of
manifest. If A and B are joint owners of property-and I use that phrase in the strict
sense-an undertaking to indemnify them jointly is a true contract of indemnity in subrogation. These are discussed elsewhere. 127 However, it is worth emphasizing
respect of a joint loss which they have jointly suffered. Again, there can be no that the existence and structure of composite policies are products of commercial
objection to combining in one insurance a number of persons having different convenience. This convenience features in several judgments and is stated to
interests in the subject-matter of the insurance, but I find myself unable to see how provide a justification for finding and developing legal rules and concepts that
an insurance of that character can be called a joint insurance. In such a case the
enable composite policies to achieve their intended commercial role. It is, therefore,
interest of each of the insured is different. The amount of his loss, if the subject-
matter of the insurance is destroyed or damaged, depends on the nature of his worth quoting judicial expositions of the commercial justification for composite
interest, and the covenant of indemnity which the policy gives must, in such a case, insurance.
necessarily operate as a covenant to indemnifY in respect of each individual loss
At first instance in New Hampshire Insurance Co v MGN Ltd, 128 Potter J stated 2.74 as
which the various persons named may suffer. In such a case there is no joint
element at all. follows of a composite fidelity policy taken out by the Maxwell group of compames:
Applying those considerations to the facts of the present case, there is no joint loss
to the bank and to Scoffin and Willmott, Ld, in respect of the damage by fire to the From the point of view of the insured, group insurance has the advantage that it is
premises. The bank, in truth, having only a floating charge, suffered no loss at all, cheaper to purchase because most underwriters will operate a 'banded' approach to
and even if its floating charge had crystallized, its interest in the premises would rating (usually based on the overall number of employees), each band attracting a
have been quite different from the interest of Scoffin and Willmott, Ld, who were lower rate as the insurance progresses upwards. It also avoids the usual
freeholders. How, then, can there be a joint insurance, in any true sense of that requirement of underwriters for a ,minimum premium per policy. It assists better
phrase, of the interest of a freeholder in freehold premises and the interest of a corporate management, with better control over COStS and the amount and nature
debenture holder holding a floating charge on that mass of ptoperty, including, of cover purchased, as well as giving better access to world-wide insurance
among other things, those premises? There is no joint risk; there is no joint markets through a specialist department which carries more 'clom' and expertise
interest; the measure of loss suffered by those two parties will be different, calling than is at the command of individual company secretaries or finance directors.
for a different measure of indemnity, and, accordingly, it seems to me that there is Overall, it reduces the mass of paper and the difficulty of administering a variety
no joint element about the thing at all. of numerous separate policies with numerous insurers. Finally, the effect of a
Such a policy, in my judgment, may be more accurately described as a composite 'Group' approach avoids the tendency of underwriters writing separate policies to
policy, because it comprises for reasons of obvious convenience, in one pie'ce of insert exclusion clauses designed to prevent policy limits being added together
paper the interests of a number of persons whose connection with the subject- when two com-panies within the same group are involved in the same loss event,
matter of the insurance mal<es it natural and reasonable that the whole matter or to exclude a loss originating in one company but in reality sustained by another.
should be dealt with in one policy. The advantages to the undelwriter, on the other hand, include economy in paper-
A composite policy, therefore, amounts to insurance of a range of interests vested in work and premium collection; receipt of a presentation which gives an overview
of the general operation of the group so that the insurance required may be
different assureds. Technically, there is no reason why all the assureds whose approached in a 'top down' fashion; ability to concentrate on exposures to cash and
interests are covered under a composite policy may not participate in the formation securities held at anyone location for amounts in excess of the deductible; and the
of that contract and why the cover provided in respect of each assured should not opportunity to provide for a single deductible applicable to each constituent of the
be confined to the precise interest of that assured. However, it is frequently group irrespective of its size or financial ability to absorb such a sum. Finally,
commercially convenient for one party to conclude a property policy on behalf of or the underwriter is enabled to write a policy which specifically deals with the
for the benefit of a number of interesred parties and for the contraCt ro be drafted question of aggregation of limits which could not be achieved in the case of cover
granted to related but separately insured entities.
in such a way as to insure the entirety of rhe insured property for the benefit of each
and every assured. Such policies give rise to a
1;(7 See 2.79ff (participation in contracts), 358ff (insurable interest), 5.79 (lien), 4.184ff,
15.27-15.28,18.102,22.100 (defences), 25.27-25.35 (subrogation) below.

126 At 404-5. The passage is technically obiter but has often been dtedand never doubted. 128 [19971 LRLR24, 37-8.
57
56
In Petrofina (UK) Ltd v Magnaload Ltd,'29 Lloyd J described the convenience of co- express provision in the policy to that effect and regardless of whether
insurance in the context of a building contract as follows: premium is apportionable between the separate interests. A slightly different
In the case of a building or engineering contract, where numerous different sub~
approach would be to regard a composite policy as giving rise to one contract,
contractors may be engaged, there can be no doubt about the convenience from but a severable contract, with each interest contained within one severable
everybody's point of view, including, I would think, the insurers, of allowing the slice. Severance language may be found in the judgment of Gage J in FNCB
head contractor to take out a single policy covering the whole risk, that is to say Ltd v Barnet Devaney (Harrow) Ltd,'" albeit in the context of rejecting an
covering all contractors and sub-contractors in respect of all loss of or damage to
argument that a composite policy that covers interests on the same subject-matter is
the entire contract works. Otherwise each sub-contractor would be compelled to
not severable so that a defence arising out of the conduct of one assured will be
take out his own separate policy. This would mean, at the very least, extra paper-
work; at worst it could lead to overlapping claims and cross-claims in the event of good against all other assureds unless the contract contains a saving or severing
an accident. Furthermore, ... the cost of insuring his liability might> in the case of a provi-sion. In other words, the language of severance was dictated by the argument
small sub-contractor, be uneconomic. The premium might be out of all propor-tion advanced, rather than flowing from a dear decision of the judge as to how
to the value of the sub-contract. If the sub-contractor had to insure his liability in composite contracts should in principle be analysed.
respect of the entire works, he might well have to decline the contract.
To be distinguished from joint and composite policies is the contingent policy. Under a (3) Contractual Status Under Composite Policies
contingent policy, one interest is insured generating one set of con-tractual rights. That marine insurance law does not require that the assured's identiry or inter- 2.79
In specified circumstances, however, the assured initially entitled est be specified in the policy'34 facilitates the co-insurance under one policy
to enforce those rights loses that entitlement and is replaced by a different of the varying interests of any number of parties. However, nothing in the
assured. In contrast to co-insurance, this second assured's rights under the accommodating attitude of insurance law to formalities alleviates the need for
policy are contingent upon the specified circumstances arising. Moreovet, the an alleged co-assured under a composite policy to establish its status as a true
second assured inherits only such rights as the first assured enjoyed. The fact of parry to the contract in order to benefit from original, non-derivative rights
the second assured's succession to those rights does not defeat any defence to a under the contract. Such status can be claimed only thtough principles of
daim arising by reason of the conduct of the first assured. 130 agency: the parry claiming co-assured status must either establish rhat rhe insur-
ance was obtained in the exercise of authoriry duly conferred or be able to
Legal Structure Of Composite Policies invoke the doctrine of ratification. If unable to establish agency, the daimant
Although the customary expression 'a composite policy' appears to denote a unitary will be confined to derivative rights, the most likely sources of which will be the
contractual artangement, it has long been dear that the different inter-ests of co- Contracts (Righrs ofThird Parties) Act 1999 and the doctrine of assignment. In
assureds are treated as effectively separately insured. The practical result is either case, the daimant's rights will be more precarious since they will be
that, for example, a defence arising in relation to one interest does not, subjecr to defences arising out of the principal assured's conducr that would nor
without more, affect the other co-insured interests. 13 ' Quite how this is be opposable against the daimant if it had original rights as a co-assured. 13'
achieved in all areas in terms of analysis and principle, however, has yet to be In the following discussion, the party effecting insurance will be termed the 2.80
authori-tatively decided. An important question is whether a composite policy 'principal assured', while the party daiming status as a co-assured will be rermed
com-prises in truth one contract covering all the various interests insured or a the 'claimant'.
series of contracts, so that each interest is insured under its own contract.
(a) Authorized agency
In Arab Bank pic v Zurich Insurance CO,132 Rix J conceived of a composite policy as
typically embracing 'a bundle of separate contracts'. Each separate inreresr is, To claim co-assured status as principal of an authorized agent does not require 2.81
consequently, separately insured under a distinct contract, even if there is no rhat the agent effecting the insurance reveal the existence of the principal, since
129 [19841 QB 127. 136.

12' DSG RetaitLtd v QBE Internationallnsurance Ltd [1999J Lloyd's Rep lR m [19991 Lloyd's Rep lR 43, rvsd in parr on different grounds [19991 L1oyd's Rep IR
283. '" See, ego 4.184ffbelow. 12' [199911 L1oyd's Rep 262, 277. 459. '" See 3.65ffbelow. 135 See 20.06, 20.21-20.26 below.
58 59
the doctrine of the undisclosed principal applies to insurance contracts. 136 intended to be covered by the policy or persons for whose benefit the policy
Moreover, there is no requirement that the policy describe its intended bene- was proposed. They were strangers to the contract altogether.'
ficiaries and that any party claiming to be a co-assured falls within such
In Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd, 143 the contract 2.84
descrip-tion. Of course, if the policy does identify intended co-assureds, the
between the main contractor in the consttuction of a vessel and the supplier of
claimant must fall within the contractual designation.'"
a propeller made no reference to the main contracror procuring any insurance
The claimant must, however, be able to prove that it conferred authority on the on behalf of the supplier. On the contrary, the contract provided for each party
principal assured to procure insurance to cover the loss that has ensued, and that to be liable to the othet in respect of various losses. Such an exptess statement of
the principal assured, when effecting cover, intended to act in the exercise of liability was inconsi~tent with an intention to procure composite insurance
that aurhority. Whete there is no evidence that the principal assured contem- that would have coveted such losses.
plated the claimant as a principal on whose behalf it was placing the insurance,
A similar decision was reached in National Oilwell (UK) Ltd v Davy Offihore 2.85
'38
the claimant has no status as co-assured. Evidence of the requisite Ltd,144 which arose our of the construction of a floating oil production facility.
contempla-tion may be furnished by 'the terms of the policy itself, by the terms The alleged co-as'sured undertook to supply a part. The principal assured, the
of any contract between the principal assured or other contracting party and the main contractor, -contracted to procure insurance confined to cover up until the
alleged co-assured or by any other admissible material showing what was
time of delivety. Colman J held that, in the absence of any other source of
subjectively intended by the principal assured' .139
aurhority, the scope of the authority conferred on the main contractor had to be
140 'co-extensive with the scope of its obligation to procure cover' .145
The traditional Lloyd's SG policy provided that the policy was taken out for the
benefit not only of the party effecting it but also 'fot and in the name and names (b) Ratification
of all and evety other person or persons ro whom the same doth, may, or shall
appertain, in part or in all'. This broad wotding, not tetained in the modern In the absence of authority ro procure insutance conferred by the claimant and 2.86
policy forms, was, however, interpreted as meaning merely that the insurer duly exercised by the principal assured, the claimant must tely on the doctrine
undertook liability to any person the principal assured intended to be of ratification to secure co-assured status. Ratification retrospectively confers
covered and not as dispensing with the need to establish agency. In Boston Fruit authority on the principal assured and is effective, in marine insurance at least,
Co v British & Foreign Marine Insurance CO,'41 charterers were held unable to even afrer rhe claimant has knowledge of an insured 10ss.'46 There are,
claim on a policy in traditional form effected by brokers on behalf of ship" owners. however, a number of difficulties.
The charterers fell within the policy wording, but there was no evidence
The intention of rhe principal assured to insure on behalf of the claimant in 2.87
that the owners intended the policy to benefit them. According to Lord Mac-
quesrion must again be established. Thus, if the principal assuted obtains insur-
naghten: 142 'When the owners proposed to insure, acting as they did withour
ance fot the benefir of a class of assureds within which the claimant prima ficie
any communication with the chartetets, the charteters cannot be regarded as the
falls, evidence arising our of the relationship between the principal assured and
persons within the contemplation of the proposal. They were not persons
the claimant inconsistent with rhe principal assured acting for that claimant will
deny ratification in the same way as it serves to deny actual authotity.'4'
Moreover, the unauthorized principal assured must not only intend to insure on
136 Siu Yin Kwan v Eastern Insurance Co Ltd [1994J 2 AC 199. The undisclosed principal
doctrine does not, however, displace the doctrine of utmost good faith (discussed in Ch 4 below),
which will require disclosure of the principal's identity if material to the risk. On general agency
principles, moreover, the terms of the policy may exclude undisclosed principals from assured
status: Talbot Underwriting Ltd v Nausch Hogan & Murray [20051 EWHC 2359 (Comm).120051
2 CLC868.
'" eg O'Kane v Jones (lbe Martin P) [2003J EWHC 2158 (Comm), [20041 1 Lloyd's Rep 389, 143 [199212 Lloyd's Rep 578. 144 [199312 Lloyd's Rep 582. 145 ibid 598.
paras 124-128. 146 MIA 1906, s 86; Williams v North China Insurance Co (1876) 1 CPD 757. Ir has been held
138 National Oilwell (UK) Ltd v Davy Offihore Ltd [19931 2 Lloyd's Rep 582, 596. See also that post-loss rati6cation is not possible in non-marine insurance: Grover 6- Grover Ltd v Mathews
O'Kane v Jones (The Martin P) 120031 EWHC 2158 (Comm), [20041 1 Lloyd's Rep 389, [1910] 2 KB 401. The distinction has, however, been criticized with the marine rule being
paras 84-103. regarded as preferable: National Oilwell (UK) Ltd v Davy Offihore Ltd[19931 2 Lloyd's Rep 582,
B9 National Oilwell (UK) (n 138 above) 597 perColmanJ. 607-8. See also Trident Generallnsurance Co Ltd v McNiece Bros Pty Ltd (1987) 8 NSWLR 270.
'''' See 7.02 below. 141 [19061 AC 336. 142 ibid 341. '47 National Oilwell (UK) Ltd v Davy Offihore Ltd [l993J 2 Lloyd's Rep 582, 596-7.
60 61
behalf of the claimant bur also purport to do so, since the doctrine of insurer and each co-assured would involve a separate contract being triggered
ratification is not available to an undisclosed principal.'4' as ,any individual, and by that time identified, claimant became a member of
the insured class.
Further difficulties arise where co-insurance is sought for rhe benefir of a class of co-
assureds of which the membership may be determined in whole or in part only Thirdly, it might be objected that a future member of an insured class had 2.91 neither
at a later date. For example, a builders' risks policy may be designed ro cover an insurablelnterest nor an expectation of acquiring any interest at the
not only the hull owner bur also rhe main contractor and all sub-contractors time the insurance was concluded, so that the contract would be void as a
involved in the ptoject, many of whom may be inttoduced to the project only wager. 152 Again) however, on the 'bundle of separate contracts' analysis of a
afrer the insurance has been effected. Likewise, rhe owner of cargo to be sold composite policy, at the time any individual claimant becomes a member of the
on CIF terms may desire a policy under which all subsequent pur- insured class triggering a separate contract, that claimant will have an insurable
chasers of all or part of the cargo can claim as assureds. In each case, rhe identity interest or at least the expectation of acquiring such an interest.
of all intended beneficiaries will often be unknown, and indeed unascertainable,
when the insurance is effected. It is entirely conceivable that some such parties will Is Classification as Joint or Composite Insurance a Matter of Law
not even exist at the time the insurance contract is concluded. or Contract?
The absence of any relationship between principal assured and claimant at that time There are significant legal differences between joint and composite insurance. 2.92
excludes any actual authority. If it likewise denies the possibility of ratification, For example, a breach of contract under a composite policy affects only the interest
there will be no possibility of direct rights under the policy, bur co-insurance of of the co-assured that commits the breach. Under a joint policy, how-
a class of unascertained composition raises a number of difficul- ever, there is only one interest insured and the insurer's remedy lies against all
ries. First, the retrospectivity of ratification requires the claimant to exist and joint assureds. Discussions of joint and composite policies in the existing case
be competent to conclude the unauthorized insurance at the time it is effected law often contain language that may convey the impression thar classification
by the principal assured. Where the claimant is a company that did not exist at follows ftom the nature ofthe interests insured. The better view, however, is
the time of conclusion of the insurance contract, ratification is therefore that appropriate contractual drafting can transform insurance that by nature
unavailable.'4' falls into one category into insurance that falls into the other.
Secondly, dicta suggest that ratification is confined to parties who are ascertail;- The dicta of Sir Wilfred Greene MR in General Accident v Midland Bank, 153 2.93
able by the third party (here rhe insurer) as at the time of conclusion of the quoted above,154 can be read as regarding the existence ofa genuine joint interest
150 'in the strict sense' as essential for a joint policy. However, he was not dealing
contract as intended to be parties to the contract. The policy beh.ind this
requirement is elusive. If the concern is that rhe insurer should not be faced with a situation where a clear attempt had been made to bring together two
with uncertainty as to whether a particular claimant is entitled to ratifY, that is different interests and insure them under a joint policy. In New Hampshire
answered by the description of an insured class and the onus of proof borne by the Insurance Co v MGN Ltd,155 it was accordingly argued that there was no reason
15 in principle and no authority that prohibited separate interests being jointly
claimant of its membership of that class. ' If the objection is that a contract
requires two identifiable parries as at the rime of its formation, rhe answer is rhat insured. At first instance, Potter J accepred that General Accident v Midland
the analysis of a composite policy as a bundle of separate contracts between the Bank was not authority against the possibility of combining separate interest
under a joint policy,156 but had little difficulty in holding that the policy in
question, a fidelity policy covering the Maxwell gtoup of companies, was com-
'48 Keighley, Maxted & Co v Durant [1901] AC 240. posite in nature. The Court ofAppeal appears also to have been content to view
'48 Kelner v Baxter (l866) LR 2 CP 174. the matter as one of construction.
150 watson v Swann (1862) 11 CB (NS) 756, 771 per Willes j. The dictum goes further than was
necessary in the case: see 770 per Erie C], although the formulation of Willes] has been preferred
in Australia: Trident General Insurance Co Ltd v MeNiece Bros Pty Ltd (1987) 8 NSWLR
Even if the matter is viewed as one of construction, however, it seems clear that 2.94
270,276. See also National Oilwell (UK) Ltd v Davy Offihore Ltd[199312 Lloyd's Rep 582. 596.
151 In general, the concern might be that the agent would have the power to confer the benefit of
the unauthorized act on whomever the agent subsequently chose to declare had been the intended 152 The doctrine of insurable interest is discussed in Ch 3 below.
principaL However, this risk is inherent to agency, whether authorized or unauthorized, given '" [19401 2 KB 388, 404--5. 154 See 2.72 above. '" [19971 LRLR 24. 156 ibid 41.
appropriate circumstances and does not justify a restriction on the scope of ratification.
62 63
it will take the cleatest possible wording befote a court will accept that different embracing the quire different interests of the members of a group of companies,
interests have been insured under a joint policy. Indeed, many terms that a both public and private. The 'Joint Insured' clause as drafted changed norhing. It
sensibly drafted policy on different interests will contain will lead almost merely addressed cerrain specific poinrs, providing that wirh regard ro those issues rhe
inevitably to construction as a composite policy. assureds were to be treared as joint assureds. 'Bur rhe content of the clause does nor go
so far as to say that all those insured have joint inrerests or are
2.95 Suppose that a professional indemnity policy is taken out to cover both a company
joint contractors. '160
and its directors. None of the assureds would want their cover to be jeopardized by
the misconduct of one of the others. Yet under a joint policy, the indivisibility of The cases discussed concern policies that by nature were composire but were 2.97
interest results in a defence being good against any assured who shares in that argued ro be joint. From an insurer's perspecrive, a joint policy is preferable as
interest. A company stands ro be sued in respect of miscouduct by its directors. If defences are stronger, alrhough subrogarion is excluded. There does not, how-
that misconduct jeopardized its insurance cover, the very purpose of rhe cover ever, appear to be any reason of principle why two genuine joint owners of
would be frusrrared. The obvious commercial intent is rhat the misconduct of one property should nor insure under a policy thar expressly provides for several
assured should not prejudice the rights of the others, although that individual mighr rather rhan joinr cover and consequently takes effect as a composite policy and
be denied cover in the event of serious personal misconduct. Thus, in Arab Bank not as a joint policy.
pic v Zurich Insurance CO,157 rhe managing director of a company made a
number of fraudulent statements in the com-pany's name and rhe vicrim obtained
judgmenr against the company. It then sought to claim via the Third Party (Rights 160 ibid 57 per Staughton L].
'58
againsr Insurers) Acr 1930 under a policy of professional indemnity insurance
that covered both the company and its directors. Regardless oflegal principle, Rix J
held that as a matter ofconstruc-tion the dishonesty of the managing director did not
prejudice the rights of the company, given that the company itself was not
complicit in the dishonesty. A number of clauses, perfectly consistent with the
commercial purpose of the policy, were inconsistent with the idea (inherent in a
joint policy) that the director's dishonesty should give rise to a defence against the
company. Thus; the policy covered 'any Civil Liability whatsoever', a phrase wide
enough to
cover liability for dishonesty, but then excluded cover for anyone 'knwingly C1
committing, making or condoning' fraud. Clearly, the policy covered liability
arising out of dishonesty provided the dishonesty was not that of the claimant.
In addition, a subrogation clause stated that the insurer would not exercise
rights against any partner, director, or employee of the assured company 'unless
the claim has been brought about or contributed to by the dishonesty, fraud,
criminal or malicious act or omission of such persons'. Unless, however, such
misconduct could give rise to a valid claim by another assured, there could be
no subrogation claim againsr the wrongdoer.
In New Hampshire Insurance Co v MGN Ltd,'59 rhe policy contained a 'Joint Insured'
clause. The policy as a whole, however, was clearly a composite policy,
157 [199911 Lloyd's Rep 262.

158 For discussion of the 1930 Act, see Ch 20 below. 15' [19971 LRLR 24.
64 65
3
INSURABLE INTEREST, ILLEGALITY,
AND PUBLIC POLICY
Insurable Interest 3.02 B. Embodiment in a Policy 3.65
The legal matrix C. Illegality of thelnsured
The concept of insurable interest 3.20 Adventure 3.70
Insurable interest in particular D. The Impact ofWar on
3.40
types of insurance
Contracts of Insurance 3.78
Limited interests 3.57
Pervasive interests 3.58
A contract of insurance may be inherently invalid or unenforceable on the 3.01
grounds of illegality or public policy. In particular, the doctrine of insurable interest,
which originated in and continues to reflect the fi.llldamental nature of
a contract of insurance as a contract of indemnity, also implements public policy
that a marine insurance contract is not employed as an instrument of wager.
Public policy, in the form of fiscal legislation, is also the origin of the
inadmissi-bility in evidence of a marine insurance contract not embodied in a
policy. Alternatively, the insurance may be unenforceable by reason of the
insured adventure being illegal or contrary to public policy.
A. Insurable Interest
The law on insurable interest is almost unique in marine insurance law in its 3.02
mandatory nature. It was also the first aspect of marine insurance law to be placed on
a statutory footing. However, despite its long development and
attendant extensive consideration, whether an assured possesses an insurable
interest remains, on occasion, a difficult and controversial question.
67
Insurable Interest, Illegality, and Public Policy Insurable Interest
The Legal Matrix and any policy containing a dispensation from the requirement of an insurable
interest. Any such policy was declared to be null and void. This invalidity was
The law relating to insurable interest developed at common law before statutory
triggered either by the substance of the policy as a wager, as where the assured
intervention in 1745. Gaming and wagering contracts are also the subject of
lacked any insurable interest or had only a token interest,' or by the presence of a
restrictions in the general law of contract.
dispensing phrase regardless of whether the policy was in truth a wager. Proof of an
(aJ The evolution ofthe law on insurable interestprior to the Marine insurable interest could not save such a policy from staturolY nullity.' Wager
Insurance Act 1906 policies were, however, expressly permitted for British-financed privat-eers thar
would prey solely~on enemy vessels and for cargo from any European or American
The requirement of an insurable interest is a manifestation of rhe fundamental
porr or place under Spanish or Porruguese control.
characteristic of an insurance contract as a contract of indemnity.' Historically,
however, the common law enforced contracts of wager provided they were not The 1745 Act did not, therefore, invalidate wager policies completely. Private 3.07 sector
contrary to public policy,2 and, after some initial reluctance, the courts came to the capital was encouraged to finance patriotic privateering' and to pursue
view that it was open to the parties to conclude an enforceable wager policy by trade in desired contraband goods from territory controlled by Spain and Porrugual.
expressly dispensing with the insurable interest requirement.' lO
Moreover, wager policies continued ro be enforceable in respect of non-British
shipping by reason of the difficulty of bringing witnesses from abroad to prove an
A variety of wordings developed to indicate that the parties intended an enforceable wager
insurable interest in foreign vessels and their cargoes before English courrs."
policy. A policy might be issued 'interest or not interest', signifYing that it was to
However, policies continued to be construed as indemnity contracts and requiring
be enforceable regardless of whether the assured had an insurable interest. The
an insurable interest unless they provided to the con-trary. Consequently, policies
letters 'ppi', meaning 'policy proof of interest', indicated that possession of the
on non-Brirish vessels were unenforceable in the absence of an insurable interest
policy was to act as proof of the existence of an insurable interest. The phrase
unless they contained wording dispensing with that requirement. 12
'without benefit of salvage' constituted a waiver by the insurer of its right under the
indemnity principle to whatever was left of the
assured's interest in the insured property on payment for a totalloss. 4 A wager (bJ The insurable interest requirements ofthe Marine Insurance Act 1906
policy was clearly incompatible with such a right.
The 1745 Act was repealed by rhe Marine Insurance Act 1906,13 which enacts 3.08
Wager policies containing such phrases were legally enforceable until the mid- two separate insurable interest requirements. The first operates by reference ro
5
eighteenth century. By the mid-eighteenth century, however, they were per-ceived the time of formation of the contract, the second by reference to the rime of loss.
as encouraging various evils and their use was restricted by the )vIarine
6 The contract formation requirement Section 4(1) of the Marine Insurance 3.09
Insurance Act 1745. The Preamble to the Act identified three evils encouraged by
Act 1906 provides that: 'Every contract of marine insurance by way of gaming or
wager policies: the potential for unlimited insurance on the same adventure
wagering is void.' This mandatory rule looks to the contract as originally
facilitated insurance frauds; wager policies were employed to disguise insurance of
prohibited adventures; more generally, an insrrument designed for the finan- concluded. Unlike the 1745 Act, this statutory invalidity is without exception.
cial protecrion of genuine merchants had been brought into disrepute through Section 4(2)(a) then deems to be a wager any contract of marine insurance
perversion into a gambling device. Section I of the Act then prohibited any policy concluded by the assured with neither an insurable interest nor an expectation
on British ships or property on such ships by way of gaming or wagering of acquiring such an interest. Thus, where a contract is entered into without
even an expectation of an insurable interest, the contract is irredeemably void,
notwithstanding a subsequent acquisition of an insurable interest.
Lucena v Crauftrd(1803) 2 Bas & Pul (NR) 269, 302.

1
Jones v Randall (1774) 1 Cowp 37; Micklejield v Hepgin (1793) 1 Anst 133.
2 7Kent v Bird (1777) 2 Cowp 583. 8 Murphy v Be/I(1828) 4 Bing 567.
, Sadlers' Co v Badcock (1743) 2 Atk 554; Lutena v Crauftrd(1802) 3 Bos & Pu175, 101. For 9See N Legh-]ones, 'The Elements of Insurance Interest in Marine Insurance Law', in
an early refusal in Chancery to enJorce a wager policy despite saving wording, see Goddart D Thomas (ed) The Modern Law ofMarine Insurance, Volume 2 (2002) para 4.6.
v " Andree v Fletcher (1787) 2 TR 161, 164-5 (specifically, the smuggling of bullion).
Garrett (1692) 2 Vern 269. " lbellusson v Fletcher (1780) 1 Doug 315; Lucena v Crauftrd (1803) 2 Bas & Pol (NR)
4 See 22.31-22.32,22.36-22.44 below. 269,322.
S Assievedo v Cambridge (1712) 10 Mod 77; Depaba v Ludlow (1720) 1 Corn Rep 360. 12 Cousins v N,tntes (l81!) 3 Taunt 513. 13 See MIA 1906, s 92 and Sch 2.
5 19 Geo 2, 037.
69
68
The limits of an expectation were illustrated in Knox v WOod.'4 The claimant took court will not enforce a policy it knows to be void by virtue of section 4 even if
out a policy on commission to be earned on the sale of cargo to be provided for the parties both wish the conttact to be treated as binding. 21
the return voyage of his ship. Delay caused by rhe capture and ransoming of
the ship resulted in the loss of the rerum voyage. The claim for the lost The time of loss requirement In addition to the insurable interest require- 3.12
commission failed for want of insurable interest. The crucial facr was that no ments of section 4, section 6(1) of the Marine Insurance Act 1906 requires the
cargo was ever procured. The alleged interesr lay in commission expected to be assured to have an insurable interest in the subject-mattet insured at the time of
earned on cargo expecred to be obrained. An expectarion upon an expect-ation the loss. This requirement is reiterated by clause 11.1 of the Institute Cargo
was toO remote and conjecrural to be an insurable interest. According to Lord Clauses (A), (B), and (C). Consequently, an assured that had an interest or
Ellenbotough: 'This case carries us into rhe land of dreams; and, if sup-ported, expectation of acquiring an interest at the time of formation of the contract bur
would inrroduce the practice of insuring a £20,000 prize in the lottety wirhour which has since, but before the time of loss, voluntatily divested itself of its
intetet" h' 1 .. 23 I I
purchasing a ticked'15 s or ot erwlse ost ItS mterest or a ternative y whose expectation
temained unfulfilled24 cannot tecover an indemnity undet the policy.
3.11 Section 4(2)(a) of the 1906 Act addresses the reality of whether the assured has an
insurable interest or expectation of acquiring one. In addition, like the 1745 Act, Section 6(1) of the 1906 Act, however, contains a proviso to the insurable 3.13
section 4(2)(b) renders conclusive evidence of the wagering narure of the contract interest requirement. Insurance may be taken out on a {lost or not lost' basis, in
any phrase that dispenses with the requirement of an insurable interest or assumes which case the assured may recover even though no interest was acquited until
its absence. Any policy containing such a phrase is deemed a wager and is, after the loss occurred, unless the assured knew of the loss and the insurer did
therefore, void under section 4(1), regatdless of whethet the assured in fact has an not as at the time of conclusion of the contract.25 This is in turn subject to the
insurable interest." Any insurance containing such a phrase is 'desti-rute of all legal qualification that the assured must not have known of rhe loss at the time of
effect between the parties' and 'stricken with sterility'." Where, however, the policy acquiring the insurable interest." Consequently, 'lost or not lost' wotding per-
contains severable insurances only one ofwhich contains an offending phrase, the mits the assured to recover in respect of loss sustained before the acquisition of
invalidity is confined to that section of the covet." Although the practice evolved of any insurable interest if either the assured is unaware of the loss at the time of
inserting the ppi clause into a slip pinned ro or otherwise detachable from the acquisition of interest and that of concluding the contract," or the assured is
policy, a policy void at issue by reason of the incorporation of such a clause cannot unaware of the loss at the time of acquisition of the interest but subsequently
subsequently be rendered valid by its physical detachment." Of course, any insurer learns of the loss and discloses that fact to the insurer before the conclusion of
that failed to honour such technically void contracts would destroy its commercial the contract.28
repuration, for which reason ppi policies have generally been treated in practice as 'Lost or not lost' wording provides the solution to a problem that may confront 3.14
if legally binding. Nevertheless, a ppi defence, if taken, is paramount and will be
20
invoked by liquidators of insolvent insurers. Moreover, the view has been
expressed that a
" Cheshire (Thomas) & Co v Vaughan Bros [1920J 3 KB 240, 252-3: Re London County
Commercial Reinsurance Office Ltd [1922J 2 Cb 67, 85.
22 eg rejection of goods by buyer after passing of property or risk but before casualty
" (1808) 1 Camp 543. " ibid 546. occasioning loss.
16 Cheshire (Inomas) & Co v Vaughan Bros (19201 3 KB 240, 248: Edwards Uohn) & Co v 23 C':"y v Harrison (1829) 10 B & C 99 (on a sale of unascertained goods with a subsequent
Motor Union Insurance Co Ltd [1922J 2 KB 249, 252. ~tncondlti?nal aPrropriation a.nd passing of property on loading, the buyer of goods loses any
" Edwards Uohn) &Co v Motor Union Imuranee Co Ltd [1922J 2 KB 249, 256 perMcCardieJ. msurable mterest m the goods If the unpaid seller exercises a right of stoppage in transit
C:0nsequend~,it was held that an insurer who honours a ppi policy is not entitled to subrogation even after los~, since the e~ercise of the right involves a r:sumption of possession of the goods
nghts. The view has even been expressed by Lord Shaw that a ppi policy <infect[s] and invali- negating the delIvery on loadmg and, therefore, the unconditional appropriation).
date[s] the entire insurances which the same assured have made upon vessel, freight or cargo' on . 24 See, eg Stockdale v Dunlop (1840) 6 M & W 224 (contract of sale of goods unenforceable
the basis that gambling on one pan of an adventure jeopardizes the whole: Thames & Mersey at time of loss because an oral contract conferred no insurable interest in the goods on the
Marine Insurance Co Ltd v 'Gunflrd'Ship Co Ltd [1911J AC 529 at 543-4. Sed quaere. buyer); Hal~ead v }0ung(l8%) 6 E & B 312 (no insurable interest under cargo policy that
" Ikerigi Compania Naviera SA v Palmer (The W,mdrous) [1992J 2 Lloyd's Rep 566, 574. attached on loadlllg when assured had purchased cargo to be carried but carrying vessel lost
Re London County Commercial Reinsurance Office Ltd [1922] 2 Ch 67. before arrival at loading POrt).
ibid. See also Re Overseas Marine Insurance Co (1930) 36 LlLRep 183. Roth cases involve 2S See also MIA 1906, scb 1, r 1. " ibid s 6(2).
insolvent reinsurers. 27 Sutherkmd v Pratt (1843) 11 M & W 296. 28 Mead v Davison (1835) 3 A & E 303.
70 71
a buyer of goods on FOB terms." Such a buyer acquires an insurable interest in the subject-matter insured, or a bona fide expectation of acquiring such an interest'.
goods on their loading on board the carrying vessel. However, in twO situ-ations Suppose, therefore, that an assured under a ppi policy, void under section 4 of
the buyers may wish to claim on a cargo policy even though no loss can be proved the 1906 Act, can prove the policy is not illegal because in fact the assured has
to have occurred at a time when the buyer had an insurable interest. First, where it an insurable interest. The assured is entitled to restitution of any premium paid
is established that the loss occurred before loading, the buyer may on the ground of tOtal failure of consideration if the contract is not honoured. 32
wish to claim on insurance cover either because the loss does not justify rejection Moreover, an assured that has no insurable interest throughout the currency of
of the goods or the buyer has paid in advance and the seller is now insolvent. the risk is entitled to restitution of the premium, provided the policy was not
Secondly, it may be impossible to determine when the loss occurred so thar the effected by way of gaming or wagering. 33
buyer cannot prove a breach of contract by the seller. In either case, provided it
can be established that the loss occurred during the contractual period of cover, (d) The general law on gaming and wagering contracts
the buyer can recover if the policy contained a 'lost or not lost' clause and the As already seen, the common law recognized gaming and wagering contracts 3.17
proviso to section 6(1) is satisfied." as in principle legitimate, while refusing to enforce particular wagers that it
regarded as contrary to public policy. Historically, these did not include wager
The now obsolete SG policy, used by the London market until the early 1980s,31
policies on maritime adventures. However, one hundred years after the Marine
included 'lost or not lost' wording. The modern Institute cargo clauses do not.
Insurance Act 1745, the Gaming Act 1845 saw a hardening of policy against
Instead, clause 11.2 provides as follows: 'Subject to 11.1 above, the Assured
wagering contracts. Section 18 of the 1845 Act declared: 'All contracts or
shall be entitled to recover for insured loss occurring during the period covered
agreements ... by way of gaming or wagering shall be null and void.'
by this insurance, notwithstanding that the loss occurred before the contract of
Notwithstanding the generality of the drafting, the 1745 Act was not repealed
insurance was concluded, unless the Assured were aware of the loss and the
and it appears implicit in a series of subsequent challenges to policies containing
Underwriters were not.' This sub-clause is not a 'lost or not lost' clause.
ppi or similar clauses that the validity of marine wager policies continued to be
Although it resembles the proviso to section 6(1) to some extent, it provides
regulated exclusively by the 1745 Act.34 The arguments in these cases all centred
exclusively for a conditional, retrospective attachment of risk. The policy
on the precise scope of the Marine Insurance Act 1745. This applied to ships
covers pre-formation loss sustained during the contractual period of cover,
and cargoes, while the policies in question covered financial interests such as
provided the assured did not possess an information advantage at the time the
profits on cargoes or a loan secured on a ship. In each case, the policy was held
contract was concluded. However, the opening words to clause 11.2 state
void under the 1745 Act. If, however, that Act had effectively been superseded
specifically th~~ it is subject to clause 11.1, which, as noted above, expressly
by the Gaming Act 1845, with the latter invalidating even marine wager policies
requires the assured to have an insurable interest at the time ofloss.
rhat remained valid under the 1745 Act, the precise scope of the 1745 Act
The Marine Insurance (Gambling Policies) Act 1909 would have been of no significance. 35
The sanction imposed on wagers by section 4 of the Marine Insurance Act 1906 is to Statutory intervention in the general field of wagering contracts has lasted 160 3.18
render the contract void, not illegal. However, by virtue of section 1 of the Marine years. However, section 18 of the Gaming Act 1845 is to be repealed wirh
Insurance (Gambling Policies) Act 1909, it is a criminal offence, inter prospective effect by section 334(1) of the Gambling Act 2005. Sections 4 and 6
alia, for any person to effect a contract of marine insurance 'without having any
bona fide interest direct or indirect, either in the safe arrival of the ship in
relation to which the contract is made or in the safety or preservation of the
32 Re London County Commercial Reinsurance Office Ltd [1922] 2 Ch 67. On the burden of
pwof, see MI(GP)A 1909, s 1(5).
33 eg because the assured had an expectation of acquiring an insurable interest: MIA 1906,
29 Under an FOB contract, the seller undertakes to load the contract goods safely on s 84(3)(c).
board a vessel procured by the buyer. Subject to contrary intention, property in the goods 34 Smith v Reynolds (I 856) 1 H & N 221; De Mattos v Gibson (1868) LR 3 Ex 185; Allkin, v
and risk pass from the seller to the buyer on loading. From that point, the seller has no Jupe (1877) 2 CPD 375: Berridge v Man on Insurance Co Ltd (I 887) 18 QBD 346; Gedge v
responsibility for the goods, including for their insurance. , Royal Exchange Assurance Corp [1900J 2 QB 214.
30 New South 1%les Leather Co Pry Ltd v VanguardInsurance Co Ltd [l99lj NSWLR 699 (New 35 For the contrary view that the 1845 Act invalidated all wagering policies, see Hepburn v A
South Wales Court of Appeal). / Tomlinson (Haulim) Ltd [I966J AC 451, 477; Sharp v Sphere Drake Insurance pic (The Moonacre)
31 See 7.02 below. [1992] 2 Lloyd's Rep 501, 510.
72 73
Insurable Interest, Illegality, and Public Policy Imurable Interest
of the Marine Insurance Act 1906 remain unaffected. Section 335 of the Gambling privateers to attack Dutch shipping. In addition, commissioners were charged by
Act 2005 then provides as follows: statute with taking control of Dutch vessels and cargoes detained in or brought into
The fact that a contract relates to gambling shall not prevent its enforcement. British ports. In Lucena v CraujUrd, the commissioners sought to recover on
Subsection (1) is without prejudice to any rule oflaw preventing rhe enforce- insurance in respect of vessels and cargoes seized by British warships but lost
ment of a contract on the grounds of unlawfulness (other than a rule relating before reaching the United Kingdom. Having summoned the judges, the House of
specifically to gambling). Lords rejected the majority's advice in holding that, pending arrival of the ships and
A wager policy would fall within the definition of 'betting', which in turn falls within the cargoes, the commissioners had no certainty of advan-tage in their safety but
definition of 'gambling'." The consequence is a removal of the merely an expectation and, consequently, no insurable interest. In particular, Lord
statutory impediment to wagers on maritime adventures merely because they Eldon rejected the idea, found in earlier case law," that there existed a level of
constitute wagers, but leaving it to the revived common law to determine as a contemplation of advantage in the continued safety of the insured property below
matter of policy whether rhey should be enforced. Given the legislative devel- certainty but higher than mere expectation and that sufficed for an insurable
opment of puhlic policy in the field of maritime adventures, it is suggested that interest. He stated as follows: 40
modern policy must deny the enforceability of wagers on maritime adventures. It In order to distinguish that intermediate thing between a strict right, or a r.ight
would be absurd for a wager policy to be void," but a straightforward wager derived under a contract, and a mere expectation or hope, which has been termed
to be enforceable. an insurable interest, it has been said in many cases to be that which amounts to a
moral certainty. I have in vain endeavoured however to find a fit definition of that
which is between a certainty and an expectation; nor am I able to point out what is
The Concept ofInsurable Interest
an interest unless it be a right in the property, or a right derivable out of some
Tracing the exact parameters of the concept of insurable interest is problematic. Given the contract about the property, which in either case may be lost upon some
contingency affecting the possession or enjoyment of the party.
historical connection with the progressive avoidance of wagering contracts, it may
be tempting to suggest that the test for insurable interest is absence of wager. This, Ultimately, the case turned on the scope of the commissioners' statutory author- 3.22 ity.
however, is incorrect. The requirement under section 6 of the Marine Insurance Act It was clear from the terms of that authority that, pending arrival ofcaptured
1906 that the assured have an insurable interest at the time of loss is a pure vessels or cargoes in a British port, the commissioners had no vested interest in
reflection of the nature of insurance as a contract of indemnity, divorced entirely the properry. The Crown retained the right to release rhe vessels back to their
from any policy against wagers. Thus, an expect-' ation at the time ofconclusion owners, or, alternatively, a declaration of war between Britain and the United
ofthe insurance contract ofacquiring an insurable interest suffices to prevent the Provinces would automatically vest ownership of the captured property in the
contract being one ofwager, but an expectation of an interest is not itself an Crown. Consequently, the commissioners had nothing more than a mere hope of
interest. Consequently, if the expectation remains unfulfilled by the time of rhe interest, which denied a right of recovery on the policy. In the terms of the Marine
casualty, the assured will have no claim. Likewise, an assured that divests itself of Insurance Act 1906, they had an expectation of an interest that would prevent the
all interest in the insured property after effecting the policy cannot recover in the insurance being a wager under secrion 4 but no perfected interest as demanded by
event of a casualty, even though the policy is not void as a wager. the indemnity nature of insurance under section 6.
The concept ofinsurable interestprior to the Marine Insurance Act 1906 Provided the interest takes the form of a proprietary or contractual right, how- 3.23 ever,
the law is not prescriptive with respect to the nature or form of that right.
Prior to the 1906 Act, the leading authority on insurable interest was the deci-sion of the
38 In Lucena v CraujUrd, Lawrence J, advising the House of Lords, was concerned
House of Lords in Lucena v CraujUrd. The French conquest in
to emphasize that the nature of an insurance contract as one of indemnity does not
1795 of the Republic of the Seven United Provinces led the British government,
require the concept of insurable interest to be limited to 'that interest which arises
without declaring war on its erstwhile ally, to direct the Royal Navy and English 41
out of property'. In a celebrated passage, he stated as follows:
.. . interest does not necessarily imply a right to the whole, or a part of a thing, nor
" Gambling Act 2005, ss 3, 9.
And indeed often criminal, although the absurdity is not predicated on criminality.
(1826) 2 Bos & Pul (NR) 269.
38eg Le Gras v Hughes (1782) 3 Doug 81. 40 (1826) 2 Bos & Pul (NR) 269, 321.
" ibid 302-3.
74
75
necessarily and exclusively that which may be the subject of privation, but the arrival of insurable property, or may be prejudiced by its loss, or by damage
having some relation to, or concern in the subject of the insurance, which relation thereto, or by the detention thereof, or may incur liability in respect thereof.
or concern by the happening of the perils insured against may be so affected as to
produce a damage, detriment, or prejudice to the person insuring: and where a The governing idea is that of interest in a marine adventure. Section 5(2) is 3.27
man is so circumstanced with respect to matters exposed to certain risks or dangers, as illustrative of that idea and does not putport to provide an exhaustive defini-
to have a moral certainty of advantage or benefit, but for those risks or dangers 4
tion. ' Moreover, it refers merely to a legal Ot equitable 'telation', a tetm that is
he may be said to be interested in the safety of the thing. To be interested in the
preservation of a thing, is to be so circumstanced with respect to it as to h~ve clearly broader than proptietaty interesr.44 Indeed, the secrion appeats to have
benefit from its existence, prejudice from its destruction. The property of a thmg and been drafted to accommodate pte-Act case law that tecognised an insurable
the interest deviseable from it may be very different: of the first the price is generally interest despite the absence of any proprietaty Ot equitable connection between
the measure, bur by interest in a thing every benefit and advantage arising out of or the assured and the subject-matter insured.
depending on such thing, may be considered as being comprehended.
In Wilson v jones,4' a company was formed to lay a transatlantic telegraph cable. 3.28
On the facts of Lucena v Craufurd, Lawrence J formed part of the minority of the The claimant shareholdet in the telegraph company was held entitled to recover under
summoned judges who advised that the scope of the commissionets' authot- a policy that was held, on its true interpretation, to insure his interest in
ity denied them an insurable interest ptior to attival of the captured property at a the adventure, namely the profits contingent upon the successful establishing of
British port. Ptior to such time, they had 'no existing concern in such property'.42 the telegraphic link. The claimant, however, had no proprietaty or contractual
As alteady seen, the House of Lords accepted the minority's advice. interest in the cable, the adventure of laying the cable, or the profits the com-
pany might make from successfully perfotming the cable-laying operation, and
Some uncertainty surtounds the refetence by Lawrence J to 'moral certainty of
the profits were themselves speculative. As a shareholder, the claimant had title
advantage or benefit' from the continuing safety of the insured propetty as
to his shares and an expectation of benefit in the fOtm of increased value of the
sufficient to constitute an insurable interest. Given the insistence by Lawrence J shares should the operation be successful.
on an 'existing concern' and his conclusion that the commissioners lacked any
insurable intetest, the reference to motal certainty was clearly not intended ro As originally introduced to Parliament in 1906, section 5(2) of the Marine 3.29
extend the scope of insurable intetest into the tealm of expectation or inchoate Insurance Bill contained an extra paragraph. This provided that: 'In particular
intetest. Lawrence J appeats to contemplate an existing connection between ... (b) a prospect of loss or gain which is not founded on any right or liability in, or
assured and subject-matter insured, bur not necessarily a connection in the fotm in respect of, the subject-matter is not insurable.' This paragraph would appear to
of a proprietaty or contractual tight. Conversely, the judgment of Lotd Eld6n overrule Wilson v jones, since the assured in that case had an expect-ation of
appeatS clear in requiting any insurable interest to be underpinned by property financial gain from the insured adventure bur lacked any right or liability in it.
Ot contract, although a genetal proposition beyond rejection of the extension of However, the paragraph was deleted at the committee stage in the House of
insurable intetest into the territoty of expectation and contingent benefit as Commons,46 leaving Wilson v jones as authority for a relaxed approach
contended by the commissionets went further than tequired by rhe case. to insurable interest. Thus, according to the draftsman of the 1906 Act,
4
The concept ofinsurable interest in the Marine Imurance Act 1906 Sir Mackenzie Chalmers: '
Insurable intetest is defined in the Marine Insurance Act 1906 by section 5. This It is clear, since Wilson v Jones . .. that interest is not confined to rights in the
provides as follows:
Subject to the provisions of this Act, every person has an insurable interest 43 O'Kane v Jones (The Martin P) [2003J EWHC 2158 (Comm), [2004J I Lloyd's Rep 389,
who is interested in a marine adventure. paras 145(4), 158.
In particular a person is interested in a marine adventure where he stands in Peasey v Sun Lift Assurance Corp ofCanada [2003J EWCA Civ 885, [2003J Lloyd's Rep lR
any legal or equitable relation to the adventure or to any insurable property 637, para 92.
at risk therein, in consequence of which he may benefit by the safety or due (1867) LR 2 Ex 139.
There is no recorded explanation for the deletion. Presumably, however, either the paragraph was
regarded as incorrecr in contradicting Wilson vJones, or, alternatively, the paragraph correctly
reflected the fact thar Wilson v Jones was not consistent with established legal principle and was
rherefore to be overruled, but on considerarion rhe approach in Wilson v Jones was viewed
as preferable.
42 ibid 305. 47 M Chalmers and DOwen, Marine Insurance Act 1.906(2nd edn, 1913) 13.
76 77
Imurable Interest, Illegality, and Public Policy Insurable Interest
nature of property or arising out of Contract, for the assured had no no 'relation to' or 'concern in', and, therefore. no insurable interest, in the asset.
property in the cable nor any contract respecting it. The decision stands as binding authority that an insurable interest requires some
Suppose A is offered an appointment abroad on the condition that his acceptance form of connection to the subject-matter insured and that the factual likelihood of a
of the offer is received by return of post. Why shall he not insure the safe arrival casualty involving the subject-matter insured impacting adversely on the
of the letter, although he has no legal rights in respect of it after it has heen posted?
assured's finances is not of itself a sufficient connection.
The net result is that the concept of insurable interest that emerges from the 1906 Act
The policy underpinning the approach in Macaura is, with respect, not 3.33 immediately
resembles that advanced by Lawrence J in Lucena v CraufUrd.48 Indeed, the
apparent, and it is noteworthy thar the Supreme Court of Canada
passage from his advice cited above has been adopted as authoritative
49 has refused to follow the House of Lords. In Constitution Insurance Co
in subsequent case law, albeit with the reference ro moral certainty omitted. o/Canada v Kosmopoulos,55 the Supreme Court held that the respondent, the sole
However, if, as suggested above, that is understood as referring to situations where share-holder and direcror of a company, had an insurable interesr in the company's
there is an existing financial connection but no proprietaty or contractual link, as
illustrated by Wilson v Jones, the entirety of the passage may fairly represent the
assets, which had been insured in the respondent's name. Wilson J56 affirmed the
concept of insurable interest adopted in the I906 Act. factual expectarion approach of Lawrence J and refused ro follow the tech-nical
approach adopted in Macaura. As demonstrated by Wilson J, the narrower
The relationship between insurable interest and wagering approach is justified by none of the policies underpinning the insurable interest
Dicta in a number of cases suggest that the crucial question in determining doctrine requirement. Provided the assured will benefit from the continued safety
whether there is an insurable interest, in the modern law at least, is whether the of the insured property and sustain prejudice from its destruction, it cannot be said
51 thar the contract is a wager, that the contract is not one of indemnity for loss, or that
contract amounts to a wager. In The Moonacre,50 for example, Colman QC rhe assured will be tempted fraudulently ro destroy the subject-matter insured in
considered that the policy behind the requirement of an insurable interest was the order ro obtain the indemnity payable. This prin-cipled reasoning is ro be
avoidance of wagering contracts and reasoned that, accordingly, 'provided the
applauded, but in English law Macaura remains a precedent with House of Lords
assured has sufficient interest in the subject matter of the insurance ro
authority.
prevent his contract being a wagering contract, he is entitled ro enforce that
contract'. 52 It is clear, however, that this is not correct. In English law, insurance
contracts fall into three categories: contracts supported by an insurable interest, Thus, in Feasey v Sun Lift Assurance Corp o/Canada,57 it was accepted by counsel
wager contracts, and contracts that are not wagers but that nevertheless lack an 3.34 that precedent rendered the approach of The Moonacre unsustainable in indem-
insurable interest, notwithstanding the rejection in The Moonacre of any such third nity insurance and the COUrt of Appeal held that in life insurance the existence of
categoty.53 an insurable interest did not follow auromatically from a finding that the
contract was not a wager.
In Macaura v Northern Assurance Co Ltd. 54 rhe claimant sole shareholder and
unsecured creditor of a company rook our a policy on the company's sole asset of Nevertheless, the courts have long been alive to the absence of merit in an 3.35 insurable
any value. Clearly, the prospects for repayment of the debt depended heavily on the interest defence. In Stock v Inglis,58 Bretr MR observed as follows:
continued safety of the sole asset, so that the insurance could not be regarded as a In my opinion it is the duty of a COUrt always to lean in favour of an insurable
wager. Nevertheless, the House of Lords held that the assured had interest, if possible, for it seems to me that after underwriters have received the
premium, the objection that there was no insurable interest is often, as nearly as
possible, a technical objection, and one which has no real merit, certainly not as
See 3.23 above.
Mark Rowlands Ltd v Berni Inns Ltd [1986J 1 QB 211, 228; Sharp v Sph'" Drake
Insurance pic (The Moonacre) [1992J 2 Uoyd's Rep 501, 511.
50 ibid 501. 51 Sitting as a deputy judge. 55 (1987) 34 DLR (4th) 208, discussed by J Birds, 'Insurable Interests' in N Palmer
52 Shalp v Sphere Drake Insuran,e pic (The Moonere) [1992J 2 Uoyd's Rep 501, 510. See also and E McKendtick (cds) Interests in Goods (2nd edn, 1998) Ch 4.
Moran, Galloway & Co v Uzielli [19051 2 KB 555, 563; Lonsdale & Thompson Ltd v Black Arrow A majority of the Supreme Court concurring.
Group pic [19931 3 All ER 648,653 per Jonathon Sumption QC: 'The whole law as to what [2003J EWCA Civ 885, [20031 Uoyd's Rep IR 637. patas 51-53.
amounts to an insurable interest and when it is required, is derived from the statutory (1884) 12 QBD 564, 571, an approach unanimously endorsed by the Court of Appeal in
avoidance of wagering contracts.' ' Feasey v Sun Lift Assurance Corp ofCanada [20031 EWCA Civ 885, [20031 Uoyd's Rep IR 637,
53 ibid. 54 [19251 AC 619. paras 7, 116, 140. See also Cepheus Shipping Cotp v Guardian Royal Exchange Assurance pIc (The
Capricorn) [19951 I Uoyd's Rep 622, 641.
78
79
between the assured and the insurer. Of course we must not assume facts which do cargo ar desrinarion, the carrier's contingent right to freight is insurable as soon
not exist, nor stretch the law beyond its proper limits, but we ought, 1 think, to as the freight-earning voyage commences, and possibly earlier."
consider the question with a mind, if the facts and the law will allow it, to find in
favour of an insurable interest. Thirdly, by virtue of section 8 of the 1906 Act, partial interests of any nature are 3.39
insurable. Examples include assureds with hotchpot interests in the insured
Consequently, while the category of non-wager policies where there is no insur-
property,64 co-assureds, and secured creditors. Similarly, in Wilson v Jones, 65 the
able interest unquestionably exists, the courts are likely to confine it within narrow
assured's interest did not exrend ro the entire adventure and the entirety of the
limits. It is suggested that fresh examples not covered by precedent are unlikely. 59
anticipated profits.
In some cases, the insurable interest difficulty arises out of an apparent mis-match (3) Insurable Interest in Particular Types of Insurance
between an interest possessed by the assured that is certainly susceptible
60 In rhe light of the above generalized discussion of insurable interest, consider- 3.40
ro insurance and the subject-matter of the policy in fact procured. In such
ation can be given to certain types of marine policy. In Glengate-KG Properties v
circumstances, it may be possible to avoid a conclusion of lack' of insurable interest
Norwich Union Fire Insurance Society Ltd,66 AuldLJ remarked: 'Although rhe
by interpreting the subject-matter of the policy with care, and indeed, 'it sometimes
term "insurable interest" may have a constancy of meaning in the broad sense
assists to identifY the subject to ask what insurable interest the [assured] has'."
Where, however, the subject-matter is clear, any apparent mis-match can be stated by Mr Justice Lawrence in Luana v Craufurd ... rhe nature of the
insurable interest in each case must depend on the type of cover in issue.'
addressed, if at all, only by flexibility in rhe concept of insurable interest. 62
(a) Property insurance
Defiasible, contingent andpartial interests In the case of hull or cargo insurance, the assured's interest will normally be 3.41
proprietary or contracrual, satisfYing even the approach of Lord Eldon in Luana
The Marine Insurance Act 1906 is clear that not only full, vested, and absolute interests
are insurable. First, section 7(1) of the Act provides that a defeasible interest is
v Craufurd
insurable. Section 7(2) provides the example of a buyer of goods to whom Ownership confers an insurable interest in the full value of the insured property, 3.42
ownership and/or risk in the goods have passed bur who is entirled by reason of a even if a third party has contracted to indemnifY the ownet in respect ofsome or
breach of contract by the seller to reject the goods so that the incidence of any all of the loss covered by the policy.51 Consequenrly, neither charterparty
insured loss reverts to the seller. The defeasibility of the buyer's interest at its own indemnities nor another policy on the insured hull will prejudice a shipowner's
option does not prejudice its insurability. ability to insure.
Secondly, section 7(1) of the 1906 Act also provides that contingent interests are insurable. An insurable interest may alternatively be based on risk. This is particularly 3.43
Thus, where the right to freight is dependent upon the safe arrival of relevant in cargo insurance, whete risk may be divorced from ptoperty. The
purchaser of an undivided share in a bulk cargo to whom risk has passed has
always been recognized as having an insurable interest," notwithstanding English
law's former refusal to recognize that such a buyer has either a legal or equitable
title to such unascertained goods. 69
S9 This is supported by developments in the field of liability cover: see 3.58ff below.
60 See, eg Anderson v Morice (1876) 1 App Cas 713 (see 3.44 below), where the assured buyer
could have insured against lost profits under the sale contract but fatally insured the goods that The point at which an insurable interest in freight arises is discussed at 3.52ffbelow.
were lost before property or risk could pass. Likewise, in Macaura v Northern Assurance Co Robertson v Hamilton (1811) 14 East 522; Ebsworth v Alliance Marine Insurance Co (1873)
Ltd [1925] AC 619 (see 3.32 above), the assured could have insured against debtor default or loss LR8 CP 596.
of shareholder profits but fatally insured the property of the debtor company in which he held (1867) LR 2 Ex 139.
shares. See also Deepak Fertilisers & Petrochemicals Corp v ICI Chemicals & Pofymers Ltd [1996J 1 Lloyd', Rep 614, 623. See also Feasey v Sun Lift Arsurance Corp v/Canada [20031
[1999J 1 EWCA Civ 885, [20031 Lloyd's Rep IR 637, para 66.
Lloyd's Rep 387; see 3.63 below. MIA 1906,,14(3). 66 Inglis v Stock (1885) 10 App Ca, 263,
67
61 Feasey v Sun Lift Assurance Corp o/Canada [2003J EWCA Civ 885, [20031 Lloyd's
69 Sale of Goods Act 1893, s 16; Re Wizitll927J 1 Ch 606. See now Sale of Goods Act 1979,
Rep IR 637, [75J per Waller LJ. See also MIA 1906, s 26(3). ss 16, 20A, as amended by the Sale of Goods (Amendment) Act 1995. recognizing a tenancy in
62 OKane v Jones (The Martin P) [2003J EWHC 2158 (Comm), [20041 ILIoyd's Rep 389,
common.
para 141.
81
80
Whether a buyer ofgoods has an insurable imerest may turn upon fine poims of whereas the sellers had no right ro repossess and unload the goods unless
interpretation of the contract of sale. In Anderson v Morice,70 the assured was rejected by the buyer. 73
the buyer of 'the cargo of new crop Rangoon rice, per Sunbeam . .. Payment by
A secured creditor benefits from an insurable imereSt in the property over which 3.46
sellers' draft on purchaser at six momhs' sight, with documems attached'. Mter
the creditor has a security interest ro the value of the outstanding secured debt,
loading most of the cargo, the vessel sank and both vessel and cargo on board
while the owner!debror retains an imerest in the full value of the insured pro-
were lost. On the basis that the subject-matter of the contract was a complete
perty. 74 An unsecured creditor, in contrast, has no interest in its debtor's property,
cargo of rice on the Sunbeam, the Court of Exchequer Chamber denied the
but merely an expectation or a possibility of repayment from the fruits thereof."
assured recovery for lack of an insurable imerest. Although the parties might
In Macaura v Northern Assurance Co Ltd,76 the owner of a timber estate sold all
have agreed rhat risk was to pass to the buyer in each bag of rice as individually
the timber to a timber company in return for 42,000 fully paid £1 shares, the
loaded, such was not the true construction of the comract, pursuam ro which rhe
only shares the company issued, and then insured the timber against fire. When
seller had ro load a full cargo before being able to prepare shipping docu-mems
the assured was still owed £19,000 by the company, a fire destroyed most of the
and require the buyer ro accept the goods and pay. An appeal to the House of
timber, but the House of Lords held thar the assured had no insurable imerest in
Lords was unsuccessful, the four members of the House who heard the appeal
the timber as eithet sole shareholder or crediror. A shareholder has no legal or
being evenly divided.
equitable interest in the company's propetty. 'He is emitled to a share in the
In Colonial Insurance Co ofNew Zealand v Adelaide Marine Insurance CO,71 in profits while the company cominues ro carry on business and a share in the
contrast, the seller comracted to supply a catgo of wheat at the port of Timaru free distribution of the surplus assets when the company is wound Up.'77 Thus, while
on board the Duke of Sutherland, a vessel chartered by the buyer, who insured amicipated profits from a marine advemure confer an insurable imerest on a
'wheat cargo now on board, or to be shipped' in the Sutherland. After loading of the shareholder in the company undertaking the advemure," even a sole share-
cargo had commenced, the vessel and the wheat on board were lost by a covered holder has no insurable imerest in the assets of the company. Qua crediror, the
petiJ. The Privy Council observed that the word 'cargo' was susceptible of various assured failed because he had taken no security over the timber. Lord Buckmaster
imerpretations. In context, it referred merely to such a number of bags of wheat as conceded that, since the timber constituted the sole asset of the company, there
the vessel could properly carty, risk passing in each bag as loaded on board, as was a moral certainty of the assured sustaining a loss in the evem of its destruc-
opposed ro the indivisible bulk cargo sold and insured in Anderson which came imo tion. However, 'this moral certainry becomes dissipated and lost if the asset
existence only once the full quantity had been loaded on board. In Anderson, be regarded as only one in an innumerable number of items in a company's
moteover, the carrying vessel had bee~ chartered by the sellers who were ro receive assets and the shareholding be spread over a large number of individual share-
freight for the carriage of tite rice. Consequently, the loading in Anderson did not holders'." Lord Sumner subjected the assured's position to the following clinical
constitute delivery ro the buyers, who were to look to the shipping documems, analysis:'o
which were ro be under the sellers' directions. In the Colonial case, in comrast, the
The debt was not exposed to fire nor were the shares, and the fact that he was
Sutherland having been char-tered by the buyer, loading on board the vessel virtually the company's only creditor while the timber was its only asset, seems to
constituted delivery ro the buyers pursuant to the comract of sale on FOB terms, the me to make no difference. He stood in no 'legal or equitable relation to' the timber
master of the Sutherland receiving the cargo on board as agem for the buyers and at all. He had no 'concern in' the subject insured, His rdation was to the company,
issuing bills of lading in accordance with their instructions. 'The sellers had nothing not to its goods, and aftet the fire he was ditectly prejudiced by the pancity of
to do with the wheat Ot the destination rhereof after it was on board.''' The buyers in the company's assets, not by the fire.
the Colonial case, moteover, had an imerest in the part delivery in that, had the As noted above, some uncertainty attends the meaning to be attached to the 3.47
sellers failed to complete delivery, the buyers would have been emitled ro retain the reference by Lawrence J in Lucena v CraujUrd to moral certainty, yet the
wheat loaded on boatd against payment of a proportionate part of the comract price,
73 The insurability of the buyer's defeasible interest is confirmed by MIA 1906, s 7.

" ibid s 14(1); Irving v Richardson (1831)2 B & Ad 193.
75 Moran, Galwway & Co v Uzieili [190512 KB 555, 562.
76 [1925] AC 619. 77 ibid 626-7 per Lord Buckmaster.
70(1874) LR 10 CP 58, rvsd (1875) LR 10 CP 609, affd (1876) 1 App Cas 713. 78 Wilion vJones (1867) LR 2 Ex 139, see 3.28 above.
" (1886) 12 App Cas 128. 72 ibid 137 per Sir Barnes Peacock. " [1925J AC 619, 627. 80 ibid 630.
82 83
claimant in Macaura was 'so circumsranced with respect to [the timber] as to It has also become clear thar liability may form rhe basis for an insurable interest in
have benefit from its existence, prejudice from its destruction', In Macaura, property, Thus, in Feasey v Sun Lift Assurance Corp ofCanada," a P&I club
however, the House of Lords rejected the breadth of the approach of sought ro reinsure its liability ro indemnifY its members in respecr of rheir liability
Lawrence ] and unequivocally held thar the fact of highly probable financial for personal injuty and illness sustained by an 'original person', namely one engaged
prejudice from loss of or damage to property does not, of itself, suffice for an in any capacity on board a vessel or offshore rig entered with the
insurable interest in that property, There must in addition be some 'concern in' association. It did so, however, not by a conventional reinsurance contract but
the subject-matrer insured in the form of a 'legal or equitable relation', by taking our a policy against injury or illness sustained by an original person.
3.48 It may be nored, however, that a creditor, whether secured or unsecured, can insure The reinsurers in rum covered their liability under a furrher reinsurance con-
against the risk of its debtor's insolvency,81 Moreover, in Moran, Galloway & Co tract. Subsequently, one of the second rier of reinsurers raised the defence that
v Uzielli,82 Walton ], while denying the unsecured creditors of a single ship the P&l club had no insurable interest in rhe original persons, Ir was held,
company an insurable interest in the vessel by virtue of the debt, held that the however, that the liability of the club generated an insurable inrerest in rhe
creditors had an insurable interesr in the ship by reason of their right to bring in lives and wellbeing of original persons, Similarly, contractors and sub-
rem proceedings in a Court ofAdmiralty, contractors thar are contracted to work on a project have been held to have an
insurable interest in the entirety of the projecr property in respecr ofwhich they
An insurable interest may arise in property if its loss or damage would deprive the may incur liability.89
assured of the opportunity ro carry our work in relation to rhe property and
rhereby earn remuneration, A ship's managers, therefore, have an insurable (b) Insurance on feight, hire, andprofits
interest in the managed vesse1.83 The rraditional approach is thar freight, even if the subject of a binding con- 3.52 tract,
A mere contracruallicence to use is probably insufficient of itself to create an insurable has no exisrence until the vessel has embarked upon the freight-earning adventure. 90
interest,84 bur a licence ro use coupled with acrual occupation and enjoyment of There is then said to arise an inchoate right to freight, which can support an insurable
property has been held ro generate an insurable interest in rhe relevant property,85 interest. The case law, however, stretches rhe concepr of an inchoate right to freight
Moreover, in The Moonacre,86 a yacht was acquired for the benefir of the claimant. to situations where the vessel is ready, willing and able
For tax reasons, ownership was vested in an off-rhe-shelf company, which, by two ro embark on rhe freighr-earning voyage or has at least taken prepararory steps
irrevocable, fixed term powers of atrorney, granted unlimired and exclusive powers demonstrating an intention to perform it, Such prepararory steps have been held ro
of management and disposal to the claimant, in" include embarking upon the outward voyage to the port of loading of cargo for the
freight-earning return voyage" and srarring alrerations or repairs ro enable the
whose name the yachr was insured, Colman QC 87 held that the powers of
vessel to load cargo,92 Indeed, so elastic has the concept of an incho-ate right to
atrorney conferred a benefit contingent on the continued safety of thevessel
freight proved ro be that examples of an assured being denied recovery for want of
sufficient ro constirute an insurable interest, Macaura was distinguished on the
ground that the powers of atrorney created a direct relationship between the insurable interest despite a binding contracr ro earn freight are elusive. 93 There are
claimant and the yacht. The corporate veil merely disguised the claimant's dicta, moreover, that suggest that a binding contract to earn freight is all that is
genuine inrerest in the yacht, rhe reality and immediacy ofwhich was in requited for an insurable interest. 94 Given rhe evolution-ary nature of rhe docrrine
contrasr ro the unsecured crediror's insulation from rhe assets of its debtor, of insurable interest and the commendable judicial relucrance to see recovery denied
for want of insurable interesr where the insur-ance does not offend public policy, it
is tempting to suggest that today no court
Waterkeyn v Eagle, Star & British Dominions Insurance Co Ltd(1920) 5 LlLRep 42.
[1905) 2 KB 555,
Thames & Mersey Marine Insurance Co Ltd v Gunflrd Ship Co Ltd [1911J AC 529 549'
OKane v jones (The Martin P) [2003J EWHC 2158 (Comm), [2004J 1 Uoyd's Re~ 389: paras [2003J EWCA Civ 885, [2003] Lloyd's Rep IR 637. 89 See 3.58ffbelow,
88
154-157, " Thompson v Taylor (1795) 6 TR 478, 91 Barber v Fleming (1869) LR 5 QB 59,
84 Glengate~KG Properties Ltd v Norwich Union Fire Insurance Society Ltd (1996] 1 Lloyd's Rep 92 Truscott v Christie (I 820) 2 Brod & B 320; Devaux v j'Anson (1839) 5 Bing NC 519,
614,622,624,
93 Arnould, Law of Marine Insurance & Average Sir Michael MustiIl and J Gilman (eds)
85 Goulstone v Royal Insurance Co (1855) 1 F & F 276.
(l6tb edn, 1981) para 362,
" Sharp v Sphere Drake Insurance pic (The Moonacre) [1992J 2 Lloyd's Rep 50L 94 Barber v Fleming (1869) LR 5 QB 59, 67; Foley v United Fire & Marine Insurance Co of
87 Sitting as a deputy judge.
Sydney (1870) LR 5 CP 155, 163,
84 85
would deny recovery on a freight policy where an assured with a contract to earn The nineteenth century also saw an increasing acceptance of insurance of 3.55 profits.
the insured freight had undertaken no steps whatsoever towards performance of the Their insurability had been established before Lucena v Craufurd but
freight-earning contract. Lord Eldon was dear that no insurable interest could lie in speculative profits. Thus,
where a vessel embarked on a voyage to seek trade in the expectation of profit, that
In addition, by 1901 it was clear that a shipowner had an insutable interest in the income-
hope of profit that might or might not be realized could not found
generating capacity ofa ship, 'entirely independent of any particular contract for the
an insurable interest. 10l In contrast, profit secured by contract was insurable. 102
payment of freight or hire'. 95 Today, shipowners will commonly protect the income
Moreover, Lord Eldon's restrictions were sidestepped by regarding the potential,
expected to be generated by vessels by time policies covering loss of hire or loss of
albeit uncertain, profitabiliry of cargo as part of the cargo itself and inflating the
earnings, or business interruption policies. Issues of quan-tification ofloss may be 'O
addressed by including an agreed value for the financial agreed value of cargo under a cargo policy to reflect that profit element. ' In Eyre
interest at risk. Such policies give rise to issues of interpretation of the extent of v Glover,,04 Lord Ellenborougb C] asked: 'Are profits any thing more than an
96 excrescence upon the value of the goods beyond the prime cost?' Of course, that
cover, rather than questions of insurable interest.
device is available only to those entitled to procure cargo insurance by reason of an
Such an approach provides the basis today of insurance on freight. In this sense, insurable interest in the cargo and is subject to the limitations on cover found in
HobhouseJ commented that insurance on freight 'is not a ptofits insurance bur has cargo policies. Thus, where the adventure becomes impossible to perform before
risk attaches under a cargo policy or by reason of a casualty not covered under such
as its underlying concept that part of the value of a vessel or of a voyage or other
a policy, as where the carrying vessel is disabled and pre-vented from reaching the
adventure as its capacity to earn freights'. 97 Consequently, the technical issues of
'Os
insurable interest canvassed above are unlikely to arise. Moreover, the Institute port of loading, the assured will not be covered. However, as already discussed,
freight clauses provide that: 'In the event of the total loss (actual or constructive) of it was held in Wilson vJones'O' that an anticipated financial gain through a rise in
the Vessel herein named the amount insured shall be paid in full, whether the the value of the shares of a company undertaking a maritime adventure gave a
Vessel be fully or partly loaded or in ballast, chartered or unchartered.''' According shareholder in the company an insurable interest in the adventure. It appears to
to Lord Wright in Robertson v Petros M Nomikos;99 follow that any party with a right to gain from a profitable voyage has an insurable
interest in the marine adventure and can insure anticipated, albeit uncertain, profits
The [final] words of the clause, 'or in ballast, chartered or unchartered,' seem to be '07
intended to exclude in the most unqualified manner any other question of an through an appropriately drafted policy on the adventure.
assured's insurable interest in the freight. The policy is a time policy,100 and the
intention may be to secure that even if the vessel at the time of the casualty has no
cargo on board (that is, in ballast) and has no charter, there shall be no question of (c) Liability insurance
insurable interest, though it is not likely that any underwriter would thin,k of An interest in a marine adventure or in any property at risk in such an adven- 3.56 ture,
raising such a question in a case of this type. The intention may be to provide that the
such that third parry liability may be incurred by reason ofa casualty in the
owner's interest in the profit-earning capacity of his ship, which is certainly a good
interest in a business sense, should be deemed a sufficient insurable interest course of that adventure, constitutes an insurable interest. 108 Liability cover,
for [the] purposes of this policy. 1should see no legal obstacle why this agreement indeed, forms an indispensable aspect of a shipowner's insurance, provided in part
should not receive effect. by the hull and machinery policy bur principally through membership of a P&I
club.
95 Manchester Liners Ltd v British & Foreign Marine Insurance Co Ltd(1901} 7 Com Cas 26, 33 10' Lucena v CraujUrd(l802) 2 Bos & Pul (NR) 269, 326.
perWaltonJ. 102 Royal Exchange Assurance Corp v M'Swiney (1849) 14 QB 646.
" See, eg IF P&c Insurance Ltd (Publ) v Silversea Cruises Ltd [2004] EWCA Civ 769, [2004] 103 Stockdale v Dun/op (1840) 6 M & W 224, 232-3. '" (1812) 16 East 218, 220.
Lloyd's Rep IR 696 (claim by operators of cruise liners for loss of income as a result of 105 ibid. See also Halhead v YtJUng (1856) 6 £1 & Bl 312. Characterization as an insurance on
terrorist attacks in New York on 11 September 2001). goods also meant it fell within the MIA 1745, so that inclusion of a policy proofof interest clause
Ikerigi Compania Naviera SA v Palmer (The Wondrous) [1991] 1 Lloyd's Rep 400, 417 rendered the policy void: Smith v Reynolds (1856) I H & N 221.
per Hobhouse J. 105 (1867) LR 2 Ex 139.
Institute Time Clauses Fteight (1/8/89), d 15.1; (1/11/95), d 16.1; Voyage Clauses Fteight Cepheus Shipping Corp v Guardian Royal Exchange Assurance pic (The Capricorn) [1995] 1
(1/8/89), d13.l; (1111/95), dl2.1. Lloyd's Rep 622, 637 (loss of earnings, but profits analogous); Glengate-KG Properties Ltd v
[1939] AC 371. 384. Norwich Union Hre Insurance Society Ltd [1996] 1 Lloyd's Rep 614, 622.
Although the same provision is found in Institute voyage clauses for freight. MIA 1906, ss 3(2)(c), 5(2).
86 87
Limited Interests one assured can recover in full in respect of rhe entire loss sustained. Such
An insurable interest is required to enable an assured to recover in the event of a loss. recovelY will be beneficially for that assured to the extent of the loss sustained by
However, that interest does not prescribe the extent to which insurance can be its interest and held on aCCount in respect of rhe remainder for the benefit of the
other assureds that have sustained 10ss.117 The quesrion arises, however, of how a
effected or indemnity recovered in the event of a casualty. 'A person having a
sub-contractor can claim an insurable interest in the plant or vessel itself. The
limited interest may insure either for himself, and to cover his own interest only, or
answer has been the development of the 'pervasive interest'."8 This was described
he may insure so as to cover not only his own limited interest, but the interest of all
others who are interested in the ptoperty."o, Where the interests of others are also by Rix J in State ofthe Netherlands v Youell:' 19
covered, in the event of a casualty, the assured can recover in excess of its insurable The concept of separate interests under a composite insurance is ... to be dis-
interest, but must then account to the other interested parties to the extent that the tinguished from the concept of a pervasive interest which the owner of one such
measure of indemnity received responds to loss in excess of the separate interest may have to claim in respect of all the loss suffered by all separ-
ately interested co-assureds under a single policy on property. A pervasive interest
assured's interest. 110 For example, a bailee such as a warehouseman or a carrier can
in this sense partakes ofcertain characteristics of both a separate interest and a joint
insure goods entrusted to its care for their full value and recover in full in the event interest for the very good reason that in such a case the claimant is entitled to claim
of a total loss. A bailee is not limited to its own intetest in the goods as a secured not only for himself but also for the benefit ofhis co-assureds in the full amount of
creditor wirh a lien for its charges or with respect to its liability to the bailor."' the loss.
Likewise, a mortgagee can insure mortgaged ptoperty for its full value and not
2
merely to the extent of the mortgagee's interesr." The party with the limited By a pervasive interest is meant the right to claim an insurable interest in the whole
interest is not, however, a trustee of the policy or the right to claim for the benefit of property, analogous to the well-known right of a bailee to insure for the total value
the other interested parties to the extent of their interests. They acquire no rights of the property bailed and nat merely ro the extent of his liability interest as bailee:
against the insurer, only against the assured in respect of indemnities received in if the property is lost or destroyed, the bailee can recover for the whole value of the
property even though he may be under no liability to the owner, and he holds the
excess of the loss sustained by the assured's interest.'13 Such rights ate ptobably not
proceeds of insurance in truSt for the owner ...
confined to a petsonal obligation to account bur extend to a ptoprietaty interest by
way of charge."
4 As Rix J indicates, the pervasive interest is considered to be analogous to and, 3.59
indeed, a development of the ability of the holder of a limited interest to insure
Pervasive Interests for the benefit of all interested parties. There is, however, a major difference.
The reasoning in the limited interest cases does not involve the creation of a new
Composite policies designed to insure against the incurring of liability may be category of insurable interest. Instead, it permits the holder of a limited interest
'15
drafted in the form of property rather than liability insurance. For example, a to insure the property in which the holder is interested beyond the extent of
composite policy may be taken out in the context ofa construction or shipbuild-ing that interest and recover, in the event of a loss, for the benefit of others with an
contract under which the entire plant or vessel being constructed is insured
interest. The concept of rhe pervasive interest, however, confers an insurable
'16
for the benefit of the head contractor and each sub-contractOr. In the event of a interest on parties that would otherwise lack any insurable interest in the
casualty, each co-assured can claim in respect of its individual loss, but also any insured property.
In Petrofina (UK) Ltd v Magnaload Ltd,120 suppliers of heavy lifting equipment 3.60
109 Castellainv Preston (I883) 11 QBD 380, 398 per Bowen used in the construction of an extension to an oil refinery were held to have a
L]. '" DG f,nance Ltd v Scott [1999J Lloyd's Rep lR 387. pervasive interest under a contractors' all risks policy in the entirety of rhe
111 'Waters v Monarch Fire & Life Assurance Co (1856) 5 £1 & B1870; Tomlinson (Hauliers) Ltd v
Heppburn [1966J AC 451.
contract works. In particular, they had an insurable interest in contract works
m MIA 1906, s 14(2). '" DG Finance Ltd v Scott [1999J Lloyd's Rep lR 387.
'>4 Re Dibbens [1990J BCLC 577.
A court faced with a policy drafted as a property policy will not strain to construe it as a liability See the discussion oflimited interests at 3.57 above.
policy simply because the underlying commercial purpose is to address liability: 1Omlinson (Hauliers)
The concept of a pervasive interest was pioneered by the Supreme Court of Canada in
Ltd v Hepburn [19661 AC 451: Petrofina (UK) Ltd v Magnaload[1984J QB 127.
Commonwealth Construction Co Ltd v Imperial OilLtd (l 977) 69 DLR (3d) 558 and relied upon
It is a question of interpretation whether the policy insures each co~assure~separately to the
as persuasive aurhority hy Lloyd] in Petrofina (UK) Ltd v Magnaload Ltd [19841 1 QB 127, see
extent of its own interest or whether it covers the entirety of the contract works for the benefit 3.60 below.
separarely of each co-assured: Petrofina (UK) Ltd v Magnaload Ltd [1984J 1 QB 127, 134. '" [199712 Lloyd's Rep 440, 448-9. 120 [19841 QB 127.
88 89
Insurable Interest, Illegality, and Public Policy Embodiment in a Policy
damaged in the course of dismantling the lifting equipment, despite the stretch as far as commercial convenience calls for the composite policy to
fact that they lacked any connection to the insured property of the type required extend.128 National Oilwell was, thus, applied to a service provider to a construc-
by the House of Lords in Macaura v Northern Assurance.'21 Lloyd J acknow- tion project in Hopewell Project Management Ltd v Ewbank Preece Ltd.'" There
ledged that the bailee cases had been based in part on reasons peculiar to are, nevertheless, limits. For example, once a contractor on a construction
bailment that did not apply to contractors' policies and did not address project and co-assured under a composite policy has complered its work and
Macaura, but observed that the limited interest cases were additionally founded on withdrawn its equipment, so that the only remaining connecrion between the
commercial convenience also clearly present in the case of contract~rs' contractor and the property is potential liability, the sub-contractor cannot have
I
·· 122 po 130
ICles. any insurable interest in the structure under construction. Cover in respect of
such liability will have to be provided by a genuine liability policy.
3.61 The pervasive interest docrrine has subsequently been extended to cases where a
supplier of equipment to be used in a construction project itself takes no part in on- A pervasive interest is consistent with the separare or severable interest analysis 3.64
site work. In Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd, 123 of composite policies and does not compel the different assureds to be treated as
Colman J applied the doctrine to a sub-contractor that supplied a tailshaft to be joint assureds. 131
incorporated into a vessel being constructed by the main contractor and
principal assured. The relevant question was:
.. . whether the supplier of a part to be installed in the vessel or contract works
B. Embodiment in a Policy
under construction might be adversely affected by loss of or damage to the vessel or
other works by reason of the incidence of any of the perils insured against by the Section 22 of the Marine Insurance Act 1906 provides as follows: 'Subject to the 3.65
policy in question. If the arr&wer is in the affirmative there is no reason why such a provisions of any statute, a contract of marine insurance is inadmissible in evidence
sub-contractor should not also have sufficient interest in the whole contract works unless it is embodied in a marine policy in accordance with this Act.
to be included as co-assured under the protection of the head contractor's pOlicy.124 The policy may be executed and issued either at the time when the contract is
3.62 This extension of the doctrine was then reconsidered and confirmed by Colman concluded, or afterwards. '132 The origin of this provision lies in the levying of
stamp duty, ar speci'llly enhanced rates, upon marine insurance contracts by the
J in National Oilwell (UK) Ltd v Davy Offihore Ltd,125 where a sub-contractor
who supplied part of a floaring oil production facility being constructed by the Stamp Act 1795. 133 Stamp duty is a tax on documents, not transactions.
main contracror and principal assured for use in the North Sea was held to haye Consequently, in order to prevent avoidance of the duty, marine insurance
an insurable interest in the entirety of the insured property. Colman J observed contracts were subjected to various regimes of formalities, of progressively
that an insurable interest does not demand a proprietary or possessory interest diminishing severity, until the Marine Insurance Act 1906 accepted the validity
but denied the admissibility in evidence of any contracr of marine insurance not
in the insured property, but can arise 'from the existence of a contract between
embodied in a policy 'in accordance with this Act'.
the assured and the owner of the property or from the assured's proximate
physical relationship to the property in question'."'In Feasey vSun Life Assurance Secrion 23 of the Act then required rhe policy to specify five particulars. By 3.66
Corp o/Canada,127 the Court ofAppeal approved the recognition of an insurable virtue ofsection 23(1) the policy had to state the name of the assured or ofsome
interest in property based on a contractual connection to the property and person effecting the insurance on his behalf. Secrion 23(2) to (5) required rhe policy
liability for damage to it. ro specify further the subject-matter insured and the risk insured against;
3.63 It may generally be expected that the doctrine of the pervasive interest will
128 In National Oi/well Colman Jremarked that the commercial justification for such
policies was 'a sound and compelling basis for me English courts to recognize an insurable
interest where so to hold would not be contrary to principle': [1993] 2 Lloyd's Rep 582, 611.
121 See 3.52 above. 122 See 3.63 below. '" [199811 Lloyd's Rep 448, 456.
'" [199Il 2 Lloyd's Rep 288, rvsd on different grounds [1992J 2 Lloyd's Rep 578. 130 Dupak Fertilisers & Petrochemicals Corp v ICI Chemicals & Polymers Ltd [1999] 1 Lloyd's
124 [1991] 21.l0yds Rep 288, 301. 125 [1993] 2 Lloyd's Rep 582. Rep 387.
126 ibid 611. For an example of insurable interest based on contract in ordinary property State ofthe Netherlands v Youell [1997] 2 Lloyd's Rep 440.
insurance, see Sharp v Sphere Drake Insurance pic (The Moonacre) [1992] 2 ~loyd's Rep 501, at The second sentence codifies the decision in Mead v Davison (1835) 3 A & E 303.
3.50 above. ' On stamp duty and marine insurance contracts, see H Bennett, 'The Role of the Slip in
m [2003J EWCA Clv 885, [2003] Lloyd's Rep lR 637, see 3.51 above. Marine Insurance Law' [1994] LMCLQ94.
90 91
Insurable Interest, Illegality, and Public Policy Illegality ofthe InsuredAdventure
the voyage, period of time or both covered by the insuranc~;the sum or s:,ms C. Illegality of the Insured Adventure
insured; and the name or names of the insurers. These prOVIsIons were denved
The contaminating effect of an illegal voyage was clearly stated by Tindal CJ in 3.70
from the Stamp Acr 1891.
Redmond v Smith: 144 'A policy on an illegal voyage cannot be enforced; for it would be
In the Finance Act 1959 marine insurance was aligned with orher forms of insurance reducing the
tariff and removing formalities. Consequently, both the singular, if, the original contract being invalid and incapable to be enforced, a collateral
ecial m~rine insurance provisions in rhe 1891 Stamp Acr and their derivatives' contracr founded upon ir could be enforced. It may be laid down, therefore, as a general
sP . ald 134 in section 23(2) ro (5) of the Marine Insurance Act 1906 were repe e . rule, thar, where a voyage is illegal, an insurance
Ultimately, stamp duty on marine insurance contracrs was abolished by the Finance upon such voyage is illegal.' Accordingly, section 3(1) of the Marine Insurance Act
Act 1970. There is, therefore, no fiscal reason why marine insurance contracts 1906 provides that 'every lawful marine adventure may be the subjecr of a
should continue ro be excluded from evidence unless embodied in a contract of marine insurance', and section 41 states as follows: 'There is an
implied warranty that the adventure insured is a lawful one, and that, so far as rhe
policy.
assured can control the matter, the adventure shall be carried out in a lawful
The statutory requirement for a policy found in section 22 remains unrepealed, but the manner.'
statutory requirements for a document to qualifY as a policy 'in accord-ance with
[the 1906J Act' are few. A document need merely comply wirh section 23(1), be Where, rherefore, the insured adventure is illegal ab initio, no valid conrract of 3.71
signed by or on behalf of the insurer,'" and designate the s:,bject-matter insured insurance is ever created. Where the adventure is initially lawful but overtaken
with reasonable certainty.136 Today, moreover, should the Insurer
by supervening illegality, rhe insurer's liability is automatically discharged
refuse to execute a policy, then, provided the premium has been paid or ten-
prospectively.'45 However,. simply because rhe performance of the advenrure
dered,137 the assured may maintain an action for breach of a collateral contracr to
contravenes the law does not necessarily render rhe adventure itself unlawful. In
execute a policy. In Fisher v Liverpool Marine Insurance CO,138 rhis action was
Archbolds (Freightage) Ltd v S Spanglett Ltd, 146 a contracr for the carriage of
denied on the ground that it vv:as tantamount to suing on a marine insurance
goods was not rendered illegal by rhe carrier's failure to have a licence required by
contract in the absence of a sramped poliey, and, in Genfimikrings Aktieselskabet
statute. The purpose of the srarure was not to prohibit carriage of goods conttacts
(Skandinavia Reinsurance Company ofCopenhagen) v Da Costa, 139 an oral agree- but to regulare the providers of transport. The conrract of carriage itself was not,
ment to issue a stamped poliey was held unenforceable for the same reason. The rherefore, illegal and rhe rights of the owner of goods would be affected only if rhat
abolition of stamp duty on marine insurance contracts, .however, removes the party knew the carrier could not perform the conttact wirhout violating the law.
fiscal barrier to recognition of such an action. According to Pearce LJ: 147
There is no requirement that the poliey specifY the nature and extent of any assured's interest
in the subject-matter insured. 140
Where the subject-matter If a contract is expressly or by necessary implication forbidden by statute, or if it is
insured is described in general terms, the poliey is interprered as applying to rhe ex facie illegal, or if borh parries know that rhough ex facie legal it can only be
141 Th . . h' performed by illegality or is intended to be performed illegally, the law will nor
interest intended by the assured to be covered . us, earners can Insure t elf help the plaintiff') in any way that is a direct or indirect enforcement of rights
liability through a policy 'on goods"42 and insurers can reinsure through a under the contract. And for this purpose both parties are presumed to know
, < , 143
the law.
poIley on cotton.
In consequence, where, withour rhe knowledge or privity of the assured ship-
owner, a lawful voyage which can be lawfully performed is in facr performed
134 Along with s 25(2) of the Act, which restricted time policies to a duration not exceeding
12 months.
135 Required by MIA 1906, s 24(1). '" Req~iredby ibid s 26(1). .. .. '44 (1844) 7 Man & G 457, 474.
137 Delivery of the policy and p~yment of the premIUm are concurrent condmons: lbld s 52. 145 To that extent, the effect of illegality mirrors that of breach of a promissory warranty,
138 (1874) LR 9 QB 418. . discussed at 18.58 below. The use of the term 'warranty' in this context is, however, inappropriate
139 [19111 1 KB 137. See also Re Clyde Marine Insurance Co (1924) 17 LlLRep 287. because the insurer cannot waive illegality whereas a breach of warranty can be waived: MIA
'" MIA 1906, s 26(2). '" ibid s 26(3). 1906, s 34(3).
'" Crowley v Cohen (1832) 3 B & Ad 478. "6 [1961] 1 QB 374. See also Redmond v Smith (1844) 7 Man & G 457; Hughes v Asset
143 Mackenzie v Whitworth (1875) 1 Ex D 36. Managers pic [1995J 3 All ER 669. The effect of war on contracts of insurance is discussed below.
f47 At 384. See also w"ugh v Morris (1 873) LR 8 QB 202, 208; Fielding & Platt Ltd v Najjar
[1969] 1 WLR 357.

93
92
Insurable Interest, Illegality, and Public Policy Illegality ofthe Insured Adventure
unlawfully by the master, the assured's insurance rights will be unaffected. 148 refusing ro enforce that right'. Consequently, the gravity of the anti-social act
Indeed, the master's illegal conduct may constitute the peril of barratry.'4' must be weighed against the harm resulting from a refusal to enforce the right.
Insurance contract law and illegality are nevertheless uneasy bedfellows.'50 Many a This approach was espoused in the South Mrican case of The Morning Star'58 3.74
claim on insurance contracts succeeds despite the casualty taking the form of a The assured's fishing vessel was arrested for illegal fishing outside the territorial
criminal act committed by the assured and the maxim ex turpi causa non orirur waters but within the exclusive economic zone of Mozambique. Friedman J
actio (a tainted source gives rise ro no cause of action) must be applied with noted the 'rather fluid' nature of public policy 'which may vary according to
discrimination.'51 While public policy obviously requires that the benefit ofa policy rime, to place and to facts and circumstances' and declined ro recognize any
oflife assurance should not accrue to the murderer of the life assured, the legislative principle other than that'depending upon the nature of the crime and upon all
intent behind compulsoty third party motor insurance would be defeated wete the other relevant facts and circumstances, it may be against public policy ro permit
benefit of the insurance ro be denied in the event of the driving contravening the a claim under a policy of insurance where the assured has been guilty of either
criminal law as at least careless. Three issues must be kept distinct. First, the illegal or unlawful activities. Further than that one cannot go'.'59 The claim was
assured cannot recover unless a loss is proved ro be caused by a covered peril. The not attributable to the assured's wilful misconduct and Friedman J held that it
illegality mayor may not deny the existence of such a peril. Thus, an accidental fire would not be contrary to public policy ro permit the assured ro recover.
and arson are equally within the insured
It is consequently suggested that the term 'lawful' in sections 3(1) and 41 of the 3.75
peril of 'fire', whereas the requirement of fortuity within the definition of 'perils of
Marine Insurance Act 1906 should be interpreted as shorrhand for that which
the sea' excludes deliberate sinking by the master or crew. 152 Consequently, as an
the law will not decline to enforce on grounds of public policy, rather than that
issue of intetpretation of the policy, where a shipowner deliberately destroys
which is not technically illegal.
its ship by fire, a mortgagee will recover under a separate morrgagee's interest
policy which covers the peril of fire, but where the scuttling takes the form of a Requisite illegality in the insured adventure ro which the assured is privy will bar 3.76
deliberate letting in ofwater the lack of fortuity will prevent the mortgagee from all recovery on the policy even if the illegality affects only parr of the insured
m risk."o Thus, where parr of an insured cargo consisted of naval stores exporred
recovering for a loss by perils of the sea. Secondly, where the illegal act is that
of the assured and either intenrional or reckless, the insurer may invoke the without a required licence, Lord Ellenborough remarked: 'Itmay be a hard case
defence of wilful misconduct.'54 Thirdly, assuming the assured is prima ficie if only a small quantity of naval stores be included in a cargo which is insured:
entitled ro recover under the policy, the question arises of a public poli')' defence but the smallest quantity renders the adventure illegal, and I have no scales to
and authority suggests the application of a flexible rule of reason.'55 weigh degrees ofillegality."61 However, the assured's rights are unaffected by any
illegality that does not affect the insured risk.
In Hardy v Motor Insurers' Bureau, '56 Diplock LJ observed that the ex tufpi causa maxim
is not concerned with the lawfulness of the contract but merely denies In Bird v Appleton,''' separate hull and cargo policies were effected for the 3.77
the enforceability of rights arising 'out of an act committed by the person homeward voyage at and from Canton to Europe. The vessel arrived with an
asserting the right (or by someone who is regarded in law as his successor) 157 illegal cargo of corron, the proceeds of which were used to purchase the return
which is regarded by the courr as sufficiently anti-social to justifY the court's cargo, which was the subject of the cargo insurance. When the vessel was
subsequently lost by capture on the voyage to Europe, the assured was held
'" Wihon v Rankin (1865) LR 1 QB 162. entitled ro enforce the cargo policy but not the hull policy. The adventure
149 Australasian Insurance Co v Jackson (1875) 33 LTNS 286. Barratry is discussed at 11.43ff covered by the hull insurance included the full stay at Canton and the voyage to
below. Europe, which could not be separated from that stay. Part of that adventure
150 See Sir Michael Mustill, 'Fault and Marine Losses' [19881 LMCLQ310,
317-27.
151 This is particularly relevant to the insurance of liability for fines by P&I clubs.
152 Perils of the sea are discussed at 10.03ffbelow. 158 Shooter v Incorporated General Insurances Ltd (The Morning Star) 1984 (4) SA 269,282-4.
'" Samuel (P) 6- Co Ltd v Dumas [1924) AC 431, discussed at 10.16 helow. 159 ibid 284. The authorities relied upon included the English cases of Re Crippen [1911]
154 Discussed at 15. 1Off below. 155 GrayvBarr[197112QB554. p 108; Beresford v Royailnsurance Co Ltd[19381 AC 586; Gray v Barr [19711 2 QB 554.
[196412 QB 745, 767. Cunard v Hyde (No 1) (1859) 29 L]KB 6.
An illegal act is not, therefore, an equity binding upon a prior assignee for value: ibid at Parkin v Dick (1809) 2 Camp 221, 223.
768; Beresford v Royal Insurance Co Ltd [1938) AC 586, 600. See also White v British ,,, (1800) 8 TR 562. See also Pieschell v Allnutt (1813) 4 Taunt 792; J(cir v Andrade (1816)
Empire 6 Taunt 498.
Mutual Lift Assurance Co (1868) LR 7 Eq 394. For discussion of assignment and marine policies,
see 20. 12ff, esp 20.21-20.26 below.
94 95
Insurable Interest, l!!egaliry, and Public Policy The Impact a/War on Contracts a/Insurance
being rendered illegal by the illegal outward cargo, the entirety of the hull of war is the crippling of the enemy's commerce, and to permit such an insurance would
insurance was invalidated. In contrast, it was found that the cargo policy attached be to relieve enemies from the loss they incur by the action of British arms
and would, therefore, be detrimental to the interests of the insurer's own
only to the legal return cargo and held rhat the origin of the money employed in its coumry.169
purchase was irrelevant.
Nor mayan enemy alien maintain an action against a British insurer for loss
occasioned by his own Government,170 and the prohibition extends to any United
The Impact oEWar on Contracts ofInsurance Kingdom or neutral citizen who concludes an insurance contract as the agent of an
enemy alien. 171 However, as the essence of the illegality lies in assisting the
If the United Kingdom is not a belligerent party to the conflict, the outbreak of war has no enemy, it is lawful to accept and sue for premiums. 172
impact upon the rights of the parries to a contract of insurance. In
any litigation arising out of such a war, which of the belligerents causes the loss is Thirdly, 'if a loss has taken place before the commencement of hostilities, the 3.81 right of
action on a policy of insurance ... is suspended during the continuance
irrelevant. Thus, in Aubert v Gray, "3 a Spanish subject was held entitled to of war and revives on the restoration of peace' .173
recovet against an English insurer by reason of the seizure of his ship by his own
government. Moreovet, outbreak of war involving the United Kingdom has no
impact upon the rights of a Btitish citizen under a contract of insurance, nor upon 169 See also Furtado v Rogers (1802) 3 Bos & Pul 191; Brandon v Curling (1803) 4 East 410. The
the rights of a neutral. "4 Nor, despite the fact that assisting the enemies of the prohibition extends also to loss occasioned by a co-belligerent: Brandon v Curling. 'Every kind of
Crown is contrary to public policy, does it invalidate an insurance contract with an communication that could relieve the pressure of hostilities would be a violation of dury':
Drieftmtein Consolidated Gold Mines Ltd v janson [1900] 2 QB 339, 343 per Mathew J.
enemy assured."s The impact of public policy in this regard upon contracts of 170 [19021 AC 484,502 per Lord Btampton. '" ibid 499.
insurance was encapsulated by Lord Davey in three rules in Janson v Seligman v Eagle Star Insurance Co [1917] 1 Ch 519.
Driefimtein Consolidated Mines Ltd."6 See also Lord Lindley at 507; Harman v Kingston (1811) 3 Camp 150; Flindt v \,%oters
(1812) 15 East 260.
First, 'the King's subjects cannot trade with an alien enemy, ie, a person owing allegiance
to a Government at war with the King, without the King's licence. Every contract
made in violation of this principle is void' ."7 However, this principle of public
policy assumes a state of actual war and 'threatened war or anticipated war or
imminent war is peace' .168
Secondly, by way of corollaty:

... no action can be maintained against an insurer of an enemy's goods or ships against
capture by the British Government. One of the most effectual instruments
16' (1862) 3 B & S 169. 164 Visger v Prescott (1804) 5 Esp 184.
Seligman v Eagle Star Insurance Co [1917J 1 Ch 519.
[1902] AC 484, 499.
167 See also Esposito v Bowden (I857) 7 EI & B1763, 779 per Willes J, deliveting the judgment of
the Court of Exchequer Chamber: 'It is now fully established that the presumed object of war being as
much to cripple the enemy's commerce as to capture his property, a declaration of war imports a
prohibition of commercial intercourse and correspondence with the inhabitants of the enemy's country,
and that· such intercourse, except with the licence of the Crown, is illegal.' On who is an enemy alien,
see also per Lord Lindley, 505-6.
168 ibid 509 per Lord Lindley. See also Lord Macnaghten, 497 and Lord Halsbury LC, 492: 'the thing
done muse be in its nature an assistance to the public enemy, and if there be no public enemy there call
be no aid given to him. Nor is this a mere question of words: .the importance of the whole region
ofpublic policy involved makes the actual existence of war' at the time of the creation of the contract or
its fulfilment necessary'.
96 97
4
THE DOCTRINE OF UTMOST
GOOD FAITH
Evolution and Framework of the E. Information 4.79
Doctrine of Utmost Good Fai~ 4.02
F. Misleading or Inaccurate
Misrepresentation and non-
Circumstances 4,82
disclosure in general
contract law 4.03 G. Circumstances not Requiring
Insurance as a comract uberrimae fidei Disclosure 4.89
(l) Diminution of the risk
Utmost good faith in the Marine 4.90
Within the insurd s actual or
Insurance Act 1906 presumed knowledge
(3) Waiver
Voidable, not void 4.91
Warranties
Source of the doctrine and the 4.99
Application to misrepresentation
remedy of avoidance: 4.106
IIH. Knowledge of the Assured 4.108
common law or equity? (1) Who is the assured?
Avoidance and rescission (2) Constructive knowledge 4.1l1
Brokers and the Doctrine of 4.113
The Definition of Materiality
Utmost Good Faith 4.1l7
Materiality prior to Pan Atlantic
Independent duties
Pine TOp in the House of Lords
(2) The relevant brokers
Materiality in the House of Lords in 4.122
4.35 (3) Scope of disclosure duty
Pan Atlantic v Pine TOp 4.123
(4) Relationship between the duties
and beyond 4.41 4.124
Inducement of the assured and the 4.125
placing broker
Establishing the requirement for
inducement as a matter oflega! J. Actionable Misrepresentations
(1) Representations of fact
principle (2) Representarions of expectation or belief 4.129
The meaning of inducement 4.130
K. Marine Insurance Act 1906,
Proof of inducement Section 17: Pre-formation Utmost Good Faith Beyond 4.131
Inducement in a subscription Sections
18-20
market (1) Fraudulent misrepresentation and 4.133
non-disclosure by the assured
Negating inducement
Non-marerial misrepresentation
Circumstances Requiring and non-disclosure
Disclosure
The physical hazard 4.147
The moral hazard
Other circumstances relevant to 4.148
assessment of the risk
4.150
99
The Doctrine ofUtmost Good Faith Evolution and Framework ofthe Doctrine ofUtmost Good Faith
(3) MiStake by the insurer, known (2) Damages 4.173 (I) Misrepresentation and Non-Disclosure in General Contract Law
to the assured 4.151 M. Co~insurance 4.184
(4) The insurer's pre~formation
N. Utmost Good Faith after the Prior to the fusion of the administration of law and equity by the Supreme 4,03 Court
duties of utmost good faith 4.152
Formation of the Contract
of Judicature Acts 1873 and 1875,5 the availability of rescission for misrepresentation
4.193
L. Remedies 4.154 was radically different at common law and in equity. A con-
O. Basis Clauses 4.205 tract could be rescinded at common law only for fraudulent misrepresentation or
(I) Avoidance 4.155
where the misrepresentation went to the root of the contract so as to produce a total
failure of consideration. 6 For these purposes, a statement was fraudulent if, at the
English law adopts an advetsarial model of contractual negotiations, requiring each time of its making, the representor knew it to be false, did not believe it to be true,
7
party to accept responsibility for its own interests. The law will assist a party or was reckless as to whether it was true or false. Equity, however, recognized and
that has been induced into a cOntract by an inaccurate or misleading statement, gave effect to rescission more widely than the common law. In
its (concurrent' jurisdiction, equity recognized rescission in cases of fraud and
termed a 'misrepresentation'. A contract so induced is voidable, meaning that it
is liable to be set aside retrospectively through the remedy of rescission. However, total failure of consideration, but more readily than the common law in that the
there is no general duty to volunteer information, even though it may be evident bar to rescission of inability to mal<e proper restitution of benefits received
that such information would be regarded as highly relevant by the other party in under the contract was more difficult to sustain in equity.8 Moreover, in its so-
deciding whether to contract and, if so, upon what terms. 'Tacit acquiescence in called 'auxiliaty' jurisdiction, equity recognized the remedy of rescission in cases of
another's self-deception does not itself amount to a misrepresentation, provided that misrepresentation that the representee could not prove to be fraudulent (somewhat
it has not previously been caused by a positive misrepresentation:' For example, misleadingly termed 'innocent' misrepresentations) and in the absence of a total
specific performance of a compromise will be granted despite the failure by the failure of consideration.' Since the Judicature Acts, while the concurrent common
plaintiff to disclose the result, favourable to the defendant, of certain proceedings in law and equitable jurisdictions in respect of fraudulent misrepresentation and total
the litigation. 2 Insurance contracts, how- failure of consideration remain, the auxiliaty equit-able jurisdiction may be
ever, constitute an exception to the rule: they are contracts uberrimae fi'dei (of the exercised in all courts and prevails in case of conflict,1O at least in terms of the
utmost good faith), and the doctrine of utmost good faith not only reaffirms a availability of the remedy. A duty of disclosure, however,
passive dury to refrain from misrepresentation' but also imposes a pro-active duty to has never been recognized as a matter of general contract law either at common
volunteer certain information. Breach of such duties affords the inno-cent party the law or in equity, although if, after making a statement, a representor discovers
option of retrospective avoidance of the contract.' The fact that the remedy is either that it was false when made or that it has subsequently been rendered
absolute and uncompromising has led to detailed scrutiny of all aspects of the untrue by a change of circumstance, there arises a duty to correct the inaccur-
doctrine. acy." Moreover, a statement will constitute an actionable misrepresentation
where it is literally true but misleading in that it fails to convey the full truth by
12
virtue of a material omission.
A. Evolution and Framework of the Doctrine of Utmost In the concurrent common law and equitable jurisdictions, reSCISSiOn is a
Good Faith 4.04
4.02 This section is concerned with conceptual issues relating to the doctrine of utmost
good faith and structural issues arising either within insurance contract law or in 5 Which entered into force together on 1 November 1875.
relation to the law of misrepresentation in general contract law. 6Kennedy v Panama, New Zealand 0- Australian Royal Mail Co Ltd (1867) LR 2 QB 580.
7Deny v Peek (1889) 14 App Cas 337. The element of subjective disregard for the truth was
emphasized in Thomas Witter Ltd v TBP Industries Ltd[199612 All ER 573,586-7.
Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, 1278-9; Alati v Kruger
Chitty on Contracts (29th edo, 2004) pata 6-013. (1955) 94 CLR 216,223-4.
Turner v Green [189512 Ch 205. Nocton v LordAshburton 119141 AC 932 at 951-954.
The law of misrepresematio'n is not founded conceptually on any positive duty to speak: Redgrave v Hurd (1881) 20 ChD L
HIH Casualty o-Generallnsurance Ltd v Chase Manhattan Bank [2001] 1 Lloyd's Rep 30, pata 63. Davies v London Provincial Marine Insurance Co (1878) 8 ChD 469; With v OFlanagan
4 Technically, they are not 'duties' at all, but conditions precedent to the enforceability of (1936] Ch 575. Such a failure to correct is not necessarily fraudulent: Thomas Witter Ltd v TBP
the contract: Agnew v Liinsftrsiikringsbolagens AB (2001] 1AC 223,265-6: The'language of Industries Ltd 119961 2 All ER 573.
duty is, however, customary. Notts Patent Brick 0- Tile Co v Butler (1886) 16 QBD 778.
100 101
self-executing remedy that does not require rhe intervention of a court." In equity's Lord Mansfield further elaborated upon the scope of the disclosure obligation,
auxiliary jurisdiction, however, it appears that rescission was considered to be a identifYing a number of circumstances that did not require disclosure.
remedy granted by court order. " However, more modern authority draws no The scope of relief against misrepresenration at the Same period is illustrated by 4.06
distinction between the differenr rescission jurisdictions, applying the self- MacDowell v Fraser,'8 in which Lord Mansfield held an underwriter not liable
executing approach even to rescission arising exclusively in equity.'S on a policy on the basis of a non-fraudulent misrepresentation rhat a vessel had
safely completed two-thirds of the insured voyage.
Insurance as a Contract Uberrimae Fidei
The rationale behind the duty of disclosure is the imbalance of information 4.07
Contracts of insurance, in conrrast, are treated differently. Classified as contracts regarding the risk between the assured, whose knowledge is considerable, and
uberrimae fidei, the common law courts that assumed jurisdiction in the seven-teenth the insurer, which is traditionally depicted as knowing only what the assured
century" both recognized a dury of disclosure and condemned non-fraudulenr reveals. 19 The duty permits the insurer, whether considering the risk for the first
misrepresentation. The seminal statement of the doctrine of utmost good faith, time or renewing cover,20 to make a decision on the acceptability of the risk and
emphasizing an obligation volunrarily to disclose information relat-ing to the risk the appropriate terms of cover on the basis of at least equality of information.
presented for insurance, remains that of Lord Mansfield on 'the nature of concealments' Even today, when insurers have considerable sources of information available to
in Carter v Boehm: 17 them, the assured retains the more direct connection with the risk proposed for
Insurance is a contract upon speculation. insurance and some informational advantage will generally obrain.
The special facts, upon which the contingent chance is to be computed, lie most
(3) Utmost Good Faith in the Marine Insurance Act 1906
commonly in the knowledge of the insured only: the underwriter truStS to his
representation, and proceeds upon confidence that he does not keep back any Under the Marine Insurance Act 1906, section 17 articulates a general doctrine 4.08
circumstance in his knowledge, to mislead the underwriter into a belief that the
of utmost good faith, while sections 18 and 20 deal specifically with non-
circumstance does not exist, and to induce him to estimate the risque, as if it did not
exist. disclosure and misrepresenration by the assured in the presentation of the risk to
The keeping back such circumstance is a fraud, and therefore the policy is void.
the insurer. Sections 17, 18(1), and 20(1) provide as follows:
Although the suppression should happen through mistake, without any fraudulent 17 A contract of marine insurance is a contract based upon the utmost good
intention; yet still the underwriter is deceived, and the policy is void; because the risque faith, and, if the utmost good faith be not observed by either party, the
run is really different from the risque understood and intended to be run, at-the time of contract may be avoided by the other party.
the agreement. 18(1) Subject to the provisions of this section, the assured must disclose to the insurer,
The policy would be equally void, against the underwriter, ifhe concealed; as, ifhe before the contract is concluded, every material circumstance which is known to
insured a ship on her voyage, which he privately knew to be arrived: and an action the assured, and the assured is deemed to know every circum-stance which, in
would lie to recover the premium. the ordinary course of business, ought to be known by him. If the assured fails
to make such disclosure, the insurer may avoid the contract.
13 Reese Silver Mining Co v Smith (1869) LR 4 HL 64; Clough v London & North TI7estern
Railway Co (1871) LR 7 Ex 26: Car & Universal Finance Co Ltd v Caldwell [1965J 1 QB 525. 20(1) EvelY material representation made by the assured or his agent to the insurer
" Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, 1278. during the negotiations for the contract, and before the contract is concluded,
15 Abram Steamship Co Ltd v Westville Shipping Co Ltd [1923J AC 773: Alati v Kruger (1955) must be true. If it be untrue the insurer may avoid the contract.
94 CLR 216,224: Horsier v Zorro [1975J Ch 302, 310: Atlantic Lines & Navigation Co Inc v
Hallam Ltd (The Lucy) [19831 1 Lloyd's Rep 188,202: O'Connor v Hart [1983J NZLR 280,295: Section 17 is dearly cast in broader terms than sections 18 and 20, and judges 4.09 have
O'Sullivan v Management Agency & Music Ltd[1985J 1 QB 428, 457: Allied Irish Bank pic v Byrne
repeatedly stated that sections 18 and 20 articulate specific duties that
[1995J 2 FLR 325, 354: TSB Bank pic v Camfield [1995J 1 WLR 430, 438. See also the
Misrepresentation Act 1967, s 2(2), granting the courts a discretion in cases of rescission for non~ form part of a more general doctrine to which section 17 speaks. In doing so,
fraudulent misrepresentation (where rescission operates only in equity) to declare rhe contract
subsisting and award damages in lieu where 'itis claimed, in any proceedings arising out of the
contract, that the contract ought to be or has been rescinded' (emphasis added). For discussion, see (1779) 1 Doug1260.
J O'Sullivan, 'Rescission as aSelf-help Remedy: ACritical Analysis' [2000J CLJ509: J Greenhill v Federal Insurance Co Ltd [1927J 1 KB 65, 76-7: Rozanes v Bowen (1928) 32
Poole and A Keyser, 'JusrifJing Parrial Rescission in English Law' (2005) 121 LQR 273. LlLRep 98, 102.
16 See 1.37 ahove. 17 (1766) 3 Burr 1905,1909. Lambert v Co~operative Insurance Society Ltd [1975] 2 Lloyd's Rep 485.
102 103
however, a number of judges have also made reference 1'0 secrion 19 of rhe unambiguously that the policy 'may be avoided' or that the insurer 'may avoid
1906 Act, which articulates a duty of disclosure resting on any broker that is the contract'.
used, as one invariably is, to place rhe risk. 21 Indispurable authority establishes
that this duty of the broker is owed directly to the insurer independently of any Source of the Doctrine and the Remedy ofAvoidance: Common Law or
duty resting on the assured." Section 17, however, refers specifically 1'0 the Equity?
obser-vance of utmost good faith 'by either party', and the placing broker self-
evidently is not a party 1'0 the contract. Consequently, unless section 17 can be Some difficulty surrounds the nature of the remedy of avoidance to which 4.11
read as, in effect, two distinct subsections (the first enunciating the utmost good sections 17,18, and 20 of the Marine Insurance Act 1906 refer. Does it arise at
faith basis of marine insurance contracts, and the second speaking to the con- common law or in equity? This question has been raised in connection with the
sequences of failure by the parties 1'0 observe the utmost good faith), it must availability of damages as an alternative remedy for breach" and 1'Oday remains
follow that section 17 does not embrace the entirety of the doctrine of utmost significant in relation to the possibility of the courts using equitable precepts 1'0
good faith and that judicial statements placing section 19 within section 17 are restrain the exercise of the avoidance remedy.30
23
misplaced. As discussed elsewhere,31 the early part of the seventeenth century was a fallow 4.12
period for the development of commercial law. The common law courts seized
Voidable, Not Void jurisdiction in commercial matters bur lacked expertise in commercial law, resulting in
In Carter v Boehm,24 Lord Mansfield refers 1'0 a contract being 'void' for non- merchants turning to private arbitration for dispute resolution. The advenr of Lord
Mansfield as Chief Justice of the King's Bench proved the turning point. Not only was he
disclosure and indeed case law on the doctrine of utmost good faith in the
possessed of great learning and sensitivity 1'Owards commercial practice, inducing a
eighteenth and early nineteenth centuries refers, for example, to a policy being
return to dispute resolution by litiga-
'rendered void' or 'avoided' for non-disclosure or misrepresentation, seemingly
without the intervention of an election to avoid on the patt of the insurer. tion, but commercial law's change ofjurisdicrion confened on Lord Mansfield a
Nothing, however, turned in these cases on the distinction between a void or rare freedom to formulate ptinciple constrained by relatively little binding pre-
voidable contract." The latter part of the nineteenth century, however, wit- cedent. It was a freedom he used to the full. In Wilson v Ducket,32 he held that
premium paid to an insurer under a policy induced by fraud was forfeit to the
nessed the start of a change in favour of the policy being analysed as voidable,26
but the cases were not unanimous," and, in 1887, Arnould still stated that 'the insurer notwithstanding avoidance, departing from the established equitable
rule that it should be returned 1'0 the assured.
contract is void, ipso jitcto, whenever misrepresentation or concealment nas
entered into the malcing of it'.28 The matter was placed beyond doubt by sec- The judgment of Lord Mansfield in Carter v Boehni3 must be seen in its 4.13
tions 17, 18, and 20 of the Marine Insurance Act 1906, all of which provide historical context. Although Lord Mansfield refers to no authority, he was not
advancing a new principle with no antecedents in prior case law. There are earlier
authorities on urmost good faith both at common lawl4 and in equity." Instead, the
judgment represents a restatement of the doctrine of utmost good
Z1 This duty is discussed at 4.l22ffbelow. 22 See 4.123 below.
faith for the common law. It is unclear 1'0 what extent the principles laid down in
23 Statements placing 55 18, 19, and 20, or some of them, within s 17 include: Container Carter v Boehm represent or depart from previously established law or, indeed,
Transport International Inc v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1982] 2 whether any such earlier law had been formulated at common law, in equity, or as
Lloyd', Rep 178, 187, [19841 I Lloyd', Rep 476, 492, 496, 512, 525; Socihl! Anonyme d'Interme-
diaries Luxembourgeois v Farex Gie [1995J LRLR 116, 142; pew Syndicates v pew Reinsurers part of the law merchant. Two propositions may, however, be advanced with some
[19961 1 WLR 1136, 1145; Group Jod Re v Walbrook Imurance Co Ltd [1996] 1 WLR certainty. First, Lord Mansfield restated the doctrine of utmost good faith as a
1152. 1170.
" (1766) 3 Burr 1905, 1909.
doctrine of the common law, which continued thereaftet to be applied and
2S Third party proprietary issues do not arise in insurance contracts, and the concept of waiver developed by common law courts. Secondly, in so far as that doctrine
was accommodated by asking whether the insurer had so conducted itself as to be estopped
from asserting that the policy was void. "
Morrison v Universal Marine Insurance Co (1872) LR 8 Ex 187; Brooking v Maudslay (1888)
38 ChD 636, 643. 29: See 4.175 below. 30 See 4.169 below. 31 See 1.38 above.
Anderson v Pacific Fire & Marine Insurance Co (1872) LR 7 CP 65, 68. 32 (1762) 3 Burr 1361, discussed at 1.42 above. 33 (1766) 3 Burr 1905.
Law oiMatine Imurance D MacLachlan (ed) (6th edn, 1887) 514. 34 Seaman v Fonereau (1743) 2 Sfr 1183. 35 De Costa v Scandret (1723) 2 P Wins 170.
104 105
may have owed something to equitable origins, such ongms were not to wo~ld expect to find, as. regards misrepresentation, is that the newly available
characterize the doctrine for the future, nor to constrain rhe way it would eqUItable remedy should be applied in the field of insurance, in the same way as in the
operare or develop. law ofcontract at large. In my opinion this is just what one does find. It will be recalled
that the predecessors in the Digest of what were to become sections 18(1)
In Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd,36 the Court of Appeal and 20(1) of the Act did not comain any explicit refetence to the avoidance
held that the doctrine of utmost good faith was nor based upon a comractual term of the policy.
and, therefore, did not sound in damages for breach of con-tract. 37 One reason It is respectfully suggested that this explanation is questionable. First, the 4.17 Supreme
advanced was that the doctrine was equitable in nature. In so Court ofJudicature Acts 1873 and 1875 fused the administration of common law and
holding, the Court relied upon the previous obiter statement of Luxmoore LJ in equity and provided that, in the event of conflict, equity should prevail. The Judicature
Merchants & Manuftcturers Insurance Co Ltd" that 'in a case of positive mis- Acts did not, however, fuse the two systems of substantive law.45 Consequently, while no
representation the right to avoid a contract, whether of insurance or not, depends question could thereafter arise of
not on any implied term of the contract, but arises by reason of the jurisdiction whether a court had jurisdiction to award rescission for innocent misrepresenta-
originally exercised by the Courts ofEquity to prevent imposition'. 3' Luxmoore LJ
tion, the remedy itself remained equitable. Conversely, any pre-existing relief
declined to express a view regarding non-disclosure. Scott LJ distinguished at common law did not become equitable.
between 'the equitable jurisdicrion to avoid a contract for mis-representation',
which could not be based on an implied contractual term, and 'the common law Secondly, if a contract is void at common law, it does not exist and there is no 4.18
duty of disclosure', which was 'difficult to explain fully' as resting on an implied power in equity to declare it subsisting and then permit rescission.46 The exist-
contractual term.40 In Skandia, rhe Court of Appeal considered that non-disclosure ence of the contract as a matter of common law must be determined first. It
had the same foundation as innocent misrepresentation.41 follows that the change of analysis in favour of breach of an utmost good faith
duty rendering an insurance contract voidable must have occurred as a matter of
common law.
Two aspects of this analysis may perhaps be separated. The first is the origin and
nature of the doctrine of utmost good faith generally. In the light of the Thirdly, insurance contracts were considered voidable at common law before 4.19 the
previous discussion, it is suggested that the proposition that the doctrine of entty into force of the Judicature Acts. Morrison v Universal Marine Insurance
utmosr good faith is equitable is simply not tenable historically. From the time Co47 concerned innocent non-disclosure, to which equity's jurisdiction to grant
of Lord Mansfield onwards, the doctrine of utmost good faith developed within rescission for misrepresemation was, by definition, inapplicable. The issue was
the jurisdiction of the common law courts, although an application to a court of whether, on the facts, the insurers were estopped from denying the validity of the
equity mighr be needed for certain remedies not available at common law." The policy. The COuttS were clear that the non-disclosure gave the insurers a right of
election between affirmation and avoidance, and that the contract was not
second is the nature of the temedy of avoidance. Could a common law doctrine
automatically void. The focus upon election by estoppel, rather than affirm-ation,
somehow have acquired an equitable remedy?
may reveal the novelty of the voidable analysis. In the context of a void contract,
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd" is a leading case on the 48
waiver must necessarily operate through estoppel.
availability of the insurer's rights to avoid for pre-formation non-disclosure
and misrepresentation, rather than the nature of rhose rights. However, having The judgment of the Court of Exchequer Chamber in Morrison also reveals the 4.20
referred to the pre-Act case law that was, first, restated in the form of A Digest trigger for the change in analysis. A series of decisions had clarified the impact at
of the Law Relating to Marine Insurance and, then, codified in the Bill that common law of fraudulent misrepresentation in the general law, rendering the
ultimately became the 1906 Act, Lord Mustill stated as follows: 44
------------------
This law had by 1906 become a fusion of the common law and equity. What one Salt v Cooper (1880) 16 ChD 544 at 549; Bank ofBoston Connecticut v European Grain &
Shipping Ltd (The Dominique) [1989] AC 1056, 1109.
If a fraudulent misrepresentation as to identity prevents a contract from existing on the ground of
mistake, the remedy of rescission in equity's concurrent jurisdiction does not create a voidable contract.
36 [1990] 1 QB 665. 31 See 4.175 below. 38 11941] 1 KB 295. See also AssociatedJapanese Bank International Ltd v Credit du Nord SA [1989J 1
39 ibid 318 per Luxmoore L]. 40 ibid 312~13, WLR255.
41 [1990] 1 QB 665, 779. 42 Duncan v Wo,.;.11(1822) 10 Price 31, 44. Morrison v Universal Marine Insurance Co (1873) LR 8 Ex 197.
43 [1995] 1 AC 501. 44 ibid 544. cf waiver in the context of promissory warranties: see 18.94-18.96 below.
106 107
The Doctrine ofUtmost Good Faith The Definition ofMateriality
contract voidable and giving rhe representee a right of election berween affirm- to sections 18(2) and 20(2): 'Every circumstance is material which would
ing and rescinding the contract.49 If a fraudulent misrepresentation does not influence the judgment of a prudent insurer in fixing the premium, or determin-
render a contract void, no misrepresentation or non-disclosure can. ing whether he will take the risk.'
It is, therefore, suggested that the right to avoid an insurance contract for breach of a The adoption of the judgment of a prudent underwriter, rather than the actual 4.24
duty of utmost good faith, as codified in sections 17, 18, and 20 of the Marine underwriter, as the point of teference means that materiality is an objective
Insurance Act 1906, is a right that arises at common law and not in equity. concept. The hypothetical, prudent underwtiter is the embodiment of reason-
able underwriting practice, normally ascertained by expert evidence. In Associated
Avoidance and Rescission Oil Carriers Ltd v Union Insurance Society ofCanton Ltd," underwriters resisted
a claim on the basis of non-disclosure of a fact which emerged as material only
A further question that arises relating to the remedy referred to by the Marine Insutance
after the conclusion of the contract by virtue of subsequent litigation, arguing
Act 1906 as avoidance is whether it is the same remedy as tescission in the general
that a prudent underwtiter must be taken to know the law. Notwithstanding the
law. Thus, even if avoidance atises at common law, is it the same remedy as that
granted at common law for fraudulent misrepresentation, or is it technically distinct
declaratory theory of the common law, Atkin J rejected the underwriters' con-
cept of the prudent underwriter. 'I think that this standard of prudence indi-
even if functionally identical? The question is relevant to the availability of a
judicial discretion to disallow or refuse to grant avoidance for cates an insurer much too bright and good for human nature's daily food. There
seems no reason to impute to the insurer a higher degree of knowledge and
non-fraudulent misrepresentation. 50 Moreover, if a rerm of the policy seeks to
exclude the insurer's right(s) of retrospective cancellation, argument can arise foresight than that possessed by the more experienced and intelligent insurers
carrying on business in that market at that time.'"
that the exclusion contemplates only rhe good faith remedy and not the general
law remedies, or vice versa. In HIH Casualty & General Insurance Ltd v Chase Before the drafting of the Marine Insurance Act 1906, no case had demanded a 4.25
Manhattan Bank,51 Rix LJ rejected such an argument as a matter of interpret- precise definition of materiality. The fotmula adopted in sections 18(2) and
ation. Rix LJ did not, however, dispute the existence of technically distinct 20(2) accurately reproduces a number of judicial statements,56 but only com-
remedies: 'for the purposes of the [Marine Insurance Act] 1906 itself the remedy of paratively recently has this formula been subjected to detailed scrutiny. Precisely
rescission had in practice been subsumed into the right to avoid (but only in what degree of significance in the mind of the hypothetical underwriter must
• )' 52
practice . .. . the non-disclosure or misrepresentation assume before it will be regarded as
material? This question was the subject of extensive judicial consideration by the
COutt of Appeal in Container Transport International Inc v Oceanus Mutual
The Definition of Materiality Underwriting Association (Bermuda) Ltd" and by both the Court of Appeal and
House of Lords in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd 58
The concept of materiality supplies the delimiting factor necessary to any dis-closure
obligation. No such limitation is a logically necessary requirement to a duty not to It will be seen that the threshold ultimately set by the courts for materiality 4.26
misrepresent. Nevertheless, both the disclosure and avoidance of misrepresentation is not high. One should not, however, conclude on that basis that the pre-
duties of the assured as developed at common law and codi-fied by the 1906 Act formation doctrine of utmost good faith is unduly favourable to the insurer
incorporate a delimiting concept of materiality. 53 According without taking into account the question of subjective inducement of the actual
underwriter, as considered at paras 4.41 to 4.65 below, since a lower threshold
of objective materiality can be counter-balanced by a meaningful requirement of
49 Load v Green (1846) 15 M & W 216,221: Murray v Mann (1848) 2 Ex 538; Deposit &
subjective influence. 59 That is not to say that such a conclusion cannot be
GeneralLift Assurance Co v Ayscough (1856) 6 EI & BI 761: NicoLS Case (1859) 3 De G & J 387, reached even taking all relevant matters into account.
431: Clough v London & North Wis"rn Railway Co (1871) LR 7 Ex 26.
50 See 4.162 below. " [2001] EWCA Civ 1250, 12001] 2 Lloyd's Rep 483.
52 ibid para. 174.
S3 An express disclosure obligation may, of course, set its own parameters: International
54 [191712 KB 184. '5 ibid 192.
Management Group (UK) Ltd v Simmonds [2003] EWHC 177 (Comm), [20(f4] [1984] 1
56 eg Rioaz v Germsi Bros & Co (1880) 6 QBD 222, 229, [1984] 1 Lloyd's Rep 476.
Lloyd's Rep 476,
S7 [1984] 1 Lloyd's Rep 476. 58 [1993] 1 Lloyd's Rep 496, [1995] 1 AC 501.
S9 Pan Atlantic Insurance Co Ltd v Pine TOp Insurance Co Ltd[1995] 1 AC 501, 517-18.
108
109
Materiality prior to Pan Atlantic v Pine Top in the House of Lords underwriters might be called as expert witnesses who might all legitimately
disagree as to whether the relevant circumstance, if disclosed, would have led
In Container Transport International Inc v Oceanus Mutual Underwriting Associ-
to a different decision and the court would have no ground for accepting the
ation (Bermuda) Ltd," the insurers alleged non-disclosure of part of the previous
testimony of one expert witness rather than that of another.
claims history. At first instance, Lloyd J held that, on the true construction of
section 18(2), a non-disclosed circumstance was material only if its disclosure The very choice of a prudent underwriter as the yardstick in my view indicates that the
would have led a prudent underwriter either to decline the risk altogether or to test intended was one which could sensibly be answered in relation to prudent
charge a higher level of premium. The non-disclosure must, therefore, have exerted underwriters in general. It is possible to say that prudent underwriters in general would
consider a particular,circumstance as bearing on the risk and exercising an influence on
a 'decisive influence' on the judgment of the prudent insurer by inducing a 'different
their judgment towards declining the risk or loading the premium. It is not possible to
decision' with respect to the risk. Lloyd J reasoned as follows:" say, save in extreme cases, that prudent underwriters would have
acted differently, because there is no absolute standard by which they would
have actedin the first place or as to the precise weight they would give to the undisclosed
It seems to me that this should be the general rule, if only because the defence 64
circumstance.
under s 18 is capable of working such great hardship on the assured. Take a case
where the fact is known to the assured, but not the materiality of the fact. Suppose the Stephenson LJ extrapolated from the overarching doctrine of utmost good faith 4.30
prudent insurer, if he had known the fact, would have accepted the risk, bur charged a articulated by section 17 to hold that an assured was subject to a duty of full
small additional premium; suppose further that there is a substantial claim under the
disclosure that could not be limited to circumstances the disclosure of which would
policy. In other jurisdictions, the assured could enforce the claim,
by tendering the additional premium. But not so in England. The fairness of the induce a different decision:
English rule is not at once obvious and hardly seems to reflect the duty of utmost ... everything is material to which a prudent insurer, if he were in the proposed insurer's
good faith under s 17 which, be it noted, is owed both ways. Why, if the insurer place, would wish to direct his mind in the course of considering the proposed
would have accepted the risk in any event, albeit at anincreased premium, should insurance with a view to deciding whether to take it up and on what terms, including
he be able to avoid the claim altogether? Since the Englisb law is so favontable premium. His mind would, I think, be influenced in the process
to the underwriter in this respect, the least that should normally be expected of the of judgiug whethet to dn so, either temporarily where he can say that he would
underwriter is to show that a prudent insurer would have charged an increased rate. ultimately have reached the same decision without it, or permanently where it would
have led him to reach a different decision.65
The insurets, however, appealed against this ruling on the definition of materi"j-ity, In the light of the decision of the Court ofAppeal in CTI v Oceanus, therefore, it 4.31
and the Court of Appeal upheld the appeal.·' For Kerr LJ, the statutory phrase was clear that an insurer that could establish a non-disclosure was not requited
'would influence the judgment of a prudent underwriter' mea!)t would have had to prove that such non-disclosure would have had a decisive influence upon the
an impact on the formation of the prudent underwriter's opinion of the risk, judgment of the prudent underwriter. As regards the degree of impact upon the
rather than a decisive influence upon the ultimate underwriting deci-sion. mind of the prudent underwriter that did have to be shown, the Court of Appeal
Materiality followed from rhe relevance of the circumstance, not from its seemed to have opted for proof merely that the prudent underwriter would want
weightY to have been told in connection with reaching a decision on the risk,66 a lower
Parker LJ observed that whether a circumstance would carry sufficient influence to threshold indeed. 67 Expert witnesses called to demonstrate the view of the
induce a different decision would inevitably depend upon the prudent underwriter prudent underwriter could be asked only whether they would have wished to
in question. A circumstance would be material ifbearing on the risk or having a direct their minds to the relevant circumstance and not whether it would have
tendency towards declining the risk or raising the premium, since it made any difference to their eventual decision and, if so, precisely what
would affect the judgment of the prudent underwriter in deciding whether to difference.
accept the risk and, if so, at what level of premium. A different decision test, in
contrast, would be impractical. Years after the placing of the risk, a number of
64ibid 511. 65 ibid 529. 66 eg at 529.
Thus, CTI v Oceanus was viewed as unduly favourable to the insurer and not followed by the
67
New South Wales Court ofAppeal in Barclay Holdings (Australia) Ltd v British National Insurance
60[198212 Lloyd's Rep 178, [1984J 1 Lloyd's Rep 476. Co Ltd (1987) 8 NSWLR 514, discussed in H Yeo, 'Common Law Materiality-An Australian
" [1982] 2 Lloyd's Rep 178, 188-9. 62 [1984J 1 Lloyd's Rep 476. 63 ibid 492. Alrernative' [1990J ]BL 97.
110 111
It should be noted that also at issue in CTl v Oceanus was whether insurance contract law precedent as regards subjective inducement, the court sought to compensate by
requires, in addition to objective materiality, that the non-disclosure adopting the highest thteshold fot objective matetiality consistent with the intetptetation
Ot misrepresentation subjectively induces the actual underwriter into the con-tract, as is adopted of cn v Oceanus. While.a diffetent risk might fte-quently attract a different
required in general contract law. The Marine Insurance Act 1906 contains no reference decision, this would not necessarily follow. A differ-ence, or probable difference, in the
to inducement and the Court of Appeal duly held that it was not tequited. Inducement is risk would not necessarily elevate the risk to a new premium level. Alternatively,
discussed at paras 4.41 to 4.65 below, but the decision of the Court ofAppeal in the commercial reasons might result in accept-ance of the different risk on unaltered terms,
CTI case on inducement is relevant to the subsequent development of the law on for example as a loss leader in order
materiality. to gain access to a new market. Moreover, a different risk test, according to
Steyn LJ, would involve questions of fact of no gteater difficulty and complexity than
The definition of materiality was again the subject of judicial consideration in 74
courts frequently encounter. It has, however, been observed that this apptoach
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd" As a matter of
confuses the objective and the subjective because special circum-stances, such as a
precedent, the Court of Appeal was, of coutse, bound by CTI v Oceanus with respect to
preparedness to underwrite a loss leader, can impact only upon the actual insurer. Such
the irrelevance of the actual underwriter and the unequivocal rejec-tion of the different subjective considerations 'should not affect the objective application of the prudent
decision test of materiality. However, Steyn LJ69 considered that there existed rwo tests insurer test'." The increased risk test would appear to endeavour to introduce into the
of materiality alternative to the different deci- objective concept of materiality an element at least of the subjective inducement
sion test, the comparative merits of which had not been discussed in CTL
excluded in cn v Oceanus.
Consequently, while cnestablished the negative ptoposition that the different decision
test was wtong, the Court ofAppeal in Pan Atlanticwas ftee to consider the positive (2) Materiality in the House of Lords in Pan Atlantic v Pine Top and Beyond
question of what was the precise test for materiality. Certain state-ments in CTI could
be read as favouring a 'would want to know' test. However, in Carter v Boehm,'0 Lotd
Mansfield referred to non-disclosure having the effect 'that the risque run is really Top was appealed to the House of Lords,'6 proceedings 4.35
different ftom the risque understood and intended to be run, at the time of the
agteement', indicating an 'increased risk' Or 'differ-ent tisk' test of materiality. By way cnv Oceanus on both materiality and
which involved a challenge to the holdings in
of illustration," Steyn LJ postulated a shopkeeper who takes out a fire policy failing to inducement. By a bare majority, the House upheld cn on materiality, confirming the
disclose a fire rwenty yeats previously, in the light of which extensive fire precautions rejection of the decisive influence test, while unanimously reversing it with respect to
inducement.
had been introduced. Whereas it might be proved that a prudent insurer would want to
knoY' of the fire as a previous loss, greater difficulty would be encountered in proving With respect to materiality, Lotd Mustill, who delivered the leading speech for 4.36 the
that the risk would be viewed as increased by that fire. Steyn LJ 'unhesitatingly' adopted majority," commenced his discussion by stating the following question for decision: 'must it be
the mote stringent test. The question to be asked was whether a pru-dent underwriter shown that full and accurate disclosure would have led the prudent underwriter to a different
would have viewed the true risk as increased or different in comparison with that which decision on accepting or rating the risk; or is
was presented for insurance" or, at least, 'whether a lesser standard of impact on the mind of the prudent underwriter sufficient; and, if so,
what is that lesser standard?'" Two reasons in particular led to rejection of the diffetent
the prudent insurer would view the undisclosed material as probably tending to increase decision test. Fitst, noting the absence in section 18(2) of any advetb qualifYing the
the risk'.73 vetb 'influence', such as 'decisively' or 'conclu-sively', Lord Mustill held that the
The Court of Appeal clearly believed that an underwrirer should face some reference to influencing the judgment of the prudent insurer in determining 'whether' to
hurdle of substance under the heading of materiality or inducement. Bound by take the risk 'clearly denotes an effect on rhe thought processes of the insurer in
weighing up the risk, quite
68 [199211 Lloyd's Rep 101, [1993J 1 Lloyd's Rep 496, [19951 1AC 501.
69 Nicholls V-C and Farquharson L] concurring. 70 (1766) 3 Burr 1905, 1909.
" ibid 505.
71 Conceived earlier: see Sir lahan Steyn, 'The Role of Good Faith & Fair Dealing in Contract:
7S See Lord Lloyd in the House ofLords in Pan Atlantic v Pine Top [1995J 1 AC 501,
A Hair-Shirr Philosophy?' [1991J Denning LJ 131, 139. '" 560. 76 [1995J 1 AC 501.
72 [1993J 1 Lloyd's Rep 496, 505. " ibid 506. n Lord Goff delivered a short concurring speech; Lord Slynn agreed. Lords Lloyd and
Templeman dissented.
112 78 [1995J 1AC 501, 521.
113
different from words which might have been used but were not, such as "influ- doing no more than rejecting the different decision test. Nevertheless, three
encing the insurer to take the risk" '.79 Lord Goff considered rhat the wording of .factors indicate that the House of Lords went further and positively espoused
section 18(2) denoted 'no more than an effect on the mind of the insurer in the relatively lenient test of objective relevance to. the assessment of the risk.
weighing up the tisk,.ao Secondly, the majority endorsed the view articulated in First, the question posed by Lord Mustill militates against interpreting the
CTl v Oceanus by Parker LJ that the different decision test would present statements of Lord Mustill and Lord Goff, cited above, as metely rejecting the
insuperable practical difficulties. decisive influence test. Secondly, after discussing a number of leading
textbooks, Lotd Mustill stated" that, while not decisive, 'they furnish substantial
The reasoning of the majority is clearly tenable but, with respect, not self-evidently
support for the view that the dury of disclosure extended to all matters which
correct. As demonstrated by Lord Lloyd, as a matter of English language, an
would have been taken into account by the underwritet when assessing the tisk
alternative interpretation of the subsection requiring the non-disclosure to
(ie the "speculation") which he was consenting to assume. This is in my opinion
affect or alter the prudent underwriter's ultimate assessment of the risk was at
what the Act was intending to convey, and what it actually says'. Thirdly,
least equally tenable." Lord Lloyd also disagreed on the practicalities of the
comment-ing on the decision of the Court of Appeal in Pan Atlantic, Lord
different tests: 'What the prudent insurer would have wanted to know is as
Mustill observed that, had it not been bound by the rejection in CTI v Oceanus
nebulous and ill-defined as the alternative is precise and clear-cut.''' Moreover:
of any requirement of inducement of the actual underwtiter, 'the court might
'Five experienced and prudent underwriters are just as likely-in my view more
have felt more free in its ruling on materiality'." As discussed below, the House
likely-to disagree about what they would want to know as abour what they
of Lords held that an actionable bteach of the duty of utmost good faith must
would have done.''' Lord Mustill emphasized the plight of the prospective
induce the actual underwriter into the contract. Consequently, the House of
assured and its broker struggling with the 'almost impossible task' of determin-
Lords was able to enjoy this greater freedom with respect to the test for
ing, on the different decision test, exactly what must be disclosed. Yet this
materiality, reject the incorporation therein of any element of inducement," and
seems to abandon the assured who inadvertently fails to disclose through
espouse the lower threshold.
innocent mistake, in favour of the assured who endeavours to calculate in cold
blood the bare minimum to be disclosed to the insurer. In St Paul Fire & Marine Insurance Co (UK) Ltd v McDonnell Dowell Constructors
4.40
Rejection of the decisive influence test for materiality clearly favours insurers. The Ltd,'o the Court of Appeal confirmed that the House of Lords in Pan Atlantic had,
opinion of the prudent underwriter is garnered principally from expert indeed, answered in full the question posed by Lord Mustill. The Court also
testimony, bur all an expert witness can now be asked is whether a fair considered the impact of the ruling of the House of Lords on the different tisk test
presentaC tion of the risk called for disclosure of the relevant circumstance, or of the Court ofAppeal. Evans LJ expressed the view" that the Court of Appeal's
whether the witness would have viewed that circumstance as relevant to an focus upon the prudent underwriter's appreciation of a difference between the true
accurate appreci-ation of the risk. The wirness cannot be asked whether risk and that ptesented was expressly approved by the House of Lords, quoting Lord
disclosure would have made any difference to the ultimate underwriring decision, Mustill stating that 'the whole object of the rules as to
alld to identifY any difference. On one view, moreover, 'if the expert [wirness] says representation, misrepresentation and concealment is to enable the underwriters
"I would have wanted to know but the knowledge would not have made any to judge accurately of the risk they undertake'. 92 With respect, for the reasons
difference" then there are no objecrive or rational grounds upon which this expressed above, this interpretation seems incorrect. Subsequent cases vary in
statement of belief can be tested'. 84
the formula they espouse." The Court of Appeal in St Paul Fire & Marine did,
The answer ultimately given by Lord Mustill to the question posed concerning however, reject an argument that materiality required the circumstance to
the test for materiality" confined itself to rejecting the different decision, or
86
decisive influence, tesr. Given such a rejection, however, the question required
the formulation ofthe correct test. The House ofLords approved CTI v Oceanus, 87 ibid 538. " ibid 527. 89 See the speech of Lord Goff at 517-18.
but that decision was interpreted by the Court of Appeal in Pan Atlantic as [1995) 2 Lloyd's Rep 116, noted Bennett (1996) 112 LQR 37.
[199512 Lloyd's Rep 116, 124, Rose and Nourse LJJ concuning.
[1995] 1 AC 501, 538. Lord Mustill was in fact encapsulating the view expressed in, and
quoting from, Parsons, A Treatise on Maritime Law (1859).
79 ibid 531. eo ibid 517. 81 ibid 559. 82 ibid 557-8. " ibid 558. Contrast, eg New Hampshire Insurance Co v Oil Refineries Ltd [2002] 2 Lloyd's Rep 462,
84 ibid 515 per Lord Templeman. as See 4.36 above. 86· [19951 1 AC 501, 550. para 31 (different risk) and North Star Shipping Ltd v Sphere Drake Insurance pic [2005]
EWHC 665 (Carom), [2005J 2 Lloyd's Rep 76, para 208 (objective relevance to risk assessment).
114
115
The Doctrine ofUtmost Good Faith Inducement
increase, and not merely alter, the perceived risk. Many factors may increase entitled to rely on it as a ground for avoiding the contract'. 98 The omission of
the risk in some respects but decrease it in others. To this extent, the test .any reference to influence in section 20(1) had to be read alongside section 91
adopted by the Court ofAppeal in Pan Atlantic is clearly no longer good law. (2), which preserves the rules of the common law unless inconsistent wirh an
express provision in the 1906 Act, the requirement of influence being well
established in the general law of misrepresentation when the Act was drafted.
Inducement Although the absence of a general common law of disclosure prevented
implica-tion of an influence requirement into section 18(1) through section
In the general law of contract, objective materiality is insufficient to establish a right 91(2), a distinction between misrepresentation and non-disclosure on the need
to rescind for misrepresentation. In addition, the representee must estab- for inducement was nor acceptable. Accordingly, nO breach of a pre-formation
lish a causal link between the misrepresentation and its own agreement to duty of utmost good faith, whether in the form of misrepresentation or non-
94
conclude the contracr. This subjective requirement is termed (inducement'. disclosure, is actionable unless it induces. the actual underwriter into the
The Marine Insurance Act 1906, however, prescribes detailed rules relating to contract.
misrepresentarion and non-disclosure but makes no mention of inducement.
This led to debate as to whether inducement was required in (marine) insurance (2) The Meaning ofInducement
contract law. Once it was established that inducement was required, attention
turned to what inducement meant and also how it was proved, both generally In Pan Atlantic v Pine Top," Lord Mustill stated that the test for inducement in 4.44
and with respect to following underwriters in a subscription market. insurance contract law was the same as that applied in general contract law.
Unfortunately, there was little authority in general contract law on the precise
Establishing the Reqnirement for Inducement as a Matter of Legal formulation of the correct test to be applied.
Principle It is clear that inducement by one factor does not necessarily deny inducement 4.45
In Berger & Light Diffusers Ltd v Pollock,95 Kerr J held that, to render a marine also by another. In Edgington v Fitzmaurice,'00 the claimant advanced money to
insurance contract voidable, it was not sufficient that a non-disclosure or mis- a company in the mistaken belief that the loan would be secured by a charge on
representation was objectively material. In addition, it must have subjectively the company's property. He averred that he would not have made the advance
induced the underwriter to conclude the contract on the terms agreed. To allow an but for such belief. The company directors had also fraudulently misrepresented
underwriter to avoid a policy in the absence of subjective inducement merely that the purpose of the loan was improve corporate assets and develop trading,
because a prudent underwriter would have been influenced would be 'absurd'.'6 whereas the money was in fact required to pay existing debts. The Court of
In CTI v Oceanus, the Court of Appeal (including Kerr Ln overruled Berger v Appeal held the directors liable in the tort of deceit, notwithstanding the claim-
Pollock with respect to inducement on the ground that the wording of the Matine ant's own mistake. The question was whether the misstatement had in fact been
Insurance Act 1906 simply did not accommodate a subjective require- relied upon, not whether it was the sole inducement. It sufficed that the mis-
ment." The House of Lords in Pan Atlantic, however, unanimously reversed statement was 'actively present to [the representee's] mind when he decided to
cn v Oceanus on this point. advance his money' .'01 The same reasoning is equally applicable in cases not
involving fraud and in an action fot avoidance for breach of a duty of utmost
The House of Lords held that 'if the misrepresentation or non-disclosure of a
good faith rather than for damages in tort. 102
material facr did not in fact induce the contract (in rhe sense in which that
expression is used in the general law of misrepresentation) the underwriter is not Different factors may, howevet, have differing motivational power. How sub- 4.46
stantial and active an inducement is required? Ascertaining the meaning of
98 [1973] 2 Lloyd's Rep 442, 550 per Lord MustilL For critical discussion of this aspect of the
94Attwood v Small (1838) 6 Cl & F 232, 338;jEB Fasteners v Marks, Bwom & CO [1983J 1 All decision, see Birds and Hird, 'Misrepresentation and Non~disdosure in Insurance Law-Identical
ER 583.
9S [197312 Lloyd's Rep 442.
Twins or Separare Issues?' (1996) 59 MLR 285.
99 [199511 AC 501, 550. 100 (1885) 29 ChD 459. '01 ibid 483 per Bowen LJ.
96 ibid 463. See also Flinn v Headlam (1829) 9 B & Cr 693.
102 Assicurazioni Generali SpA v Arab Insurance Group (BSC) [2002J EWCA Civ 1642, [2003J
97 See also Zurich Genera/Accident & Liability Insurance Co Ltd v Morrison [1942] 2 KB 53, 60.
1 WLR 577, paras 59, 62.
116
117
inducement requires an answer to the same question as arose in the context of truth had been known or suspected before the decision was taken, the same
matetiality. Ptecisely what impact upon the thought processes of the under- decision would still have been made.
writer, although this time the actual underwriter, is required? Must it be shown Stephenson LJ referred to the need for the misrepresentation to play 'a real and
that a proper presentation of the risk would have caused the acrual underwriter substantial part, though not by itself a decisive part, in inducing' the contract.
either to refuse the risk or alter the terms? Or does some lesser impact suffice, The necessary inducement would be present if the represenree was 'motivated
and, if so, is the test formulated by reference to perception of a different risk or or influenced ... to any substantial extent' .110
mere relevance to the decision-making process?
The two judgmenrs differ in that Donaldson LJ seems to espouse a decisive 4.49
In Barton v Armstrong,103 the Privy Council held in the context of duress to rhe person influence tesr of inducement whereas Srephenson LJ favours a substantial
that it sufficed if the threat was 'a' reason for entering into the contract, even if influence test. Both approaches require a genuine impact on the mind of rhe
the threatened party might still have concluded the contract in the absence of representee and sanction an enquiry into the .relative importance of multiple
any threats. The relative importance of the threat in comparison with the other inducements. The larter, however, establishes a lower threshold for inducement
reason(s) for contracting was irrelevant, 'for in this field the court does not allow than the former, since a misrepresenration may be a substantial inducement and
an examination into the relative importance ofcontributory causes' .104
yet not induce a different decision because, had the truth been known, other
Moreover, the coercing patty had the burden of proving that the threats 'in fact factors would, on balance, have outweighed rhe misrepresented circumstance. A
contributed nothing' to the threatened party's decision. lOS This approach,
circumstance may feature in the mind of the actual representee as significant
according to the Privy Council, was appropriate for all situations where 'the
without necessarily inducing a different decision. On the facts, since the claim-
party has been subjected to an improper motive fat action',106 such as fraud and
ants' desire to obtain .the employee's services constituted their 'primary and
duress to the person. lO? Such an approach is not necessarily appropriate, impelling motive for the tal<eover', the requisite inducement was absent on
however, in the absence of such an improper motive for action, as for instance
eirher approach, and any indication of the precise threshold to be achieved for
where an underwriter seeks to rely upon a non-fraudulent misrepresentation or non-
inducement was obiter.'11
disclosure.
In lEB Fasteners Ltd v Marks, Bloom & CO,'08 a corporate takeover was motivated by a wish
The issue of the precise rhreshold was addressed by the Court of Appeal in 4.50
to acquire the services of key personnel. In the course of negotiations, rhe claimants
Assicurazioni Generali SpA v Arab Insurance Group (BSC), 112 with a difference of
opinion emerging. The majority espoused a different decision tesr for induce-
were shown the company's audited accounts, which proved to be substantially
ment. According to Clarke LJ: 113 'In order to prove inducemenr the insurer ...
inaccurate. The takeover having proved an expensive mistake, the claimants sued rhe
must show that the non-disclosure or misrepresentation was an effective cause of
auditors responsible for the accounts in negligence. The
his entering into the contract on the terms on which he did. He must therefore
Court of Appeal held, however, thar no sufficient causal link had been proved
show at least that, but for the relevanr non-disclosure or misrepresentarion, he
between the negligence and the loss. Donaldson LJ stated as follows: 109
would not have entered into the contract on those terms.'
In real life decisions are made on the basis of a complex of assumptions of fact.
Some of these may be fundamental to the validity of the decision. <But for' that In Brotherton v Aseguradora Colseguros SA (No 2),'14 Mance LJ likewise affirmed 4.51
assumption, the decision would not be made. Others may be important factors in the need for the actual underwriter to have acted 'differently, either by refusing
reaching the decision and collectively, but not individually, fundamental to its to write the risk at all or by wriring it only on different terms', referring to the
validity. Yet others may be subsidiary factors which support or encourage the
taking ofthe decision. If these latter assumptions are falsified in the event, whether
individually or collectively, this will be a cause for disappointment to the decision-
taker, but will not affect the essential validity of his decision in the sense that if the
ibid 589.
lEB Fasteners was followed in Avon Insurance pic v Swire FrtlSer Ltd [2000] Lloyd's Rep IR
--------------------- 535, para 18, where Rix Jdrew a 'distinction between a nlCtor which is observed or considered by
103 [19761 AC 104, 118-19. "" ibid 118 per Lord Cross. "5 ibid 120.
a [claimant), or even supports or encourages his decision, and a factor which is sufficiently
10' A phrase formulared by Holmes J in Fairbanks v Snow (1887) 13 NE 596, 598 (Supreme important to be called a real and substantial part of what induced him to enter a transaction'.
Court of Massachusetts) and cited at 118, 121. '" [2002J EWCA Ciy 1642, [2003J Lloyd's Rep IR 131.
107 On fraud, see Nicols Case (I 859) 3 De G &] 387, 422. ibid para 62. Also para 59. See also Sir Christopher Staughton at para 187.
108 [19831 1 All ER 583. 109 ibid 588. [2003J EWCA Ciy 705, [2003J Lloyd's Rep IR 746, para 14.
118 119
statement by Lord Mustill in Pan Atlantic v Pine Top'15 of rhe need for an judgment, in the context of holding that inducement was established on the
insurer to show that the non-disclosure or misrepresentation had occasioned it factsaf the case, Lord Mustill stated as follows:'24
'harmJ •
116 As a matter of common sense however even where tl~e underwriter is shown to
~ave been careless in other respects the assured will have an uphill task in persuad-
One member of rhe Court of Appeal in Assicurazioni Generali SpA v Arab Insurance Ing the court that the withholding or misstatement of circumstances satisfying the
Group (BSC)117 demurred. For Watd L], it sufficed that the mis- test of materiality has made no difference. There is ample material both in the general
reptesentation or non-disclosure formed part of the picture on which the law and in the specialist works on insurance to suggest that there is a presumption in
underwriter's decision was based so that it could fairly be described as 'a'cause favour of a causative effect.
of the decision. Ward L] was 'concerned if the insistence on an effective cause These references to a presumption of inducement flowing from proof of materi- 4.55
were to lead to an evaluation of the weight placed by the [underwriter] upon the ality have been taken at face value,125 but are apt to mislead. There is no formal,
·h. b" Id h ' 118 Th'
various matters W hIe III com manon e to t e agreement. IS concern legal presumption that requires a court, once the insurer has proved materiality,
mirrors part of the reasoning that led to the rejection of a diffetent decision test to find inducement in the absence of convincing rebuttal evidence adduced by
for materiality,119 bur it has not prevailed in the context of inducement for
126
the assured. The idea of such a formal, legal presumption is a 'heresy ... long
non-fraudulent non-disclosure or mistepresentation. since exploded'.127 Such a presumption would, moreover, be both illogical and
undesirable. As a matter of logic, it simply does not follow that a circumstance
Proof ofIndncement that a prudent underwriter would consider relevant to assessing the risk would,
if not disclosed or if misrepresented, cause the actual underwriter to decline the
The legal burden of proving inducement rests on the patty allegedly induced, in 128
practice almost invariably the insurer,12o although it has been said that the risk or accept only on different terms. As a matter of policy, the introduction
burden 'is not a heavy one'.'21 of the requirement of inducement by the House of Lords in Pan Atlantic pur-
ports to redress somewhat the balance between insurer and assured, a balance
The so-called 'presumption' ofinducement tipped too much in favour of the insuret by the decision of the Court ofAppeal
In Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd, 122 in the course of in CTI v Oceanus. If, however, proof of materiality serves automatically as proof
tejecting an argument that the absence in the Marine Insurance Act 1906 of any of inducement, subject only to a difficult burden of rebuttal by the assured, then
reference to a causal link between misrepresentation or non-disclosure and con-tract precious little will have changed.
formation was deliberate and reflected a disciplinaty element in (mariae) insurance In truth, evidence of materiality has no special status in terms of proof of 4.56
contract law, Lord Mustill stated that 'the existing rules, coupled inducement. Its probative value in that tegard depends entirely on the cogency
with a presumption of inducement, are already stern enough'.123 Later in his and compelling nature of the evidence in question. The stronger the case for
materiality, the stronger the likelihood of inducement. Once evidence of materiality
is sufficiently strong, it will logically follow that it is more likely than not that the
actual underwriter would have taken a different decision in some way had the truth
115 [1995] 1 AC 501, 549. See also at 551 (need for 'an effect on the decision of the actual been known. It is in this sense, but only in this sense, that an underwritet may be
underwriter') .
116 Further authorities in suPPOtt of the decisive influence test of inducement include Industrial
said to benefit from 'a fair inference of fact' flowing ftom
P,operties (Barton HilO Ltd vAssociatedElectrical Industries [1977] QB 580, 597, 610; Harry v Tate
& Lyle Refineries Ltd [1982] 2 Lloyd's Rep 416, 422; The Lucy [1983] 1 Lloyd's Rep 188, 201.lt was
assumed to be correct in St Paul Rre 6' Marine Insurance Co (UK) Ltd v McDonnell Dowell
ibid 551.
Constructors Ltd [1995] 2 Lloyd's Rep 116, 124.
m [20021 EWCA Civ 1642, [20031 Lloyd's Rep lR 131. 118 ibid para 218.
Gunns v Par Insurance Brokers (1997] 1 Lloyd's Rep 173, 176; Aneco Reinsurance
Underwriting Ltd v johnson [19981 I Lloyd's Rep 565, 590; james v CGU Insurance pic [2002]
119 See 4.29, 4.36 above.
'" Arkw,ightv Newbold(1881) 17 CbD 201; Ma;c Rich &CoAG v Portman [199611 Lloyd's Rep
126 Assicueazioni Generali SpA v Aeab Insueance Group (BSC) [20021 EWCA Civ 1642, [20031
430, 442; Moo" Large & Co Ltd v Hennes Credit & Guarantee pic [2003] EWHC 26 (Comm),
[200311 Lloyd's Rep 163, para 59; Drake Insurance pic v Provident Insurance pic [20031 1 WLR 577, para 62.
127 Pan Atlantic Insurance Co Ltd v Pine lOp Insurance Co Ltd (1995] 1 AC 501, 570 per Lord
EWCA Civ 1834, [2004] QB 601, paras 64,131.
121 Wise (Underwriting Agenry) Ltd v Grupo Nacional Provincial SA [2004} EWCA Civ 962, Lloyd.
[2004] 2 Lloyd's Rep 483 ar [991 per Rix LJ. ~ '" Arsicurazioni Generali SpA v Arab Insurance Group (BSC) [20021 EWCA Civ 1642, [20031
I WLR 577, para 80.
122 [19951 1 AC 501. m ibid 549.
121
120
evidence of materiality. '29 A tribunal of fact may, therefore, infer inducement from insurer may rely On evidence adduced as to objective materiality as indirect
proof of materiality, although it may decline to do so even in the absence of rebuttal proof of inducement. In St Paul Fire <& Marine Insurance Co (UK) Ltd v
evidence since materiality does not give rise to a legal presumption of McDonnell Dowell Constructors Ltd,'35 a construction risk was underwritten by
inducement. Even such references to (inference' should not, however, be mis- fouf insurers. However, the presentation of the risk contained serious errors with
understood. Insurers are not benefiting from a conclusion of inducement in the regard to the nature of the intended foundations, and the insurers sought a
absence of the evidence normally required for a court to arrive at such a conclu- declaration of entitlement to avoid the policy. Three underwriters gave evidence
sion. What is meant is merely that evidence of materiality may serve as on behalf of theit insurers that cleatly established their inducement by the
indirect, or circumstantial, evidence of inducement and, depending on the 136
shortcomings in the presentation of the risk. The fourth insurer, however,
nature and quality of the evidence in question, may suffice to discharge the
insurer's burden of proving inducement on a balance of probabilities. 130 adduced no such evidence since the underwriter concerned had left its
employment and relations between him and the company were strained. How-
Where the actual underwriter gives evidence to the COUrt in person, there is little ever, a factual inference of inducement could be, and was, drawn from the
room for indirect evidence. The court will normally draw a conclusion as to materiality of the non-disclosures and misrepresentations, reinforced by the
proved inducement of the other three insurers.
inducement from the underwriter's direct testimony.'31 In the subscription
market, nevertheless, it may be possible for somewhat unconvincing testimony In the absence of a good reason, the failure on the part of the actual underwriter 4.59 to
by one participating underwriter to be strengthened by clear evidence of testify may constitute evidence of lack of inducement. The court may infer
inducement from other participating underwriters.'" Where, however, the actual that the reason why the insurers did not produce the underwriter as a witness
underwriter does not testify, the question clearly arises of proof by indirect was because they lacked confidence that the underwriter could testify credibly
means. The first issue is whether the insurers have a good reason for not of a difference in treatment of the risk and maintain that testimony nnder cross-
producing the actual underwriter. The underwriter may be incapable of testify- 137
examination. Again, however, there is no legal presumption,138 and the failure
ing by reason of ill-health or may, indeed, have died. Alternatively, the under-
to produce the actual underwriter may be outweighed by other evidence.
writer may have left the insurers' employment and not be inclined to assist or Where the insurers' explanation for the underwriter's absence is credible but not
subject only to unacceptable conditions."3 An unwilling witness can always be wholly satisfactory, the failure to produce the underwriter as a witness will
compelled by subpoena to appear,134 although the weight to be attached to again COUnt against the insurers but with reduced probative weight. 139
unconvincing testimony will have to be judged in the light of the witne~s's
reluctance to assist the insurer. (b) Unknown inftrmation
Assuming there is a good reason for the actual underwriter's failure to testify, the Some difficulty may arise where representing or disclosing the truth would lead 4.60
the underwriter to seek further information before making a decision, and it is unclear
what further information would have been tevealed so that the insurer cannot prove
directly how it would have responded to the additional informa-
'" Smith v Chadwick (1884) 9 App Cas 187, 196 per Lotd Blackburn. See also St Paul Fire 6-
Marine Insurance Co (UK) Ltd v tion. In such a situation, the underwriter will have to fall back on indirect, or
McDonnell Dowell Constructors Ltd [1995J 2 Lloyd's Rep circumstantial, evidence of inducement. A combination of proof of materiality
116, 127. and proof that the underwriter would, more probably than not, have sought
130 Imurance Corp ofthe ChannelIslands v Royal HotelLtd [1998) Lloyd's Rep lR 151, 158;
Assicurazioni Generali SpA vArab Imuranee Group (BSC) [20021 EWCA Civ 1642, [200311 WLR further information before reaching a decision on whether to accept the risk
577, paras 61, 62. and, if so, on what terms should suffice to establish inducement on a balance of
131 Marc Rich drCoAG v Portman (1996J 1 Lloyd's Rep 430, 442; Sirius International Insurance
Corp v Oriental Assurance Corp [1999] Ll.oyd's ~ep IR 343, 351 ..If the ~nderwriter is called,
and the court is left unable to reach a conclUSIOn on Inducement, the Insurer s defence
falls for failure to discharge the burden of proof: Marc Rich v Portman, 442. BS [1995J 2 Lloyd's Rep 116.
132 International Management Group (UK) Ltd v Simmonds [2003] EWHC 177 (Comm),
136 As the trial occurred before the ruling of the House of Lords in Pan Atlantic v Pine 1Op, the
[20041 Lloyd's Rep IR 247, para..l47. Inducement offoHowing underwriters is discussed at evidence was directed solely to materiality, but the Court of Appeal held that it also
4.61ff below. established inducement.
133 In International Management Group v Simmonds, the underwriter, who had ceased
'" Smith v Chadwick (1884) 9 App Cas 187, 196-7.
to work for the insurets, demanded access to confidential information to which he/was nat ,,, ibid 197. See also M'Queen v Great Western Railway Co (1875) LR 10 QB 569.
entitled in return for co-operating as a witness. .
139 Wisniewski v Central Manchester Health Authority [19981 PIQR 324, 340.
134 ibid para 148.
122
123
probabilities.140 Otherwise, the assured will benefit from ~ gap in information Instead, a seties of first instance decisions have adopted a different analysis that 4.63
directly attributable to its material non-disclosure or misrepresentation. An insurer concentrates on the presentation by the broker to each following underwriter.
that seeks to prove that further information would, indeed, have been sought should The broker may be regarded as impliedly representing to each following under-
be able, credibly, to indicate the enquiries that would have been made and the writer that a fair presentation was made to the leading underwriter, with proper
possible information that such enquiries would have revealed.'4' disclosure of all material circumstances and containing no material misrepresen-
tations'50 Alternatively, the fact that a fair presentation has not been made to the
leading undelwriter is a material circumstance requiring disclosure to fol-lowing
Inducement in a Subscription Market underwriters.'51 Following underwriters will each, individually, make their own
In Chapter 2 above, it was seen that the placement of insurance in the subscrip-tion market decisions as to whether to subscribe to the risk, and if so for what percentage, and
results in a seties of separate contracts that ate generally, although
whether to accept the terms as agreed by the leading under-writer. Nevertheless,
not necessarily, on uniform terms negotiated between the broker and the lead-ing considerable reliance is placed on the subscription of the leading underwriter so
nnderwriter.'42 The level of presentation to. follo.wing unde,;"riters may vary that it will not be hard to persuade a court that a following underwriter would have
bm is often minimal, with followmg underwnters mstead placmg conSiderable taken a different decision with respect to the risk if it had known that the leading
reliance on the repmation and jndgment of the leading nnderwriter. This raises a underwriter's rating of the risk and sub-scription had been procured by an unfair
problem of inducement. Clearly a leading unde,;"riter ca~ avoid on the basis of 152
any material non-disclosure or misrepresentatiOn that mduced it mto its presentation of the tisk. Where a separate full and fair presentation is made to
contract. However, can following underwriters claim to avoid their contracts in a following underwriter, it will be a question of fact whether the following
circumstances where no material non-disclosure or misrepresentation was made underwriter is also induced by the sub-scription and rating of the leading
underwriter.'" Equally, a following under-writer who relies on the judgment and
specifically to them? participation of the leading underwriter may be unable to establish inducement by
In the eighteenth-century case of Pawson v Wtztson, '43 it was held that a mis-representation some misstatement made separately to the following underwriter by the broker.
made to a leading underwriter rendering its contract voidable is
impliedly made also to following underwriters, si~ilar~~contaminating their 154
contracts. Representations to intermediate underwnters were not wlthlll the
rule as there was nO ground for presuming reliance on their signatures.'45 The (5) Negating Inducement
rule was, however, acknowledged only with disfavour by Lord Ellenborough;'46
· c' . ''47 I 'T'h Z 'n,,''48 Inducement will uot be present where the underwriter obtains independent 4.64
and supporting authonty ror Its eXIstenCe IS not strong. n 1 e .e[ ryr, i verification of the information,155 or where the breach of a duty of mmost good
Mustill LJ grudgingly accepted the possibility of such a rule, bm expressed doubr faith is cured before the contract is concluded,156 whether by supplying informa-
as to its existence and refused to recognize an analogous principle for statemenrs by tion previously omitted or by withdrawing or correcting a misrepresentation
the broker outside the contract.'49
'40 Moore Large 6- Co Ltd v Hermes Credit 6- Guarantee plc[2003] EWHC 26 (Comm), [2003]
1 Uoyd's Rep 163, paras 71,80. Bank Leumi Le Israel EM v British National Insurance Co Ltd [1998] 1 Lloyd'sRep 71, 76.
141 Pedley vAvon Insurance [20031 EWHC 2007 (QB), unreported, para 123. Aneca Reinsurance Underwriting Ltd v Johnson [1998] 1 Lloyd's Rep 565; International
'42 See 2.14-2.15 above. 143 (1778) 2 Cowp 785. Management Group (UK) v Simmonds [2003J EWHC 177 (Comm), [2004J Lloyd's Rep IR
144 Following underwriters who initial the slip before the following undclwrirer alleging a 247, para 150; Brotherton vAseguradora Colseguros SA (No 3) [2003] EWHC 1741, [2003]
breach of the duty of utmost good faith. Lloyd's Rep IR 762, para 44.
145 Bell v Carstairs (1810) 2 Camp 543; Brine v Featherstone (1813) 4 Taunt 869. 152 International Management Group (UK) v Simmonds [2003] EWHC 177 (Comm), [2004]
'46 Bell v Carstai" (1810) 2 Camp 543; Forrester v Pigou (1813)1 M & S 9. . Lloyd's Rep IR 247, para 150; Brotherton v Asegmadora Colsegmos SA (No 3) [20031 EWHC
Barber v Fletcher (1779) 1 I?oug1305 (obiter, because the representatlon was not material);
147 1741, [20031 Uoyd's Rep IR 762, para 44.
Marsden v Reid (1803) 3 East 5Tl (obiter, because the relevant evidence was inadmissible); Feise v 153 Bank Leumi Ie Israel BM v British National Insurance Co Ltd[1998] 1 Lloyd's Rep 71, 76;
Parkinson (1812) 4 Taunt 640. Brotherton v Aseguradora Colseguros SA (No 3) [2003] EWHC 1741, [2003J Lloyd's Rep IR 762,
148 General Accident f"tre & Life Assurance Corp v 'lanter (The Zephyr) [1?85] 2 Lloyd's Rep para 44.
529,534, . . 154 Glencore International AG v Alpina Insurance Co Ltd [20031 EWHC 2792 (Corom), [2004J
149 Namely, signing indications. The case is discussed further at 5.0'8 below. 1 Lloyd's Rep Ill, para 180.
155 Attwood v Small (1836) 6 C! & F 232. 156 Strover v Harrington [1988] Ch 390.
124
125
The Doctrine ofUtmost Good Faith Circumstances Requiring Disclosure
. lade 157 'A correction must [however] be fairly made to the insurer (1) The Physical Hazard
previOUS y m. .
h that the corrected picture is fairly presented on behalf of the Insured
... suc fd' The phrase 'physical hazard' is used to denote the risk presented by attributes 4.67 of
... and comes to the knowledge of the insurer."58 The opportuni;;,0, Iscover- the insured property. All material aspecrs of the physical hazard must be disclosed
. the information or inaccuracy does not negate Inducement: No-one IS and must not be misrepresented.
~ fal' .
entitled to make a statement which on the face of it conveys a se ImpressIon
and then excuse himself on the ground that the person to whom he made It had Liberian Insurance Agency Inc v Mosse'65 exemplifies the physical hazard. The 4.68
. '160 assured failed to disclose three material facts relating to insured cargo described
available the means af correction. as 'enamelware (cups and plates) in wooden cases'. First, the cargo included
4.65
An assured may wish to challenge a claim of inducement of the actual under- 823 cartons that were more susceptible to water damage and, therefore, offered
writer by seeking to establish a pattern of disregarding information of the type at less protection to the enamelware than wooden cases. Secondly, a significant
.issue or even a pattern of careless underwriting generally. In Marc Rich 6- CoAG propor-tion of the enamelware had been touched up by ovetpainting. This was
p, tman '61 the assureds sought to portray the underwriter as 'aman who had material because any break in the continuity of the surface rendered the
v or , . ., I '162 •
abrogated his underwriting functions and eXIsted In an Intellectua stupor lfi enamelware more susceptible to brealcage and because, in the event of a
order to argue that even if certain blatantly matenal Information had been casualty, it would be difficult to assess how much damage had been incurred in
disclosed in relation to the particular risk the underwriter would have taken no transit, as opposed to being original damage overlooked by the manufacturer
notice of it. Longmore J emphasized that the question of inducem~ntwas 't~ be and nor touched up. Thirdly, the goods were an end-of-stock purchase at a
determined by reference to the actual risks underwntten and theIr. ImmedIate cheap price. Although the low price was not material in itself, it was indicative
context'. The question was whether the underwriter had abrogated hIS functl~ns of the quality of the goods which was material. The goods might well contain a
in relation to the policy in question 'not in relation to numerous other tlsks high proportion of sub-standard examples, again raising a danger of the insurer
. d'[:£: . , '63 being claimed against in respect of the original state of the goods."6
wntten on Illerent occaSIons.
(2) The Moral Hazard
Circumstances Requiring Disclosure
The concept of materiality extends also to what has come to be known as the 4.69
The pre-formation duties of utmost good faith embrace not ~nly circumstanses 'moral hazard'. This phrase embraces the human aspects of the risk, related not
relating to the subject-matter insured, but also any other CIrcumstance what- to any insured property but rather to the character and histoty of the assured and
soever that is material to the risk presented to the insurer. '64 other persons relevant to the risk given the position they occupy in relation to the
subject-matter insured."? Human circumstances fall within the moral hazard to the
extent that they indicate an increased likelihood of either a loss occurring or an
attempr being made to bring an illegitimare claim. Classically, rhis includes, but is
not restricted to, the assured's claims history,'68 the facr that
157 Withdrawing or correcting a misrepresentation is expressly envisaged by MIA 1906,
s 2~16~ssicurazioni Generali SpA 0 Arab Insurance Group (BSC) [2002] EWCA Civ 1642, [2003]
1 WLR 577, para 64 per Clarke LJ. [1977] 2 Lloyd's Rep 560.
159 ibid. See also Central Railway oJVenezuela v Kirsch (1867) LR 2 HL 99; Redgrave v Hurd See also Greenhill v Federal Insurance Co Ltd [1927] 1 KB 65 (assured must disclose that
(1881) 20 ChD 1. . . . goods already damaged).
'60 Norton 0 Ashburlon [1914] AC 932, 962 per Lord Dunedm. See Malh, v Abbey Life 167 Pedley v Avon Insurance [2003] EWHC 2007 (QB), unreported: status as an undischarged
Assurance Co Ltd [1996] LRLR 237; New Hampshire Insurance Co v Oil Refine~iesLt~[2?02~ 2 bankrupt material if the individual is the director, principal, or manager controlling the insured business,
Lloyd's Rep 462, para 21 (where a correction point is considered under the headmg of waiver). but not material if the individual is an employee involved in mechanical work or a consultant: at pata 18.
'" [1996] 1 Lloyd's Rep 430. 162 ibid44lperLongmoreJ. ., .. Also Markel International Insurance Co Ltd v La Republica Compania Argentina de Seguros
163 ibid. The assureds had sQ,ught disclosure of all of the underwrltcr s wrltlngs over the [2004] EWHC 1826 (Comm), [2005] Lloyd's Rep 1R 90, para 25: previous dishonest misleading of
revious five years, but the insurers had r~fused. Disclosure wil~, however,. be ordered o~
leading underwriter by producing broker probably material for disclosure since more likely to
docu-r ts that relate to the writing of similar nsks and are of probative value WIth respect to mduce-
misrepresent facts or suppress information leading to deficient presentation of risk by placing broker.
::~t to writing the actual risk in question: GIG Personal Investment Service} Ltd v Liverpool &
London Steamship Protection & Indemnity Association Ltd (Carom Ct, ~7 November 1997). 168 The previous claims record was the subject of the non-disclosures and misrepresentations in
164 Ionides 0 Pender (1874) LR 9 QB 531; Rioaz v Germsi Bros.& Co (1880) 6 QBD 222. both CTI v Oceanus and Pan Atlantic v Pine TOp.
126 127
the assured is in serious financial difficulty and circumstances indicative of such the master's criminal record in Italy for drawing cheques without supporting funds.
difficulty,169 the history of involvement in previous casualties of the master and It was argued that no adverse inference regarding the master's dishonesty could be
crew, and the criminal tecord of the assured and key personnel, such as the master, drawn from such acts because under Iralian law dishonesty was not a necessary
where the crimes impact on the risk to be insured. A conviction for a parking ingredient of the offence. However, the mastees recidivism indicated deliberation
offence would not require disclosure, but rhe fact that one has been charged with or at least an incompetence incompatible with diligent manage-ment of financial
or convicted of a dishonesty offence would.
'70
Disclosure of cir-cumstances that affairs. The response in evidence of the managing agent of the Dora, who was also
relate to the moral hazard is not excused because of possible the vessel's second hand and mechanic, that he dealt with finance while the master
. d' h
embarrassment or preJu Ice t at ro1 t resu t.
'gh 1 171
was employed to navigate, was rejected as unsatisfactory. Phillips J stated as
follows: 175
An example of the moral hazard is provided by The Dora,172 where the assured failed to
disclose in a proposal for yacht insurance that smuggling charges were pending in The role ofa skipper of a yacht is well recognised and involves nverall
Italy against the crew of the vessel presented for insurance. Phillips J held the responsibility for the vessel. Financial competence and probity is an essential
insurer entitled to avoid for non-disclosure, rejecting four arguments requirement. I have no doubt that any underwriter would consider it material to
advanced on behalf of the assured. A submission that the charges were imma-terial be told that the skipper was only competent to look after the navigational
173 aspects ofthe running of the yacht and that his crew would be responsible for
because they were not well-founded failed because they were. Secondly, it was
other aspects of the operation of the vesseL
argued that the smuggling was insufficiently serious to be material. On the facts,
however, the smuggled goods were worth US$6,OOO and dishonesty on such a
(3) Other Circumstances Relevant to Assessment of the Risk
scale was cleatly material. The question of whether even trivial smug-gling of, for
example, a solitaty bortle of alcoholic liquor, would be material provoked The duties arising under the pre-formation doctrine of utmost good faith are 4.72
disagreement between expert witnesses. On one view the mere fact of a dishonesty not confined to circumstances that fall within the physical hazard or moral
offeuce was material, while another view accepted that de minimis hazard. These expressions are useful shorthand for certain categories of material
'74 circumstance but in no way circumscribe the scope of materiality. The duties
dishonesty would not be material. The third argument, that a criminal con-
viction could be avoided under Italian law by the payment of an administrative extend to any circumstance of whatever nature that a prudent undetwriter
fine, was dismissed as irrelevant. Fourthly, it was argued that there was no relevant would take into aCCount in assessing the presented risk.
relationship between the assured and the three crew members char~"d with
smuggling, since at the time of the offence they were employed by the yacht's An example is provided by circumstances relevant to the insurer's possibilities of 4.73
previous owners. However, since two of the three continued to.crew the recoupment ofloss moneys through the doctrine ofsubrogation. On indemnifY-ing
yacht for the assured, their moral standards were clearly material. the assured for a loss covered by the policy, the insurer is entitled to be subrogated
4.71 The insurer was also held entitled to avoid on the ground of non-disclosure of to the assured's rights against any third party legally liable for the ]OSS.'76 An
agreement between the assured and the third party limiting the third party's liability
will be binding on the insurer and, therefore, diminish its subro-gation rights.
_____ o o_~--- Provided that diminution affects the acceptability of the risk or the level of
169 James v CGU Insurance pic (2002] Lloyd's Rep IR 206, paras 81-88 (disputes with revenue
premium, such a limitation of liability must be disclosed as a material
authorities of such a scale as to bear on financial viability of assured's business); North Star circumstance. Tate & Sons v Hyslop177 concerned the insurance of goods in
Shipping Ltd v Sphae Drake Insurante pit (No 2) [2005] EWHC 665 (Comm), [2005] 2 Lloyd's
transit. The assured's contract with lightermen for the unloading of his goods
Rep 76, paras 229-236.
170 See generally PH Clarke, 'The Disclosure of Criminal Information To Insurers' (1984]
rendered them liable only for negligence, instead of as common carriers. It was
LMCLQ 100. A material offence that is 'spent' under the Rehabilitation of Offenders Act established that insurers, under such circumstances, charged a higher rate of
1974 need not be disclosed: see s 7(3) of the 1974 Act. premium. Consequently, the assured's failure to reveal the limitation of liability
James v CGU Insurance pic (2002] Lloyd's Rep IR 206, para 55.
lnversiones Manria SA v Sphere Drake Insurance Co pic (The Dora) [1989) 1 Lloyd's Rep 69. constituted a material non-disclosure.
On charges that are in ttuthill-founded, see 4,82ffbelow.
The better view is that any act of dishonesty is capable in law of being material, whether in
isolation or in combination wirh other circumstances. Ultimately, however, materiality is an issue
offacr in each case: Cate v Sun Alliance Insurance Ltd[1995] LRLR 385,407 (New Zealand High
Court). 175 The Dora (n 172 above) 95. 176 Subrogation is discussed in eh 25 below.
177 (1885) 15 QBD 368.
128
129
lB4
4.74 There are however, limirs to materiality. 1n particular, materiality does nor assessed but merely to the performance of a contract to insure a risk. 1n such
extend to 'anything that a prudent underwriter might like to know in deciding qald terms, however, the argument is nor self-evidently correct. The insurer when
whether to undertake this piece of business. 'Itdoes not include material whIch assessing rhe risk and derermining a premium must make certain assump-rions on
is relevant only to the question whether or not something is "good business", when rhe premium will be paid and the time and rrouble thar may be required ro
but has no bearing on the likelihood and extent of any loss to the InSUrer under colleer rhe premium. Three facrors invite consideration. First, the proposed policy
the contract.'178
terms may contain a premium warranty, under which risk will nor attach unless
premium is paid within a specified period of time. Disclosure of past default would
In Societe Anonyme d'Intermediaries Luxembourgeois v Farex Gie,'79 a m~jority of the
Court of Appeal held that where the insurer has accepred rhe rIsk at an lB5
then be superfluous and would accordingly be excused. Where, however, the
agreed level of premium on the basis rhat the risk will be reinsured, knowledge policy will not necessarily contain a premium warranty, a past history may be
on the part of the assured that the reinsurance is invalid need not be relevant to the insurer's decision on whether such a clause should be included.
disclosed.'80 Hoffmann LJ acknowledged that rhe breadth of the wording of Secondly, iIi marine insurance law, the obligation under rhe policy to pay premium
section 18(2) extended as far as the likelihood and extent of recovery via lies on the placing broker, not on the assured.'86 It may, therefore, be argued rhat
subrogation. Observing, however, that such rights 'affecr rhe insurer's potential the assured's financial reliability is irrelevant. This, however, assumes that the
net loss under the contract ofinsuranct! and rhat the'duty of disclosure is founded insurer will have no qualms about pursuing a broker, ro whom it looks for future
upon the likelihood that matters affecting the insurer's liability under the contracr business, for possibly subsrantial sums of premium. Thirdly, delay in payment of
(including arrangements which may affect rights of subrogation) will be within the premium is 'a common malaise in the marine insurance market' .'87 This assumes,
peculiar knowledge of the insured', he declined to extend the duty of dIS-closure to of course, rhat the assured's history of delay is no worse than normal for the
rights under contracts to which the assured was not a party and of which the market. On that assumption, disclosure may be excused, not because of lack of
lB materiality, bur because rhe insurer is presumed to know rhe normal workings of
assured could have knowledge only by pure chance. ' Saville LJ agreed but on a
different ground. The state of its reinsurance was some:hing an insurer ought in the
lB8
the market. Moreover, an insurer will find ir difficult, if not impossible, to
ordinary course of irs business to be aware of Itself. Consequently, the assured's esrablish inducemenr by non-disclosure of a nor-mal incident of the market.
lB2 Where, however, the assured's history is our of step wirh normal market
non-disclosure was excused under section 18(3)(b) of the 1906 Act. Dillon LJ
experience, such difficulties subside.'8'
dissented on this question, holding that the law as
laid down in Tate & Sons v Hyslop required disclosure. Withour demurring fro"1U The scope of materiality is also affecred by the risk the insurer is being asked to 4.77
rhe applicability of section 18(3)(b), it is respectfully suggested that Hoffmann accept. In the context of open covers,,90 most if nor all of the specific risks thar
LJ is correct in the approach to materiality. will be declared are unknown ro the assured ar rhe rime the open cover is
concluded. Moreover, certain matrers relaring to particular risks, such as rhe
4.76 Some difficulty surrounds rhe potential for materiality of past default on pay-
underlying commercial arrangement relating to the carriage of cargoes, may
ment of premium.18' Clearly, significant general financial difficulty requires
disclosure as relevant to rhe moral hazard and premium defaulr would require vary during the period of the cover and do nor, therefore, provide a basis for
disclosure if symptomaric of such general difficulty. Of irself, however, timeli- assessing the open cover risk. Underwriters, therefore, assess such an open cover
ness of premium paymenr may be regarded as relating not to the risk to be by reference to matters thar affect rhe range of risks within its terms. It follows
that, should the assured happen to know of a matter affecting a particular risk ro
178 o'Kane vJones (The Martin P) [20031 EWHC 2158 (Comm), [20041 1 Lloyd's Rep 389, ------------------ _ . _ --
para 222 per Richard Siberry QC ~sitting as a Dep~tyJudge of the High Court). See also A/dnch v 184 cf Moore Large 6- Co Ltd v Hermes Credit 6- Guarantee pic [2003] EWHC 26 (Carom),
Norwich Union Lift Insurance SOCiety [2000] Lloyd s Rep IR 1, 7-8. [2003J 1 Lloyd's Rep 163, para 55: financial information relating to business turnover not
'" 119951 LRLR 116. material if relevant only for calculation of instalments of premium under a policy once ongoing.
180The case in fact concerned invalid retrocession, the reinsurer alleging non-disclosure by the 185 MIA 1906, s 18(3)(d), discussed at 4.106ffbelow. 18' See 6.21 below.
insurer. 18' O'Kane v Jones (The Martin P) [20031 EWHC 2158 (Comm), [2004J 1 Lloyd's Rep 389
18' ibid 149. '" MIA 1906,s 18(3)(b) is discussed at 4.91ffbelow. para 226 per Richard Siberry QC, sitting as a deputy judge of the High Court.
183 O'Kan, vJones (The Martin P) [2003J EWHC 2158 (Comm), [200411 Lloyd's Rep 389,
18' MIA 1906, s 18(3)(b), discussed at 4.91 ff below.
paras 224-230; North Star Shipping Ltd v Sphere Drake Insurance pic (No 2) [2005J EWHC 665
18' Marc Rich & CoAG v Portman [1997J 1 Lloyd's Rep 225.
(Comm), [2005J 2 Lloyd's Rep 76, paras 232-236. For discussion ofopen covers, see 2.31 above.
190
130 131
The Doctrine ofUtmost Good Faith Misleading or Inaccurate Circumstances
be declared, disclosure will not be required because it will not be material to the In Brotherton v Aseguradora Colseguros SA (No 3),'99 the claimants reinsured
underwriter)s assessment of the open cover. 191 the exposure of the defendant insurers on a policy covering, inter alia, fraud by
employees of a state-owned Colombian bank. The reinsurers alleged non-
It should be noted that, in marine insurance law, a previous rejection of the risk by
dlsclosure of reports in the Colombian media of alleged corruption affecting key
another insurer is not material, on the basis that each insurer should arrive at its
own decision for itself 192 Non-marine insurance adopts a contrary view. 193
personnelm the bank, including its president, Mr Medina. Morison J dismissed an
argument that the reports were nothing more than idle rumour:200
Were the reports 'loose' or 'idle' rumours or gossip? Plainly not. The reports
Information the~selves do not ,have the ap~earance of tittle tattle and gossip. The reports' or
stones are of speCIfic matters Involving a suspension of a specified person, the reason
The assured's duty of disclosure extends to 'any circumstance known to the for the suspension and the involvement of the authorities. There is evidence to suggest
that both Mr Medina himself and the insurers regarded these stories as
assured'. The concept of a 'circumstance' is in turn defined by secrion 18(5) of the
apolitical.201 Ther~ were dates and alleged facts. The reports related to improper
Marine Insurance Act 1906 as including 'any communicarion made to, or a,dva~ces of a spec~fied ~mount [11 billion pesos] in respect of a particular location
information received by, the assured'. A distinction is, howevet, drawn between [ ReglOnal Bogota] whIch was eventually the subject matter of a claim ... Even if
mere 'idle rumours' or 'gossip' on the One hand, and 'commercial intelligence' on one :~ok a cynical, view about the quality of news reporting in the press and
the other. Only the latter constitutes 'information' or a 'communication' within the teleVISIon, whether In Colombia or elsewhere, it would be an extreme position to
meaning of section 18(5), non-disclosure of which will render the policy voidable. cOI~cludethat everything in the newspapers was wrong or could be dismissed with
a pmch of salt. This was reporting of what appeared to be hard fact.
"4 'Loose rumours which have gathered together, no one knows how, need not be
communicated. Intelligence, properly so called, and as it is understood by
mercantile men, ought to be disclosed when known. "95 Assuming that the reporr
E Misleading or Inaccurate Circumstances
constitutes 'intelligence' rather than 'tumour' and would, if true, be material to the
risk, disclosure is required, even if the reporr is unconfirmed.'" An assured may seek to justify a non-disclosure on the ground that the relevant 4.82
cIrcumstance ca~ be shown by reference to post-contract formation develop-~ents
4.80 Accordingly, in Durrell v Bederley, '97 insurers ofa vessel with letters of marq ue to have, m truth, no bearing on the insured risk. The assured may,
as a privateer were held entitled to avoid for non-disclosure of reporrs of \WO mdeed, be able to claim with some justification that the irrelevance of the
enemy warships in the relevant area, of a capture made by them, and of a ship's circumstance was known to the assured at the time of contract formation,
binnacle seen afloat on the sea bearing a compass of a particular description. In although that irrelevance could not at that time be proved. Such arguments may be
Seaman v Fonereau,'98 the assured failed to disclose a reporr suggesting that the deployed in two ways. First, it may be contended that they deny the material-
vessel to be insured was in a leaky condition the day before encountering a severe Ity of the relevant CIrcumstance. Secondly, even if the circumstance remains
gale. Again, insurers were held entirled to avoid. ma~erial, it may be contended that they should deny the insurer the right to avold
the policy. This section is concerned with the former argument, while the latter is
202
addressed later.
", Glencore IntemationalAG v Alpina Insurance Co Ltd [2003] EWHC 2792 (Comm), [2004] Arguments seeking to deny materiality because appearances at the time of con- 4.83 tract
1 Lloyd's Rep Ill, para 129. formation were misleading founder on two connected propositions. First:
Glasgow Assurance Corp Ltd v Symondson & Co (1911) 104 LT 254; North British Fishing
Boat Insurance Co Ltd v Starr (1922) 13 LlLRep 206. 'The moral philosophical basis of the duty of disclosure in an insurance context is
Glicksman v Lancashire &- Genera/Assurance Co [1927] AC 139. that a true and fair agreement for the transfer of risk on an appropriate basis
'" Brotherton v Asegumdora Coheguros SA (No 2) [2003] EWCA Civ 705, [2003]
Lloyd's Rep IR 746, paras 16,28.
'" Durrell v Bederley(l816) Holt NP 283, 285 per Gibbs q. See also Decorum Investments
Ltd vAtkin (The Elena G) [2001] 2 Lloyd's Rep 378, para 27; International Management Group ;:: [2003J EWHC 1741 (Comm), [2003] Lloyd's Rep IR 762. 200 ibid para 34.
(UK) Ltd v Simmonds [2003] EWHC 177 (Comm), [2004] Lloyd's Rep IR 247, para 140. . .p,..ccordlng to the claimants, the investIgations formed part of a political campaign to
196 On non-disclosure of intelligence that -is subsequently proved to be inaccurate, see discredIt supporters of the government, including Medina, prior to a general election: Brotherton v
4.82ff below. Aseguradora Coheguros SA (No 2) [2003] EWCA Civ 705, [2003] Lloyd's Rep IR 746 para 8.
"7 (1816) Holt NP 283. '" (1743) 2 Str 1183. 202 See 4. 168ffbelow. '
132 133
The Doctrine ofUtmost Good Faith Misleading or Inaccurate Circumstances
depends on equality of information."03 It follows that materiality is determined by to no charges, charges are dropped, or a trial results in an acquittal. The fact of the
reference to the time of formation of the contracr.'04 The doctti~eof u:r:'0st investigation or charge is material and should be disclosed.'o, Disclosure would,
good faith exists to enable underwriters to take inforn:ed underwrmng declSlons however, include not only the fact of the investigation or charge but also all
and an informed decision requires disclosure of all Circumstances rhat respond to evidence available to the assured at that time of the relevant person's inno-cence.
the test of materiality at the time the decision is taken.'os It follows also that no Accordingly, an insurer wishing to avoid the policy has to prove that it would have
causal link is required between the breach of the duty of utmost good faith and any taken a different decision on the risk had the assured made full disclosure of both
ensuing loss. '06 Secondly, the insurer must take the risk as it appeared at the investigation or charge and also the evidence of inno-cence. In other words,
the time of contract formation. An insurer cannot revisit the terms of the while the investigation or charge remains objectively material, the exculpatory
contract if circumstances come to light after contract formation that indicate evidence may deny that the non-disclosure induced the actual insurer into the
that a higher premium or some other change of terms would be a fair reflection of contract."o The likelihood of exculpatory evidence negating inducement must,
rhe true risk. Reciprocity would suggest that if an insurer cannot take advan-tage of however, be assessed in the context of the realities of
post-formation developments that demonstrate that rhe risk was in truth more marine underwriting:
serious than appeared, an assured should not be able to take advan-tage of post- .. . in the London marine market underwriters will normally expect to evaluate a
formarion developments rhat demonsrrare that the tisk was in truth less serious risk with some rapidity. They do not normally deliberate at length on the accept-ability
than indicated by circumstances at the tlme of contract of such risk. They would expect to give an immediate or at least a fairly
immediate response to a broker. In particular, their approach is not usually to go
formation. behind the information presented to them . . . Underwriters simply do not have the
Some specific examples may be given of the consequences of rhis teasoning. First, non- time or the legal expertise necessary to satisfY themselves with regard to a complicated
disclosure of a circumstance thar indicates an increased likelihood of
structure of disputes as to the innocence of the assured. Accordingly they have to take
loss is not excused if thar circumstance subsequently proves not to be true. In the risks at face value and, if there are queries going to the probity of the assured, they
Seaman v Fonereau,,07 the assured failed to disclose information suggesting the are unwilling or at least reluctant to rely on the broker's assurance of innocence in the
insured vessel might have sustained damage, or even been lost, in a gale. It absence of cogent independent evidence which is
transpired that tbe vessel survived the gale but was subsequently captured. obviously such as to dispel the adverse impact of the other (material) facts disclosed
211
Likewise, in Lynch v Hamilton,'oS the assured failed to disclose that some of the to them.
insured goods were to be loaded on board a vessel reported at Lloyd's as at se;in a Secondly, a circumstance requires disclosure if it satisfies the test of materiality 4.86 even
damaged condition. The reporr turned out to be erroneous, but the vessel was if the assured claims it is untrue and could, if allowed, prove it. This embraces, for
subsequently lost by capture. In each case, the insurer was held entitle;! to avoid example, the wrongful conviction of the assured of an offence
the policy.
A similar issue atises where, at the time of placement of the risk, the assured or a relevant
member of the crew is subject to investigation in connection with an offence that
goes to moral hazard, or has been charged with such an offence, but the investigated or
accused person is in fact innocent, and the investigations lead 109 March Cabaret Club & Casino Ltd v London Assurance [I975J I Lloyd's Rep 169, 177;
Inversiones Manda SA v Sphere Drake Insurance Co pIc (The Dora) [1989] 1 Lloyd's Rep 69,93-4;
Strive Shipping Corp v Hellenic Mutual war Risks Association (Bermuda) Ltd (The Grecia Express)
[2002J EWHC 203 (Comm), [2002J Lloyd's Rep IR 669, para 283; Brotherton v Asegumdara
CohegurosSA (No 2) [2003J EWCA Civ 705, [2003J Lloyd's Rep IR 746, paras 22, 24; North Star
Shipping Ltd v Sphere Drake Insurance pk (No 2) [2005J EWHC 665 (Comm). [2005J 2 Lloyd's
203 Brotherton vAseguradom Cols'guros SA (No 2) [2003J EWCA Civ 705, [2003J Lloyd's Rep
Rep 76, paras 209-210. The contrary view espoused in Reynolds v Phoenix Assurance Co Ltd
IR 746 para 24 per Mance LJ. [I978J 2 Lloyd's Rep 440. 460; Gate v Sun Alliance Insurance Ltd [19951 LRLR 385, 408
204 ibid paras 18, 39. Or such earlier time at y:hich the i,fiSurer commits itself to an obligation
(New Zealand High Court) now dearly does not represent English law.
binding in the eyes of the market to accept the rIsk of certam terms: see 2.21, n 46 above.
2>0 Brotherton vAseguradora Colseguros SA (No 2) [2003J EWCA Civ 705, [2003J
20Sibid para 40. See also Pan'Atlantic Insurance Co Ltd v Pine TOp Insurance Co Ltd
[1995] 1 Lloyd's Rep IR 746. paras 22, 39; North Star Shipping Ltd v Sphere Drake Imurance pk
(No 2) [2005J EWHC 665 (Comm), [2005J 2 Lloyd's Rep 76, para 210.
AC SOL 528. 211 North Star Shipping Ltd v Sphere Drake Insurance pic (No 2) [2005J EWHC 665 (Comm), [2005J
206 Pan Atlantic Insurance Co Ltd v Pine TOp Insurance Co Ltd [1995] 1 AC 501, 528. 2 Lloyd's Rep 76, para 256 per Colman J. cf Brotherton v Aseguradora Colseguros SA (No 2)
207 (1743) 2 5" II83. " [2003) EWCA Civ 705, [2003J Lloyd's Rep lR 746, para 28 per Mance LJ: a court
108 (1810) 3 Taunt 37, .ffd (I8II) 14 East 494 sub nom Lynch v Dunsfiml. 'will be able to take a realistic and even a robust view' on inducement.
134 135
The Doctrine ofUtmost Good Faith Circumstances not Requiring Disclosure
217
that goes to moral hazard.'" Again, disclosure would includ; such evidence of non-disclosure of these objectively material circumstances. In all four cases, if the
innocence as was then available to the assured and an msurer s chum of mduce- 21
insurer does inquire, section 18(3) is irrelevant. ' The assured must respond and its
ment into the contract by reason of non-disclosure would fall to be considered answer, falling within the province of the law of misrepresentation, will
21 need to be complete and accurate.
against a hypothesis of such full disclosure. '
Of course, in the converse situation of acquittal of the assured of an offence going to
moral hazard when in truth the assured was guilty, the co~missionof the offence (1) Diminution of the Risk
remains material and should be disclosed. Equally, disclosure is
required of offences in respect ofwhich no overt sign ofsuspicion has ever fallen Section 18(3)(a) provides that the assured need not disclose any circumstance 4.90
that diminishes the risk. Thus, the fact that a vessel does not come on risk at the
on, or no formal allegation has been made against, the assured. In March Cabaret
beginning of the period of cover of itself reduces insurers' exposure and does not
Club 0- Casino Ltd v London Assurance,2" May J stated as follows: 'No one
require disdosure.219
has a right to a conttact of insurance, and if a proposer has committed a criminal
offence which is material and ought to be disclosed he must disclose it, despite the
(2) Within the Insurer's Actual or Presumed Knowledge
presumption of innocence, which is only a presumpdon, and despite the privilege
of non-incrimination, which is only a privilege-or he must give By vittue of section 18(3)(b), in the absence of inquiry, an assured need not 4.91
up the idea of obtaining insurance at all.' disclose any 'circumstance which is known or presumed to be known to the
There is, however, no requirement that the assured disclose circumstances that the insurer. The insurer is presumed to know matters of common notoriety or
assured knows do not reflect upon the insured risk bur that might be regarded as knowledge, and matters which an insurer in the ordinary course of his business,
suspicious by another party. An assured does not have to investigate as such, ought to know'.
circumstances it knows to be innocent in order to determine whether they might be
215 An insurer is presumed to know general matters affecting the type of business it 4.92
misconstrued by a prudent underwriter.
writes, such as the usual conditions affecting transportation in a particular
country,220 and the incidence of maritime casualties affecting a particular type of
Circumstances not Requiring Disclosure 221
vessel in a particular geographical sector. Moreover, the development of vastly
Section 18(3) of the Marine Insurance Act 1906 provides that, in the absence of
216 improved, particularly electronic, access to information, both previously recorded
inquiiY from the insurer, four types of circumstance need not be disclosed. information and breaking news, will impact upon the boundaries of insurers'
Their disclosure is excused, not because they are not material, but because it would knowledge of general events, both actual and presumed. 'With modern methods of
be unfair to permit avoidance of the contract on the ground of communication, [a London underwriter] can be expected to know more things than
50 or more years ago.'222 In addition, 'every underwriter is presumed to be
acquainted with the practice of the trade he insures; if he does not know, he ought
to inform himself'. 223 Accordingly, an insurer that agrees to
212 Reynolds v Phoenix Assurance Co Ltd [1978J 2 Lloyd's Rep 440, 460; Brotherton v Asegura~ dora
Coueguros SA (No 2) [2003] EWCA Civ 705, [2003] Lloyd's Rep IR 746, para 23 (referring
by error to March Cabaret r:!ub 6' c.asino .Lt~ v L,ondon Assur~nce [1975] 1 Ll~yd's Rep, 1?9 instead
of Reynolds v Phoentx). cf Stnv!! Shtppmg Corp v Hellentc Mutual W0:r Rl$ks Assoctatton (Bermudo)
Ltd (The Greda Express) [2002] EWHC 203 (Comm), [2002] Lloyd's Rep IR 669, 217 Pan Atlantic Insurance Co Ltd v Pine TOp Insurance Co Ltd[1995J 1 AC 501, 533-4; St Paul
para 277. > Fire & Marine Insurance Co (UK) Ltd v McDonnell Dowell Constructors Ltd [1995] 2 Lloyd's Rep
2B Brotherton vAseguradora Coueguros SA (No 2) [2003] EWCA Civ 705, [2003] Lloyd s Rep 116,124.
IR 746. para 23. 21' Brotherton v As'guradora Coueguros SA (No 3) [2003] EWHC 1741 (Comm), 12003J
[1975] 1 Lloyd's Rep 169, 177. Lloyd's Rep IR 762, para 35.
Strive Shipping Corp v Hellenic Mutual \..%-r Ris}~s Association (Bermuda) Ltd (The Grecia 219 Inversiones Manria SA v Sphere Drake Insurance Co pic (The Dora) [1989] 1 Lloyd's Rep 69,
Express) [2002] EWHC 203 (Comm), [2002] Lloyd's Rep IR 669, para 284: OKane vJones 89-90.
(The Martin P) [2003] EWHC 2158 (Comm), [2004] 1 Lloyd's Rep 389, para 23 I. '" Schloss Bros v Stevens [1906J 2 KB 665, 668.
216 The subsection is derived largely from LotdMansfield's statements on 'the nature of 22\ North British Fishing Boat Insurance Co Ltd v Starr (1922) 13 LlLRep 206, 210.
concealments' in Carter v Boehm (1766) 3 Burr 1905, 1910. 221 Brotherton v Aseguradora Coueguros SA (No 3) [2003J EWHC 1741 (Comm), [2003]
Lloyd's Rep IR 762, para 35 per Morison J.
223 Carter v Boehm (1766) 3 Burr 1906, 1911 per Lord Mansfield. Likewise Noble v
136 Kennoway (1780) 2 Doug KB 510, 513.
137
cover goods in rransir is presumed ro know rhe usage of rhe carrying trade, with insurance of the Georgia, a former Confederate cruiser of some notoriety pur-
. dk 224 chased by rhe assured and converted into a merchantman. He then insured the
respect, for examp1e, to carnage on ec .
vessel wirhout disclosing its histoty, which was a material facr since it rendered
Glencore International AG v Alpina Insurance Co Lttl" concerned open cover
the vessel liable to capture by the Unired States Navy. The insurer admitted he
insurance in favour of one of the world's Iargesr international commodity traders in
knew a vessel called the Georgia had been in Confederate service and had been
crude oil and oil products. Moore-Bick J held that the assured's disclosure
sold. The jury further accepted thar at the time of underwtiting he did not
obligarions were significanrly resrricted by the nature of the risk. This had twO
essential features. First, the cover extended to transit by any means from anywhere realize that the Georgia in question was the former Confedetate ship but found
and ro anywhere in the world and ro storage anywhere in the world. 'Itis difficult ro 'that he had abundant means of identifYing the ship'. The Courr of Queen's
imagine a policy on goods being written in wider terms than these."" Secondly, Bench held the insuret entitled to avoid the policy. It was insufficient that the
commodity trading required rapidity of response ro market insurer 'might peradventure, by an effort of memoty and of reasoning applied
opportunities and a preparedness to innovate in business methods. This led to the information actually communicated, have arrived at the knowledge of the
Moore-Bick J ro reason as follows with respect to disclosure:'" [material] fact'. '30
.. . when an insurer is asked to write an open cover in favour of a commodity In London General Insurance Co v General Marine Underwriters Association,231
trader he must be taken to be aware of the whole range of circumstances that may
4.96 insurers sought reinsurance of a cargo risk. Earlier that day, reinsurers had
arise in the course of carrying on a business of that kind. In the context of world-
wide trading the range of circumstances likely to be encountered is inevitably
received from the market a casualty slip giving notice of a casualty involving the
very wide. That does not mean that the insured is under no dury of disclosure, of carrying vessel, but rhey had not read the slip. The Court of Appeal held that
course, but it does mean that the range of circumstances that the prudent under- the reinsurers did not have deemed knowledge of the casualty. They 'could not
writer can be presumed to have in mind is very broad and that the insured's dury be expected ro have always present to their minds infotmation which at the
of disclosure, which extends only to matters which are unusual in the sense that time they got ir would have no interesr for them at all'. 232 A fOrtiori, insurers
they fall outside the contemplation of the reasonable underwriter familiar with the are not presumed to know something about insured property merely because it
business of oil trading, is correspondingly limited. It also means that the insured is
not bound to disclose matters which tend to increase the risk unless they are
has been published in the media, even when they are marine insurers and the
unusual in the sense just described. information is published in a specialist media forum targeted at the maritime
community.233
It is clear, however, rhat section 18(3)(b) is not to be used to undermine funga-mentally
the assured's obligation under the docrrine of utmost good faith to
Howevet, specialist information is increasingly made available through dedi- 4.97
make a fair presentation of the risk to be insured. 228 In particular, the case law cated electronic producrs. Insurers can subscribe to databases that contain extensive
denies that the insurer is responsible for maintaining systems to ensure access to
informarion on, for example, vessels and their owners. Is a hull insurer presumed ro
information available in the market or in the public domain of relevance to know all the information on such a database if the insurer sub-scribes to it, or even if
risks rhat may be presented to ir. The assured's obligation to make a fair the insurer does not bur a prudent hull insurer would?
presentation of the risk requires the assured to bring all material circumstances
The ability to search for and retrieve informarion with ease distinguishes e1ec-
within its knowledge to the insurer's attention. That the insurer could, with
ttonic repositoties of infotmation from paper files, strengthens the case for
diligence, have discovered the mattet for itself does not excuse non-disclosure. developing the scope of presumed knowledge, and may serve to distinguish
4.95 Two cases, in particular, exemplifY this approach. Bates v Hewiti''' concerned
Bates v Hewitt were a case with similar facts to arise in the modern era.
An insurer is presumed to know matters pertaining to its own financial 4.98
arrangements. Consequently, the state of an insurer's reinsurance cover, even if
224 British &
Foreign Marine Insurance Co v Gaunt [1921] 2 AC 41. See also Vallance v Dewar
(1808) 1 Camp 503.
'" [2003J EWHC 2792 (Conim), [2004J 1 Lloyd's Rep 111. "6 ibid para 34.
227 ibid para 41.
22e Kingscroft Insurance Co Ltd v Nissan Fire & Marine Insurance Co Ltd (No 2) [1999J Lloyd's
230 ibid 609 per Mellor]. 231 [1921J 1 KB 104.
Rep IR 603, 629-30. ibid 110 per Lord Sterndale MR.
229 (1867) LR 2 QB 595.
Morrison v Universal Marine Insurance Co (l872) LR 8 Ex 40 (Lloyd's List).
138 139
material to the risk presented for direct cover,234 does not have to be disclosed to of the insurer to request certain information, even where the insurer is aware of
the insurer. 235 the possibiliry of a marerial circumstance of a particular nature; it is for the
assured to disclose, not for the insurer to ask questions. 24o
Waiver
It follows that partial disclosure does not put the insurer on inquiry of rhe 4.102
Section 18(3)(c) provides that, in the absence of inquiry, the assured need not disclose possibility of further material circumstances, so as to give rise to waiver. In New
<any circumstance as to which information is waived by the insurer'. Hampshire Insurance Co v Oil Refineries Ltd,241 the broker presented a
Waiver may also be implied at common law, outside section 18(3)(c), from claims history for rhe five previous years, commencing in August 1989. The
inquiry. under-writer did nor enquire abour rhe previous history, and the broker did not
4.100 An insurer may waive disclosure of material circumstances rhtough an express disclose significant outstanding claims arising from rhe winter of 1988-89. The
term of the policy. As a matter of public policy, fraudulent non-disclosure by assured argued that rhe underwrirer knew the claims hisrory was limited to five
the assured, and possibly by the assured's agent, cannot be waived. Otherwise, years and should have asked for any additional information desired. Not
rhe extent of waiver is a matter for the true interpretation of the clause. 23 ' surprisingly, HHJ Chambers rejected this argument:242
Reinsurance 'subject without notice to rhe same clauses and conditions as the The obligation of disclosure is an active one. Silence is not disclosure. Silence by
original policy' waives disclosure of material terms in the original policy.237 an insurer in the face of silence by the assured is not waiver. The signal sent by
silence by the person seeking cover is that there is nothing to report; not that the
4.101 Waiver will again operate under section 18(3)(c) provided the assured com- insurer proceeds at his peril.
municares such informarion to the insurer 'as would put an ordinarily careful
. ., h' f fu h 'al . 238 A I cannot see why limited disclosure should put the assured in any better position
insurer on mqUIry as to t e eXIstenCe 0 rt er mater! Clfcumstances. n than total non-disclosure. If anything, the inference must be to the opposite effect
insurer that subsequently fails to make an enquiry that common prudence because limited disclosure carries with it the implication that there has been
revealed all that it is relevant to know ...
demands will be taken to have waived disclosure of any circumstance such an
enquiry would and should have revealed. In this context, waiver becomes part Underwriters, moreover, are entitled ro take ar face value the information sup- 4.103
of the broad question of whether the assured has made a fair presentation of the plied to them on the slip and in the form of brokers' summaries of the risk.
risk, since a fair presentation will by definition disclose all material information Consequently, it has been held thar a statement that cargo to be shipped to a
or give fair warning to a reasonable insurer of the existence of further material high class rourist resoft was to comprise high value 'clocks' did not invite a
circumstances not specifically disclosed. The question is not whether a failure 243
to disclose is excused, but rather whether the assured has in fact fulfilled the query rhat would have revealed rhat the goods were in facr watches. An
disclosure obligation. Waiver will, however, be found only in a clear case: assured need not, however, disclose to a hull underwriter the precise cargo to be
carried by the insured vessel during the period of cover. Provided the insurer is
underwriters are not detectives, and the onus remains on the assured to act with aware rhat cargo will be carried, and provided the cargo is norhing out of the
the utmost good faith.'" A fOrtiori, waiver does not arise from the mere failure ordinary and is lawful, the insurer is considered ro take the chance of wharever
244
the cargo turns out ro be.
234 See 4.75 above.
:m Societe Anonyme dlntennediaries Luxembourgeois v Faro: Cie [19951 LRLR 116, 156.
Outside secrion 18(3)(c), waiver may be implied from questions asked in a 4.104
236 Policy and interpretation with respect to waiver clauses is discussed below in the context of proposal form on which the policy is based. The test is: 'Would a reasonable
misrepresentation (4.110 below). Note that fraudulent non~disdosure is likely to transform some man reading the proposal form be jusrified in thinking that the insurer had
statements imo half-truths actionable as misrepresentations, is actionable in the tOrt of deceit (4.182
below), and may, therefore, also be characterized as misrepresentation for the purposes of a
waiver clause and the remedy of avoidance: HIH Casualty & General Insurance Ltd v Chase
Manhattan Bank [2003J UKHL 6. [2003J 2 Lloyd's Rep 61, paras 20-22, 71. 240 Greenhill v Federal Insurance Co Ltd [1927J 1 KB 65, 85; Container Transport International
m Property Insurance Co Ltd v National Protector Insurance Co Ltd (1913) 18 Com Cas 119. Inc v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1984] 1 Lloyd's Rep 476, 511;
See also Hewitt Bros v Wilson [1915] 2 KB 739 (assured need not disclose circumstances James v CGU Insurance pic [2002] Lloyd's Rep 206, para 85.
within the scope ofa held covered claus~). 241 [2002] 2 Lloyd', Rep 462. 242 ibid paras 28-29.
Greenhill v Federallnsuranee Co Ltd [1927] 1 KB 65, 89 perSarganr LJ. Wife (Underwriting Agenry) Ltd v Grupo Nacional Provincial SA [2004J EWCA Civ 962,
Asfar v Blundell [1896] 1 QB 123, 129; C0rltainer 1ransport IrlternationalInc v Oceanus [20041 2 Lloyd's Rep 483.
Mutual Underwriting Association (Bermuda) Ltd [1984]1 Lloyd's Rep 476( Wife (Underwriting Mann Macneal dr Steeves Ltd v Capital & Counties Insurance Co Ltd [1921] 2 KB 300.
Agency) Ltd v Grupo Naeional Provincial SA [2004J EWCA Civ 962, [2004J 2 Lloyd's Rep 483. See also Carter v Boehm (1766) 3 Burr 1906, 1910-11.
140 141
restricted his right to receive all material information, and consented to the locks approved by insurers precludes insurers from alleging non-disclosure of the
omission of the particular information in issue?'245 A question that asks for 251
fitting ofvehicles with unapproved locks. However, if a warranty normally
limited information with respect to a certain matter is likely to be interpreted as
implied by law is excluded or limited by the terms of the policy, the duty of
waiving disclosure of other information relating to the same mattet. Conversely, a disclosure operates to the extent that the warranty's protection has been
question on one matter is less likely to be interpreted as waiving disclosure of 252
information on a different matter. Thus, questions relating to the type of trad-ing removed. Similarly, the protection prima ficie afforded by an express warranty
pursued by the assured's business do not constitute waiver of disclosure of a 253
may be reduced by other policy terms. Whether disclosure is rendered
criminal record.246 However, a questionnaire may, through its focus, . lead a
superfluous will also depend upon the precise prejudice to the insurer that the
reasonable person ro believe that the insurer is interested only in information warranty addresses. A premium payment warranty may protect against late payment
relating ro certain matters. 247 Ultimarely, it is conceivable that a vety detailed and and will excuse the assured from disclosing ptevious incidences of late payment as
focused questionnaire may lead a reasonable person to believe that the insurer will such. The warranty does not, however, addtess a history of financial default that
assess the risk exclusively on the basis of the assured's answers ro the questions indicates fundamental financial problems affecting the assured's ability to fund
asked and waives disclosure of all other information. Waiver is, however, 254
proper maintenance of a vessel proposed for insurance.
irrelevant where the answer amounts to a misrepresentation through either
. . I 248 (5) Application to Misrepresentation
maccuracy or mcomp eteness.
4.105 Provided information is made available to the insurer, the assured has no obliga-tion Section 18(3) is directed to non-disclosure. However, parallel issues can arise in 4.108
to ensure the insurer takes due notice of ir.249 The assured's obligation is fair the context of misreptesentation. Where approptiate, the insurer should not be
presentation of the risk, not to guide the insurer's response to such a abJe to avoid the policy. There is no case for avoidance by reason of a mis-
representation that makes the risk appear greater than is in fact the case, or
presentation.
relates to a matter covered by a promissory warranty. In the latter context, there
(4) Warranties
is authority that avoidance is not available,255 although the reasoning is ques-
tionable. It was suggested that the misrepresentation would not be material.
4.106 A promissory warranty is a condition precedent to liability on rhe policy. Breach However, section 18(3) does not limit the definition of materiality.'" The
triggers an automatic prospective discharge of the insurer's liability.250 better analysis, therefore, would either deny inducement or invoke an implied
Consequently, the insurer has no need of additional protecrion from the doc-trine 257
limitation, parallel to that implied in section 18(3) for non-disclosure.
of utmost good faith in respect of matters covered by a promissOlY war-ranty.
Section 18(3)(d), accordingly, provides rhat an assured need not disclose 'any Restricting a right to avoid for misrepresentation on the basis that the insurer 4.109
circumstance which it is superfluous to disclose by reason of any exptess or had actual or presumed knowledge of the truth would have to be more nuanced.
implied warranty'. A misrepresentation might deflect an underwriter's mind from considering
other sources of information, enabling an insurer to establish an actionable
4.107 The key concept is superfluity. A warranty that a motor vehicle is fitted with misrepresentation entitling avoidance of the policy.
The only form of waiver applicable to misrepresentation is an express waiver of 4.110
MacGillivray on Insurance Law N Legh~Jones et al (cd) (lOth edn, 2003) para 17-19, approved in remedies for misrepresentation. Any waiver of disclosure is irrelevant if the
Hair v Prudential Assurance [1983] 2 Lloyd's Rep 667; Doheny v New India Assurance
Co Ltd [20051 EWCA Civ 1705, [2005J Lloyd's Rep IR 251, paras 17-20, 37.
Schoo/man v Hall [1951J 1 Lloyd's Rep 139. Whether the phrasing of questions so as to
apply only to natural persons indicates waiver of disclosure of the requested information with De Maurier Oewels) Ltd v Bastion Insurance Co Ltd [1967) 2 Lloyd's Rep 550.
respect to legal persons raises a nice question of interpretation of the particular questionnaire: Cantiere Meccanico Brindisino vJanson [1912) 3 KB 452.
Doheny v New India Assurance Co Ltd [2005J EWCA Clv 1705, [2005] Lloyd's Rep IR 251. O'K4ne vJones (The Martin P) [2003J EWHC 2158 (Comm), [2004J 1 Lloyd's Rep 389, para
247 OKane vJones (The Martin P) [2003J EWHC 2158 (Comm), [2004] 1 Lloyd's Rep 389, 240.
paras 237-239. ibid.
24' Moore Large & Co Ltd 0 Hermes Credit & Guarantee plc[2003] EWHC 26 (Comm), [2003J De Mauries Oewe&) Ltd v Bastion Imuranee Co Ltd [I 967] 2 Lloyd's Rep 550, 557.
I Lloyd's Rep 163, para 58. See 4.89 above.
249 Pan Atlantic Imurance Co Ltd v Pine TOp Insurance Co Ltd [1992) 1 Lloyd's Rep 101, 106. 2S7 Analogously to the way the House of Lords in Pan Atlantic Insurance Co Ltd v Pine 70p
250 For discussion of promissory warranties, see 18.54ffbelow. Insurance Co Ltd [1995) 1 AC 501 reasoned across from misrepresentation to non-disclosure
in the COntext of inducement.
142
143
The Doctrine ofUtmost Good Faith Knowledge ofthe Assured
assured in fact makes a statemenr.258 Moreover, an express waiver of remedies for not what the assured considered, or a reasonable assured would have
misrepresentation is subject to certain limitations as a matter, variously, of policy considered, that a prudent underwriter would tal,e into account. However, in
259 International Lottery Management Ltd v Dumas,2s' the proposal form
or interpretation. First, as a matter of public policy, liability for fraudulent
declaration provided that 'to the best of [the assured's] knowledge the statements set
260
misrepresentation cannot be excluded. Secondly, whether liability for fraudu- forth in this application are true and no material information has been withheld'.
lent misrepresentation by the assured's agent can be waived has yet to be This formula departed from the approach of the common law, restricting the
authoritatively resolved. 261 The balance of judicial opinion appears in favour of disclosure obligarion to circumstances known by the assured to be material."8
waiver as a theoretical possibility,"2 but it is clear that only the most unequivo-cal
of drafting, with express reference to fraud or dishonesty, will convince a COUrt (1) Who is the Assured?
that the parties intended the contract to be fully enforceable notwith-standing that it
was procured by fraud. 263 Thirdly, any argument that an express waiver is A principal may delegate aspects of its business to agents. A corporate body, by 4.113
intended, on its true interpretation, to apply to negligent misrepresen-tation will definition, can act only through human agents. Where a legal rule requires
have to overcome the assumption that an insurer may agree to forgive an innocent knowledge on the part of a ptincipal, the question of attribution of knowledge
mistake but is less likely to grant a contractual pardon for negligent
.k . "4 has to be addressed by reference to the legal issue in question. Given the content,
riS presentatIOn.
context, nature, and purpose of the particulat rule at issue, whose knowledge
should be attributed to the principal?'"
H. Knowledge of the Assured The question of attribution of knowledge in the corporate context may some- 4.114
times be resolved by seeking the company's 'directing mind and will'.270 This,
4.111 The duty of disclosure articulated by section 18(1) of the Marine Insutance Act 1906 however, will not respond fully to the question of attribution of knowledge fot
is restticted to circumstances known to the assured, and the assured is under no the purposes of section 18 of the Marine Insurance Act 1906. While the know-
obligation to carry out investigations for the purpose of discovering matetial facts
ledge of a person who enjoys that status will clearly be attributed to the
265
outside its knowledge. This raises the questions of who is the assured for the assured, section 18 would appear to contemplate any person who enjoys
purposes of the assured's disclosure obligation, and the extent to which the assured managerial responsibility with respect to the insured property, irtespective of
may have constructive knowledge of material circumstances. There is also a their role in the context of the assured's overall business. A large company with
question as to the time when the knowledge needs to exist. limited shipowning interests may entrust management of those interests to a
person who could not be described as the directing mind and will of the
4.112 It may be noted, however, that the issue is knowledge of the existence of the
company at large. That person would nevertheless exercise managerial
circumstance, not knowledge of its materiality.266 Disclosure is required of
responsibility with respect to the insured property, so that the knowledge of that
whatever a prudent underwritet would take into account in assessing the risk,
person would be considered the knowledge of the company fot the purposes of
secrion 18.271 Equally, a company ditectot does not necessarily constitute the
HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2001] 1 Lloyd's assuted. All depends on the scope of the ditector's responsibility for, and
Rep 30, para 63. (2003J UKHL 6, (2003J 2 Lloyd's Rep 61, para 6. involvement in, the relevant matters. 272
For discussion, see H Bennett, 'Exclusion of Rights and Remedies with respect to
Misrepresentation and Non-disclosure' (2003) 19 JCL 205.
260 Pearson 6- Son Ltd v Dublin Corp (1907J AC 351.
26' HIH Casualty 6- General Insurance Ltd v Chase Manhattan Bank (2003J UKHL 6.
(2003J 2 Lloyd's Rep 61. considering Pearson 6- Son Ltd v Dublin Corp (1907J AC 351. (2002J Lloyd's Rep lR 237. para 65.
HIH Casualty 6- General Insurance Ltd v Chase Manhattan Bank (2001J 1 Lloyd's Rep It also transformed the statements in the proposal form from statements of fact into statements
30. para 33, (2001J EWCA Clv 1250, [2001J 2 Lloyd's Rep 483. paras 104-105. (2003J UKHL of opinion, as to which, see 4. 133ffbelow.
6. (20031 2 Lloyd's Rep 61, para 122. cf l2003J 2 Lloyd's Rep 61, para 98. Meridian Global Funds ManagementAsti'l Ltd v Securities Commission [1995] 2 AC 500.
(2001] EWCA Clv 1250. (2001] 2 Lloyd's Rep 483, paras 155, 160. 169, (2003J UKHL 6, Lennard's Carrying Co v Asiatic Petroleum Co Ltd [1915] AC 705,713-14 per Viscount
(2003J 2 Lloyd's Rep 61, paras 15; 68, 97, burcfpara 126. Haldance LC.
26' Canada Steamship Lines Ltd v The King (1952J AC 192,208; HIH Casualty 6- General 271 The Lady Gwendolen [1965] P 294 as explained in Meriditm Global Funds ManagementAsia
Insurance Ltd v Chase Manhattan Bank (2003J UKHL 6, l2003J 2 Lloyd's Rep 61. Ltd v Securities Commission (1995J 2 AC 500, 510-11.
Simner v New India Assurance Co Ltd [1995] LRLR 240. 272 Maniftst Shipping 6- Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) (1997J 1
London Assurance v Mansel (l 879l 11 CbD 363, 368-9. Lloyd's Rep 360, 375.
144 145
The Doctrine ofUtmost Good Faith Knowledge ofthe Assured
4.115 Vessels are often owned nominally by one-ship companies, with beneficial own- provision in section 18 operates by reference to 'what an honest and competent
ership residing elsewhere and effective management being underraken by a third .agent would communicate to the assured in the ordinary course of business'. 278
corporate vehicle. In such circumstances, corporate veils are disregarded and rhe Even where the agent's breach of dury is not fraudulent, the insurer cannot
search is for the person or persons wirb rbe relevant responsibiliry.273 In the avoid the policy unless it can be concluded that an honest and competent agent
context of section 18, the circle of persons whose knowledge is attributed to the would have confessed the breach to its principal.'"
assured would seem clearly to include those responsible for the vessel's effective
An insurer is also entitled to disclosure of all material circumstances known to 4.119
management.
so-called'agents to know', such as the master of a vessel, whose authoriry is too
4.116 The attribution of knowledge on the parr of agents to the assured for rhe purposes restricted for them to be considered as the assured but to whom are committed
ofsection 18 involves no process of'imputing' knowledge to the assured or 'deeming' the immediate management and conttol of the insured properry. The rationale
the agent's knowledge to be rhat of the assured. The knowledge of agents falling articulated in the case law is not that the knowledge of agents to know is
wirbin the rule of attribution for section 18 quite simply is the knowledge of the considered to be that of the assured, but that such agents are employed by
assured. For the purposes of section 18, such agents are the rbe assured to keep it informed of circumstances affecting its properry, and the
assured. 274 insurer is entitled to contract, and does contract, in reliance on the proper
performance by such agents of their information duties.28o It is unclear whether
(2) Constructive Knowledge the entitlement of disclosure of circumstances known by agents to know should
today be considered as forming parr of the constructive knowledge provision in
4.117 The assured's disclosure obligation under section 18 is not confined to circum-stances
section 18(1), with the Act having altered the technical basis of the insurer's
within the assured's actual knowledge. Section 18(1) of the Marine Insurance Act
entitlement to disclosure,281 or whether it constitutes a non-codified adjunct to
1906 introduces constructive knowledge into commercial insur-ance by providing
section 18(1).282 Either way, the assured's disclosure obligarion is extended to
that 'the assured is deemed to know every circumstance which, in the ordinary
include all material facts that come to the knowledge of such an agent in time
course ofbusiness, ought to be known by him'. 275 London General Insurance Co v
for communication to the assured via the ordinary channels of communication
General Marine Underwriters Associatiori'76 concerned reinsurance of a cargo
in use in the mercantile world before conclusion of the insurance contract. It is
risk. On the night of 24 Seprember, it was known at Lloyd's that the carrying vessel
irrelevant whether the agent's failure to inform the assured was an inadvertent
had been involved in a casualry and that part of the cargo had been destroyed by 283
fire. At 10.00 am on 25 September, the insurer insrructed the broker to effect mistake, negligent, or deliberate.
reinsurance. No more than thirry minutes later, the underwriter received a market A leading example is provided by ProudfOot v Montefiore,284 in which the claim- 4.120
casualry notice with informarionofthe fire, but placed the notice in a drawer without ant employed an agent to purchase and ship cargoes. On 12 January, the agent
reading it. The reinsurance was placed at 4.00 pm that afternoon. The insurer did advised the claimant of one such cargo, forwarding the shipping documents on
not actually know of rhe casualry until the underwriter read the casualry notice two
days later. It was held thar the insurer was deemed to know the contents of the
casualry notice before placement of rbe reinsurance, which was consequently 278 PCW Syndicates v PCW Reinsurers [1996J I WLR 1I36, 1144 per Staughton LJ. In add-
voidable for non-disclosure. ition, the rule in Re Hampshire Land Co [1896] 2 Ch 743 dictates that knowledge of an
agent's fraud is not imputed to its principal.
4.118 An insurer cannot, however, avoid a policy on the ground of non-disclosure of a 2.79 Kingscroft Insurance Co Ltd v Nissan Fire 6'Marine Insurance Co Ltd (Corom Ct, 4 March
1996) discussed Kingscroft Insurance Co Ltd v Nissan Fire & Marine Insurance Co Ltd (1999)
fraud perpetrated by an agent on the assured, its principal, of which the principal Lloyd's Rep IR 371, 374-5 (appeal against tefusal of leave to appeal).
was unaware when the cover was placed.'" The deemed knowledge 280 Proudftot v Montefiore (1867) LR 2 QB 511, 521-2 (quoted below); Blackburn, Low & Co
v vtgors (1887) LR I2 App Cas 531, 540.

281 See the reference to Proudfoot v Montefiore in the COntext of discussing MIA 1906, s 18 in
PCW Syndicates v PCWReinsurers (1996] 1 WLR 1136, 1144. Also Kingscroft Insurance Co Ltd v
273 ibid. Nissan Fire & Marine Insurance Co Ltd (Comm Ct, 4 March 1996), discussed [1999) Lloyd's Rep
'" Blackburn, Low & Co v Vigors (1887) LR 12App Cas 531, 537-8; Group Josi Re v Walbrook IR 371, 374-5.
[1996J I WLR 1152,1170-1. The traditional explanation was reiterated by Diamond QC (sitting as a Deputy Judge of
275 MIA 1906, s 18(1). the High Court) in Simner v New India Assurance Co Ltd[1995J LRLR 240,254.
217 PCW Syndicates v PCWReinsurers (1996) 1 WLRl136; Group losi Re wWalbrook Insurance Blackburn, Low & Co v Vigors (1887) LR 12 App Cas 531, 540.
CoLtd[1996J I WLR 1152. (1867) LR2 QB 511.
146 147
The Doctrine ofUtmost Good Faith Brokers and the Doctrine ofUtmost Good Faith
19 January. The ship sailed on 23 January but was srranded that same day and cannot claim to contract in reliance on communication of information by
the cargo was totally lost. Although the agent learned of rhe casualty rhe .agents ofthe assured with no connection to the insured property and whose very
follow-ing day, he refrained from contacting the claimant by telegraph and, existence is, for the insurerl a matter of pure conjecture.
instead, sent written tidings by the earliest post, so as to permit the claimant to
insure the lost cargo in good faith. This the claimant duly did, but the Court
ofQueen's Bench held the conrract voidable. Cockburn CJ, delivering the I. Brokers and the Doctrine of Utmost Good Faith
judgment of the COUrt, stated as follows: 285
The almost invariable practice of the commercial insurance markets is for risk to 4.122
.. . if an agent, whose duty it is, in the ordinary course of business, to communi-
cate information to his principal as to the state of a ship and cargo, omits to be placed through a broker, acring as the agem of the assured.28' This ttiggers
discharge such duty, and the owner, in the absence of information as to any fact additional good faith duties. Section 19 of the Marine Insurance Act 1906 provides as
material to be communicated to the underwriter, effects an insurance, such insur-ance follows:
will be [voidable],286 on the ground of concealment or misrepresentation.
Subject to the provisions of the preceding section as to circumstances which need not
The insurer is entitled to assume, as the basis of the contract between him and the
be disclosed, where an insurance is effected for the assured by an agent, the agent must
assured, that the latter will communicate to him every material fact of which the
disclose to the insurer-
assured has, or, in the ordinary course of business, ought to have knowledge; and that
Every material circumstance which is known to himself, and an agent to insure is
the latter will take the necessary measures by the employment of competent and honest
deemed to know every circumstance which, in the ordinary course of business,
agents, to obtain, through the ordinary channels of intelligence in use in the mercantile
ought to be known by, or to have been communicated to, him; and
world, all due information as to the subject matter of the insur-ance. This condition is
Every material circumstance which the assured is bound to disclose, unless it come to
not complied with where, by the fraud or negligence of the agent, the party proposing
his knowledge too late to communicate it to the agent.
the insurance is kept in ignorance of a material fact, which ought to have been made
known to the underwriter, and through such ignorance fails to disclose it.
Independent Duties
4.121 In contrast, a broker employed to place a risk in the insurance market is not an agem The good faith duties attaching to the broker are wholly independent of those 4.123
to know. Blackburn, Low & Co v Vigor?" is one of two cases atising out of the last owed by the assured. The effect of section 19 is not that the broker's knowledge
voyage of the State ofFlorida. 288 When the vessel was five days overdue, insurers of material circumstances is imputed to the assured, but rather disclosure is
instructed RMT, the brokers normally employed by the shipown<crs, to effect required by virtue of a distinct duty owed directly by the broker to the insurer. If
reinsurance. While thus engaged to act for the insurers, RMT was infol'med in the rationale underpinning section 19 were imputation of knowledge ro the
confidence by the shipowners of information indicating. that the State ofFlorida assured, section 19 itselfwould become otiose since the circumstances known
had been wrecked. RMT respected this confidence and did not inform the insurers. to the broker would then fall with the assured's duty of disclosure under section
Subsequently, and after RMT's authority to act as agent for the insurers had ceased, 18 of the Act.290
the insurers procured a further reinsurance policy through different brokers. When it
transpired that the State of Florida had indeed been lost, the reinsurers on this (2) The Relevant Brokers
further policy declined to pay on the ground of non-disclosure of the information
More than one broker may play a part in the procuring of insurance. The 4.124 placing
known to RMT, admittedly and indisputably material. The House of Lords,
broker, which directly places the risk in the market, may have received
however, rejected the reinsurers' defence because RMT was not an 'agem to know'.
A broker is not employed to
acquire information and communicate it to the assured. Moreover, an insurer
On the broker's agency f01" the assured, see 5.03 below.
Blackburn, Low & Co v Vigors (1886) 17 QBD 553, 559, (1887) 12 App Cas 531, 541,
542-3; EI Ajou v Dollar Land Holdings plc[19941 2 All ER 685, 702; Sad,,; Anonym, dlnterm,-
ibid 521-2. diaries Luxembourgeois v Farex Cie [1995] LRLR 116, 142-3, 150; PCW Syndicates v PCW
The text of the judgment states theinsurance will be 'void', but it is indisputable that non- Reimurers [1996] 1 Uoyd's Rep 241, 244-5, [19961 1 WLR 1136, 1145, 1150. The contrary
disclosure or misrepresentation renders a contract voidable, not void. view, as expressed in Black King Shipping Corp v Massie (The Litsion Pride) [1985] 1 Lloyd's Rep
(1887) LR 12App Cas 531. 437, 513-14; Deutsche Riickversicherung AC v V0llbrook Insurance Co Ltd [19951 1 WLR 1017,
2" The orher is Blackburn, Low &Co v Haslam (1888) 21 QBD 144. discussed at 4.125 below. 1034 is incorrect.
148 149
The Doctrine ofUtmost Good Faith Brokers and the Doctrine ofUtmost Good Faith
its instructions from a producing broker or other intermediate agent, which was in turn that which falls within the placing broker's constructive knowledge, in that it ought to
instructed by the assured. Section 19 applies only ro the placing broker,291 although have been communicated to the placing broker within the ordinary course of its
material circumstances within the knowledge of the pro-ducing broker or othet busil1ess. This mirrors the constructive knowledge of the assured under section 18. 296
intermediary may well fall within the placing broker's deemed knowledge under section Whether particular infotmation should have been disclosed ro the broker within the
19(a).292 ordinary course of business is inevitably a question of fact and will depend, inter alia,
on the nature of the infotmation and the time available fOt communicating with the
(3) Scope of Disclosure Duty broker between receipt of the infotmation and placement of the risk.'"
4.125 Section 19 requires disclosure of three categories of material circumstance. First, there are
circumstances known to the broker. Where the placement of a risk is commenced by one Thirdly, under section 19(b) a placing broker is expected ro disclose every 4.128 material
broker and completed by another, section 19 embraces the knowledge of both placing circumstance that the assured is bound ro disclose under section 18,
brokers. Thus, in Blackburn, Low & Co v Haslam,293 placing brokers (RMT) unless it comes to the assured's knowledge too late for it to be communicated to the
initially instructed by the assureds were informed of a material circumstance in placing broker. 298 This provision may indicate that where insurance is placed through
confidence by a third party. Respecting the confidence and, therefore, not disclosing the an agent, section 19 displaces section 18. Instead, however, the sections are read as
information, RMT instructed their London agents, RTY, ro obtain rhe insurance and operating in tandem. Nothing turns on this.'"
procured a direct relationship between the assureds and RTY, at which point RMT's
authority to act as agent for the assured ceased. RTY subsequently succeeded in placing
(4) Relationship Between the Duties of the Assured and the Placing Broker
the risk. The policy was, however, held ro be voidable. The crucial question, as phrased
294 Although the duty of disclosure of the placing broker under section 19 is 4.129 independent of
by the Court, was as follows: 'Was the original negotiation [conducted by RMT] the assured's duty under section 18, the duties are connected in
given up and a new and distinct negotiation entered upon, or was it a mere handing over that any matter that the assured need not disclose because it falls within section 18(3)
by the agents to their principal of an existing negotiation, in order that the principal 300
similarly need not be disclosed by the placing broker under section 19.
might take it up at the point where the agents left off, and continue it until it resulted in
With respect ro waiver, however, all depends on the wording of the clause waiving
a contract?' The evidence justified the finding by the jury that the assureds adopted and
disclosure by the assured. While waiver of disclosure of particular cir-cumstances by
continued RMT's negotiations, rendering RMT an agellt involved in effecting the
ulrimate contract and entitling the insurers to dis-closure of all material circumstances the assured will similarly limit the placing broker's duty, a general waiver of the
within RMT's knowledge, notwi5hstand-ing the fact that the information in question had entirety of the assured's duty will raise a question of interpretation as to whether the
been communicated to RMT in confidence. waiver was intended to be confined to the assured, leaving the insurer to look ro the
placing broker for disclosure, or instead a waiver of the entirety of the insurer's
disclosure entitlements, including from the placing broker.'ol
4.126 A breach of duty on the part of the placing broker will not fall within the broker's own
disclosure obligation under section 19 unless it falls also within the constructive
knowledge of the assured under section 18 as something that an honest and competent
broker would disclose to the assured in the ordinary course of business. 295
lnversiones Manria SA v Sphere Drake Insurance Co pic (The Dora) [1989] 1 Lloyd's Rep
69, 94-95. See Fitzherbert v Mather (1795) 1 TR 12. On the assured's constructive knowledge, see
4.117ff above.
4.127 The second category of circumstance requiring disclosure under section 19 is Container lransport International Inc v Oceanus Mutual UnderwritingAssociation
(Bermuda) Ltd[1982] 2 Lloyd's Rep 178, 197.
See 4.127 above. It follows that the assured's disclosure obligation under MIA 1906, s 18 must be
similarly limited.
291 PCW Syndicates v pewReinsurers [19961 1 WLR 1136; Group Josi Re v Walbrook Insurance
Of course, should the assured bypass the placing broker and contact the insurer directly, the assured's
Co Ltd [1996] 1 WLR 1152. Nor can it be argued that the knowledge of the intermediate duties of good faith under ss 18 and 20 would apply to such contact.
agent is within the deemed knowledge of the assuted under MIA 1906, s 18(1), Group Josi As stated by s 19 itself. By way of example, see Societi Anonyme d'intermediaries Luxembour-
Reat 1169-70. geois v Farex Gie[1995J LRLR 116, 157.
29' Group Josi Re v Walbrook Insurance Co Ltd[19961 I WLR 1152, 1170. HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003J UKHL 6, [2003J 2
'" (1888) 21 QBD 144. 29' ibid 150-1. Lloyd's Rep 61.
295 PCWSyndicates v PCWReinsurers [1996J 1 WLR 1136.
151
150
The Doctrine ofUtmost Good Faith Actionable Misrepresentations
J. Actionable Misrepresentations inaccurate,307 an expressed intention is not carried through, or a factual predic-
. b '08 h
4.130 Section 20(3) of the Marine Insurance Act 1906 recognizes that representations may ~lOn turns out to e erroneous. In t e general law of contract, nevertheless,
srate a fact or an expectation or belief. Subsections (4) and (5) then pre-scribe a such statements that are not themselves actionable .may involve or give rise to
criterion for determining whether the representation is true. Section 20(4) provides other statements of existing fact that, if untrue, will constitute actionable mis-
representations. It has, however, been held that the wording of the Marine
that a representation of fact is true if 'substantially correct'. In contrast, section Insurance Act compels insurance contract law to diverge from general contract law
20(5) provides that a representation of expectation or belief is true if made in good with respect to such secondary representations.
faith.
A preliminary question is whether the statement, on its true interpretation, is 4.134 correctly
characterized as a mere expression of belief or expectation or a state-
(1) Representations of Fact
309
4.131 Perfect truth is not required of a statement of fact. Section 20(4) of the Marine ment of existing fact. In the leading case of Bissett v Wilkinson,310 a vendor
Insurance Act provides that: 'A representation as to a matter of fact is true, if it be of land made a representation as to irs sheep-bearing capacity. Although the vendor
substantially correct, that is to say, if the difference between what is repre-sented was a sheep farmer, the land in question had never been used for sheep farming, a
circumstance the Privy Council regarded as the most material in concluding that the
and what is actually correct would not be considered material by a prudent
statement was one of belief. In Bowden v lI,iughan,311 a cargo owner's statement
underwriter."02 In Alexander v CambelL'o' a ship was represented as having been as to the date of future sailing of the carrying vessel was held to be capable of
remetalled, whereas in fact the metal sheathing had been com-pletely overhauled, constituting a representation of expectation only, a cargo owner having no control
thoroughly repaired, and replaced where necessary, with the result that the ship was over the vessel's movements. 312 Similarly, in Rendal! v Combined Insurance Co
as good a risk as if entirely remetalled. The representa-tion was held to be true. ofAmerica,313 a statement of 'estimated travel days' to be undertaken by employees
Uncontradicted evidence was given that the representa-tion, although not literally in a proposal for business travel accident insurance was held to be a statement of
true, was substantially correct and that the difference between the representation belief
and the reality was immaterial.
4.132 The truth or falsity of a representation is judged by reference to the time of

conclusion of the contract,304 as is materiality. Prior to that time, therefore, a Bissett v Wilkinson [1927J AC 177.
'05 w·h . ]' Beattie v Lord Ebury (1872) LR 7 Ch App 777, 804. Aliter if the statement is promissory and
representation can be withdrawn or CQrrected. It respect to matena Ity"an generates a contractual obligation in its own right. In Dennistoun v Lillie (1821) 3 Bl202 the
insurer is entitled to rely on the misrepresentation of a circumstance that satis~ fies House ofLords upheld the righr of an underwriter to avoid a ship and goods policy on the basis of a bona
the materiality test at the time of conclusion of the insurance even if the fide statement that the insured vessel would sail on 1 May, when, unknown to the assured, the vessel in
fact sailed on 23 Apri1. The statement was, however, made on 18 June and was treated as a statement of
circumstance would not be regarded as material if judged at a later date.'o' past fact in the lower COUrts (at 205) and by Lord Eldon in the House of Lords
(at 209).
309 This is, potentially, a difficult exercise. Smith v Land & House Property Corp (1884) 28 ChD 7
(2) Representations of Expectation or Belief
contains analysis of a representation as both factual and of belief: at 13, 15. Subsequent authority is
divided as to the correct analysis: Brown v Raphael (1958] Ch 636, 642 (belief);
4.133 In the general law of contract, only false statements of existing Or past fact are
Economides v CommercialAssurance Co pic [1998] QB 587, 598 (fact).
eligible to become actionable misrepresentations. In particular, a distinction is [19271 AC 177.
drawn between such statements of fact and statements of belief, intention, or future (1809) 10 East 415.
fact. No contract can be vitiated simply because a belief proves It is, nevertheless, suggested that even a statement by an assured with control over compli-ance with
the representation should equally be viewed as one of expectation. In Dennistoun v LilHe (1821) 3
B1202, which concerned a ship and goods policy, Lord Eldon distinguished Bowden on the basis of the
subject-matter insured (and implicitly the power of the assured to ensure compli-ance with the
representation) but this ground of distinction was obiter, since Dennistoun concerned a statement of
MacDowell v Fraser (1779) 1 Dougl 260. Contrast the doctrine of strict compliance in past fact, and should not be regarded as persuasive.
promissory warranties: see 18.71".below. The decision of Lord Ellenborough in Bowden v Vaughan, approved by the Court of King's
(1872) 41LJCh 478. Bench, undermines the authority of Lord Ellenborough's earlier contrary decision in Edwards v
Or such earlier time at which the (re)insurer commits itself to an obligation binding in the eyes Footner (1808) 1 Camp 530 (substantial compliance required with representation by cargo owner that
of the market to accept the risk on certain terms. the carrying vessel would sail with armed escorts and carry a certain number of guns and crew).
MIA 1906, s 20(6). See also 4.64 above.
See the discussion in the context of non-disclosure, at 4.83 above. 313 [20051 EWHC 678 (Comm), [2005J 1 CLC 565.
152 153
The Doctrine ofUtmost Good Faith 4.138
By contrast, in lonides v Pacific Fire &- Marine Insurance CO,314 brokers received
instructions to declare to a facultative/obligatory open cover a cargo of hides
shipped on the Socrates under rhe command of Captain Jean Card. The brokers
consulted the alphabetical register of shipping issued by Lloyd's Register. This
listed the Socrates, a new Norwegian vessel under the command of Captain
Albertson, immediately followed by the Socrate, an old French vessel, com-
manded by Captain Jean Card. The brokers did not, however, notice that the
instructions had to contain an error, still less draw the obvious conclusion that
the error lay in the name of the vessel. A clerk was dispatched to the insurers'
office to make the declaration. On receiving the declaration, the underwriter
consulted the same register of shipping. The underwriter asked if the Socrates
was the carrying vessel. The clerk replied that 'he thought so'. In.fact, it was the
Socrate. Both ship and cargo were lost during the voyage. The Queen's Bench
Division rejected the assured's argument that the clerk's statement as to the In Economides v Commercial Assurance Co pic 321 the ass ure d state d h . h' 4.139
. . ' t at, in is
4.135 OpIniOn, the replacement cost of the property insured under a household con-
carrying vessel was one of belief: it was 'tantamount to an assertion' that it was
the Norwegian vessel, Socrates. 315 tents policy was £16,000. In fact, it was approximately £40,000. It was accepted
that the stateme~t had not been made fraudulently, but the insurers argued that
Where the insurance policy is based on a proposal form, the form may contain a
4.136 the assured had Imphedly represented that the opinion expressed was based on
declaration that the answers given are true and complete 'to the best of the reasonable grounds and that no such grounds existed. The Court of Appeal
proposer's knowledge and belief. Such a declaration denies that the answers are rejected thIS argu~ent. For a majority of the Court, the insurer's argument was
tendered as factually correct but avers instead that they are all advanced as a preclud~d by sec;iOn 20(5) of the Marine Insurance Act 1906. According to
316 Peter GIbson LJ: Once statute deems an honest representation as to a matter of
matter of belief. It would not, however, affect rhe characterization of mis-
representations made outside rhe proposal form,317 unless a misrepresentation belIef t~ be. true, I cannot see that there is scope for inquiry as to whether there
rhat preceded rhe form were regarded as subsumed inro or replaced by rhe were obJeetlvely reasonable grounds for that belief. '322 It is respectfully submitted
relevanr question and answer in the form. that the majority fell into error.
Assuming the statement to be one of belief or expectation, there will neverthe-
4.137 First, the case law codified by section 20(5) is not concerned with, and in no 4.140
less always arise an implied statement of fact, namely that the represehtor does in way excludes, the possibility of an underlying representation of reasonable
truth maintain rhe expecrarion or beliefexpressed. This represenration will be grounds justifYing the belief or expectation expressed. Anderson v Pacific Fire &
untrue in either of two ways. First, the representor may have considered the matter Marin: Insurance Cd'" concerned the insurance of chartered freight on a voyage
and either formed a different belief or not formed any belief. 318 Secondly, the JnvolvIng a stay at an anchorage called Rendez-vous Point. The insurance was
representor may not have addtessed its mind to the matter at all, or at least not effected on the basis of the following letter from the captain of the insured vessel
sufficiently, so that its state of mind with tespect to the matter represenred does not regatdIng the anchorage at Rendez-vous Point: 'It is considered by the pilot here
wattanr the label 'belief. Thete must be 'some basis' for the statement; as a good and safe anchorage, and well sheltered. I have been out and seen the
place, and consider it quite safe.' It transpired that the anchorage was protected
agaInst waves but not against winds at certain times of the year. While the vessel
314 (lSlO LR 6 QB 674. 315 ibid 683-4. The case is discussed further below.
316Economides v Commercial Assurance Co pic [1998] QB 587~ See also HummingbirdMotors 3j9 E 'd r .
conomt es v ...,ommerciaIAssurance Co plc (1998J QB 587, 598 per Simon Brown Lj, By
Ltd v Hobbs (1986] RTR276; InternationalLotteryManagement Ltd 0 Dumas (2002] L1oyd's Rep
way of example, see International Lottery Management Ltd v Dumas (2002J Lloyd's Rep IR 237
IR 237, para 65. ~rn65, '
International Lottery Management Ltd v Dumas (2002] Lloyd's Rep IR 237, para 66.
320 Brown oRaphael[1958] Ch 636; Esso Petta/cum Co Ltd oMardon (1976] QB 801; sumitomo
Just as a statement of intention impliedly.represenrs the fact of the existence of the inten-tion:
Edgington v Fitzmaurice (1885) 29 ChD 459. Thus, 'the state of a man's mind is as much a Ba;,~ Ltd v Banque Bruxelles Lambert SA (1997] I Lloyd's Rep 487,515-16.
(1998] QB 587. 322 ihid 606. 323 (1872) LR 7 CP 65.
fact as the srate of his digestion': 483 per Bowen LJ,
154 155
The Doctrine of Utmost Good Faith
Actionable Misrepresentations
was subsequently anchored at Rendez-vous Point, a storm arose and both vessel
hypothesi, the beliefwill have proved inaccurate and the fact of that inaccuracy is
and insured freight were lost. The jury construed the letter as a statement of
unaffected by the state of mind of the tepresentor. What is true is the underlying
opinion, which they held was true. The insurets argued on appeal that this was a
statement that the representot in rrurh has the belief or expectation expressed.
misintetpretation of the letter, but the COUtt of Exchequer Chamber upheld the
jury's view. The judgments are emphatic that the absence offraud precluded any Fifthly, the crirical quesrion, thetefore, is whether section 20(5) addresses the 4.144
liabiliry in misrepresentation, bur rhey need to be read in context. The insurers second possIble underlying ~tatement, namely of reasonable grounds to sUPPOtt
did nor argue for an implied representation of reasonable grounds to suPPOtt rhe stated belIef or expectatIon, at all. The berter view, it is suggested, is that it
the belief as to rhe safery of rhe anchorage. The masrer had inspecred the doe~ not. Such .an underlying tepresentation is not denied by the case law
anchorage in petson. Since it was conceded rhat rhe master had acted in good c~dIfied by seetlon 20(5) and is clearly recognized by pre-Acr case law. A
faith, it must be assumed that the anchorage had appeared safe in all respects dIve:gence betw~en insurance contract law and general contract law should,
when inspected. Moreover, the master had also consulted a local pilot, whom he if pOSSIble, be aVOided and the subsection's wording, at rhe very least, does
324 not uneqUIvocally compel divergence. The underlying representation of
reasonably believed to be competent. Consequently, the master knew of no
reasonable grounds to Support the stated belief or expectation is itself a
circumstances inconsistent with the belief expressed and reasonable grounds
representation of fact: not a representation of belief or expectation, and, as such,
existed to support that belief. The only argument, therefore, open to the insurers
falls within sectIOn 20(4) and not within section 20(5).330
was that the safery of the anchotage had been stated as a fact. The decisiveness
of the absence of fraud followed from the COUrt'S rejection of this argument. Within the confin~s of the existing law as established by Economides v Com- 4.145
m:rczal Assurance, It may be possible to circumvent rhe inability to allege a
4.141 Secondly, the possibiliry of an underlying tepresentation of teasonable grounds mIStepresentatlon of reasonable grounds to suppOrt a representation of belief or
expect~tlon by an allegation of non-disclosure. The insurer cannot simply allege
n~n-dISclosure of the absence of any reasonable basis for the belief or expect-
was clearly recognized in the pte-Act case law. In Ionides v Pacific Fire
ation represented. SInce Economides holds thar an assured need not have such
Insurance CO,325 the facts of which have already been stated,326 Blackburn J
was able to address the characrerization of the statement as to the identiry of the reasonable grounds, their absence cannot be considered material. It may, how-
carrying vessel in a summary manner because even if the statement were one of ever, be pOSSible to allege a failure to disclose a more specific circumstance.
In two cases, insurers have sought to circumvent Economides in this way. In
belief there was still an actionable underlying representation:327 'We think this
expression tantamount to an assertion that she was the Norwegian; but ev~n each case, the attempt was unsuccessful on the facts, but in neirher case is thete
any s~ggestion .that it should be tejected in limine as an illegitimate
were it otherwise, the letter of advice'" would, but for rhe carelessness of those
attempted CitCumventlng oflimitations on the dtIry to avoid misrepresentation
who read ir, have made them aware that the ship was that of which the captain
by re-fotmulation as non-disclosure.
was Jean Card, and therefore rhe [claimanrs] had nor reasonable grounds for
believing rhat she was rhe Norwegian ship.' In Economides itself, the insurer alleged not only misrepresentation of the exist-
4.146
4.142 Thitdly, it is clear from the decision of the House of Lords in Pan Atlantic ence of reasonable grotInds to support the opinion advanced as to the value of
Insurance Co Ltd v Pine Top Insurance Co Ltd" thar, first, section 20 is not to be the i~sured properry, but also non-disclosure of the dispatiry between the actual
read as an exhaustive code of the law of misrepresentarion for the purposes of and Insured values of that propetry. The argument failed because: first, the
(marine) insurance contracts, and, secondly, that section 20 should be read, if at all assured was a private individual; secondly, he lacked actual knowledge of the
possible, in line with general contract law. dISpanry between rhe real and insured values of the insured property; and,
4.143 Fourthly, section 20(5) provides that a statement of expectation or belief 'is true' thltdly, the doctrine of constl'tIctive knowledge is confined ro circumstances that
if made in good faith. This cannot, however, be read in any literal sense. Ex the assured ought to know in the ordinary course of its business and is, there-
fore, inapplicable to private individuals. In Rendall v Combined Insurance Co of
324 See ibid 70, judgment of Grove]. 325 (!87l) LR 6 QB 674.

32' See 4.135 above. 327 (l87!) LR 6 QB 674. 683-4.
328 A reference to the instructions from the assured. 330 ,This was the view ofSteyn Jin Highlands lmurance Co v Continental Insurance CO [1987J -~
m [1995J 1 AC 501, esp 544-5, 570-1. Lloyd s Rep 109, 113.
156 157
The Doctrine ofUtmost Good Faith Marine Insurance Act 1906, Section 17
America,331 the insurer sought to avoid an employer's business travel policy on material non-disclosure and misrepresentation. If materiality is required, albeit
rhe basis of a representation as to the amount of travel to be undertalren by the ptesumed, fraud will be accommodated wirhin sections 18 and 20 of the 1906 Act.
assured's employees. This representation was held to be one of belief. However, the If, however, materiality does not form part of rhe law of fraudulent non-disclosure
insurer argued that the assured had failed to disclose rhat the figure for the and misrepresentation, fraud will fall outside of sections 18 and 20, but will come
estimated number of days advanced in the ptoposal was determined thtough within section 17.
assumptions based on employee salaries rather than by extrapolati~n fto';'
historical data. This argument was rejected on the gtounds of the lnsurer s (2) Non-material Misrepresentation and Non-disclosure
. 332
presumed knowldege and waiver. It is conceivable that a particular insurer might request information that is not 4.150
material so that it would not need to be disclosed in the absence of enquiry. In
such a case, a response that was inaccurate or misleading would constitute a
K. Marine Insurance Act 1906, Section 17: Pre-formation misrepresentation outside section 20, but which would render the contracr voidable
Utmost Good Faith Beyond Sections 18-20 under section 17.'36
4.147 As already noted, sections 18 and 20 of the Marine Insurance Act 1906 are (3) Mistalre by the Insurer, Known to the Assured
considered to ptovide detail of twO aspects of the doctrine of utmost good faith
333 It has been suggested that if the assured realized in the course of negotiations 4.151 that the
enunciated in more general terms by section 17. Although the assured's duties of
disclosure and avoidance of misrepresentation consritute the twO most sig-nificant insurer was proceeding upon a mistalren apprehension as to a material circumstance, such
aspects of the doctrine of utmost good faith, it is clear that they do not as a level of losses,337 or had made a material mathematical
exhaust that doctrine. Other aspects may be identified that fall within section 17 error, then the assured would be obliged under section 17 of the 1906 Act to
alone. correct the insurer's mistake.338
(1) Fraudulent Misrepresentation and Non-Disclosure by the Assured (4) The Insurer's Pre-formation Duties of Utmost Good Faith
4.148 Ptoof of materiality is not required for a fraudulent misrepresentation to be Although the duties imposed by the pre-formation doctrine of utmost good 4.152 faith are
actionable in the general law,334 and the same must apply in insurance contr~ct most frequently encountered as owed by the assured to the insurer, section 17 of the 1906
law in respect of both misrepresentation and non-disclosure.'" An insurer that Act clearly articulates a bilateral doctrine of utmost good
seeks to avoid on the basis of fraud in respect of a circumstance that ~ prudent faith, with reciprocal duties owed by the insurer to the assured. The insurer is,
underwriter would not talre into account in assessing the risk will, nevertheless, therefore, required to disclose all material circumstances to the assured and not to
still have to prove that the non-material fraud induced it to enter the contract. malre any material misrepresentations. The ambit of the insurer's disclosure
33
obligation has been stated ' to include 'all facts known to him which are material
4.149 The technically correct explanation for the lack of a need to ptove materiality is
either to the nature of the risk sought to be covered or the recoverability of a claim
unclear. It may be that materiality is not a substantive requirement in the law of
under the policy which a prudent insured would talre into account in
fraudulent misrepresentation or non-disclosure. Alternatively, materiality may
technically be required, but a fraudster not be permitted to deny the materiality
of its own fraud. Materiality would be required but, in effect, irrebuttably
presumed. Sections 18 and 20 of the Marine Insurance Act 1906 are confined to
Container Transport International Inc v Oceanus Mutual Underwriting Association
(Bermuda) Ltd [1984J 1 Lloyd's Rep 476, 512. See also Haywood v Rodgers (1804) 4 East 590;
The Bedouin [1894J P 1, 12.
-----_._--------~--- This may well mean that the assured had failed to disclose a material circumstance, but it might
'" [2005J EWHC 678 (ComiTI)' [2005J 1 CLC 565. '" ibid para 105. be that non~disclosure would be excused under the MIA 1906, s 18(3), discussed at 4.89ff
m See 4.09 above. above.
334 The Bedouin [1894J P 1, 12; Gordon v Street [1899J 2 QB 641; lIAfianjan Pistachio Produ-cers
Container 7ransport International Inc v Oceanus Mutual Underwriting Association
Co~operative v Bank Leumi (UK) pic [1992} 1 Lloyd's Rep 512,542; Pan1tlantic Insurance Co (Bermuda) Ltd [1984J 1 Lloyd's Rep 476,512,522,525.
Ltd v Pine Top Insurance Co Ltd[1995J 1 AC 501, 533. Banque Keyser Ullmann SA 0 Skandia (UK) Imurance Co Ltd [1990J 1 QB 665, 772 per
33S MIA 1906, s 91(2). Slade L].
158 159
The Doctrine ofUtmost Good Faith Remedies
deciding whethet Ot not to place the risk for which he seeks cover with that litigation may subsequently confirm the insuret's right to avoid or declare the
. , avoidance invalid. '4'
msurer.
4.153 Examples of the insuret failing to comply with the doctrine of utmost good faith are The remedy of avoidance may be draconian. The assured is deprived of all cover 4.157
rare. In Carter v Boehm;4' Lord Mansfield envisaged an insurer agreeing to cover regardless of whether its failute to comply with the duties imposed by the doctrine of
a ship for a voyage which the insurer knows has already been safely completed, a utmost good faith is culpable or grave. An inadvertent breach result-
fact it does not disclose to the assured. Insurers also owe reciptocal obligations in ing from an innocent mistake is as fatal as a calculated concealment. Moreover,
respect of tequested non-material infotmation, and matetial mistakes made by the a non-disclosure or misrepresentation almost invariably comes to light in the
assured and known to the insuret. course of investigating a claim, at which time it is too late for the assured to
seek alternative cover.'44 In the Court of Appeal in Pan Atlantic v Pine Top;45
Nicholls V-C stated as follows:
L. Remedies
Justice and fairness would suggest that when the inadvertent non-disclosure
came to light what was required was an adjustment in the premium or, perhaps,
4.154 The remedy for pre-formation non-disclosure or misrepresentation contem-plated by in the amount of the cover. Those arc not options available under English law.
the Marine Insurance Act 1906 is avoidance of the contract. From an insurer's The remedy is all or nothing. The contract of insurance is avoided altogether, or it
petspective, avoidance tesponds fully to any non-dlsclosute or mIS- stands in its entitety. This is not the only field in which English law still seems to
representation by the assured, since it retroactively exonerates the insurer f:om adopt a fairly crude, all-or-nothing approach, when what is needed is a more
all liability on the conttact. Likewise, the mutual testitution of benefits tecelved sophisticated remedy more appropriate, and in that sense more proportionate, to
the wrong suffered.
under the policy that attends avoidance satisfies the assured where its gtievance
against the insurer is wasted premium. In rare cases, however, the question may (b) Proportionality in general contract law
arise of the availability of damages.
Proportionality is introduced into remedies fot misreptesentation in the gen- 4.158
etallaw of contract by section 2(2) of the Misreptesentation Act 1967. This subsection
(1) Avoidance provides as follows:
4.155 Section 17 of the Marine Insurance Act 1906 declates that 'if the utmost good be not
Where a person has entered into a contract after a misrepresentation has been
observed by either party, the contract may be avoided by the other patty'. Likewise, made to him otherwise than ftaudulently, and he would be entitled, by teason of
sections 18(1) and 20(1) provide for avoidance in the event of matetial non- the misrepresentation, to rescind the contract, then, ifit is claimed, in any proceed-ings
disclosure and misreptesentation. arising out ofthe contract, that the contract ought to be or has been rescinded, the
court or arbitrator may declare the contract subsisting and award damages in lieu of
(a) Nature ofthe remedy rescission, if of opinion that it would be equitable to do so having regard to the nature
of the misrepresentation and the loss that would be caused by it if the contract were
4.156 Avoidance of the contract asserts a defect in the fotmation of the conttact with the upheld, as well as to the loss that rescission would cause to the other
tesult that, although the conttact is not expunged ftom histoty,'41 the pri-mary party.
obligations are tetminated retrospectively so as to return the parties to the position
Section 2(2) of the 1967 Act, therefore, cteates a judicial disctetion, in cases 4.159 of
they were in befote the contract was concluded. The insuret is viewed as if it had
non-fraudulent mistepresentation, to declare ineffective a rescission of the contract (or
nevet come on tisk with the result that no futute liability may be incurred, any
deny the remedy if not already exercised) and instead to effect a financial adjustment
ourstanding liabilities ate discharged, and any loss moneys alteady paid are
between the parties through an awatd of damages. In an
tecovetable.'4' The remedy takes effect from the moment of the insurer's election to
avoid. It does not require judicial intervention, although
'" Insurance Corp ofthe Channel Islands v McHugh [19971 LRLR 94, 138; Drake v Provident
Insurance pic [20031 EWHC 109 (Comm), [2003] Lloyd's Rep lR 781, paras 31-32; Brotherton v
340 (1766) 3 Burr 1905,1909.
Aseguradera Colsegures SA (No 2) [2003] EWCA Civ 705, [2003] Lloyd's Rep lR 746, para 27.
34' NewtensofWembley Ltd 0 Williams [1965) 1 QB 560; Mackender v FeldiaAG [1967]2 QB See also 4.04 above (self~executing nature of rescission in the general law).
590. . Kamar v Eagle Star Insurance Co Ltd [20001 Lloyd's Rep 1R 154, 157.
342 ComhillInsurance Co Ltd v L & B Assenheim (1937) 58 LlLRep 27, 31. [1993) 1 Lloyd's Rep 496,506.
160 161
insurance context, in dedding whether to exercise its discretion, a cOurt could Marine Insurance Act 1906 should not be read as impliedly modified by the
34 Misrepresentation Act 1967.
take into account the innocence or negligence of the assured's breach ' and the
relative consequences of denying or allowing avoidance. Where no loss has
occurred, allowing avoidance does not unfairly prejudice the assured, who can Thirdly, and mOfe fundamentally, the question arises of whether the remedy of 4.162
avoidance, as prescribed by the Marine Insurance Act, for failure to act in good
seek alternative cover. Where, as is usual, losses have already occurred, avoidance
faith is the same remedy as rescission for misrepresentarion. If avoidance is but
will automatically prejudice the assured by denying any indemnification. Where
another label for rescission, section 2(2) will confer a discretion to refuse (to
compliance with the duty would have resulted in merely a higher premium which
recognize) avoidance of an insurance contract in cases of non-fraudulent mis-
the assured would have paid, the contract could be declared subsisting subject to an
representation, albeit not for non-disclosure. If, however, it is rechnically a
award of damages equivalent to that additional premium. Where the insurer would
different remedy, albeit one that operates in same way as rescission, section 2(2)
either have declined the risk altogether or would have insisted on certain limitations
will have no application. The latter view has some support.''' The dissonance that
in the policy, it might be apptopriate to allow avoidance or, alternatively, to award
would result from a discretion that extended to misrepresentation but not to non-
a more substantial sum by way of damages. 347
disclosure perhaps suggests that this view is preferable.
4.160 There are, however, three major resttictions on, or questions over, the applic-ability
of section 2(2) in insurance contract law. First, section 2(2) requires that a (c) Loss ofthe right ofavoidance
348 The right to avoid for non-disclosure or misrepresentation may be lost through 4.163
'misrepresentation' be 'made'. This wording, it has been argued and accepted by
the doctrine of waiver. This can take effect through either affirmation or equit-
the Court of Appea!,34' does not include pure non-disclosure, although half-truths
able estoppel. In the following discussion, it will be assumed that, as is almost
should be covered. This raises a problem of characteriza-tion. A proposer of
insurance will not be viewed as a matter of law as impliedly making the positive invariably the case in practice, it is the insurer that is seeking to avoid the contract.
representation that the disclosure obligation has been ful-filled."o If, however, an Mfirmation is the exercise ofan informed choice. It has three requirements. First, 4.164
assured fails to disclose part of its claims record, the breach of duty may be the insurer must know of the misrepresentation or non-disclosure.'54 Being put
classified equally as a misrepresentation of the claims .... ffi' "55 dl h
record or as non-disclosure of the omitted claim. In such a situation, it cannot upon inqUiry IS msu Clent. eean y, t e insurer must know that, con-
be denied that a misrepresentation has been made, regardless of the way the breach sequently, it has the right in law to avoid the contract,'" but a court will readily infer
of duty may be pleaded, and accordingly it is suggested that the statuto,'y judicial that an insurer has that knowledge."7 Thirdly, the insurer must unequivo-cally
represent to the assured that it is exercising its right of election so as to forsake its
discretion would be, prima ficie, available.
right to avoid and instead affirm the contract."8 The representation may be by
4.161 Secondly, in Highlands Insurance Co v Continental Insurance Co,"" Steyn J words or conduct. The insurer may expressly inform the assured ofits elecrion to
expressed the view that avoidance should never be denied in commercial insur-ance affirm the contract or may communicate this decision by conduct consistent only
for fear of undermining the policing function of the remedy in ensuring a fair with such a choice.'" Ultimately, whether the insurer will be held
presentation of the risk. This may, however, overstate the regulatory func-tion of
the doctrine of utmost good faith."2 It may, nevertheless, be argued that the
353 See 4.22 above.
unqualified reference to avoidance rights in sections 17 and 20 of the
354 Motor Oil He/las (Corinth) Refineries SA v Shipping Corp of India (The Kanchenjunga)
[1990) 1 Lloyd's Rep 391,398. On the meaning of knowledge, see Insurance Cory o[the
Channel Islands v Royal Hotel Ltd [1998) Lloyd's Rep lR 151, 162.
McCormick v NationalMotor & Accident Insurance Union Ltd (1934) 49 LlLRep 361, 365.
It may be relevant whether responsibility for the breach lies with the assured Or with the P,?,man v Lanjani [1985] Ch 457, in the context of the right ofelection consequential upon a
broker who placed the risk. repudlatory breach of contract, but there is no reason to distinguish between breaches of
In considering whether to allow avoidance in such a situation, a court would have to take contract and ofduties arising under the doctrine of utmost good faith: The Kanchenjunga [1990J
into account not merely the existing losses claimed by the assured but also the prospect and 1 Lloyd's Rep 391, 398. See also Insurance Cory o[the Channel Islands 0 Royal HoteLLtd
scale of further losses arising under the ,~oidable policy. [1998J Lloyd's Rep 1R 151,161.
Sir Guenter Treitel, Law of Contract (11 th edn, 2003) 402-3. cf A Hudson, 'Making Simner v New India Assurance Co Ltd[1995] LRLR 240,258.
Misreptesentations' (1969) 85 LQR 524. Motor Oil Hellm (Corinth) Refineries SA. v Shipping Corp of India (The Kancherifunga)
349 Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd (1990) 1 QB 665, 790. [1990) 1 Lloyd's Rep 391, 398.
350 ibid 786-9. '" [198711 Lloyd's Rep 109, 118. - ScarfvJardine (1882) 7 App Cas 345, 361; Karnmins Ballrooms Co Ltd v Zenith Investments
352 cf Pan Atlantic Insurance Co Ltd v Pine TOp Insurance Co Ltd [1995] 1 AC SOl, 549. (Torquay) Ltd[1971) AC 850, 883.
162 163
to have made the requisite unequivocal representation depends upon whether a Apart from affirmatio~, rhe right to avoid may also be lost through the doctrine
reasonable person in the position of the assured would consider the insurer to be 4.166 of eqUitable, or promiSSOry, estoppel. While the essence of affirmation is the
making an informed choice to affirm the contract. 360 It does not depend upon either malting of an informed choice, the essence of equitable estoppel is the appear-
the perception of the actual assured 36 ' or the subjective intention of the insurer.'6' ance 1n the eyes of the assured of making an informed choice. In practice,
Once communicated,'6' the election is final and irrevocable, and does however, it is unlikely in the context of commercial insurance contracts that the
not require perfection by any consideration, reliance, or change of position. 364 tequirements for waiver by equitable estoppel will be fulfilled in circumstances
Discovery of a different misrepresentation or non-disclosure will give tise to a where the. insurer will not be held to have affirmed the contract. Accordingly,
fresh right of election, bur only if it would make 'a material difference to the the doctrlne of waiver by equitable estoppel is significant where waiver by
reasonable insurer's decision whether to affirm or to avoid the policy'.'65 affirmation is not available, namely in the law of promissoty warranties. The
4.165 Conduct by an insurer informed as to the facts and the law that amounts to an election doctrine is, therefore, discussed in that context. 374
to affirm the contract includes: acceptance of premium;"6 renewal of The right of election arising upon discovery of a right to avoid by reason of a 4.167
'fy' . '68
a policy;367 approval 0f measures taken to rect! a mIsrepresentation; CO~ misrepresentation or non-disclosure imposes no obligation to elect. The law recognizes
operation without reservation in attempting to repair damage to the insured an entitlement to a reasonable time to decide upon the preferred
375
ship;'" requesting further information regarding a casualty and acquiescing in option. However, even once such period of time has expired, there remains no
and inviting the assured to proceed with a lengthy investigation of the 10ss;'70 obligarion to elect, bur the right of eJection may be lost if rhe failure to exercise a
and cancelling the policy in accordance with the rerms of a cancellation clause right of avoidance within a reasonable time is viewed as a representation by
therein. 371 Payment into court in response to a claim admits that the assured is conduct of a decision to affirm the contract. This may either constitute an
entitled to some measure of recovery and is, therefore, inconsistent with any l' " 'h 376 if relied e eenon 1ll Its own ng t or amount to a representation sufficient.
complete defence. '72 Purely ministerial acts, such as the issuing of a policy upon, to found an equitable estoppel.'" In the insurance context, such reliance
document, do not constitute an election to affirm.373 may be demonstrated through the assured refraining from seeking alternative
378
cover.
(d) Post-ftrmation revelations

360 Insurance Corp o[the ChannelIslands v Royal HotelLtd[1998J Lloyd's Rep lR 151, 162-3.
No difficulty arises in the context of an election to avoid since: 'The claim to avoid demonstr~,tes of
Materiality is determined definirively at the rime of acceptance of the risk. An 4.168
itself at one and the same time awareness of the choice and its making': at 162 per Mance J.
ibid 163. Contra Callaghan 0 Thompson [2000J Lloyd's Rep lR 125,134, but see Spriggs 0
apparent circumstance may qualify as material, yet subsequent events may reveal
Wessington Court School [2004J EWHC 1432 (QB), [2005J Lloyd's Rep lR474, pata 22 (obiret, that the appearance was deceptive. This does not affect the materiality of the
ICCI preferred to Callaghan). circumstance,37' but does it affect the remedy of avoidance? Is the insurer
Scarfojardine(1882) 7 App Cas 345, 361.
Spriggs v Wessington Court School [2004J EWHC 1432 (QB), [20051 Lloyd's Rep lR 474, entitled to avoid for non-disclosure of a circumstance that does not itself repre-
paras 39-40 (communication not required only in the case of fraud where the fraudster has sent the rruth, assuming that the truth involves no material circumstance requir-
made it impossible for the deceived party to communicate), ing disclosure? Suppose that, at time the risk is placed, the master of the insured
Scarfo jardine (1882) 7 App Cas 345. 398-9. See also Pryman v Lanjani [1985J Ch 457,
494,500. vessel is awaiting rrial on charges of smuggling. Believing the master to be
Spriggs v Wessington Court School [2004J EWHC 1432 (QB), [2005J Lloyd's Rep lR 474, innocent, the assured fails to disclose this circumstance. The existence of the
para 77 per Stanley Burman J.
366 Wing v Harvey (1854) 5 De G M & G 265; Jones v Bangor Mutual Shipping Insurance
charges is clearly a material circumstance, so that there is no doubt that they
Society Ltd(l889) 61 LT 727; Ayrry v British Legal & United Provident Assurance Co Ltd [1918] 1
KB 136.
Sulphite Pulp Co Ltd v Faber (1895) 1 Com Cas 146, 153-4. '74 See 18.94-18.95 below.
De Maurier Uewels) Ltd 0 Bastion Insurance Co Ltd [1967J 2 Lloyd's Rep 550. :;: McCormick v National Motor fir Accident Insurance Union Ltd (1934) 49 LlLRep 361.
Daneau v Laurent Gendron, Ltee [1964] 1 Lloyd's Rep 220 (Exchequer Court of Quebec). Clough 0 London & North Western Railway Co (1871) LR 7 Ex 26,35; Allen v Robles [19691
TOronto Railway Co v National British Irish Millers Insurance Co Ltd(1914) III LT 555. 1 WLR 1193, 1196.
Mint Security Ltd v Blair [1982] 1 Lloyd's Rep 188; Iron Trades Mutual Insurance Co Ltd v 377 ibid. See also Morrison v Universal Marine Insurance Co (1873) LR 8 Ex 197; Simon,
Companhia de Seguras Imperio [1991J 1 Re LR 213, 225; Wise (Underwriting Agency) Ltd 0 Grnpo Haynes, Barlas & Ireland v Beer(1945) 78 LlLRep 337, 369; Liberitln Insurance Agency Inc v Mosse
NacionalProvincial SA [2004J EWCA Civ 962, [2004J 2 Lloyd's Rep 483. paras 83, 134. [1977J 2 Lloyd's Rep 560, 565.
m Harrison 0 Douglas (1835) 3 A & E 396. . )78 Jones v Bangor Mutual Shipping Insurance Society Ltd(l889) 61 LT 727.
373 Morrison v Universal Marine Insurance Co (1873) LR 8 Ex 197. 37S See 4.82ff above,
164 165
The Doctrine ofUtmost Good Faith
Remedies
should have been disclosed and the duty of disclosure has been broken.
be contrary to the doctrine of utmost good faith for the insurer to avoid on the
However, assuming the master is subsequently acquitted, does the fact of the basis of non-disclosure of that circumstance.
acquittal affect the insurer's right to avoid the policy?
4.169 It is clear that an acquittal after the insurer has avoided the policy does not
(e) The consequences ofavoidance
undermine the legitimacy of the avoidance, even if the acquittal precedes judgment The rerrospectivity of the remedy of avoidance results in risk being viewed as 4.172
in litigation in which the right to avoid is in issue. In Brotherton v Aseguradora never attachmg. Any sums previously paid by the insurer in settlement of claims
Colseguros SA (No 2),'80 the Court ofAppeal identified three sttands of reasoning
unde: the policy are recoverable. The consideration for the premium toral]y fails
381 and, m the absence of fraud or illegality, the assured is entitled to restitution of
in any contrary suggestion and rejected each of them. First, the court cannot
refuse to permit the insurer to avoid the policy, for the simple reason that any premium paid.'"
avoidance is a remedy that is executed by the act of the assured
without judicial intervention or confirmation.382 (2) Damages
4.170 Secondly, the assured is not entitled to challenge rhe truth of undisclosed cir- In rare circ~msrances, the remedy of avoidance is inadequate. Suppose, prior to 4.173
cumstances relied upon as a basis for avoidance in order to demonstrate rhat they the formatIOn of the contract, the insurer knows of a circumstance that will
are without foundation and thereby disentitle rhe insurer from avoiding the policy. prevent th~ assured from recovering under the terms of the policy, but fails to
Three reasons may be advanced for this: (a) the possibility of such a challenge dlsdos~ thIS fact to the ass~red. The assured may avoid and recover its premium,
would introduce significant uncertainty into the law; (b) it might constitute a but, either through aVOIding rhe policy or by its terms, will be denied
temptation for assureds not to make full disclosure of doubtful circumstances, indemnification in respect of a loss that would have been prevented or covered
thereby depriving insurers of rhe ability to make an informed decision on the risk had the I?~urer dIsclosed the information. In such a situation, the only remedy
that the doctrine of utmost good faith exists to confer; and of any unhty to the assured lies in damages.
(c) it would compel insurers to undertake investigations of the relevant circum-
This was the essential position in Banque Keyser Ullmann SA v Skandia (UK) 4,174
stance that they could have required the assured to undertalee had disclosure
Insurance Co Ltd,''' where, at first instance, Steyn J awarded damages to the
been made at presentation of the risk, with an accompanying shifting of the
liability for the costs of the investigations. assured for breach of duty under the doctrine of utmost good faith. Accepting
that the duty was not based on an implied contractual term, he held neverthe-
4.171 Thirdly, the doctrine of utmost good faith does not require an insurer to refrain Jess th~t the assured's right to disclosure could be properly protected only by
ftom avoiding a policy on the basis of non-disclosure of an apparently material :ecognltlon of a damages remedy that justice and policy required to avoid
circumstance, at least where the insurers (did not at the time of avoidance accept Imbalance and unfairness in the relationship between assured and insurer. A
or know for certain of the incorrectness of the intelligence constituting the basis new cause of action was thereby created. Alternatively, he awarded damages in
of their avoidance).383 'Where, however, the incorrectness of a circumstance is :he tort of neghgence, On the particular facts of the case, he held that rhe Insurer
already accepted or known for certain, it was subsequently stated obiter by the owed the ~ssured a duty of care, not least because it reinforced the duty
Court ofAppeal in Drake Insurance pic v Provident Insurance plc84 that it would of utmost good faIth and mIlitated against fraud while maintaining commercial
morality.387
The Court ofAppeal upheld the finding of a breach of duty under the doctrine 4.175 of
utmost good faith by the insurer but reversed the award of damages. Such a remedy
12003J EWCA C;v 705, [2003J Lloyd's Rep IR 746.
Thereby overruling Strive Shipping Corp v Hellenic Mutual ~r Risks Association (Bermuda) was avaIlable only if the doctrine gave rise to either contractual or
Ltd (The Creeia Express) [2002J EWHC 203 (Comm), [2002] Lloyd's Rep IR 669, paras 290-291, which
had already not been followed in Drake Insurance p!cvProvident Insurance pic [2003]
EWHC 109 (Comm), [2003] Lloyd's Rep IR 781.
See 4.04 above. This argument is undermined if (a) contrary to consistent modern author-
ity (4.156 above), rescission in equity requires judicial intervention, and (b) the remedy of
385 See 6.05-6.06 below.
avoidance is merely another name for equitable rescission (see 4.22 above).
383 [2003] Lloyd's Rep IR 781, para 34 per Mance LJ. 3&< 386 [1990] 1 QB 665. The complex facts and the litigation to the level of the Court of Appeal
[2003] EWCA Civ 1834, [2004J QB 601. are noted by F Trindade (1989) 105 LQR 191.
381 [1990] 1 QB 665, 699-715.
I66
I67
cou:t. by w~y of judicial legislation to create a new tort, effectively of absolute

tortious obligations.388 Relying on dicta of Lord Esher MR and of members of rhe
lIabilIty, which could expose either party to an insurance contract to a claim for
House of Lords in Blackburn, Low & Co v Vigors,''' the Court rejected an substantial damages in the absence of any blameworthy conduct'.394
argument thar the duty of utmosr good faith was based upon an implied con-tractual
term, giving rise to a claim in damages for breach, and held instead thar compliance The reas~ns advanced by the Court of Appeal for rejecting the possibility of 4.177 damages
with the utmost good faith duties was a contingent condition pre-cedent to the right In t~tr for a breach of a duty of utmost good faith are worthy of c~mment. It IS suggested
of the assured to insist on the performance of the contract that arises as an incident that the first three reasons are unconvincing. First, as discussed earher, relIance upon the
to the contract rarher than by reason of a term implied in the contract. Support for equitable power ro prevent imposition is rr:lsplaced. 395 S~condly, the holding in CTI v
this view was derived from the language of the Marine Insurance Act 1906 in Oceanus that the impact of a non-
addressing remedies but mentioning only avoidance, together with authority that the dIsclosure or mIsrepresentation on the particular insurer or assured is irrelevant
power of the court to grant rescis- to establishing a breach of the duty of utmost good faith was overruled by the
sion of any contract in cases of innocent misrepresentation arose 'byreason House of L~rds In Pan Atlantic v Pine Top.396 Thirdly, inferring an absence of
of the jurisdiction originally exercised by the courtS of equity ro prevent ~ther remedies from the fact that the 1906 Act provides expressly for avoidance IS
imposition'.390 This analysis was viewed as equally applicable to non-disclosure. probably to misread the statute. According to Staughton LJ in New Hampshire
The characterization as a contingent condition precedent arising by law outside the Insurance Co v MGN Ltd,397 'the maxim that mention of one of twO things
contract has subsequently been accepted,'91 although, as will be discussed,392 exclud~s the ~ther must be applied with caution when considering the drafts-
most of the arguments advanced in support lack cogency. manship of Sir MackenZie Chalmers. His method of codification was, at any rate at
Also rejected, for four reasons, was an argument that breach of a good faith duty times, to state the effect of rules decided by the Courts, and not to pronounce upon
4.176 points which had not been decided'.
constituted a tort. First, other factors that triggered the court's equitable juris-diction
to prevent imposition, such as duress and undue influence, did not sound in Sections 17 and 18 of the Act do not mention the remedy of damages simply 4.178
damages. Secondly, damages could only be awarded for prejudice occasioned by a because they codifY Lord Mansfield's statements on rhe nature of concealments
given individual; yet CTI v Oceanus,''' good law at the time of the decision of the In Carter v Boehm. 398 Assho,;n by his illustration of the completed voyage, Lord
Court ofAppeal in Skandia, prohibited reference ro an actual insurer or assured in Mansfield did not have In mInd rhe rare situation where only a damages remedy
the conrext of avoidance of a policy. Thirdly, sections 17 and 18(1) of the Marine would redress the consequences of a breach of duty by the insurer. Moreover,
Insurance Act 1906 provide expressly for the remedy of avoidance of the policy the Court ofAppeal's reading of the relationship between sections 17 and 18 on
without suggesting that damages may also be available. The 'clear inference' from the one hand and section 91(2) on the other is in marked contrast to that of
the sections was that Parliament did not. intend a damages remedy to be available, the House of Lords in Pan Atlantic v Pine Top in the context of subjective
preventing resort to section 91 (2), which pre-serves the general common law save mducement. 399
in so far as inconsistent with the Act's provisions. Fourthly, the pre-formation good
The fourth objection to tortious damages is more formidable. It is a cardinal 4.179
faith duties do not discriminate according ro the state of mind of the party in breach.
principle of the general law that damages are nor available for innocent mis-
A wholly inadvertent and . '00 1 U "b
innocent non-disclosure is still a breach. Wete such a breach ro constitute a tort, an representation. n nett, ut, Symons & Co v Buck/eton,'O! the House of Lords
innocent assured could be sued for a considerably increased premium by way of adamantly rejected an argument that an innocent misrepresentation should, on the
facts, be recognized as constituting a collateral contract. Lord Moulton
damages even in the absence of any casualty: 'it would not be right for this
394 [19901 1 QB 665. 781 per Slade LJ. 395 See 4.l1ff above.
ibid 776, 780. Analysis as a fiduciary duty was unsuccessfully raised at first instance (at 715)
388
h 396 See 4.42 above. In any event, a distinction could be drawn between ascertaining whether
and not pursued on appeal, but see P Matthews, 'Uberrima Ficlesin Modern Insurance Law'in F t ~9~Uty has been broken and quantifYing damages for breach.
Rose (cd) New Foundations flr 'nsurance Law (1987). [19971 LRLR24, 59. 398 (1766) 3 Burr 1905, 1909.
(1886) 17 QBD 553, (1887) 12 App Cas 531. 399 See 4.43 above.
Merchants & Manufacturers Insurance Co Ltd v Hunt [1941] 1 KB 295, 318 per 400" ..
Ie mlsreprese?tatl?llS whICh the representee cannot prove to be fraudulent or a breach of a

Luxmoore LJ. duty of care recognIzed III the tort of negligence.
3" Agnew v Liinsfdrsiikringsboidgens AB [20011 1 AC 223, 240, 246, 265~6.
'" [1913J AC 30,51.
392 See 4.177 below. 393 Discussed at 4.42 above. .
169
168
The Doctrine ofUtmost Good Faith Co-insurance
stated that it was 'of the greatest importance ... that this House should main-rain speak is equally actionable in the tort of dec;eit,'06 permitting damages to be
in its full integrity rhe principle that a person is not liable in damages for an recovered for fraudulent non-disclosure in the context of insurance contracts. 407
'nnocent misrepresentation, no matter in what way or under what form the In addition, a misrepresentee can invoke section 2( l) of the Misrepresentation
I
attack is made'. Although subsequently undermmed m lrect y,
.
402
'd'1 h
t e essenrra
'l Act 1967. This provides as follows:
principle remains good law today. Creating a tort of b~each of the duty of Where a person has entered into a contract after· a misrepresentation has been
utmost good faith would involve direct refutatlOn of the pnnclple m the context made408 to him by another party thereto and as a result thereof he has suffered loss,
then, if the person making the representation would be liable to damages in respect
of contracts uberrimae fidei.
thereof had the misrepresentation been made fraudulently, that person shall be so
4.180
With respect to the tort of negligence,'03 the Court ofAppeal held tha.t liability liable notwithstanding that the misrepresentation was not made fraudulently, unless
for pure economic loss caused by a negligent sratement (or no~~dlsclosure) he proves that he had reasonable grounds to believe and did believe up to the time
409
could arise only if the representor voluntarily assumed responslblhty for that the contract was made that the facts represented were true.
statement and the representee relied on it. While such an assumprron of In Royseot Trust Ltd v Rogerson,"o the Court of Appeal interpreted the fiction of 4.183
responsibility might readily be inferred in respect of stat~~entsmade by prof~s fraud in the drafting of section 2(1) as governing the measure of damages, whereas it is
sional people in the course of their professions, the poslrron was dIfferent :"lth strongly arguable that the subsection is concerned merely with the availability of a
respect to non-disclosure. Evidence was required of condu~tthat mIght obJect- damages remedy. This is highly controversial since any represen-
ively be construed as signifYing an assumption of respon,,,btllty. On the facts, tor who fails to discharge rhe burden of proving its innocence is treated as
there was none. Moreover, even if, by reason of specIal CIrcumstances and fraudulent and liable for damages quantified as in the tort of deceit. 411
the relationship between the parties, a defendant could ever be deemed by law to
have assumed the requisite responsibility, the law of tort could not be extended
so as to impose an obligation to speak in the context of negotiating an ordinary M. Co-insurance
commercial contract. Although a duty to speak was the essence of a contract
uberrimae fidei, the Court repeated that granting a damages. remedy would be The consistent approach of the courts to the co-insurance of separate interests 4.184
contraty to the clear inference to be drawn from the Marme Insurance Act under composite policies is that a breach of obligation in respect of one interest
1906 that the only remedy for breach of the duty of utmost good faith was does not affect the other insured interests. The leading case is Samuel (P) 6- Co
Ltd v Dumas,''' in which the House of Lords stated, obiter but clearly, that
avoidance.404
wilful misconduct on the part of a mortgagor afforded the insurer no defence
The decision of the Court of Appeal was affirmed in the House of Lords on against a co-assured mortgagee.
4.181 40s
essentially different grounds. Lord Templeman and Lord Jauncey did, how-
ever, express the view, obiter, that a breach of a duty arising under the doctrine Samuel v Dumas was concerned, of course, with fraud in the performance of the 4.185
of utmost good faith does not sound in damages.
406 Brownlie v Campbell (1880) 5 App Cas 925, 950: Banque Keyser Ullmann SA v Skandia
4.182 Where the breach of duty consisrs of a misrepresentation, the representee can (UK) Insurance Co Ltd [19901 1 QB 665, 774.
take advantage of the normal common law damages claims for misrepresenta-
401 HIH Casualty & General Imura"ce Ltd v Chase Manhattan Bank [2003) UKHL 6, [2003J 2
tion in the torts of deceit and negligent misstatement. Moreover, any deliberate Lloyd's Rep 61.
and dishonest withholding of material information where there is a duty to 408 This reference to a misrepresentation being 'made' excludes non~disclosure from the ambit
of the Misrepresentation Act 1967, s 2( 1): see the discussion of s 2(2) at 4.160 above.
409 A burden difficult to discharge: Howard Marine & Dredging Co Ltd v Ogden & Sons
(Excavations) Ltd[1978] QB 574 (barge owners liable under MIA 1906, s 2(1) when their marine
manager misrepresented the deadweight capacity of barges in reliance on an erroneous statement
402 Through the shrinking of the territory of the innocent misrepresentation by the recognition
in Lloyd's Register, the truth being ascertainable from the ship's documents in the owners'
. Ii dt Byrne & Co Ltd v Helier & Partners Ltd[19641 AC 465 of the possibility ofaduty of care possession).
~~tac~in~ to negligent misstatem~nts and the passing of s 2(1) of the Mis~eprese~tation Act. 1967 '" [1991J 2 QB 297.
(4.182 below), and through an increasing judi?ial preparedness t? recognize the lOcOrrOratlon of 411 The basis of assessment is therefore tortious with the representee benefiting from generous
misrepresentations as contractual terms: see Dtck Bentley Productlons Ltd v Harold Smtth (Motors) remoteness rules: Doyle v Olby (Ironmongers) Ltd [1969J 2 QB 158; Smith New Court Securities
Ltd [19651 1WLR623. Ltd v Scrimgeour Vickers (Asset Management) Ltd[1997] AC 254.
[199011 QB 665, 790-805. 412 [19241 AC 431.
See also Searle vA R Hales & Co Ltd [19961 LRLR 68 . '" [1991] 2 AC 249.
171
170
The Doctrine ofUtmost Good Faith Co-insurance
contract. Nevertheless, it has been viewed as decisive also with respect to breach However, in the COntext of the Maxwell group, the interrelationship of various of
of the pre-formation duties of urmosr good faith. In New Hampshire Insurance the companies and the overlapping employment and functions of a number of
Co v MGN Ltd,413 Potrer J, at first instance, acceded to the submlsslOn by their servants and officers, are likely to have created situations whereby an officer
counsel, invoking Samuel v Dumas, that 'where an independent interest is separ- of company A, as well as exercising functions in company B, would also have had
knowledge of the affairs of company C and/or the actions or intentions of its
ately insured, there can be no question of avoiding rhe policy for non-disclosure officers of such a kind that he would have been under parallel duties of
quoad that interest unless rhe person so insured was privy to the non- disclosure and/or obligations of good faith in respect of all three.
disclosure' .414 Potter J stated that: 'While it is common to speak m terms of
In Arab Bank pic v Zurich Insurance CO,421 however, Rix J held that a managing
avoiding a policy of insurance, the right to avoid for non-disclosure relates to
the contract of insurance made with the individual assured.'415 The Court of 4.188
Appeal, withour discussion, upheld this approach as following from the decision director's fraud was not in general to be imputed to his company for the pur-
of the House of Lords in Samuel v Dumas.416 Subsequently, the decisiveness poses of a professional indemnity policy insuring the company, the managing
of Samuel v Dumas was accepted also by Rix J in Arab Bank pic v Zurich director, and the orher directors. The COntralY view would frustrare rhe clear
intention of the policy.
Insurance CO.417
4.186 A number of additional comments are, howevet, necessary. First, as discussed In the present case, where it follows from the definition of the 'insured' in the insuring
clause in question that each separate 'person' is a separate insured, the question is
elsewhere,41' composite policies have been analysed as either giving rise to a similarly whether the fault, here the dishonesty, of one person is to be attributed to
'bundle of separate contracts' or as a severable contract. Sections 17 to 20 of the another person, a company, in circumstances where directors and their company are
Marine Insurance Act 1906 are clear that breach of the utmost good faith duties distinguished as separate insureds. In such circumstances, the logic of the policy's
makes 'the contract' voidable. In order to restrict avoidance to the offending co- scheme is that even directors cannot by themselves be treated, at any rate ex officio, as
the alter ego or directing mind and will of the company. It might be Otherwise if one
assured, one would need to read references to <the contract' as 'the contract Of
director held all or the majority of the shares in a company, as is the case of a 'one man
the relevant severable part of the contract', or, alternatively, adopt the 'bundle of company', or if the director's dishonesty had been committed or condoned as part of a
contracts' analysis. scheme approved by the board of directors itself: in such a case the proviso would
operate and there would be no harm in describing the director's act as the act of the
4,187 Secondly, the relationship between co-assureds may give rise to questions of
company.422
attribution of knowledge for the purpose of. the pre-formation duty of dis-
closure. While insurance cannot be avoided against one co-assured for noh- Thirdly, while the COurts have held that breach ofa duty ofutmosr good faith on
disclosure by another, it may be that the relatiohship between the co-assureds is 4.189
the part of one co-assured is not opposable against another, no theoretical
such that knowledge possessed by one co-assured ought to be known by a
explanation has been offered. Any such explanarion has to meer rhree possible
second co-as5ured in the ordinary course of its business so as to fall within the arguments:
scope of the disclosure obligarion owed by that second co-assured. This is
particulatly relevant where rhe co-assureds are the member companies of a (1) As discussed elsewhere,423 composite policies are often concluded by the
gtoup, as in the Maxwell group fidelity policy in New Hampshire Insurance Co principal assured on behalf of itself and the co-assureds. Where the co-
v MGN Ltd,419 or a company and its directors in the context of directors' and assured's participation in the policy is secured through being a party to the
officers' cover. Thus, in New Hampshire, having held that non-disclosure by one policy through the agency of the principal assured, the latter will be rhe
co-assured would not, in and of itself, permit the insurer to avoid as against other agent of the co-assured in the formation of the contract. Consequently, any
co-assureds, Potter J noted as follows: 420 breach of rhe pre-formarion utmost good faith duties committed by the
principal assured that relate to the co-assured's risk will presumably render
voidable the co-assured's insurance. A fortiorz~ where participation in a
'1, [1997] LRLR24. voidable policy is secured through ratification, the insurer's right to avoid
414 Although quaere whether the relevant issue is privity to the non~disdosure Or will remain valid after ratification.
misrepresenta~ don as opposed to whether the non-disclosure or misrepresentation (2) Where the co-assured's participation in a composite policy is secured by
satisfies the requirements of
materiality and inducement with respect to the severally insured interest. ~
way of rhird-party right under the Contracts (Rights of Third Parries) Acr
'1, [1997] LRLR 24,42. 416ibid 58. 417 [199911 Lloyd's Rep 262, 277.
418 See 2.77-2.78 above. '" [1997] LRLR 24. 420 ibid 43.
4" [1999] 1 Lloyd's Rep 262. 422 ibid 279. 423 See 2.79ff above.
172
173
The Doctrine ofUtmost Good Faith .Utmost Good Faith after the Formation ofthe Contract
1999, section 3(2) of that Act provides that the insurer will be able ro
N. Utmost Good Faith after the Formation of the Contract
invoke against the co-assured any defence or right of set-off that:
(a) arises from or in connection with the contract and is relevant to the term, The duties arising under the doctrine of utmost good faith on which this chapter 4.193
and has concentrated so far do not extend beyond the formation of the contract.42'
would have been available to him by way of defence or set-off if the As demonstrated by the definition of materiality and the requirement of inducement
proceedings had been brought by the promisee.
into the contract, the purpose of the assured's duties of disclosure and avoidance of
Accordingly, any defence arising out of, for example, pre-formation non- misrepresentation is to inform the insurer's underwriting deci-sion. Once the insurer
disclosure or misrepresentation by the principal assured will be opposable is committed ro taking the risk on agreed terms, the assured's duties lapse. Likewise,
against the thitd party co-assured claiming by virtue of rhe 1999 Act. the reciprocal duties of the insurer address the decision of the assured ro procure
An insurance contract is voidable also in case of non-disclosure or mis- insurance at all and, if so, on what terms. It would, nevertheless, appear that the
424 docttine of utmost good faith continues to playa role in insurance Contracts even
representation by a placing broker. An insurer might argue that, while
after conclusion of the contract, bur the
defences have to be applied as against co-assureds on a several basis, any
breach by the placing broker of the independent duties it owes directly to the precise import of the post-formation doctrine remains somewhat uncertain.
insurer can be invoked against all co-assureds.
It is clear that there is no pervasive duty on the assured to disclose to the insurer 4.194
4.190 A possible answer to these objections may be found in an implied waiver of the right throughout the lifetime of the policy any circumstance that the insurer would
425 take into account in the operation of the contract in any way. In Commercial
to avoid. It is clear that the right can be exptessly waived. Just as the v
Union Assurance Co Niger,430 a system of annual renewal of cover was replaced
commercial nature of an insurance policy may affect questions of attribution of by a continuing policy with a righr to cancel on three months' notice. The
knowledge,42' so, it is suggested, the commercial nature of a composite policy may insurers argued that the assured was under a continuous duty ro disclose all
indicate that an insurer impliedly waives the right to avoid except in so far as the
material alterations in the character or extent of the risk. The argument was
individual co-assured participates petsonally in the placement of the risk and is
responsihle for the breach, whether in the context of a direct com-munication ro the rejected. In the Court ofAppeal, Bankes LJ considered that insurers desirous of
insurer or by misrepresenting or failing to disclose material circumstances ro the such protecrion should Contract expressly for it and, implicitly, that the insurers
placing broker. had only themselves ro blame for adopting the form of policy they had. In the
House of Lords, Lord Sumner had little hesitation in rejecting an extension of
4.191 Fourthly, in the context of pervasive interests, the assured may seek to recover in
the doctrine of utmost good faith to contractual cancellation clauses: 'This
respect of not just loss sustained by his interest but also loss sustained by the
would turn what is an indispensable shield for the underwriter inro an engine
interests of the other co-assureds. To that extent, a co-assured with a pervasive
of oppression against the insured.'431 The decision was subsequently followed,
interest cannot recover free of any defence good against another co-assured. A
with approval also of the sentiments expressed, by the Court of Appeal in New
defence good against a particular co-assured cannot be by-passed by submirting the 432
claim through a fellow co-assured with a pervasive interest.427 Hampshire Insurance Co v MGN Ltd.
It is equally clear that the doctrine of utmost good faith should, and does, attach 4.195
4.192 Fifthly, the several treatment of the co-assureds is subject to contrary intention
where the insurer has further underwriting decisions ro take. The assured may
in the contract. There is no reasOn of principle why an insurance contract
wish ro vary the policy, whether in scope or duration of cover, or exercise a
should not treat co-assureds as joint for specified purposes,''' or indeed
contractual option ro extend cover that is subject ro payment of an addirional
generally. 433
premium and agreement to alteration of terms. In such a case, the insurer is
being requested to make an underwriting decision on rhe acceptability of rhe
429 Or such earlier point at which the insurer may become committed to offering insurance
on agreed terms: see 2.21, n 46 above.
"4 MIA 1906, ss 19.20. See 4.122ff above. 425 See 4.110 above.
430 (1921) 7 LlLRep 239, (1922) 13 LlLRep 75. '" ibid 82.
426 See 4.117 above. '" State afthe Netherlands v Youell [19971 2 Uoyd's Rep 440. [1997J LRLR 24,60-1.
428 See, eg General Provision B in New Hampshire Insurance Co v MGN Ltd[1997] LRLR 24,
For discussion of such options, known as 'held covered' clauses, see 18.11 Off below.
174
175
The Doctrine ofUtmost Good Faith 176
new risk and/or appropriate terms of cover. The rationale of equality of inf~r mation
that underpins the assured's pre-formarion duties of utmost good faith
· ually in these contexts calling for the application of analogous duties.
app Iies eq ' . .
Authority establishes, however, that the duties are moulded ro thelt ~on~ext, so
that the insurer's entitlement to disclosure and accurate representation 18 con-
fined to circumsrances matetial to the underwriting decision in respect of the requested
variation or exercised option. In Iron Trades Mutual Insurance Co Ltd v
Companhia de Seguros Imperio,4'4 Hobhouse J stated as follows:
Where there is an addition to a contract, as where it is var~ed, there can, b~a furt~er
d f disclosure but only to the extent that it is matenal to the vanatron bemg
ury a d If the addition does not alter the contractual rights there will be no fact propose . . . ...
that it is material to disclose and the same wIll apply If a vanatIon IS favourable to
the insurer. It will only be when the insurer is being asked to take on some
additional risk and/or needing to reassess the premium or terms of co~er that
disclosure of further facts could be material and, even then, the facts to be dlsclos~d
are only those which are material to what the insllrer is being asked to do ... a.ny other
conclusion would lead to an absurdity; the duty of the utmost good fa:th does not
include giving the insurer an opportunity, after he has accepted the fisk and become
bound, to escape from his commitment.
4.196 Some difficulty, however, arises in terms of the remedy for breach of a poSt-
formation duty. Ifthe post-formation duties are covered by the Marine Insurance
Act 1906, the only possible provision is section 17. The remedy that it conten:-
plates is avoidance of 'rhe contract', and the Court of Appeal has held, albeit
controvetsially, that rhis is to be interpreted as an exhaustive starement of the
available remedies.435 This makes no sense in the context of contract variation"or
extension. Whar should be voidable is the decision induced by the breach of duty,
namely the agreement to vary or the decision as to the terms on o,yhich the option
is to take effect. There should be no question of loss of the entltety of the contract.
Such a remedy would be both disproportionate and conceptually bizarre. A
complaint of inducement into an extension of a policy cannot sustain a tight to
avoid the entirety of the policy.
4.197 The authority referred to above on moulding the scope of the good faith duties
also supports, expressly or implicitly, albeit withour

that the remedy for breach is similarly moulded, hmitmg rhe msurer to avoidance
of the variation or extension without prejudice to the original
434 [1991] 1 Re LR 213, 224. See also Manifest Shipping & Co Ltd v Uni-Polaris Insurance Co
Ltd (The Star Sea) [1997J 1 Uoyd's Rep 360, 370: I(JS Me;c-Scandia XXXXli v Ce:,ain Lloyds
Underwriters (The Mereandian Continent) [200l! EWCA ClY 1275, [200l! 2 Uoyd, Rep 563, para
22: Agapitos Laiki Bank (Hellas) SA v Agnew (No 2) [20021 EWHC 1558 (Comm), [2003J
IJoyd's Rep IR 54. para 72. .
43' Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [19901 1 QB
665 at
4.175-4.176 above.
Utmost Good Faith after the Formation ofthe Contract
cover.'" There is, however, no discussion of how this is to be achieved given rhe
.terms of section 17 of the 1906 Act. There would appear to be three options:
The reference to 'the contract' in section 17 could be read as 'the COntract or severable
part thereof. This might, however, be regarded as inconsistent
wirh the literalism that leads.to the view that section 17 is exhaustive with respect to
the range of remedies.
Variation or extension ofa policy could be tegarded as involving the cteation ofa new
contract. The entire area would be moved from the post-formarion doctrine to the
pte-formation doctrine and the remedial difficulty would disappear. This was the
approach favoured by Longmore LJ in The Mercan-dian Continent,437 and is
supported by the practical difficulty that may be
438
encountered in distinguishing a variation from a fresb agreement. It is, however,
respectfully submitted that it cannot be accepted. There is a clear conceptual
distinction between termination of a contract by mutual con-sent and replacement
with a fresh contract, and the variation of an existing
43
COntract with that contract continuing to apply, albeit with some changes in terms.
' The sarne conceptual difference exists where the assured is merely exercising an
option to extend the cover granted by the contract. If vari-ations and extensions are
not regarded as new contracts, it follows that, technically, sections 18 to 20 of the
Marine Insurance Act 1906 do not apply to variations and options to extend cover,
but instead indicate by analogy the extent of the utmost good faith duties that do
apply.440
The duties of urmost good faith that arise in the context of post-formation underwriting
decisions could be regarded as falling outside section 17 altogether. It is clear that
secrion 17 does not embtace the entirety of the doctrine of utmost good faith. For
example, section 17 is seemingly con-fined to the exercise of utmost good faith by
the parties to the cOntract and
cannot therefore embrace the independent duty of disclosure of the placing broker
under section 19.441 This would afford the courts the freedom to
436 See also OKane v jones (The Martin P) [2003J EWHC 2158 (Comm), [2004J 1 Uoyd', Rep 389, para
229.
437 lOS Mere-Scandia XXXXIi v Certain Lloyd's Underwriters (The Mercandian Continent)
[20011 EWCA Civ 1275, [200l! 2 IJoyd's Rep 563, para 31.
438 Groupama Insurance Co Ltd v Overseas Partners Re Ltd [2003J EWHC 34 (Comm),
unreported, para 32.
Sir Guenter Treitel, Law ofContract (11 th edn, 2003) 188-90.
The limits on materiality as stated in MIA 1906, s 18(3), therefore, apply equally in the context
of held covered clauses (see Fraser Shipping Ltd v Colton [1997] 1 Lloyd's Rep 586), although
technically s 18(3) itself does nor.
See 4.09 above. On the independence of the placing broker's duty, see 4.123 above. A
further example of utmost good faith outside s 17 may be provided by the order for ship's papers,
see 4.200 below.
177
The Doctrine ofUtmost Good Faith Utmost Good Faith after the Formation ofthe Contract
declare that material non-disclosure or misrepresentation inducing a vari- particularly acutely or commonly, in the marine context. That problem is
ation or extension renders voidable only the variation or extension so . likely ro have been the logistical difficulty of investigating a possibly suspicious
induced. This, it is suggested, is the preferable approach. casualty occurring in a geographically remote and inaccessible location. In order to
assisr insurers to formulate an informed response to a claim and avoid allegations
4.198 Policy renewal is sometimes menrioned as another situation rhat attracts post- in the defence, particularly of fraud, that might prove unfounded, the courts
formation duties of utmost good faith. In trurh, however, renewal is a cuckoo in developed a mechanism for pre-defence disclosure. Since, however, rhe order for
the post-formation nest. Ir does not belong because the assuted is requesting a ship's papers was designed to rectifY an imbalance in informa-tion, it is perhaps not
new policy to commence upon expiry of the existing policy. Duties of utmost surprising that an association was perceived with the doctrine of utmost good faith.
good faith clearly attach, but they are rhe normal pre-formation duties. 442 It is possible that the doctrine was indeed prayed in aid as a justification for
inirially developing the order. Nevertheless, it is clear that failure to comply wirh
4.199 Outside underwriting decisions, it is unclear whether there is any scope for a
an order for ship's papers does not afford the insurer the right to avoid rhe contract,
post-formation doctrine of utmost good faith. Ir is possible rhat the making of a
so that the ship's papers jurisdic-tion forms no part of rhe doctrine of good faith
fraudulent claim is addressed by the post-formation doctrine. However, rhe
dominanr judicial view is that avoidance of the entire policy would be a dis-
447
articulated by section 17 of the Marine Insurance Act 1906. Either the order
proportionate response even to a fraudulenr claim. Moreover, in general provides an additional
contract law, rescission is a remedy that responds conceptually to defects in rhe example of the fact rhat section 17 does nor comprehend the entirety of
creation or modification of contractual obligations, and is not available for non- the doctrine of utmost good faith or, alternatively, it does not flow from
performance. 443 There is no reason to regard avoidance cUfferenrly. the doctrine of good faith ar all and is irrelevanr to consideration of the
Consequently, current judicial thinking favouts characterization of the fraudu- post-formation doctrine.
lenr claims jurisdiction as a common law rule rather than as part of the doctrine
It has also been suggested that the post-formation docrrine of utmost good faith 4.201
of utmost good faith-reasoning prompred, if not driven, by a desire to remove 448
rhe possibility of avoidance as a remedy.444 An alternative way to achieve rhe may provide a basis for rhe implication of conrractual obligations and influ-
same result would be to accept the fraudulenr claims jurisdiction as part of the ence the inrerpretation of express provisions of the policy.44' It may, however, be
post-formation doctrine of utmost good faith, but a part that falls outside objected with some cogency that insurance conrract law is capable of recogniz-ing
section 17. The result would be that the doctrine of utmost good faith might the rules it requires in the conrext of contract performance without the assistance of
ptovide a rechnical explanation for the existence of the jurisdiction, but would the doctrine of utmost good faith, a capability possibly exemplified by the
fraudulenr claims jurisdiction, and that the courts do not need the
not constrain the way it operates.
assistance of the doctrine in interpreting insurance contracts, especially given
4.200 There is some authority rhat pre-defence disclosure in the form of rhe order for ship's the modern emphasis on giving effect to the intenrions of the parties.450
44
papers445 may be based on the doctrine of utmost good faith. ' However, despite In The Star Sea,451 Lord Hobhouse-in a comprehensive and cogent, albeit 4.202
the applicarion of the doctrine to all forms of insurance, this form of disclosure largely obirer, review of the doctrine of utmost good fairh in rhe post-formation
order is confined strictly to marine insurance, suggesting rhat the order is simply a
conrext-clearly espoused rhe view that the doctrine of utmost good fairh
response ro a problem that was traditionally manifest only, or
should be confined ro the creation or variation of obligations, and rhat the non-
performance of insurance conrracts, even in bad faith, should be sanctioned by
442 K/S Mere-Scandia XXXXII v Certain Lloyd's Underwriters (The Mercandian

Continent)
[2001J EWCA Civ 1275, [2001J 2 Lloyd's Rep 563, para 31. Manifest Shipping Co Ltd v Uni-Poklris Insurance Co Ltd (The Star Sea) [1997] 1 Lloyd's
.,3 Manifest Shipping Co Ltd v Uni-Polaris Imurance Co Ltd (The Star Sea) [2001J UKHL 1, Rep 360, 371, [20011 UKHL 1, [2003] 1 AC 469, para 60.
[200311 AC 469, paras 50-51. Phoenix General Insurance Co a/Greece v Halvanon Insurance Co Ltd [1985] 2 Lloyd's Rep
For discussion of fraudulent claims and the remedy ofavoidance, see 22.106-22.107 below. 599,614.
The order is discussed at 1.59 above. Cox v Bankside [1995) 2 Lloyd's Rep 437, 451.
RLlynor v Ritson (1865) 6:8' & S 888, 891 (although the reference to utmost good faith is not Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (Nos 2 & 3) [2001] Lloyd's Rep IR
found in the Law Journal report: (1865) 35 LJ(QB) 59): China Traders'lmurance Co Ltd v Royal 667, para 68. Interpretation is discussed in Ch 8 below.
Exchange Assurance Corp [1898J 2 QB 187, 193-4: Boulton v Houldee Bros & CO [1904J 1 KB 784, 451 Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2001] UKHL 1,
791-2: Harding v Bussell [1905J 2 KB 83, 85: Leon v CClSey [1932]'2 KB 576, 579-80: [2003) 1 AC 469, para 52.
Black King Shipping Corp v MClSsie (The Iitsion Pride) [19851 1 Lloyd's Rep 437, 51 L
179
178
The Doctrine ofUtmost Good Faith Basis Clauses
the ordinary remedies for breach of contract. 452 On rhis approach, section 17 of rhe accuracy and/or completeness of rhe presentation of the risk a condition
the Marine Insurance Act 1906 would have no post-formation application, precedent to the insurer's liabiliry on the policy. Consequently, the inaccuracy of
unless the courts were prepared to read it as permitting avoidance of a severable a representation or the omission of whatever circumstance the clause requires to
part of a contract. be disclosed will automatically deny cover.457
4.203 Ir is suggesred above that the duties of good fairh arising in the context of By way of example, rule 6(2) of the Britannia P&I rules provides as follows: 4.206
variations of cover and options to extend cover should be regarded as falling
All particulars and information given in the course of applying for insurance shall,
outside section 17.453 In support of the resulting confinement of section 17 to if the entry of the relevant Ship be accepted, be deemed to form part of the
the pre-formation doctrine, three points may be made. First, the wording of contract of insurance between the Member and the Association and it shall be a
section 17 may be broad enough to encompass post-formation application, but it condition precedent of such insurance that all such particulars and information
does not compel such application. Indeed, the assertion that insurance con- were true so far as was within the Member's knowledge or could with reasonable
tracts are 'based upon' the utmost good faith may be read as indicating that diligence have been ascertained.
section 17 is concerned with the formation of the contract as opposed to its In consequence of this provision, the inaccuracy of any representation in the
subsequenr performance. Secondly, secrion 17 introduces a group of secrions of course of applying for insurance denies' cover unless the inaccuracy lay in a
the Marine Insurance Acr 1906 that are otherwise unequivocally concerned circumstance that the member neither knew nor could have discovered with
exclusively with contracr formarion. Thirdly, authoriry for a post-formation reasonable diligence. Neither materialiry nor inducement need be proved. The
application of section 17 is slim. Ir consists of rhe judgment of Hirsr J in The provision does not address non-disclosure, which is accordingly left to the
Litsion Pride,454 much of rhe reasoning in which with respect to good fairh has underlying law, although a statement that misleads by providing an incomplete
since been overruled, and a small part of the reasoning of the Court ofAppeal in picture will not be true..
The Good Luck,455 in which the legitimacy of applying secrion 17 to contract
performance was not in dispure.
457 Dawsons Ltd v Bonnin [1922] 2 AC 413; International Management Group (UK) Ltd v
4.204 Surprisingly, and in contrast to the approach of Lord Hobhouse, two members of Simmonds (20031 EWHC 177 (Comm), (2004J Lloyd's Rep 1R 247, para 154.
the House of Lords in The Star Sea,456 Lords SCOtr and Clyde, rejected,
without any explanation, the confining of section 17 to the pre-formation doc-
trine of urmost good faith. The comments were obiter and unaccompanied by
discussion. In rhe light of rhe above discussion, it is respectfully submitted thar
they should not prevail.
O. Basis Clauses
4.205 An insurer may evade the need to establish materialiry and inducement (and,
indeed, the need to avoid the policy in order to escape liabiliry) by means of a
condition precedent in a so-called 'basis clause'. While the precise impact of
such clauses depends inevitably upon their wording, they generally render
See also Bonner v COX (2005J EWCA Cly 1512, para 86.
See4.197 above.
"4 Black King Shipping Corp oMassie (The Litsion Pride) (198511 Lloyd's Rep 437.
455 Bank ofNova Scotia v Hellenic Mutual 'War Risks Association (Bermuda) Ltd (The Good Luck)
1199011 QB 818.
456 Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sed) (200lJ UKHL 1,
(2003J 1 AC 469, para 6,81.
180 181
5
MARINE INSURANCE BROKERS
A. Agency 5.02 (3) The broker's duty in placing the

(1) The broker as agent of the assured 5.03 cover 5.36
(2) Liability to third parties 5.05 (4) The broker's duty when assisting
B. Brokers and Sub-Agency 5.09 in making claims 5.40
(1) Contract 5.10 F. Remedies for Breach of Duty 5.42
(2) Ton 5.15 (1) Measure of damages: basis of
C. The Scope of the Broker's assessment 5.43
Duty to the Assured 5.16 (2) Cost of alternative insurance 5.50
D. The Standard of the Broker's G. Causation Defences 5.51
Dnty 5.20 (1) The fisk was uninsurable on tefms
the assured would have accepted 5.52
E. Duties of Brokers 5.23
5.23 (2) The 'twO defence' problem 5.58
(1) The broker's duty to obtain cover
(2) The broker's duty to ensure H. Contributory Negligence 5.62
proper presentation of the risk I. Brokers' Rights to Remuneration 5.74
to the insurer 5.30 J. Brokers' Security for Sums Due 5.76
The broker is the agent of the assured and therefore owes the assured a combin- 5.01
ation of fiduciary and contractual duries. Much of the law relating to marine
insurance brokers is merely the application in a specific context of the law of agency
and of professional negligence.' It is, however, necessary also to examine
the role of the broker in the context of the dury of utmost good faith and the
payment of premiums and indemnities.
A. Agency
The broker acts as agent of the assured, bur may occasionally incur liabiliry to 5.02
third parties.
1 See generally Bowstead and Reynolds on Agency (17th edn, 2001); R Jackson, Jackson and Powell
on Professional Negligence (5th edn, 2002) Ch 14; C Henley, The Law oflmurance Broking
(2nd edn. 2004).
183
Marine Insurance Brokers
The Broker as Agenr of the Assured In MacMillan v AW Knott Becker Scott Ltd,' the claimants were clients of
Lloyd's brokers (KBS) who alleged that KBS had been negligent. The brokers
'It is well settled that in all matters relatiug ro the placing of insurauce the insurance
becoming insolvent, the claimants succeeded by virtue of statute' to the brokers'
broker is tbe agent of the assured, and of the assured only." The relationship,
rights against the latter's errors and omissions insurers. These insurers denied
however, does not alter upon conclusion of the insurance contract. Thus, the
liability on the ground, inter alia, that the insurance was invalid and the
broker remains the assured's agent in respect of any involvement in
claimants, therefore, sought ro establish that they were owed a duty of care by
investigating a casualty and may not act for the insurer, notwithstanding any
the errors and omissions brokers who had placed the errors and omissions cover
permissive market practice. While the assured is not entitled to see a confiden-
for KBS. It was held, however, that there was no compelling reason to permit
tial assessor's report obtained by the broker on behalf of the insurer, accepting
tortious liability ro overcome privity of contract. The claim-ants were entitled ro
such a report constitutes a breach by the broker of his dury ro the assured to
sue KBS and the liquidator of KBS could seek damages against the errors and
avoid any conflict of interest, rendering the broker liable in damages for any
omissions brokers commensurate with the liability established. The proceeds of
loss the assured can establish was caused by the breach. If the broker wishes ro
this derivative claim would inure to the general benefit of the liquidation, but
act for the insurer, the prior, express, and fully informed consent of the assured
that was uo reason to allow the claimants a direct claim in tort. The errors and
must be obtained.'
omissions brokers were not guarantors that third party claimants whose claims
5.04 The status of the broket as the agent of the patty seeking covet is maintained at were intended to be covered by the liability insurance would uot suffer any loss
secoudary and tertiary levels of cover. In the context of reiusurance, the broker in the event of insolvency of the insured brokers.
is the agent of the reassured, not the teinsurer. 4 Likewise with respect to
retrocession: the reinsurer is the assured and the broker's principal. 5
Liability ro an underwriter may arise as a result of a misleading signing indica- 5.07
tion. 10 Subject to clear contrary intention, a signing indication does not con-stitute a
Liability to Third Parties
warranty that the indicated percentage of subscriptions will be obtained. It is a
The broker's status as agent of the assured does not exclude all possibility of incurring statement of the broker's professional opinion and the broker incurs no liability
liability ro persons other than the assured.' A party the broker knows is an merely for holding an opinion that turns out to be errone-
intended assignee of the policy is owed a duty of care in the tort of negligence, ous. Nevertheless, into such a statement of professional opinion, the law
at least in circumstances where, ro the broker's knowledge, that party actively implies a representation of the existence of reasonable grounds justifYing that
participates in giving instructions fot the insurance.' However, mere opinion and, in the absence of such reasonable grounds, the broker will be
foreseeability of harm to a third party coupled with proximity does uot liable in the rort of negligence for the prejudice sustained by the insurer in
necessarily give rise to a duty of care. reliance upon this implied representation of fact." The signing indication,
moreover, contains an implied promise ro use best endeavours to obtain the
indicared percentage of subscriptions and the broker will be liable for breach of
contract if he fails ro seek properly ro achieve the indication given." Finally,
2 McNealy v Pennine Insurance Co Ltd[1978] 2 Lloyd's Rep 18, 20 per Lord Denning MR See
also Romnes v Bowen (1928) 32 LlLRep 98; Searle v AR Hales & Co Ltd [19961 LRLR 68.71.
3 Anglo-Afritan Merchants Ltd v Bayley [1970J 1 QB 311; North & South Trust Co v Berkeley
[1971J 1 WLR470.
4 Genera/Accident Fire 6' Life Assurance Corp v limter (The Zephyr) [1984] 1 Lloyd's Rep
58, 80; Youell v Bland Welch & Co Ltd (The Superhulls Cover case) (No 2) [1990J 2 Lloyd's [1990] 1 Lloyd's Rep 98. See also Verderame v Commercial Union Assurance Co pic [1992]
Rep 431, 445-6. Nevertheless, where reinsurance is provisionally arranged prior to placement of the BCLC793.
primary cover, the broker is not acting on behalf of any insurers and cannot at that stage be viewed as The Third Party (Rights against Insurers) Act 1930, discussed at 20.33ff below.
their agent. Agency must arise retl'ospective1y once the insurer agrees to underwrite the primary cover For discussion of signing indications in the formation of insurance contracts, see 2.16ff above.
and at the same time accepts the offer of reinsurance purveyed by the broker. 11 Esso Petroleum Co Ltd v Mardon [1976J QB 801.
S Societe Anonyme d7ntermediaries Luxembourgeois v Farex Gie [1995] LRLR 116. Subject " GeneralAceidetlt Fire & Liftksurance Corp v Tamer (The Zephyr) [1985] 2 Lloyd's Rep 529,
to the caveat in n 4 above. 537. It is possible that such failure to use best endeavours may be concurrently actionable in the
See generally M Clarke, 'Insurance Intermediaries: Liability to Third Parties' [1995] IJIL 162. tOrt of negligence, but liability will not lie in tort where none would lie in contract: ibid 537-9.
Punjab National Bank v de Boinville[1992J 1 WLR 1138.
185
184
Marine Insurance Brokers Brokers and Sub-Agency
the hroker will he liahle in the tort of deceit if the signing indication was principal and assured, Al is the producing broker and agent of the assured, A2. is
fraudulent." the placing broker procured by rhe producing broker, andTP is the rhird party
and insurer.
In The Zephyr,'4 the broker gave reinsurers a one-third signing indication, thus
encouraging rhe reinsurers to subscribe for a risk three times rhe real desired The common law traditionally does not recognize privity of contract between 5.11
percentage exposure, but the level ofsubscriptions ultimately obtained produced a principal and sub-agent, even where rhe principal has aurhorized the appoint-
signing down to just under 90 per cent of the initialled line, leaving rhe ment of the sub-agent. 1S On this analysis, A2.'s only contractual relationship is
reinsurers with a level of exposure considerably in excess of that anticipated. At with AI, which is in turn in privity of contract with P, In rhe event of default by
first instance, Hobhouse J held that the brokers were liable in the tort of neg- A2, Al is liable to p''' This traditional analysis respects rhe contractual chain
ligence for failing to exercise sufficient care in seeking addirional subscriptions, constructed by the parties, with each party extending credit to the immediate
the measure ofdamages being the difference between rhe reinsurers' actualliabil-ity party, who will be a trusted and otten known entity. It also reflects the normal
to rhe primaty insurers and their liability had the signing indicarion been achieved. desire of an agent to maintain a position between client and sub-agent and the
This aspect of the decision was not appealed, bur the Court ofAppeal indicated rhat professional nature of the relationship between agent and sub-agent. 17 With
such liability would lie in contract while leaving open the issue of concurrent respect to this latter point, a placing broker is entitled to trear the producing
tortious liability. The Court ofAppeal held, however, that no liability could lie in broker as familiar with insurance contracts and tailor the level of its explanations
respect of twO reinsurers to whom no signing indication had been given, tejecting of the policy terms accordingly, leaving it to the producing broker to provide the
an argument that a signing indication to a leading underwriter was impliedly assured with explanations and advice appropriate to its knowledge of insurance
18
repeated to and relied upon by all following underwrirers. contracts.
This traditional refutation of contractual responsibility must now be read sub- 5.12
ject to the exception to the ptivity of contract rule created by the Contracts
Brokers and Sub-Agency
(Rights ofThird Parties) Act 1999. By virtue of that Act, P can enforce a term in
More than one broker may be involved in the placement of a risk. The broker consulted the contract between Al and A2. iftwo conditions are satisfied. First, either the
initially by the assured may have no representation where the market is located, contract provides that P may enforce or 'the term purports to confer a benefit
may not be authorized to access the market, or may lack expertise in placing the on' p,19 In the latrer case, rhe righr of P to enforce the term is subject to the
type of risk in question. In such a case, the first broker will contact a second interpretation of the contract overall.'o Secondly, P must be 'expressly identified
broker with the requisite representation, access, or expertise. The first broker is in the contract by name, as a member of a class or as answering a particular
description).21
known as rhe producing broker and the second as the placing broker. Questions
can then arise as to the network of legal relationships and possible liabilities that On an alternarive analysis, rhe true interpretarion ofAI's authority may be that 5.13
results, in particular whether the placing brgker owes any legal dury, contractual Al is to procure a second intermediary in a direct contractual relationship with
or tortious, to the assured and against whom the placing broker has any rights.
Contract Calico Printers Association v Barclays Bank Ltd (1930) 36 Com Cas 71.
Trading & Genera/Investment Corp v Gault Armstrong & Keble Ltd (The Okeanis) [1986J 1
The intetposition of twO brokers between assured and insurer gives rise to a Lloyd's Rep 195, 201.
number of possible contractual analyses. In the following paragraphs, P is the " hentis Donegan 6- Partners Ltd v Leeds 6- Leeds Co Inc[19981 2 Lloyd's Rep 326, 334.
PangoodLtd v Barclay Brown 6-Co Ltd[19991 Lloyd's Rep IR405, 408 (the comment in the
judgment is directed towards refuting tortious liability (see 5.15 below) but is equally
apposite in the contractual context).
13 The broker will be fraudulent, following the test in Derry v Peek (1889) 14 App Cas 337,
C(RTP)A 1999, s 1(1).
where the signing indication is given with knowledge that it is false, without belief in its truth, or 20 ibid s 1(2). Where the term purports to confer a benefit on P, there arises a presumption of
recklessly, careless as to whether it is true or false. Subjective disregard for the truth is essential: enforceability by P that may be rebutted by the terms of the contract as a whole, but only if the
Thomas Witter Ltd v TBP Industries [199612 All ER 573,586-7. contract is properly to be read as denying P enforcement rights. If the remainder of the contract is
14 GeneralAccident Fire 6- Lift Aisurance Corp v Tanter (The Zephyr) [19841 I Lloyd's Rep 58,
neutral on enforcement by P, the presumption will not be rebutted: Nisshin Shipping Co Ltd v
rvsd in part [19851 2 Lloyd's Rep 529.
Cleaves 6- Co Ltd [20031 EWHC 2602 (Comm), [20041 1 Lloyd's Rep 38, 23. "
C(RTP)A 1999, s 1(3).
186 187
Marine Insurance Brokers The Scope ofthe Broker's Duty to the Assured
P. A2 is a substitute agent and not a sub-agent at all. 22 A2 is placed in direct with members' agenrs acting as agenrs for the names. The managing agents held
privity of contract wirh P and there is no privity between Ai and A2. However, rhis
.themselves out as possessed of special expertise regarding insurance business,
substitution analysis is 'indeed an exceprion, and a narrow one, and the burden
and the names, to the knowledge of the managing agenrs, 'placed implicit
must be on rhe defendanrs to show some special facrors''' supporring irs
applicability. Possible factors would be evidence eirher of direcr relarions between reliance on their expertise'. 29 However, in Pangood Ltd v Barclay Brown & Co
the assured and placing broker 01' that the producing broker's authority was 'ro Ltd,30 the Court of Appeal held that a placing Lloyd's broker engaged by a
procure a comperent placing broker, bur nor ro place or procure rhe insurance producing broker would not ordinarily owe a duty of care in tort to draw the
24
itself. Under a further variarion, Ai may be authorized ro procure a triparrite assured's atrention to a promissory warranty in the policy. The mere accepting of
relationship so that P has a separare conrracr wirh both Ai and A2, which are also insrructions from the producing broker to obtain a quotation and, sub-sequently, to
2S procure a Contract on the terms of the quotation did not involve an assumption of
in privity of contract wirh each orher. This analysis is also likely to be
any responsibility to the assured to explain the terms of the policy. The placing
exceprional.
broket was entitled to assume that the assured would tely on the producing broket
It is clear that the necessity of employing a placing Lloyd's broker, because of/ack for such advice on tetms as was appropriate. The only obligation on the placing
ofaccess to the market on the part ofthe producing broker, is insufficient ofitself, in broker was to ensure that the producing btoker had been properly advised of the
the absence of special facts, to trigger an exceptional analysis and generate privity tetms ofcover, which it had.
of contract between assured and placing broker." In consequence, a pla-
cing Lloyd's broker's entitlement to reimbursement of instalments of premium paid
to insurers lies against the producing broker and not against the assured. 27 C. The Scope of the Broker's Duty to the Assured
Tort The scope of the broker's duties to the assured, assuming priviry of contract, is 5.16
distinctly vatiable and depends entirely upon the agreement between them. On
A sub-agent may owe the principal a duty of care in the tort of negligence based on an the One hand, the broker may be retained simply to place specifically requested
assumption of tesponsibility. In Henderson v Merrett Syndicates Ltd," it cover; on the other hand, the client may contract for an assessment of and
was held that managing agents at Lloyd's owed a duty of care to Lloyd's names advice upon its insurance needs and the procuring of appropriate cover. Thus,
accepted on to syndicates undet their management, albeit through a contract in Fine 5 Flowers Ltd v General Acctdent Assurance Co of Canada,31 Wilson JA
stated as follows:
In many instances, an insurance agent will be asked to obtain a specific type of
22 De Bussche v Alt (1878) 8 ChD 286. It is noteworthy, however, that the issue in case was coverage and his duty in those circumstances will be to use a reasonable degree of
whether a sub-agent was obliged to account to the principal for secret profits. Although the skill and care in doing so .
court found such an obligation through privity of contract, it is unclear to what extent
fiduciary remedies depend on privity of contract: see Reynolds and Bowstead on Agency But there are other cases in which the client gives no such specific instructions
(17th edn, 2001) para 5-012. Were the availability of fiduciary rem~die.s to be severed from but rather relies upon his agent to see that he is protected and, if the agent agrees to
I:rivity of contract, the likelihood of the then unnecessary contract reasonmg m De Bussche
do business with him on those terms, then he cannot afterwards, when an
v Aft belOg followed would be weakened.
23 Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc[1998] 2 Lloyd's Rep 326, 332.
uninsured loss arises, shrug off the responsibility he has assumed. If this requires
ibid. him to inform himself about his dient's business in order to assess the foreseeable
Bastone & Firminger Ltd v Nasima Enterprises (Nigeria) Ltd (1996] eLC 1902 (possibility of risks and insure his client against them, then this he must do. It goes without
a tripartite relationship comprising three bilateral contracts in collections incorporating the saying that an agent who does not have the requisite skills to understand the nature
Uniform Rules for Collections). In Prentis Donegan (} Partners Ltd v Leeds & Leeds Co Inc [1998] of his dient's business and assess the risks that should be insured against should not
2 Lloyd's Rep 326, 334 Rix Jstated that, in those exceptional cases where privity can be be offering this lcind of service.
estab~lished between principal and sub-agent, there was no reason why concurrent privity
between agent and sub~agent should necessarily be excluded.
Lack of liability where narrow instructions are followed is illustrated by O'Brien 5.17
26 Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc [1998] 2 Lloyd's Rep 326, 334;
Pangood Ltd v Bare"'y Brown & CO Ltd[1999] Lloyd's Rep lR405, 408. The finding of privity in v Hughes-Gibb & Co Ltd." The owners of the racehorse Shergar instructed
velos Group Ltd v Harbour Insurance Services Ltd (1997] 2 Lloyd's Rep 461 is to be regarded as
either per incuriam or based on its special facts: see Prentis, 331.
27 Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc[1998] 2 Lloyd'dZep 326.
2S [1995] 2 AC 145. 29ibid 182 per Lord Goff. 30 [1999] Lloyd's Rep lR 405.
" (1977) 81 DLR (3d) 139, 149 (Omario Court ofAppeal). 32 [1995] LRLR 90.
188
189
Marine Insurance Brokers The Standard ofthe Broker's Duty
brokers ro obrain 'morraliry only' cover. Ar rhar rime, bloodsrock insurers were the inler was connected to rhe sea and flooding could occur only by an inflow of
prepared ro offer cerrain addirional elemenrs of cover ar no extra premium in order sea water. Cover against flooding containing a sea exclusion effecrively provided no
ro endeavour ro gain a markering advanrage. One such elemenr was cover againsr cover againsr flooding at all.
rhefr, which was nor rhen regarded as a serious risk. The brokers obrained rhe
requesred morraliry cover wirhour any rhefr exrension. Shergar was subsequenrly
srolen and the owners argued thar the brokers had been negligenr in failing ro D. The Standard of the Broker's Duty
obtain this extra cover. The brokers were held nor to be liable. The owners had not
instrucred rhe brokers ro obtain the widest possible cover and rhere was no marker It is always open ro a broker to underrake an absolute obligation ro succeed in 5.20
pracrice to obtain thefr cover when instrucred to obrain mortaliry cover. 'The facr the performance of its obligations. 37 Failing an express assumption of such a
that some brokers did regularly obrain rhefr cover as an exrension ro morraliry commitment, however," rhe law implies a qualified obligation to use best
endeavours to perform its obligations." Thus, where an issue such as the iden-
cover ... does not ... give rise to a dury on brokers ro do so in the absence of a
generally adopted pracrice ro thar effect.''' Moreover, the facr that prior to the thefr tiry of the insurer or the details of the cover is lefr ro the discrerion of the broker,
liabiliry will arise only where the broker fails to exercise reasonable care in
of Shergar thefr was not considered a significant risk and rhar this view was 40
reasonable meant that the brokers were nor negligenr in failing ro bring the absence exercising that discrerion. 'The test is the standard of the ordinary skilled man
of thefr cover ro rhe owners' atrenrion. exercising and professing to have that special skill. A man need not possess the
highest experr skill; it is well established law that it is sufficienr if he exercises the
In contrast, liability where brokers are given a wider remit is illustrated by Mitor ordinary skill of an ordinary competenr man exercising that parricular art.'41
Investments Pty Ltd v General Accident Fire & Lift Assurance Corp Ltd. 34 The It does nor, however, follow that market practice is determinative of the standard 5.21
claimant arranged a meering with his insurance broker at a horel he owned on an required for conduct to be reasonable. While it is acknowledged that in 'the vast
inler adjoining the sea. They inspected rhe premises and discussed rhe danger
majoriry of cases the fact that distinguished experrs in the field are ofa parricular
of flooding by the warers of rhe inlet and rhe claimanr accordingly instructed the
opinion will demonstrate the reasonableness of that opinion'," the ulrimate
broker to procure insurance against, inter alia, damage by storm, tempest, and flood. decision as to whether conduct is negligenr nevertheless lies with the courts. Ifthe
The broker obrained a common form policy rhar excluded 'damage caused direcrly prevailing professional opinion is 'not capable of withstanding logical analysis,
or indirecrly by rhe sea'. This policy was nor shown to the assured. As a result of a the judge is entirled to hold that the body ofopinion is not reasonable or respon-
cyclone of unprecedented severiry, sea warer entered the inler, raising rhe water 43
sible', albeit that such a case will be rare. Consequenrly, it is not open ro a broker
level and flooding and damaging rhe horel. The insurer being prorecred by rhe sea
ro argue that the average broker does not exercise reasonable care in a parricular
exclusion, the assured sued the broker. Burr CJ found rhat the broker had been
respect. The courts 'are concerned to idenritY what is called for not from a run of
instrucred 'in unqualified rerms ro obtain cover for all damage [which mighr be]
the mill incompetenr bur from an ordinary competenr insurance broker'.44
caused by a flooding of the warers of the Inlet and rhose instrucrions were accepted
and rhe [claimant] was informed thar rhey had been carried inro effecr'." The That which constitutes reasonable care and skill will reflect the extent to which 5.22
broker was consequenrly held liable. the broker has or professes ro have specialist knowledge with respect to the
Obtaining common form storm and flood cover was inadequate for two reasons. First, the
exclusion contained therein inrroduced a qualificarion to the cover inconsistent
Hood v U7est End Motor Car Packing CO (1917J 2 KB 38.
with the instrucrions given. Secondly, however, 'a broker who is brought on site to An undertaking 'to obtain a policy' does not impose an absolute obligation: TL Creda Ltd v
assess the risks and ro advise his client upon appropriate cover must ... take Hay Fielding Ltd (CA, 30 October 1984), see R Jackson, jackson and Powell on Professional
Negligence (5th edn, 2002) para 14-040.
reasonable care in assessing the particular risks to which the properry ro be covered 39 Supply of Goods and Services Act 1982, s 13.
was exposed'.36 As the broker ought to have appreciated, " Chapman v Walton (1833) 10 Bing 57.
Bolam v Friem Barnet Hospital Management Committee [1957] 1 WLR 582, 586 per
McNair j, cited in Lewis v Tressider [1985] 2 QdR 533,542.
Bolitho v City & Hackney Health Authority [1998] AC 232, 243 per Lotd Btowne-Wilkinson.
ibid.
33 ibid 99 per Rattee J. 34 [1984] WAR 365 '(Supreme Court of Weitern Australia), Lewis v Tressider Andrews Associates Pty Ltd [1985] 2 QdR 533, 542 per Connolly J(Supreme
35 ibid 373. 36 ibid 374. Court of Queensland).
190 191
Marine Insurance Brokers Duties ofBrokers
particular risk.45 Brokers who venture beyond their area of expertise should make instructions to obtain cover containing a specific clause are followed by written
that clear to the client and advise further consultation; firm, unqualified advice will instructions omirting any mention of the clause, ir has been held that brokers are
incur liability in the absence of reasonable grounds to justifY that advice. 46 Where, entirled ro rely upon rhe larer written instructions on the ground thar rhe assured
however, brokers are employed as a mere conduit pipe between assured and insurer, might have changed his mind in rhe interim, 54 although it is arguable that today
simply to relay to the insurer what the assured instrucrs them to relay, no liability the broker should, time permitting, seek c1arificarion of the assured's
can arise should the assured find itselflacking in cover.47 true intention. 55
Market practices may influence the interpretation of instructions that should or 5.25
Duties of Brokers may be adopted. An instruction to obtain 'all risks' cover will be complied with
if the broker, following notmal market ptactice, obtains an 'all risks' policy even
The Broker's Duty to Obtain Cover though such a policy does not confer complete cover against all losses, and
A broker who obtains cover rhar does not comply wirh unambiguous instruc- regardless of rhe possibility of obtaining more extensive cover that the assured
might subjectively have intended. 56 Conversely, where a broker failed to inter-
rions is in clear breach of duty. In Park v Hammond,48 the broker was
pret instructions consistenrly with an invariable market practice so as to include
employed to insure goods for part of a voyage from Gibraltar to Dublin as part
of a voyage from Malaga to Dublin. The policy, however, insured goods 'at and a clause permitting certain deviations, this failure affording the insurer a com-
from Gibraltar to Dublin, beginning the adventure from the loading thereof on plete defence in respect of the ensuing casualty, the broker was held liable to
board at Gibraltar', rendering the insurer liable only in respect of an adventure damages in rhe sum of the indemnity payable had the clause been included. 57
com-mencing at Gibraltar. Consequenrly, the risk never attached to the goods It is the duty of the broker to ensure that the policy chosen contains no exclu- 5.26
and the brokers were held liable for insuring rhe wrong adventure. Similarly, in sions incompatible with the assured or the insured property. Accordingly,
brokers have been held liable where a motor policy excluded part-time musi-
General Accident Fire 6- Co Ltd,49 an cians," a yacht policy excluded any period when the vessel was used as a house-
insurance policy covered aircraft for a period of twelve months if declared boat, 59 and a hull policy excluded liability for vessels without a current survey
before 31 December. The reinsurance slip prepared by the broker indicated that the certificate,'O rhe broker failing in each case to determine whether rhe policy was
insurer's liability ceased on 31 Decembet, affording the reinsurer a defence on the appropriate. In contrast, where a broker placed insurance subject to certain
basis of misrepresentation or non-disclosure. Having been properly informed by rhe exclusions to which the assured did not actively consent bur abour which she
insurer of rhe terms of the primary cover, the broker was held liable for the absence was informed and without which the cover could not have been obtained, the
of reinsurance cover. 50 broker was held not liable in respect of losses against which the insurer was
protected by the exclusions. 61
In accordance with ordinary agency principles, a broker in receipt of ambiguous
instructions is free from liability, and the assured bound by the broker's sub-
sequenr acts, if a reasonable interpretation of those insrructions is adopted. 51
However, where a reasonably competent broker ought to notice the ambiguity, 54 Fomin v Oswell (I813) 3 Camp 357.
clarification should be soughr from the assured" if time permirs. 53 Where oral S5 cf Comber v Anderson (l808) 1 Camp 523, discussed at 5.40 below.
55 Enlayde Ltd v Roberts [1917J 1 Ch 109, 121; Waterkeyn v Eagle Star 6- British Dominions
Imuranee Co Ltd (I 920) 4 LlLRep 178, 5 LlLRep 42; Vale & Co v Van Oppen &Co L,d(I92!) 37
TLR367.
45 Sharp v Sphere Drake Insurance pic (The Moonacre) (1992] 2 Lloyd's Rep 501. 523. 57 Mallough v Barber (I81 5) 4 Camp 150.
45 Sargimon Bros v Kei,h Moul'on & Co (1942) 73 LlLRep 104. sa McNealy v Pennine Insurance Co Ltd[1978] 2 Lloyd's Rep 18.
47 Coles v Sir Frederick lOung (Insurers) Ltd (1929) 33 LlLRep 83. Sharp v Sphm Drake Imurance pic (The Moonacre) (1992] 2 Lloyd's Rep 501.
48 (1816) 6 Taunt 495. " (1942) 74 LlLRep 1. Norwest Refrigeration Services Pty L,d v Bain Dawes Pty L,d (1984) 157 CLR 149 (High
50 See also Strong & Pearl v S Allinson & Co L,d (1926) 25 LlLRep 504; TudorJones II v Crowley Court of Australia), Liability was in fact incurred by a fisherman's co~operative that acted as
intermediary between assured and broker, the latter held to be entitled to assume the co~operative
Colosso Ltd (1996] 2 Lloyd's Rep 619.
would ensure compliance with policy requirements.
Sl Ireland v Livingston (1872) LR 5 HL 395; United Mills Agencies Ltd v Harvey, Bray & Co
6\ King (or Fiehl) v Chambers & Newman (Insurance Brokers) Ltd [1963J 2 Lloyd's Rep 130.
(1952] 1 All ER 225n.
See also Waterkeyn v Eagle Star & British Dominiom Insurance Co Ltd (1920) 4 LlLRep 178, 5
Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd[1972] AC 741,
LlLRep 42.
772; European Asian Bank v Punjab & Sind Bank (No 2) [1983] 1 WLR 642, 656.
CreditAgricole Indosuez v Muslim Commercial Bank Ltd [2000]1 Lloyd's Rep 275.
193
192
More debatable, however, is the old decision of Lord Mansfield in Moore v in order to enable the assured to obtain cover elsewhere or receive alternative
68
Mourgue. 62 The broker was instructed to insure a cargo of fruit, the assuted not i,nsrructions.
specilYing an insurer. By virtue of the Bubble Act 1720, the only possible sources
ofcover at the time were the London Assurance Co, the Royal Exchange Assurance The Broker's Duty to Ensure Proper Presentation of the Risk to the
Co, and the individual underwriters associated with Lloyd's Coffee Insurer
House. 63 The broker placed the insurance with the London Assurance that, in The broker should exercise reasonable care to ensure that the assured complies 5.30
accordance with its practice, accepted liability only for total losses. When the
with the duties of disclosure and avoidance of misrepresentation arising under
assured was unable ro recover for a subsequent partial loss, he sued the broker
the pre-formation doctrine of urmost good faith." Moreover, a broker should
on the basis that, for the same premium, the Royal Exchange would have issued
have a reasonable basis for any representation made to the insurer in presenting
cover without a partial loss exclusion. The action failed, Lord Mansfield stating
the risk and ought reasonably to believe that the presentation does not omit any
that the choice of insutet had been left to the broker's discretion and that the
material circumstance." Such a basis is most obviously present if the broker has
evidence of alternative terms available merely demonstrated an absence of
explained to its client the existence of the duties imposed by the doctrine of
fraud on the part of the broker, in that no greater commission had been earned
by placing the business with the London Assurance. utmost good faith and the consequences of breach. Indeed, the Code of Practice
for Lloyd's Brokers 1988 provides that: 'A Lloyd's broker should explain to a
It is suggested thar the decision is difficult to sustain. The issue is not whether the broker client the duty of good faith and the obligation to disclose all circumstances
acted in good faith, but whether reasonable care was exercised in placing the material to the risk which he wishes to insure and the consequences of any
insurance. A seller of goods is obliged to make 'such contract with the carrier on failure to mal<e such disclosure.''' A fOrtiori, a broker that remains silent and
behalf of the buyer as may be reasonable having regard to rhe nature of the goods fails to advise its client of the need for disclosure of material circumstances of
and the other circumstances of the case'.54 This obligation has been held broken which the broker has knowledge will commit a breach of duty. 72
where a seller sent fragile goods at owner's risk when they could have been sent at
Nevertheless, the mere undertaking by a broker to place a risk does not involve 5.31
the railway company's risk at the same cost. 65 Similarly, while it may nor always be
reasonable to expect a broker to know the ptecise terms on which any insurer in the
an assumption of tesponsibility pro-actively to investigate all relevant circum-
stances to ensure full compliance with the doctrine of utmost good faith.
London market might underwrite a particular risk, failure to obtain considerably
enhanced cover on offer for the same premium
Provided the broker makes clear to the assured the existence and scope of the
from the only corporate competition must be viewed as negligent." / duties imposed, the assured is responsible for disclosing all material facts to the
The broker's duty to exercise a professional standard of care in obraining cover

includes the approaching of suitable leading underwriters and, if required,
arranging any reinsurance necessary to persuade underwriters to accept the risk." 68 Smith v Las"elles (1788) 2 TR 187: Smith v Cologan (1788) 2 TR 188n: Callander v Oelri"hs (1838) 5
Bing, (NC) 58: Fines Flowers Ltd v GeneralAccident Assurance Co ofCanada (1977) 81 DLR (3d) 139,
Should the broker's best efforts to carry out rhe assured's instructions prove
149; Eagle Star Insurance Co Ltd v National Westminster Finance Australia Ltd (1985) 58 ALR 165
unsuccessful, a duty arises to notilY the assured within a reasonable time (PC): Mitor Investments Pey Ltd v GeneralAcciclent Fire & Life Assurance Corp Ltd [1984) WAR, 365:
Youell v Bland Welch & Co Ltd (The Superhulh Cover case) (No 2) [1990] 2 Lloyd's Rep 431, 446-7:
Aneco Reinturance Underwriting Ltd v johnson [1998] 1 Lloyd's Rep
565,590.
69 Genera! Accident Fire & Life Assurance Corp v 'Emter (The Zephyr) [1984] 1 Lloyd's Rep
62 (1776) 2 Camp 479. 63 6 Geo 1, c 18, ss 1, 12. See 1.15 above. 58,67.
Sale of Goods Act 1979, s 32(2). 70 warren v Sutton [1976] 2 Lloyd's Rep 276, 284.
Thomas Young & Sons Ltd v Hobson & Partnm (1949) 65 TLR 365. " Para 5.2. cf Fanhaven Pey Ltd v Bain Dawes Northern Pey Ltd[1982] 2 NSWLR 57 (Court of
Contrast O'Brien v Hughes-Gibb & Co Ltd [1995] LRLR 90, discussed at 5.17 above, where Appeal of New South Wales) in which a majority held that there was no duty to inform an assured
brokers were held not liable for failing to obtain cover containing an extension commonly offered of the duty of disclosure unless there was some basis for believing that material circumstances
for free in the market at the time. The brokers' instructions on scope of cover were specific and the might not have been disclosed. The dissenting contrary judgment appears to reflect English law.
extension covered a risk considered not to be significant. In Moore (n 62 above), there were no The majority considered that a broker, not being a lawyer, should not be required to give legal
instructions regarding the type of loss to be covered and a partial loss must have been readily advice. However, the business of a broker is the procuring of a product that is a legal construct the
foreseeable as a real possibility. enforceability of which is subject to compliance with a unique legal duty. It is, therefore, difficult
67 Genera! Accident r"tre & Lift Assurance Corp v· Tanter (The Zephyr) [1984] 1 Lloyd's Rep to see why brokers should not be required to provide guidance on compliance with that duty.
58,67. 72 0 & Rjewellers Ltd v Terry [1999] Lloyd's Rep IR 436, 444.
194 195
Marine Insurance Brokers Duties o/Brokers
broker without further enquiry from the latter" and for the accuracy of facts A dury to be pro-active may be inferred from the business context. In The 5.33
disclosed to the broker. 74 Thus, in Bell v Tinmouth,lS the broker was held not Icebird," the broker failed to disclose that responsibiliry for securing the insured
liable when an insurer repudiated liabiliry on the insurance of paintings by cargo of four helicopters on board the carrying vessel was to be assumed by the
reason of a misrepresentation regarding security arrangements. According to assured, rather than the master or stevedores." The broker had no direct know-
Carrothers JA:" ledge of this circumstance, but it was held that the broker's dury extended
beyond merely disclosing circumstances of which the broker was directly aware.
. . . the real falsity in the facts inquired into by [the broker] which made them
inaccurate and misleading, was not an error of transmission but rather was an error of Especially in complex areas of insurance, brokers had a duty to inform them-
omission on the part of [the assured] to make any reference to the possibility of an selves sufficiently of the business activities of their clients to carry out their
unforeseeable exposure to the risk of theft through total desertion of the Gallery. duties adequately and, in particular, to prevent the avoidance ofliability under
This omission could not be foreseen by [the broker] nor could it be detected by the any policy written. Accordingly, the broker 'ought to have been in a position to
most careful on-site inspection of the Gallery premises, which inspection inciden- advise his clients as to the matters which a marine insurer would wish to know,
tally [the broker] was not asked ro perform and which he did not agree ro
undertake. ' including any unusual methods of despatching or stowing the cargo'.
Everything turns, however, upon the contract between the broker and the Although in practice it is the broker and not the assured that will present the risk 5.34
assured. Upon its true construction, the broker's mandate may encompass the to the insurers, it follows from the broker's status as agent of the assured that
disclosure of a material fact by the assured to the broker does not discharge the
assumption of enhanced obligations. In Ogden & Co Pry Ltd v Reliance Fire 8o
assured's duty of disclosure to the insurer. Moreover, section 19 of the Marine
Sprinkler Co Pry Ltd,77 the broker undertook to 'prepare' proposal forms for a lay Insurance Act 1906 imposes a duty of disclosure upon the placing broker that is
client who entrusted all his insurance affairs to the professional broker expressly so
independent of the assured's disclosure obligation."
as to relieve himself of the associated workload. The Supreme Court of New South
Wales held that the client was entitled to rely upon the broker's expertise, that it was The broker will incur liabiliry to the assured for any breach of a dury of utmost 5.35
inappropriate and unnecessary for the client to guide the broker's actions in good faith for which the broker is responsible. Thus, brokers have been held
assessing the risk, and that the broker assumed obligations: first, to collect such liable where a misrepresentation of the moral hazard was not justified by the
information regarding the property to be insured and the client himself as information given to the broker by the assured" and where a material fact
underwriters could properly require under the duty of disclosure; and, secondly, to communicated by the assured was not passed on to the insurer."
pass that information on to the underwriters. On the facts,~the insurers rejected a
claim on the ground of non-disclosure of claims history. In response to a question on (3) The Broker's Duty in Placing the Cover
the proposal form regatding prior claims, the broker had merely written 'Not known
to brokers'. This was consistent with the broker's practice of never obtaining a The broker will be liable for any loss incurred by reason of a failure to place the 5.36
claims history unless specifically asked by the underwriters. The statement was, insurance within a reasonable time. In Cock, Russell & Co v Bray, Gibb & Co
however, untrue, a~ the' assured had expressly disclosed a previous claim, and Ltd,84 the broker was instructed to obtain all risks cover, including leakage and
negligent, given the dury on the facts pro-acrively to discover and pass on material pilferage, on a cargo of wine shipped partly on the deck and partly in the holds
facts, especially as the assured had authorized the broker to speak to previous of a newly built Spanish steamer. This was an unattractive risk from the point of
insurers. view of both the steamer and the cargo. The instructions were received on
Friday afternoon when it was too late to do anything that day. On Saturday
13 Lyons v]w Bentley Ltd (l 944) 77 LlLRep 335. Clearly, if a statement by the assured raises or
ought to raise the suspicion of further material circumstances, the broker should enquire further, 7S Helicopter Resources Pty Ltd v Sun Alliance Australia Ltd (The Icebid) (1991) 312 LMLN
but the broker is not required to cross~examinethe assured in detail on a speculative basis in order (Supreme Court of Victoria)' noted Hetherington [1992J LMCLQ21.
to see whether material circumstances can be uncovered. If there is no basis on which the broker 79 This fact was material as it limited the underwriters' subrogation rights in the event of damage
ought reasonably to believe further material circumstances exist, a broker is not required to through negligent stowage.
embark on a fishing expedition on the offchance that some might be revealed. Roberts v P!4isted [1989J 2 Lloyd's Rep 341, 345.
For discussion, see 4. 122ff above.
Commonwealth Insurance Co o/Vancouver v Groupe Spinks SA [1983J 1 Lloyd's Rep 67, 82.
74
" warren v Henry Sutton 6- Co [1976) 2 Lloyd's Rep 276.
7S (1988) 53 DLR (4th) 731 (COUtt ofAppeal of Btitish Columbia). / 76 ibid 741-2.
83 Coolee Ltd v WIng, Heath 6- Co (1930) 47 TLR 78. " (1920) 3 LlLRep 71.
77 [1975J 1 Lloyd's Rep 52; [1973) 2 NSWLR 7 (Supteme Court of New Sourh Wales).
196 197
morning, the broker approached underwriters with draft slips but without suc- (4) The Broker's Duty When Assisting in Making Claims
cess. Before the opening of business on the Monday, the vessel arrived and it
Where a broker is retained to assist in the making of claims, the usual duty to 5.40
was discovered that much of the cargo had been lost. In the absence of any 94
exercise reasonable care attaches ro the broker's performance of his duties. In
unreasonable delay, it was held that the brokers incurred no liability.
Comber v Anderson,95 the assured shipped wheat on board a vessel that was
The broker is requited to exercise reasonable care that the policy is underwtitten by subsequently stranded on 28 January. Although most of the wheat was saved,
responsible and solvent insurers." In Lewis v Tressider Andrews Associates Pty nearly all its value was lost, and on 2 February the assured wrote to his broker
Ltd," the broker was held liable for failing properly to examine the financial directing him 'to do the needful' with respect to the insurance and adding 'I
statements of an insurer new to the field and was not allowed to argue thar the should wish to abandon, if it be admitted of." On 4 February, the broker
average broker would have made no enquiry, nor that relevant documents were received this letter and replied by return of post that 'it would be imprudent to
beyond his understanding. It was his responsibility to obtain any assistance say anything to the underwrirers without learning furrher parriculars', rhe
necessary to their appreciation: 'Mter all if the relevant documents had been in assured responding in turn on 9 February, not mentioning abandonment.
German or Japanese there can be no doubt that mere physical receipt is not Alrhough the broker subsequently served a notice of abandonment, it was held
sufficient: There must also be comprehension.''' Nor do the broker's responsi- invalid by reason of lapse of time since the casualty," resulting in the assured
bilities regarding the financial reliability of the cover lapse on conclusion of the being deprived of all indemnity under the insurance and claiming against the
policy. In Osman v J Ralph Moss Ltd," the broker negligently recommended an broker for breach of duty. The claim, however, failed. Lord Ellenborough CJ
insurer known to be in financial difficulty, and, when proceedings were sub- held, first, that the assured had never expressly instructed the broker to abandon
sequently commenced compulsorily to wind up the insurer, the broker wrote to rhe whear to the underwriters, and, secondly, that rhe assured's letter of
the assured merely suggesting that the insurance be transferred to a different 9 February tacitly sancrioned the delay in giving notice of abandonment by not
insurer. The Court of Appeal viewed this response as completely inadequate, instructing immediate abandonment. The decision asserrs a responsibility of the
condemning the broker's conduct as 'crass negligence'" and, according to assured to be aware of the requirements of marine insurance law and to give
Phillimore LJ, 'grossly negligent and, as I suggest, dishonest'." clear insrructions to the broker. Neverrheless, given the fact that by his letter on
2 February, the assured made abundantly clear his wish to abandon, the failure
Upon renewal of a policy, the broker is obliged to draw any variation in terms to the
of the court to condemn a delay on the patt of the broker well beyond the time
assured's attention. There is authority that this duty is discharged by sending the
by which a notice of abandonment should have been given seems tather genet-
assured a copy of the new policy or renewal slip.91 However, consideration
must always be given to whether the broker has authoriry to agree a change of ous. Under such circumstances today, it is arguable that the broker should seek
terms prejudicial to the assuted. In the absence of such authority, the broker rimely clarification of the assured's intentions regarding abandonment.
should notify the assured of his failure to comply with his instructions and seek In Grace v Leslie & Godwin Financial Services Ltd," brokers who had placed 5.41
exptess approval fot the change." retrocession thirty years previously were unable to identify the retrocessionaires
Whete the policy is cancelled, the broker is undet a duty to inform the assured within when the insured reinsurers (members of a Lloyd's syndicate) sought to claim. The
93 broker having been rerained to process claims as well as to obtain the cover, and
a reasonable time.
having furnished the names with only a cover note which did not identify the
retrocessionaires, Clarke J held that the brokers' contractual duty to their principals
to exercise reasonable care and skill included a continuing obligation
to maintain a record of the retrocessionaires' identities for 'as long as a reasonable
85 Dixon v Hovill (1828) 4 Bing 665,668: Hurrell v Bullard (1863) 3 F & F 445, 453: Osman v
J Ralph Moss Ltd [19701 1 Lloyd's Rep 313.
86 [1987J 2 QdR 533 (Supreme Comt of Queensland). "ibid 548 per Connolly ]. On the duties of Lloyd's brokers regarding the making ofclaims, see the Code ofPracdce for
86 [1970J 1 Lloyd's Rep 313. " ibid 315 per Sachs L]. 90 ibid 319. Lloyd's Brokers 1988, para 9.
" Mirhael v valentine (1923) 16 L1LRep 244: Mint Security Ltd v Blair [1982J 1 Lloyd's Rep (1808) 1 Camp 523.
188, 199 (although it would be good practice to draw the assured's attention more directly The wheat was a constructive tOtal loss requiring service on the insurer of a notice of
to any change), abandonment within a reasonable time to permit the assured to recover as for a total loss or,
" Harvest Trucking Co Ltd v FB Davis [1991J 2 Lloyd's Rep 638. indeed, at all, the policy being warranted free of particular average. See 23.39 below.
" London Borough o/Bromley v Ellis [1971J 1 Lloyd's Rep 97. 97 See Anderson v Royal Exchange Assurance Co (1805) 7 East38. 98 [1995] eLC 801.
198 199
Marine Insurance Brokers Remedies flr Breach ofDuty
broker would regard a claim as possible'. Moreover, a broker in possession of a the full loss flowing from its entry into the transaction, including rhe marker
policy holds the document as bailee for his principal and must not only take fall loss.,03 This decision was reversed by the House of Lords. The crucial
reasonable care thereof, but must also not destroy it without the express author- question was said to be the scope of the duty of care undertaken.'o, The valuer
ization of his principal. In the absence of any documentation belonging to the had underraken to exercise reasonable care only in assessing the market value
assured evidencing the details of the policy, the same duties extend to such of the property at the date of the valuation, not in advising upon the financial
documents held by the broker as his own property, such as the slip.99 pro-spects of an investment of money in the property. The valuer's liability was
therefore held to be limited to the difference between the value of the property
as assessed by the valuer and its true market value.
Remedies for Breach of Duty
In terms of principle, therefore, a claimant must show not only the existence of a 5.45
The broker's duty to the assured to exercise reasonable care in the performance duty ofcare bur also 'that it was a duty in respect of the kind ofloss which he has
of his duties is owed both in contract and in tort. 100 Although it is unlikely suffered' .105 Where rhere is a duty to exercise reasonable care in the provision of
that the assured will derive a benefit in terms of the measure of damages from informarion only, the negligent information provider will be responsible for
his chosen form of action, the possibility of an extended limitation period in the consequences of the information being inaccurate and will not be respon-
tort in caseS of hidden losses may be useful. 'O' sible for losses that would have been incurred even if the information provided
had been accurate.'o, Although such losses would not have been incurred but
Measure of Damages: Basis ofAssessment for the negligent inaccuracy, the scope of the duty owed does not extend to
such losses and 'it is the scope of the tort which determines the extent of the
The measure of damages for breach of a duty to exercise reasonable care depends on the remedy to which the injured party is entitled,.,07 Where, in contrast, the duty
scope of the duty undertaken as well as issues of causation and remote-ness. under-taken extends to advising upon whether to enter into a certain transaction,
Generally, this does not present any difficulty. Thus, where a ship is lost but the negligence in the provision of such advice will render the provider liable for all
insurance fails because of misrepresentation in the placement of the risk for which losses flowing from the ently into the transaction, subject of course to the
the broker is responsible, the measure of damages is the measure of indemnity requirements of causation and remoteness.
payable under the insurance in the absence of the broker's breach of duty. Difficulty
can arise, however, where the insurance proves to be an unwise proposition and the The application of the South Australia approach to insurance brokers arose in 5.46
assured sustains losses in excess of that attributable to the Anteo Reinsurance Underwriting Ltd v Johnson 6- Higgins Ltd'08 Aneco was
failure of the insurance to pay and that the assured would not, as a matter of approached by brokers acting for Lloyd's syndicates writing marine excess of loss
factual causation, have incurred in the absence of the broker's breach Of duty. reinsurance to participate in reinsuring the syndicates under a facultative!
obligatory treaty. Aneco agreed in principle subject to the brokers' arranging a
The leading case is the decision of the House of Lords in South Australia Asset further tier of reinsurance (retrocession) to protect it. The brokers duly placed this
Management Corp v York Montague Ltd 102 In reliance on what proved to be a further tier but in doing so misrepresented the nature of the treaty as quota share
negligent overvaluation, a lender financed the purchase of a property the real value instead of facultative/obligatory. When the true nature of the treaty was revealed,
of which subsequently declined because of a general fall in the property market. the retrocessionaires avoided for misrepresentation. Facultative/ obligatory cover is
Had the lender known the true value of the property, it would not have advanced inherently more likely to generate losses and the risk pro-posed to Aneco was not
funds at all. The Court ofAppeal held that the lender was entitled to reinsurable. Aneco incurred losses of approximately
99 ibid 809. Subject to contrary intention, such ancillary agency duties relating to storage of [1995J QB 375, sub nom Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd.
information and permitting the assured access to such information will survive the discharge for breach Although it is probably morc appropriate to reason about extent of liability in terms of
of the agency contract as part of the underlying agency relationship: Yasuda Fire 6'Marine causation than scope of duty of care: Hoffmann, 'Causation' (2005) 121 LQR 592,596.
Insurance Co ofEurope v Orion Marine Insurance Underwriting Agency Ltd [1995J QB 174. [1997J AC 191,211 pcr Lord Hoffmann. See also Caparo lndustriesplc v Dickman [1990) 2
100 ForsikringsaktieseMapet vesta v Butcher [19891 AC 852, 860; Youell v Bland Welch 6- AC 605, 627. Note also n 104 above.
Co Ltd (The Superhul& Cover case) (No 2) [1990J 2 Lloyd's Rep 431, 458-9. On concurrent 10' [1997J AC 191, 214.
liability generally, see Henderson v Merrett Syndicates Ltd [1995J 2 AC 145. Platform Home Loans Ltd v Oyston Shipways Ltd [2002] lAC 190,209 per Lord Hobhouse.
101 Limitation Act 1980, s 14A. 102 [1997J AC 191. [2000J Lloyd's Rep lR 12 (CA), affd [2001] UKHL 51, [2002J 1 Lloyd's Rep 157.
200 201
Marine Insurance Brokers Causation Defences
US$35 million on the treaty. Had its retrocession held, it would have recovered Where, however, such reinsurance is available, but the reinsurance fails by rea-son
US$11 million. The brokers were clearly liable for this sum, but Aneco sought to of breach of duty by the broker, the failure of the reinsurance does not reflect upon
recover the entirety of its losses. The Court of Appeal held in favour of Aneco, a the advisability of the broker's proposition to the reinsured. The measure of
decision upheld by the House of Lords. damages should then be simply the difference between the amount, if any,
recoverable under the reinsurance and the amount that would have been
In the Court ofAppeal, Evans LJ, whose judgment was approved by a majority of the
recoverable but for the broker's breach of duty.
House of Lords, distinguished the valuer in South Australia on three grounds.'o,
First, the brokers were not simply supplying information to Aneco, but seeking to
(2) Cost ofAlternative Insurance
persuade it to participate in the reinsurance treaty, a process that involved advising
on the availability of retrocession without which Aneco would not participate. Where the broker obtains inadequate cover and the assured, if informed of the 5.50 breach
Secondly, Aneco had to assess the proposed reinsurance treaty. The attitude of the of duty, could and would have obtained alternative cover but at a higher premium, rhe
retrocession market was fundamental to that assessment and that attitude was being measure of damages is assessed by reference to the assured's net
explored thtough the brokers. Thirdly, the brokers were in breach of duty not only loss, namely the indemnity thereby recoverable less the extra premium that
in the way they placed the risk, but also in failing to report that the true risk could indemnity would have cost. '12 In the absence, however, of proof of a require-ment
not be placed in the retrocession market. In short, the brokers assumed of an enhanced premium, the broker will be liable for the full measure of indemnity
responsibility for discovering and advising Aneco whether the proposed reinsurance with no entitlement to credit for any premiums recoverable by the assured from the
was acceptable ro the retrocession market, and thereby advising Aneco as to the insurer.
113
commercial advisability of subscribing to the proposed reinsurance.
The same issue had also arisen prior to South Australia in the Superhulls Cover case,' 10 G. Causation Defences
in which brokers had again persuaded insurers to subscribe to a risk by arranging
Assuming a breach of duty, rhe broker is liable to the assured only for such loss 5.51
reinsurance. The terms of the reinsurance wete such that the reinsur-
as the assured can prove to have been caused by the breach. The broker may
ance did not properly back the primary cover. However, properly backing
allege that, notwithstanding the broker's breach of duty, the assured is no worse
reinsurance was not available in the market. It was conceded that rhe measure of
off, either because the risk was in any event uninsurable or because the insurer
damages was the difference between the liability incurred by rhe insurers on.the
had an addirional basis for declining to pay for which the broker was not
primary cover and the liability they would have incurred on the reduced lines responsible.
they would have written on the primary cover had they known of the tfue extent of
the reinsurance. It was common ground that damages should not be assessed by
(1) The Risk was Uninsurable on Terms the Assured would have Accepted
reference to the reduced reinsurance recovety caused by the brokers' failure ro
obtain the cover requested. In Aneco, it was stated that the Superhulls Cover case Where the broker fails to exercise reasonable care to obtain the deSired cover, the 5.52
was indistinguishable and that this concession was properly made.'" assured is deprived of the opportunity to seek cover elsewhere and is to be
compensated for the loss of that opportunity. Account must, therefore, be taken of
It must be concluded that this will be the appropriate basis for the assessment of damages
the likelihood of obtaining the desired cover at a level of premium the assured
whenever a broker persuades an insurer to accept a risk on the basis of the
would have paid. If, but only if, it can be shown that cover was not available on
availability of reinsurance cover, where the requested reinsurance in truth is
terms the assured would have accepted, the brokers' failure to exercise reasonable
not available, and the broker procures reinsurance either on terms that do not match
care will have occasioned the assured no loss.
the primaty cover, as in the Superhulls Cover case, or by not observing the duties
imposed by the pre-formation doctrine of utmost good faith, as in Aneco.
Malfough v Barber(1815) 4 Camp 150; Lewis v Tressider AndrewsAssociates Pty Ltd[1985J 2

'09 [2000] Lloyd's Rep IR 12 (CAl, paras 79-82. QdR 533,549 (Supreme COUrt of Queensland).
110 Youell v Bland Welch &Co Ltd (TheSuperhulls Cover ""e) (No 2) [1990] 2 Lloyd's Rep 431. Eagle Star Insurtmce Co Ltd v National Westminster Finance Australia Ltd (1985) 58 ALR
"' [20001 Lloyd's Rep IR 12, para 83; [2001] UKHL 51, [2002]1 Lloyd's Rep 157, para 19. On the recoverabiliry of premiums, see MIA 1906, S 84.
202 203
Marine Insurance Brokers Causation Defences
In Cee Bee Marine Ltd v Lombard Insurance Co Ltd,'14 CBM and RIF were associated agents who placed it. The agents argued that the claimants could not prove that,
companies operating a business from premises owned by RIE In 1984, most of that had full disclosure been made, the run-off policy could have been placed at
business was sold and CBM leased alternatIve,mamly wooden, premises at
anything close to an acceptable premium. However, Potter J held that on a balance
Montreal Street from which ro carryon a fib:eglassmg
business. Brokers instructed to effect the necessary alterations ro the msura~ce of probabilities the reinsurance could have been placed at a premium of
US$750,OOO instead of US$450,OOO and that the claimants would have paid that
cover procured the issue of an indusrrial special risks policy to RIF coveting
higher premium.
damage ro plant and srock owned by RIF at the new premises. When a fire
subsequently occasioned considerable damage, rhe insurers (Lombard). declined ro In a number of other cases, in contrast, it has been found that there is no causal 5.56 link
pay because CBM was not a parry ro the policy and RIF had no msurable interest between the broker's breach of duty and the assured's loss through the failure of the
in the damaged property. The brokers were held to have been negligent, but they policy. In Avondale Blouse Co Ltd v Williamson, 118 material belong-
put in issue the question of the loss caused by their breach of dury. The Court of ing to the assured but in the possession of an outworking company was left
Appeal of New Zealand held that, where the desired cover would not have been uninsured against burglary when the company changed premises until the new
readily available, an assessment was required ofwhat cover could ha;e been premises could be surveyed. Lynskey J held that the broker was not in fact
obtained and on what terms or, if no acceptable insurance had been avad-able, responsible for the lacuna in cover, but that, in any event, a break in cover
ofwhat course of action the client could and would have pursued. In effect- pending survey was unavoidable as the risk was uninsurable in the absence of a
ing this assessment, the standard ofproofon a bal~nce ofprobabilities reqUired of survey. Similarly, where a broker is in breach of duty by failing ro inform the
past events is necessarily abandoned, the court bemg entItled and mdeed ~bliged assured of the scope of the duty of disclosure, there will be no liability if the
'15 assured would have concealed the circumstance even if it knew of the disclosure
to accept a degree of speculation. As observed by Richardson J, delivenng the
6 obligation."'
judgment of the Court:" 'In the end it is ajudgment as ro what :he outcome would
have been in the absence of the negligent conduct complamed of. The outcome is Again, in Ferrcom Pty Ltd v Inbush (NSW) Pty Ltd,120 the broker failed ro inform 5.57
then reduced to money terms and in appropriate cases is discounted to reflect any insurers that the insured crane had changed status from unregistered mobile machinery to
uncertainties affecting the achievement of that outcome.'
registered vehicle. That change entitled insurers to cancel rhe policy and it was found that
On the facts the combination ofthe wooden building, its general condition, and the fire they would have done so. It also meant that insurers
haza;ds associated with the fibreglass business raised serious questions_as to the were no longer liable on the policy. Subsequently, the crane was damaged by
availability of cover for CBM's business in the new premises. Howe,:,er, taking overturning, a risk covered under a policy for unregistered machinery but nor-
into account in particular the record of the owner of CBM of mamtammg full mally excluded under a policy fot registered vehicles. Cover was availahle with the
insurance cover for his companies, the Court of Appeal held that, if com-mercially exclusion deleted, but only at approximately treble the premium. The ques-tion,
reasonable, CBM would have paid a higher premium and complied with any therefore, was whether there was evidence that the assured, had it known the
conditions regarding the premises and the conduct of the busmess. Failing the
insurance had failed, would have procured a replacemenr policy without the
obtaining of acceptable cover, CBM would have moved locatIon, not being tied to
overturning exclusion, paying the substantial additional premium. On the facts,
the Montreal Street premises by a fixed term lease. Consequently, the court held
that the broker's breach of duty deprived CBM of effectIve insurance cover either however, the evidence suggested the contrary. The assured had never sought to
from Lombard or from another insurer and either at give evidence as to how it would have responded to the cancellation of the
Montreal Street or at alternative premises.
. LI d' d' d,"7
5.55 Similarly, in Aiken v Stewart Wrightson Members Agency Lt a oy s syn. 1-
(1948) 81 LlLRep 492. See also King (or Piehl) v Chambers &- Newman (Insurance Brokers)
cate's run-off reinsurance policy was avoided for non-disclosure by the managmg 118
Ltd [19631 2 Lloyd's Rep 130, discussed at 5.26 above.

'" Joanhaven Pty Ltd v Bain Dawes Northern Pty Ltd [1982) 2 NSWLR 57, 67-8 (New South
Wales Court ofAppeal). A majority ofche Court held that the broker was not in breach of duty in
," [199012 NZLR 1 (Court of Appeal of New Zealand). See also Harvest 1rucking Co Lcd v failing to advise the assured of the scope of the duty, but this would appear not to represent
PE Davis [199112 Lloyd's Rep 638. English law: see 5.30 above. See also Stowers v GA Bonus pic [2003) Lloyd's Rep IR 402, para 30
'os Mallett v McMonagle[19701 AC 166, 176. 116 [19901 2 NZLR 1,6. (broker failed to query assured's incomplete answer to a question regarding claims history on a
," [199512 Lloyd's Rep 618. proposal form, but held that query would not have led assured to disclose daims history).
120 (1996) 9 ANZ Insurance Cases 76,728 (Supreme Court of New South Wales Court of
Appeal).
204
205
Marine Insurance Brokers Contributory Negligence
original insurance. Moreover, even after the accident, the assured accepted new such a case, the broker remai~s liable for the balance. Thus, in Everett v Hogg,
cover through a new broker that still included the overturning exclusion. Con- p'obznson & Gardner (Moumazn) Insurance CO,125 it was held that, in the light
sequently, there was no causal link between the broker's breach of duty and the loss of the good commercial relatIOns between the insurer and assured and the rela-
tively trivial sum involved in comparison with their business relations as a whole..
sustained by the overturning of the crane.
the insurer would have compromised a claim on a policy voidable for non-
diSclosure for one-rhird of the indemnity payable on a valid policy. The broker
The 'Two Defence' Problem
was, accordingly, held liable for two-thirds of that amount. In Grace v Leslie &
A causation issue arises also where the assured is unable ro recover against the insurer by Godwin Financial Services Ltd,126 retrocessionaires could not be identi-fied
reason not only of a breach of duty by the broker but also of a second defence, or because the brokers failed to maintain a record of rheir identiries. However, smce
circumstance, for which the broker is not responsible. Where the insurance that has only 43 per cent of the insurers operating in the relevant marker were still
or should have been concluded would have been illegal or contrary to public honouring claims, a circumstance for which the brokers could not be held
policy, the assured has no right to damages against the broker.121 Otherwise, responsible, the brokers were held liable for only 43 per cenr of rhe indemnity
however, the court will consider the likelihood of the prima ficie recoverable.
insurer invoking the alternative defence and will tailor the award of damages ro
In 0 & RJewellers v Terry,'" the facts were more complex and the probabilities 5.61
reflect that lil<elihood.122
harder to assess. The defendanr broker failed to inform the insurers of the criminal record
The court may conclude that the insurer would not have invoked the second defence of one of the direcrors of the assured company. Had this infor-marlOn been disclosed, the
theoretically available, leaving the broker fully liable. In Fraser v BN Furman risk would have been uninsurable. The company would have sought to dismiss the
(Productions) Ltd,123 the brokers had failed to effect employers' liability relevant direcror, but it was unclear whether or
insurance but argued thar, had they performed their duty, liability undet the policy how quickly this could have been done or on whar rerms insurance could have
would have been subject to a condition precedent not fulfilled by the assured. The been obtained in rhe aftermath of the departure of such a director. Moreover, rhe
Court of Appeal denied non-compliance with the condition pte-cedent but added assured was also in breach of other obligarions under the policy, but it was unclear
that the court had ro consider the probability of the insuret seeking ro invoke the wherher, in the absence of the non-disclosure, the insurers would have settled the
defence and their chances of success were they minded so to do, holding on the claim or fought it ro a final judgmenr and, if so, with what resulr. In such
facts that no reputable insurer would have sought ro rely on the defence in question. circumstances, it was held rhat the correct approach was not to attempt to evaluare
Similarly, in Dunbar v AB Painters Ltd,124 employers' liability insurers could each posslbihty separately, but rather 'to ta!<e account of all the ifs and buts a?d
have declined liability because the relevant work was carried out slightly higher come to a comprehensive estimate of the chance' of recovery. 128 On the facts, ir
above the ground than the maximum stipulared in rhe policy. It was held, however, was held that the broker's failure to disclose the director's convictions had deprived
that rhe insurer would not have ta!<en this defence because the insurance was rhe assured of a 30 per cent chance of recovery.
required by law and because of the damage to the insurer's reputation ifit relied
upon its strict legal rights when a certificate of cover that made no mention of the
height restriction was displayed at the place ofwork and relied on by employees. H. Contributory Negligence
The broker may accepr that its breach was causarive of loss to the assured bur 5.62
Alternatively, the court may conclude that the insurer would not have waived the defence contend rhar the assured could have ta!<en steps to aven or minimize the loss
totally bur would have settled the claim for a reduced amount. In
and that, in consequence, the measure of damages should be reduced 1'0 reflect the
assured's contribution to its own loss. In rhe conrext of the professional provision of
services, as by an insurance broker, the argument in essence is that,
'" Thomas Cheshire & Co v \0ughan Bros &Co [1920] 3 KB 240.
122 Dunbar v AB Painters Ltd [1986J 2 Lloyd's Rep 38, 42. In Everett 0 Hogg, Robinson
&
Gardner Mountain (Insurance) Co [1973] 2 Uoyd's Rep 217, 223, Kerr J considered that the 125[1973] 2 Lloyd's Rep 217. 126 [19951 CLC 801, 816-17.
broker would incur full liability unless able to prove on a balance of probability that the dient would
[1999] Lloyd's Rep lR 436.
have lost all or part of the benefit of the insurance as a result of the probable action of the
ibid 451 per Le Quesne QC, sitting as a deputy judge of the High Court.
insurer. This would appear incompatible with Dunbar. /
'" [1967] 1 WLR 898. '" [1985] 2 Lloyd's Rep 616, affd[1986J 2 Lloyd's Rep 38.
207
206
on the facts, the assured assumes a supervisory role over the broker's perform- assumption by the broker of responsibility for the provision of professional
ance of its duties and rhe loss is attriburable in whole or in parr ro a failure services in return for reward. Thar bargain must be honoured and the broker
properly ro supervise. cannot pocket the reward and unilaterally renlte that responsibility. Con-
sequently, the assured does not owe the broker any legal duty to scrurinize the
5.63 Such an argument might be thought ro be of questionable merit. The broker is an
services performed or to read contract documentation in order to verifY whether
insurance professional paid a professional fee for professional services and the law
the wording delivers the cover required similar to the duty to the assured that
is generally sceptical of an argument that a professional service provider has a
the broker is paid ro assume in obtaining the cover.'"
licence ro act negligently.'29 This indeed appears to be the law's position where the
broker's client is nor also an insurance professional. Where, however, the context The absence of any legal duty to supervise does not, however, preclude the 5.66
for the dispute is the placement of reinsurance, so that the client is an insurer, the possibility of contributory negligence, in which Context the question is merely
law is more sympathetic ro the broker. whether the client failed to act in a prudent manner.'34 Dickson v Devitt, more-
over, was decided ar a time when any contributory negligence constituted a
In Dickson v Devitt,130 the broker was instructed ro obtain insurance on goods ro be
complete defence, law that was subsequently altered by the Law Reform (Con-
shipped on 'Suwa Maru andlor steamers'. Through an error of the broker's clerk,
tributory Negligence) Act 1945, so as render contributory negligence a partial
the policy omitred the possibility of any alternative to the named vessel. The
defence giving rise ro an apporrionment of liability and merely an appropriate
client was sent both the debit note and the policy,13' either of which, on
reduction of damages.
examination, would have revealed the error. When rhe goods were subseque-
ntly shipped on a different steamer and losr, Arkin J held rhe broker liable for The 1945 Act applies where damage is suffered as a result of the 'tlUlt' partly of 5.67
failure ro comply with his instructions, rejecting an argument that the loss was the defendant and partly of the claimant. For these purposes, 'fault' is defined as
due to the client's negligence in failing to check the documents. In a trenchant 'negligence, breach of staturory duty, or other act or omission which gives rise
affirmarion of professional responsibility, he stared as follows: 132 to liability in torr, or would, aparr from this Act, give rise to the defence of
contributory negligence'.135 It is now clear that this concept of fault embraces
In my opinion, when a broker is employed to effect an insurance, especially when
the broker employed is a person of repute and experience, the client is entitled to breach of a contractual dury to take reasonable care where that breach is
rely upon the broker carrying out his instructions, and is not bound to examine the actionable in torr, into which category falls negligence by many providers of
documents drawn up in performance of those instructions and see whether his professional services including insurance brokers. 136
instructions have, in fact, been carried out by the broker. In many cases the
principal would not understand the matter, and would not know whether the In the Superhulls Cover case,137 brokers were able to place a substantial ship 5.68
document did in fact carry out his instructions. Business could not be carried on construction risk only by simultaneously offering excess of loss reinsurance. Having
if, when a person has been employed to use care and skill with regard to a matter, honoured a claim on the primary cover, however, the insurers found themselves
the employer is bound to use his own care and skill to see whether the person unable to recover against the reinsurers because of a clause confining
employed has done what he was employed to do. 1think the principal is entitled to
the reinsurance cover to 'the reinsured's liabiliry in respecr of risks attaching for
rely upon the reputation of the person whom he employs.
periods as original (up to bur not exceeding 48 months)'. This clause was
5.65 Dickson v Devitt remains good law today to the extent that a btoker who accepts
instructions in the course of his business and for reward cannot deny a duty to
exercise professional standards or liability for breach merely by affording the m Youell v Bland Welch 6oCo Ltd (The Superhul& Coverease) (No 2) [199012 Lloyd's Rep 431,
454; National Insurance & Guarantee Corp v Imperio Reinsurance Co (UK) Ltd[1999] Lloyd's Rep
assured an opportunity to discover his breach of duty. The bargain involves an IR 249, 259. Moreover, an assumption shared by assured and broker that a particular policy
wording achieves certain cover found a waiver of the claim or a plea of estoppel against the
assured: see 5.71 below. The assumption cannot therefore found a waiver of the claim or an
129 See the general approach to the interpretation ofexemption clauses that purpOrt to exclude estoppel against the assured. Equitable estoppel is also precluded since the breach of duty by
or limit liability for negligence: HIH Casualty 6'General Insurance Ltd v Chase Manhattan Bank the broker renders it equitable for the assured to insist on its strict legal rights: ibid 258-60.
[20031 UKHL 6, [2003] 2 Lloyd's Rep 61, para 11. Youell v Bland Welch & Co Ltd (The Superhul& Cover case) (No 2) [19901 2 Lloyd's Rep
130 (1916) 86 LJKB 315. . 431,460.
131 There is no legal duty to provide the assured with a copy of the terms of the cover, even if it Law Reform (Contributory Negligence) Act 1945, s 4.
might be good business practice: United Mills Agencies Ltd v Harvey, Bray & 90 [1952] 1 All ER Forsikringsaktieselskapet V't>sta v Butcher [1989J AC 852, CA.
225n. m Youell v Bland Welch 6oCo Ltd (The Superhul& Cover case) (No 2) [199012 Lloyd's Rep 431.
m (1916) 86 L]KB 315, 317-18.
208 209
construed as a cut-off provision, by virtue of which the teinsurance of any risk the professional position and remuneration of the brokers meant that any reduc-
automarically ceased forty-eight months after attachment,'38 as a consequence . tion in damages should not overlook the 'primary responsibility' of the brokers to
procure cover in accordance with their instructions. 142 The insurers' damages
ofwhich rhe reinsurers were nor liable and the insurers sued the brokers. Phillips J
were reduced by 30 per cent.
held that rhe brokers had failed, inter alia, ro draft the reinsurance documents with
sufficient clarity and to explain the terms of the reinsurance cover correctly, with While it is accepted that the existence and extent of contributory negligence 5.70
the result that the insurers were entitled to assume that the reinsurance cover must always be a question of fact, the reinsurance and inter-broker contexts of
matched the primaty cover. Nevertheless, the insurers were held to have been the cases discussed above were highly significant. Where the broker's client is
contributorily negligent. There was no inflexible rule of law governing what could not an insutance professional, the fundamental approach ofAtkin J in Dickson v
reasonably be expected of a broker's client by way of protecting its own interests. Devitt remains relevant, notwithstanding the changes in the law of contributory
On the facts, the terms of the reinsurance offered and sub-sequently obtained had negligence. In The Moonacre,'43 the brokers' argued that the assured should
been made available to the insurers who conceded that they should have read them have detected a misinterpretation by the brokers of a term in the proposal form,
carefully, that mistakes could occur, and that the a copy of which was first sent to him together with the policy. This argument
reinsurance documentation was made available to the insurers, inter alia, to was summarily rejected. The assured had given the brokers such information
enable them to verify that it accorded with their instructions. The forty-eight as was requested to enable the brokers to complete the form. Having done so,
months' clause should have been noticed and queried, and additional reinsur- 'he was entitled to assume ... that what he had told [the brokers] was all that
ance cover should have been obtained. However, the brokers' breaches of duty was needed to bring about effective cover. It was no part of his duty to second-
remained the primary cause of the insurers' loss, the latter's failure to effect guess his own professional adviser' .144 In Tudor Jones II v Crowley Colosso Ltd, 145
customary checks on the brokers' performance of their duties not breaking the an allegation that the assured was guilty of contributory negligence in not
chain of causation and resulting, on the facts, only in a 20 per cent reduction in reviewing the terms of the cover was described as 'hopeless'.'46 The assured had
damages. given clear instructions to the professional broker and had proceeded on the
This approach was followed in Tudor Jones II v Crowley Colosso Ltd" in apportioning (legitimate) assumption that the policy conferred the cover stipulated.
liability between the defendant placing broker and the claimant producing broker, It should be noted, moreover, that an assumption shared by assured and broker 5.71
to whom the assured had assigned its rights against the defendant. The claimant that a parricular policy wording achieves certain cover does not constitute an
was negligent in approving the terms of a contractors' all risks policy that contained unequivocal representation that the assured will not pursue any claim against
exclusions denying cover for completed part; of the project while other parts the broker should the assumption prove mistaken. The assumption cannot,
remained ongoing, clearly prejudicial to t~e assured given the risk insured. The therefore, found a waiver of the claim or an estoppel against the assured barring
defendant was negligent in failing to draw the exclusion specifically to the the right to claim against the broker. '47 There is, moreover, a furthet barrier to
claimant's attention as a matter for considetation and also in the way the risk was any equitable estoppel. If the citcumstances do not justify a reduction of dam-
placed. Liability was apportioned on a one- ages for contributory negligence, it is highly unlikely in the extreme that it will
third, two-thirds basis in favour of the claimant broker. Similarly, in National be unconscionable for the assured to insist on its strict legal rights to pursue a
Insurance & Guarantee Corp v Imperio Reinsurance Co (UK) Ltd, 140 the defendant claim against a broker based on professional negligence. '48
broker was negligent with respect to the scope of an extension of reinsurance
cover. The claimants, however, represented by a Mr Rapley, were negligent in A different philosophy, however, surrounds the completion of proposal forms, 5.72
failing ro notice the defect in the cover obtained. Colman J held that the defect less commonly used in marine insurance. In O'Connor v BDB Kirby & CO,'49 a
'should have been obvious to any insurer in Mr Rapley's position and with his
professional experience, even on a cursory examination. This was not a matter of
fine detail or great complexity' .'41 Accordingly, the insurers in Imperio were ibid.
held to be more blameworthy than those in the Superhulls Cover case. However, Sharp v Sphere Drake Insurance pIc (The Moonacre) [1992] 2 Lloyd'sRep 501.
ibid 527 pcrColman QC, sitting as a deputy judge of the High COUrt.
'" [199612 Lloyd's Rep 619. ", ibid 637 per Langley].
147 Nationallmurance and Guarantee Corp v Imperio Reinsurance Co (UK) Ltd [1999] Lloyd's
'38 Youell v Bland Welch & Co Ltd[1990] 2 Lloyd" Rep 423, aJfd [19921 2 Lloyd's Rep 127. Rep IR 249,258-9.
m [199612 Lloyd's Rep 619. 140 [19991 Lloyd's Rep IR 249. '" ibid 261. '" ibid 259-60. '49 [19721 1 QB 90.
210 211
Marine Insurance Brokers Brokers'Rights to Remuneration
proposal form for motor car insurance asked whether the car would be garaged, 1. Brokers' Rights to Remuneration
The assured informed the btoker that he had no garage, but the broker inadvertently
stated on the form that the car would be kept in a private garage, The broker asked "The remuneration a broker is to receive in return for acting as the assured's 5.74
the assured to check the form, but the assured signed after merely glancing through agent is ultimately a matter for negotiation, although placement of the risk is
it and failing to notice the inaccuracy which sub-sequently enabled the insurer to customarily remunerated in the form of brokerage levied on the premium'54 The
repudiate liability on the policy, The Court of Appeal held that the broker incurred trigger for rhe earning of brokerage depends upon what has been agreed between
no liability to the assured, Accotding to Davies LJ:'50 the agenr and its principal, In default of contrary agreement, however, an insurance
broker who undertakes to place a risk earns brokerage once rhe risk has been
placed, even if further duties fall to be performed by the broker in connection with
.. . it is the duty of the proposer for insurance to see and make sure that the
rhe policy procured.'55
information contained in the proposal form is accurate and not to sign if it is
inaccurate, and ... he canDot be heard to say that he did not read it properly or was
A question may arise as to whether a broker engaged to place a risk has had a 5.75
not fully appraised of its contents ... It would be different if the assured was unable to
sufficient involvement in the placemenr in order to have earned brokerage, The
read or was in some degree illiterate. But there is no suggestion of that in
this case, He was fully able to read this proposal form, , , and there had been this tesr is whether the broker's involvement constituted an'56 effective cause of the
discussion about the garaging of the car and its relevance to the amount of the procurement of the insurance. In McNeil v Law Union & Rock Insurance Co Ltd,
premium, and it was there staring him in the face. If he did not read it properly, I '57 a broker introduced rhe assured to an insurer and a policy was issued, It was
think he has only himself to blame, subsequently renewed annually through the broker receiving a renewal notice and
Karminski LJ, agreeing, held that the failure of the assured to check the proposal negotiating the premium. In 1923, the assured received lower quotes from other
form properly was 'the sole, effective cause' ofthe loss, 15' Megaw LJ held that the insurers, Although the broker obtained reasons for the higher pre-mium from the
evidence failed to establish how the inaccurate statement came to made on the insurer, the assured adamantly declined ro renew at the higher level. At the broker's
suggestion, a meeting was held between representatives of the insurer and the
form with the result that the assured had not discharged the burden of ptoving
assured, The assured's representative suggested he be treated as agent for renewal
negligence on the part of the broker, The majority reasoning, however, supports
and that his brokerage be credited to the assured so as to produce a net lower
the proposition that an assured is regarded as wholly responsible for the accuracy
premium, This was agreed and the policy was renewed. The broker then claimed
of information contained in a proposal form signed by the assured and that use of a
broker as, in effect, the assured's pen does not displace this responsibility. brokerage from the insurer, Branson J stated the test for sufficient intervention as
follows: 158 'When an agent is asking for commission upon a certain transaction, he
Where, however, a broker completes the proposal form, consulting the assured for has got to show rhat he was an efficient cause of the transaction coming about. It is
information necessaty ro answer the questions, the broker is responsible for not enough to show that he was the intro-ducer of the two parties because rhat is
exercising reasonable care in the interpretation of the questions, In The merely a causa sine qua non and may not be the efficienr cause.' On the facts, the
Moonacre,152 the brokers negligently interpreted a question as to whether a yacht broker's intervention was held to have
would be used as a houseboat as confined to the assured and his family, whereas,
on its correct and reasonable interpretation, it extended to members of the crew,
The proposal form was completed by the brokers with some information obtained incorrect information may result in a claim being repudiated.' Moreover, the Code of Practice for
from the assured by telephone, The form was neither seen nor signed by the Lloyd's Brokers 1988, para 5.3 provides as follows: 'Other than in exceptional circumstances, a
Lloyd's broker should not complete a proposal form on behalf of a cliem. If a Lloyd's broker does
assured, When the insurers rejected a claim because of rhe inaccurate response to so complete a proposal form he should disclose that fact to the insurers.'
the houseboat question, the brokers were held liable for the 10ss.'53 It has yet to be authoritatively decided whether, in return for placement of the risk, the broker is paid
brokerage by the assured, or whether, by custom and practice, the broker receives the right from the
assured to negotiate brokerage from the insurer: CarvillAmerica Inc v Camperdown
UK Ltd [2005] EWCA Civ 645, [2005] 2 Lloyd's Rep 457,
150ibid 99, 151 ibid 100. wlos Group Ltd v Harbour Insurance Services Ltd [1997] 2 Lloyd's Rep 461.
'" Sharp v Sphere Drake Insurance pIc (The Moonacre) [1992] 2 Lloyd's Rep 501. It is, however, rare that an agent will qualify for commission on the basis of an intervention that
153 See also the Insurance Brokers Registration Council (Code of Conduct) Approval Order constitutes 'an' rather than 'the' efficient cause of the transaction. It is most likely where two
1978, example 14: 'In the completion of the proposal form, claim form, or any.other material agents are appointed on ,different terms. See, eg Lordsgate Properties v Balcombe [1985] 1
document, insurance brokers shall make it dear that all answers or statements,are the client's own EGLR20,
responsibility. The client should always be asked to check the details androId that the inclusion of 157 (1925) 23 LlLRep 314, 158 ibid 316,
212 213
Marine Insurance Brokers Brokers' Security fOr Sums Due
been an efficient cause of the renewal: 'Itis not a case of principals who have been While the lien is confined to the policy, authority clearly establishes that the lien 5.78
introduced by an agent and brought to a certain point in negotiations setting out gives rise to a right of set-off in respect of claims moneys co-extensive with the
for themselves on a new tack altogether.'15' lien. Consequently, a general lien will permit the broker to set off moneys
received under one poliC)' against sums due in respect of services rendered in
16B
connection with other policies. In the absence of any lien, the broker still
J. Brokers' Security for Sums Due enjoys a right of set-off, but confined to sums due under the policy that has
generated the claim money. '69
An insurance broker enjoys security for sums due in the form of a lien upon the policy.
Section 53(2) of the Marine Insurance Act 1906 provides as follows: Under a composite poliC)', the broker's lien and right of set-off apply severally 5.79
with respect to the individual co-assureds. In The Sun Tender,170 the broker was
Unless orhervvise agreed, the broker has, as against the assured, a lien upon the in receipt from the insurers of £297,921 by way of indemnification for repair
policy for the amount of the premium160 and his charges in respect of effecting the
costs. The operators of the insured vessel and a mortgagee bank, by way of
policy; and, where he has dealt with the person who employs him as a ptincipal, he
has also a lien on the policy in respect of any balance due on any insurance account assignment from the shipowners, were co-assureds under the policy. The oper-
which may be due to him from such person, unless when the debt was incurred he ators owed the brokers £728,109.82 entirely in respect of other policies. The
had reason to believe that such person was only an agent. brokers sought to exercise a right of set-off of the bank's share of the repair
money (£279,629.42) against the operators' debt. The Court of Appeal held
The lien is a possessory security, conferring on the broker merely a right to retain
that section 53(2) of the 1906 Act did not permit a broker to combine the
possession of the poliC)' until discharge of the secured debt.'61 It is, therefore, lost
by relinquishing of possession of the poliC)'. It may also be waived by agreement, interests of co-assureds and exercise a general lien over such combined interests.
162
as is apparently often required by mortgagees.
'" Eide UK Ltd v Lowndes Lambert Group Ltd (The Sun Tender) [19991 QB 199, 211.
The broker enjoys a general lien, securing the entirery of the account between 169 ibid 214.
broker and assured, unless the broker knows at the time of effecting the policy that '70 E:lde UK Ltd v Lowndes Lambert Group Ltd (The Sun Tender) [1999] QB 199.
163
it is a sub-agent. In that case, the lien is confined to sums arising in
connection with the policy.164 The assured carries the burden of proving the
broker's awareness of the sub-agency.165 If the broker discovers it is a sub-ageyt
after effecting the policy, it will enjoy a general lien in respect of debts accruing
until that point and a specific lien thereafter. 16' Where the broker is a sub-agent,
the assured is directly responsible to the broker for payment of premium and
commission. The broker can exercise the lien even if the assured. has paid an
167
intermediate agent who has failed to pay the broker.
159 ibid 317. See also Harding Maughan Hambly Ltd v Compagnie Europeenne de
Courtage d'Assurances 6- de Reassurances SA [2000J 1 Lloyd's Rep 316.
150 The liability of the broker for the premium, giving rise to a right of reimbursement and
the need for security, is discussed at 6.21-6.23 below.
'" Eide UK Ltd v Lowndes Lambert Group Ltd (7he Sun Tender) [19991 QB 199,206-7.
ibid211.
According to pre~Act case law, it suffices that the broker has reason to know of the sub-
agency: Westwood v Belt (1815) 4 Camp 349, 353. It is unclear whether this extension
beyond actual knowledge is compatible with the wording ofMlA 1906, s 53(2).
,6< See, eg Maspons y Hennano v Mildred, Goyeneche &Co (1883) 8 App Cas 874.
"5 Wbtwood v Bell (1815) 4 Camp 349, 353.
166Near East Reliefv King, Chasseur & Co Ltd [1930J 2 KB 40, 46.
'" Pisher v Smith (1878) 4 App Cas 1.
214 215
6
PREMIUMS
Whether and When Premium is (2) Consequences of the broker's
Earned 6.02 liability for premium 6.24
(3) The position as between broker
Time of Payment
and assured 6.33
Consequences of Failure to Pay (4) Displacing the brokers'
on Time 6.13
6.14 premium liability rule 6.35
At common law
6.18 (5) Market recapitalization 6.37
Premium default clauses
6.21
E. Mutual Insurance 6.38
Brokers and Premiums
Liability of the broker for F. War Risks and Additional
premium 6.21 Premium Areas 6.41
The underraking ro pay premium is rhe considerarion provided by rhe assured 6.01 in
rerum for which the insurer undertakes ro indemnify the assured in rhe circumstances and
manner specified in,.the insurance contract.
A. Whether and When Premium is Earned
Premium is earned for assumprion of risk. Moreover, upon inception of risk, rhe 6.02
insurer is immediarely exposed ro full liability. Subject to contrary intention, it follows
that premium is earned at inception of risk1 and that both the insured
risk represented by that liability and the premium attaching to the insurance of that
liability are indivisible.' Consequently, prospective discharge of the
1 Ve>los Group Ltd v Harbour Insurance Services Ltd [1997] 2 Lloyd's Rep 461, 463, 464, Earlier
in the judgment (also at 463), it is said that premium is earned on placement of risk. However, this
appears to be a slip of the judicial pen: the text cited in support (Iempleman on Marine
Insurance R Lambeth (cd) (6th edn, 1986) 447) states mat premium is earned on inception of
risk. See also Swiss Reinsurance Co v United India Insurance Co Ltd [2005] EWHC 237
(Corom),
[2005] Lloyd's Rep IR 341, para 57.
, 1jrie v Fletcher (1777) 2 Cowp 666, 668.
217
Premiums Whether and When Premium is Earned
. , l' b'l' n the policy aftet inception of risk leaves the insurer entitled In practice, however, a severable contractual structure is rare in the insurance
lllsurer s ta t tty 0
to the full premium' Even if the conttact provides fot instalment payment of .context. The possibility is acknowledged by the Marine Insurance Act 1906," but
premium and the discharge occurs before the date when one or mote of the the case law is sparse and modern examples are elusive. It is clear that the mere
. al fall due the assured remains liable for the further lllstalments as fact of instalment payment does not render premium divisible. Unless the risk in
Illst ments s ,
they fall due.' respect of which the premium is paid is itself severable, the instalments merely
represent the mechanics by which an entire premium is to be paid." Similarly, it is
By way of derogation from the common law,. however, the Internari~nal hull clauses
(01/11/03) provide, in case of cancellatIon by agreemen,t, for. a pto rata insufficient that a voyage can be divided into stages for assessment of whether the
monthly net return of premium for each uncommenced month, subject only to vessel is properly equipped." The presence of a condition prece-dent to attachment
the proviso that the insured vessel has not sustallled a total loss, r~gardless of of risk for a stage has been regarded as indicative of sever-ability,14 but it is not
whether the cause of that loss is a covered pe:il ~nder the. policy, dunng the conclusive." Moreover, if the contract does not expressly apportion premium
period of cover under the policy or any extenSlOn. The Insutute and Inter- between the severable parts of the risk, the evidence must establish a clear basis on
national hull clauses also provide in respect of a number of events that trigger which the premium should be apportioned."
an automatic prospective discharge of the insu~er's liability that the
assured shall receive a pro rata daily return of premIUm. Moreover, where an Where the insurer never comes on risk in the first place or is retrospectively 6.05
insurer has the right to cancel cover without reason, a pro rata rebate on premium regarded as not coming on risk, there is a total failure of consideration and premium
is likely to be implied.' The express gra~ting of a return of premium under the is not earned. Any premium already paid must be returned and any premium payable
market clauses in the event of automatic terml~atlOn of c~ver ~or ~ ceases to be payable." Thus, premium is not earned where the assured fails to comply
serious breach ofobligation by the assured, for example relanng to classlficatI~n, with a condition precedent to the attachment of risk,18 unless the policy provides that
may indicate that, as a matter of contractual interpretation, an e~uivale~t n?ht the insurer's absence of liability does not preju-
to premium return should be implied in other cases of automatIc termlllatIon dice entitlement to premium." Similarly, premium is not earned to the extent
that either the assured lacks an insurable interest in the insured property
where none is expressly provided.'
throughout the period of covel'o or the insured property never embarks upon
6.04 Contrary to the general model of indivisibility of risk and preu:ium,. an insur- the insured adventure. 21 In the latter case, however, where the property is
ance contract may be concluded on a severable basis. The most likely llldlca:lOn
f such a structure would be for the contract to divide the nsk lllsured tnto
~eparate parts (effectively separate risks) with a distinct part of thepreU:iu~ MIA 1906, s 84(2); 7Jrie v Fletcher (1777) 2 Cowp 666, 668.
(effectively a separate premium) allocated ro a correspondlllg part of the fiSk. Chapman OA) 6'Co Ltd v Kadirga Denizci/ik ve Ticaret[1998] Lloyd's Rep IR 377, 389. On the
facts, an indivisible analysis was clearly reinforced by the premium clause, which pi'ovided in
principle for advance payment of 'the premium' with a schedule for instalments in the event of
-3-~IA 1906. s 84(3)(a);Annen v ll'0odman (1810) 3 Taunt 299; Langhorn v Cologan (1812) 4 contrary agreement for payment over time. Such instalments clearly remained instalments of one
T 330· Moses v Pratt (1815) 4 Camp 297; Stone v Marine Insurance Co, Ocean Ltd, of indivisible premium. Afortiori, where premium is payable in one lump sum albeit calculated on the
;o~~;nbur;(1876)1 ExD 81; Swiss Reinsurance Co v United India Insurance Co Ltd [2005] basis ofa rate per month: Loraine v Thomlinson (1781) 2 Dougl 585.
EWHC 237 (Comm), [20051 Lloyd's Rep IR 341, para 56. • Bermon v ll'0odbridge (1781) 2 Dougl 781; Annen v Woodman (1810) 3 Taunr 299
4 Cha man OA) 6' Co Ltd v K1tdirga Demzetllk ve Ttcaret [19981 Lloyd s Rep IR 377. (although claim for rerurn ofentire premium). For the doctrine of stages, see 19.23ffbelow.
5It Pnational Hull Clauses (01111103), el25. For return ofpremmm dunngpenodswhen the insure~v:ssel is " Stevenson v Snow (176l) 3 Burr 1237; Bermon v Woodbridge (178l) 2 DougI781, 789.
laid up and not under repair, see cl 39. S~ealso Institute Time Clauses Hulls (11101 " Meyer v Gregson (1784) 3 Dougl402.
83), e122; (1/11195), e123; Insritute Time Clauses Freight (1/8/89), eI 16; (1/11/95), el17. ibid. The case concerned insurance at and from Jamaica to a pan in England. On the
6 Such clauses are discussed at 19.70, 19.74, 19.81 below. severability of such a risk and the impact of evidence of rating usage, cf Gale v Mache!! (1781) 2
7 Sun Fire Office v Hart (1889) 14 App Cas 98; Re Drake Insurance pic [20011 Lloyd's Rep Dougl 790n; Long v Allan (1785) 4 Dougl 276.
MIA 1906. s 84(1).
IR 643. " Henkle v Royal Exchange Assurance Co (1749) 1 Ves Sen 317; Colby v Humer(1827) 3 Car &
, See 19.73 below.
9 The contrary argument based on the maxim expressio unius exc.'usio a~terius (see 8.19 belo~) p 7; Thomson v Weems (1884) 9 App Cas 671, 682.
leads to the illogical result of a rebate being granted in cas~s o~possl~ly senous default but no~ 19 North Eastern JOOA Steamship Insurance Association v Red Sea Steamship Co Ltd (1906) 12
I~ cases of possibly inadvertent and minor accident, which IS unlikely to reflect the parnes Com Cas 26.
20 MIA 1906, s 84(3)(c). Howev~r, any premium paid is not returnable if the policy is a
intentions. ... f d h . db··· d I' . gaming or wagering policy: ibid.
10 See, by analogy, severable contractS for th: sale 0 goo s, c ara~t~nze .. y e Ivery In separate
instalments with each instalment separately paid for: Sale of Goods Act 1979, s 31 (2). " ibid s 84(3)(h). See also Martin v Sitwell (1691) I Show KB 156; Dalzell v Mair (1808) I
Camp 532. See also the cases discussed at 21.84ffbelow.
218
219
Premiums Time ofPayment
insured on a 'lost or nor losr' basis and has safely arrived at the time of contract on normal contracting parties by general contract law, justifY insurance
formation, premium is earned provided the insurer is unawate of the safe contract law's adoption of an especially severe approach to fraud in contract
arrival. Thus, in BradfOrd v Symondson," cargo was insured on a 'lost or not formation. 30 A forfeiture rule applies also where the insurance is illegal. 31 For
lost' basis. Believing the carrying vessel was overdue, the insurer reinsured at a example, pre-mium paid under insurance covering cargo shipped to an enemy is
very high premium. In fact, the vessel had already safely arrived, bur neither not returnable. 32
the insurer nor reinsurer knew this. It was held that the reinsurance policy By reason of the indemnity principle, the assured cannot recover in excess of the 6.08
attached and premium had been earned. loss sustained. Consequently, where an assured over-insures, whether by insur-
A rotal failure of consideration can also arise retrospectively through avoidance of an ing for a sum in excess of the insurable value under an unvalued policy" or by
insurance contract for pre-formation non-disclosure or misrepresentation. double insurance whether the policies are valued or unvalued,34 marine insur-
The assured is generally entitled to the return of any premium paid, since the ance law considers that there is pro tanto a failure of consideration and
insurer is regarded as never having come on risk,23 although it is u?-clear whether provides for a proportionate return of premium.35
the premium should be repaid gross or net of the brokerage deducted by the
placing broker. 24 By way of exception, however, the premium is forfeit to the
insurer either where the contracr so provides" or where the non-disclosure or B. Time of Payment
misrepresentation was fraudulent.
Time of payment of premium is ultimately a matter of interpretation of the 6.09
Prima facie, the fraud forfeiture rule appears anomalous, since the general law of contract. Subject to contrary intention, however, it is suggested that premium is
contract requires restitution of benefits received under a rescinded contract payable at the time it is earned, namely on inception of risk.'6
regardless ofwhether the ground for rescission is fraud or similarly grave conduct
such as duress to the person. Indeed, the original equitable rule in insurance cases In interpreting a payment clause, the terms 'paid' and 'payable' have been held 6.10
waS that premium should be returned even in cases of fraud, sometimes in the form to carry particular significance. In Heath Lambert Ltd v Sociedad de Corretaje
of a set-off against liability in costs." However, Lord Mansfield declined to follow de Seguros,37 a marine reinsurance contract contained the following clause:
that approach at common law and adopted the forfeiture 'Warranted premium payable on cash basis to London Underwriters within 90 days
rule" that was accepted without demur in subsequent case law" and duly of attachment.' The Court ofAppeal held that this clause generated no obligation to
pay before expiry ofthe ninety days. The word 'payable' as opposed
codified in the Marine Insurance Act 1906.29 Forfeiture probably reflects a
desire to adopt deterrent measures against fraud in an environment where
contract formation is necessarily based on information transfer and olie party's
susceptibility to fraudulent exploitation enhanced. In other words, essentially
30 Such reasoning would imply that the premium forfeiture rule should apply to non-marine
the same concerns that underpin the existence of the doctri!)e of utmost good
insurance as well as marine, as has recently been indicated to be the case: Swiss Reinsurance Co
faith, with requirements of disclosure that go beyond the protection conferred v
United India Insurance Co Ltd [2005J EWHC 237 (Comm), [20051 Lloyd's Rep IR 341. para 53.
Were forfeiture confined to marine insurance, the anomalous appearance would be confirmed.
31 MIA 1906, s84(1), (3)(a). " Vandyck v Hewitt (I 800) 1 East 96.
(1881) 7 QBD 456. 33 The problem cannot arise under a valued policy, since the agreed value conclusively
MIA 1906, s 84(3)(a); Feise v Parkinson (1812) 4 Taunt 640; Anderson v Fitzgerald (1853) 4 fixes the value of the insured property as between insurer and assured: MIA 1906, s 27(3).
HLC 484 ar 508; Anderson v Thornton (1853) 8 Ex 425. 34 For discussion of valued and unvalued policies, see 7.24ffbelow.
24 Carvill America Inc v Camperdown UK Ltd [2005J EWCA Civ 645. [2005J 2 Lloyd's 35 MiA 1906, s 84(3)(e), (f). The double insurance rule is discussed in more derail at 26.28-
Rep 457. 26.31 below. The recognition of a right to a proportionate return of premium in cases of over-
25 Broad 6-Montague Ltd v South EllSt Lancashire Insurance Co Ltd(1931) 40 LlLRep insurance has been stated to originate in a custom peculiar to the marine market and held not to apply
328. The survival of such clauses notwithstanding the retrospectivity of avoidance provides a outside marine insurance: Wolenburg v Royal Co~operative CollectingSociety (1915) 84 L]KB
further example of the true nature of avoidance: see 4.156 above. 1316.
Whittingham v Thornburgh(l690) 2 Vern 206; Do Costa v Scandm(l723) 2 P Wms 170. 36 Heath Lambert Ltd v Sodedad de Correta}e deSeguros[2003] EWHC 2269 (Comm), [20041
Wilson v Ducket (1762) 3 Burr 1361, discussed at 1.42 above. 1 Lloyd's Rep 495, para 25, although the policy in issue provided that premium was payable
Feise v Parkinson (1812) 4 Taunt 640; Anderson v Fitzgerald (1853) 4 HLC 484, 508; on formation of the insurance contract. On appeal, it was common ground that was the
Anderson v Thornton (1853) 8 Ex 425. default position in any event: [2004) EWCA Civ 792, [20051 1 Lloyd's Rep 597. para 24.
" MIA 1906. s 84(1), (3)(a). However, nothing turned on this, and it is respectfully suggested to be not correct.
37 [20041 EWCA Civ 792. [20051 1 Lloyd's Rep 597.
220
221
Premiums Consequences ofFailure to Pay on Time
to 'paid' indicated that the clause spoke to the time when the obligation arose performance. In the absence of a repudiatory breach, the insurer will, assuming
rather than the time for performance of an already accrued obligation. legal proceedings are initiated, be entitled bur confined to interest as compensa-
tion for late payment. Late payment before legal proceedings are initiated
Under the LMP reforms, the contract cannot remain silent with respect to payment of
carries no financial penalty since English common law does not recognize loss
premium. An LMP slip will detail the amount of the premium and premium
of investment opportunity under the heading of general damages." Once legal
payment terms in the risk details section. Moreover, a preferred pre-mium payment
proceedings have been initiated, however, statute permits the court to award interest
clause, known as LSW3000, has been promulgated and is widely used. This from the date when the premium should have been paid to the date when it is
provides the model for clause 35 in the International Hull Clauses (01/11/03) and is 40
paid.
available for incorporation into other marine insurance contracts. With respect to
time of payment, clause 35 provides as follows: (aj Renunciation
The Assured undertakes rhat the premium shall be paid Repudiation by renunciation occurs where one party to a contract declares by 6.15
in full to the Underwriters within 45 days (or such other period as may words or by conduct that it no longer considers itself bound by the contract in
be agreed) of inception of this insurance; or
some essential respect. The renouncing of the contract must be either by clear
where payment by instalment premiums has been agreed
the first insralment premium shall be paid within 45 days (or such and specific communication or by conduct that would lead a reasonable person
orher period as may be agreed) of inceprion of rhis to conclude that the relevant party did not intend to fulfil its obligations under
insurance, and the contract, either at all or in some significant respect: 'It is not a mere refusal
(b) the second and subsequent instalments shall be paid by the or omission ofone of the contracting parties to do something which he ought to
date they are due.
do, that will justifY the other in repudiating the contract; but there must be an
absolute refusal to perform his side of the contract.'41 There must be 'an intim-
Where the premium is to be paid through a Market Bureau, payment to the
ation of an intention to abandon and altogether to refuse performance of the
Underwriters will be deemed to occur on the day of delivery of a
contract'.42
premium advice note to the Bureau.
As observed in Chapter 2 above," the defining characteristic of the London marker is the Non-payment of premiums is unlikely to give rise of itself to renunciation. In 6.16
centralized processing of money and documentation. Once a broker has completed Fenton Insurance Co Ltd v Gothaer Versicherungsbank WAG," Potter J stated as
the placement of the risk in rhe market, it sends .the relevant documentation, follows in the context of a reinsurance treaty:
including a premium advice note, to the central nlarket bureau (called Ins-sure). In cases concerned with insurance, where accounts are rendered and paid through the
By virtue of clause 35.6, premium is deemed to be paid on the day of delivery of the medium of brokers andlor underwriting agents and delays in payment are not
premium advice note to Ins-sure. infrequent, it seems to me that one could rarely, if ever, infer a repudiatory intention
under a treaty of this kind by reason of non-payment of balances simpliciter
(by way of distinction from a failure persisted in despite receipt of demands
and/or protests).
Consequences of Failure to Pay on Time
There was, accordingly, no renunciation where brokers failed to account to
The consequences of failure to pay premium on time may be addressed in the insurers in respect of premium through error and administrative oversight,44
contract. The position at common law will, however, be considered first. or where a reinsured failed to pay small periodic balances in its account with a
At Common Law
In accotdance with general contract law, failure to pay the premium on time affords Page v Newman (1829) 9 B & C 378, 381; London, Chatham & Dover Railway Co v South Eastern
the insurer a right of election to treat the insurance contract as dis-charged only &tilway Co [1893] AC 429; President o/India v La Pintada Compania Navigacion SA (La
Pintada) [19851 AC 104.
if the failure to pay constitutes a repudiatory breach of contract. Supreme Court Act 1981, s 35A.
This requires either tenunciationof the contracr or a substantial failure of Freeth v Burr (1878) LR 9 CP 208, 214 per Keating J. Strictly speaking, the innocent party
does not repudiate but accept the repudiation of the party in breach.
" ibid 213 per Lord Coleridge CJ. 43 [199 Jl 1 Lloyd's Rep 172, 180.
38 See 2.02, 2.23 above.
44 Figre Ltd v Mander 11999J Lloyd's Rep IR 193.
222 223
Premiums Brokers and Premiums
reinsurer before the balance berween premiums and claims swnng back in its favour. in full to the Underwriters before the notice period expires, notice of cancel-
45
In contrast, there was a clear renunciation where a provisional liquid-ator of an lation shall automatically be revoked. If not, this insurance shall automatic-
insurance company failed to pay rwo insralmems of premium and srated ally terminate at the end of the notice period.
In the event of cancellation, premium is due to the Underwriters on a pro rata
unequivocally that he would not approve any premium payments even if that
basis for the period that the Underwriters are 011 risk but the full pre-mium
resulted in a loss of cover." shall be payable to the Underwriters in the event of loss, damage, liability or
expense arising out of or resulting from an accident or occurrence prior to
Substantialftilure ofperfOrmance the date of termination which gives rise to a recoverable claim under this
A failure of performance amounts to a repudiation where it goes to the root of the contract. insurance.
In respect of payment of premium, this occurs in three situations. First, the terms of Unless otherwise agreed, the Leading Underwriter(s) designated in the slip or
policy are authorised to exercise rights under this Clause 35 on their own behalf
the contract may provide expressly or by necessary implica-tion that punctual
and on behalf of all co-subscribing Underwriters. Nothing in this
payment is of the essence of the contract. Secondly, the Clause 35.5 shall, however, prevent any co-subscribing Underwriter
payment obligation may be an innominate term and non-payment has occa- from exercising rights under this Clause 35 on its own behalf
47
sioned the insurer serious prejudice. Thirdly, there will be a tepudiation 'where
Under the International hull clauses, therefore, payment of premium is not a 6.20
time was not originally of the essence, but one parry has been guilty of undue delay,
condition precedent to attachment, albeit retrospective, ofrisk. Non-payment of premium
and the other party gives a notice requiring the contract to be preformed within a
gives rise to a right ro initiate a process of cancellation, which is automatically aborted if
reasonable time'.48 This third category may be seen to shade into renunciation,
premium is paid, albeit late, before the expiry of a mandatory fifteen-days' notice period.
since a failure to respond to a notice in circumstances of undue delay may
It is clear from clause 35.4 that cancella-
reasonably be regarded as a statement of a refusal to consider oneself bound by the
tion is prospective only and without prejudice to liability for any losses that might
contract.
have arisen under the policy before the cancellation takes effect on expiry of the
notice period. Clause 35.4 softens the common law approach to return of premium
Premium Default Clauses
in favour of the assured. Regardless of attachment of risk, premium is payable on a
Many insurance conttacts contain clauses requiring premium to be paid within a certain pro rata basis only, unless a recoverable loss, whether rotal or partial, has
period of time. Payment on time may be stated ro be a condition precedent of cover occurred." Clause 35.5 provides for a co-ordinated approach to the instiga-tion
or, alternatively, failure to pay on time may terminate cover automatically for the ofthe cancellation procedure through leading underwriters while preserving the
future or afford the insurer the option to terminate co;er. autonomy of an individual insurer to maintain an independent position.
As already noted, clause 35 of the International Hull Clauses (01/11/03) follows the
approach, and indeed adopts much of the wording, of LSW3000. The consequences
of failure to pay on time are as follows:
Brokers and Premiums
If the premium (or the first instalment premium) has not been so paid to the Liability of the Broker for Premium
Underwriters by the 46th day (or the day after such period as may have
Where a marine policy is effected through a broker, section 53(1) of the Marine 6.21
been agreed) from the inception of this insurance (and, in respect of the
second and subsequent instalment premiums, by the date they are due), the Insurance Act 1906 provides that: 'Unless otherwise agreed, the broker is dir-
Under-writers shall have the right to cancel this insurance by notifying the ectly responsible to the insurer for the premium.' This reflects a long-standing
market custom, articulated by Bayley J in Power v Butcher:
Assured via the broker in writing 50
The Underwriters shall give not less than 15 days prior notice ofcancellation
to the Assured via the broker. If the premium or instalment premium is paid
49 "Where, in contrast, the insurance is cancelled by mutual agreement, International Hull
Clauses (01111/03), cl 25 provides for a pro rata monthly net return of premium for each
45 Fenton Insurance Co Ltd v Gothaer Versicherungsbank WAG [1991] 1 Lloyd's Rep 172. uncommenced month, provided the vessel has not been rendered a total loss from any cause
" Pacific & General Insu,"ne, Co Ltd v Hazell [19971 LRLR 65,82-3. whatever during the period of cover. For return of premium where the vessel is laid up not under
47 No such prejudice was established in the analog;ous case of Glencore InternationalAG v Ryan repair, see d 39. See also Institute Time Clauses Hulls (1110/83), d 22; Institute Time Clauses
(The Beursgracht) [2001J EWCA Civ 2051, [200211 Lloyd', Rep 574, discussed at Hulls (1111183), cl22: (1111/95), cl23.
2.35 above. " Figre Ltd v Mander [19991 Lloyd', Rep IR 193, 199 per Cresswell ]. 50 (1829) 10 B & Cr 329, 339-40.
224 225
Now, according to the ordinary course of trade between the assured, the broker and unknown and geographically remote). 55 Today, however, the custom and fiction
the underwriter, the assured do not, in the first instance, pay the premium to the maybe rationalized as a response to the market practice for brokers to collect
broker, nor does the latter pay it to the underwriter. But, as between the assured
premiums and pay our loss moneys via an account of the insurer, maintained by a
and the underwriter the premiums are considered as paid. The underwriter, to
whom, in most instances, the assured are unknown, looks to the broker for pay-ment, centralized accounting system, in which premiums are credited, loss moneys are
and he to the assured. The latter pay the premiums to the broker only, who debited, and the balance of the account is settled at periodic intervals. Such a
is a middle-man between the assured and the underwriter. But he is not solely system creates the risk rhat a broker may become insolvent after receipt of premium
agent; he is a principal to receive the money from the assured and to pay it to the from the assured but before settlement of the account on that policy wirh the
underwriters. insurer. Section 53(1) places the risk of loss of premium through the insolvency of
The principle that the insurer takes the credit of rhe broker in place of that of the the broker on the insurer. In other words, a risk of market failure generated by a
assured, enshrined in section 53(1), extends to all marine policies, whether or not system created by the market lies within the market rather than being placed on the
containing a recital that the premium has been paid. 51 market outsider (the assured).
Norwithstanding the reference by Bayley J to agency, the basis of the assured's discharge (2) Consequences of the Broker's Liability for Premium
as against the insurer is not technically that the broker is viewed as the insurer's
The full extent of the consequences of the rule that liability for premium rests 6.24
agent for the purpose of receiving the premium in discharge of the paymenr
with the placing broker rather than the assured depends on the extent to which
obligarion. Such an analysis would suggest that the premium was regarded as paid
one can rely in the modern law upon the fiction invented to support the custom
once the assured paid the broker, whereas the custom codified in section 53(1)
recognized at common law and codified in section 53(1), as opposed to the rule
clearly looks upon the premiums as paid as soon as the under-wtiter subscribes to
of liability itsel£
the risk even though the assured has not paid the broker. 52 Instead, the broker is
deemed by a fiction to have paid the insurer our of its own funds and then to have (a) Deftult
borrowed an equivalent sum from the insuter, leaving the insurer a creditor of the
broker on the fictitious loan. 53 It should, however, be noted that while the fiction One clear consequence has already been stated. Where marine insurance is 6.25
provides the basis for the custom that is reflected in section 53(1), it is section 53(1) placed through a broker, the insurer's sale right to premium lies against the
itself that today governs that liability. It is content to articulate a presumptive rule placing broker. The assured has no liability to the insurer at all, even at a
of liability without reference to ally fiction and ir is doubtful to what extent, if at secondary level should the broker default. Consequently, the risk of loss by
all, one can extrapolate from a fictitious payment and loan in the modern law. 54 premium through default by the broker, whether by reason of insolvency or
otherwise, lies with the insurer. As suggested above, this can be justified as a cost
The commercial custom of the insurer looking to the broker for payment and its paid for market structures.
supporting legal fiction reflect the historical preference of insurers, where pre-
This incidence of risk of default is illustrated by Universo Insurance Co ofMilan 6.26
miums were not paid up front, to extend credit to brokers (who were known,
v Merchants Marine Insurance Co Ltd,56 in which marine reinsurers claimed
trusted, and accessible should they default) rather than assureds (who were often
premiums in the sum of £1361 17s 6d from the defendant insurers. The latter
argued that the premiums were payable to the trustees in bankruptcy of the brokers
who had effected the reinsurance and against whom the defendants had an admitted
51 Universo Insurance Co ofMilan v Merchants Marine Insurance Co Ltd [1897J 1 QB 205, affd
set-off and counterclaim for £633 18s Id. Had the reinsurers succeeded, the
[18971 2 QB 93. defendants would have been liable to pay the premiums in full to the reinsurers and
52 Jenkins v Power (l817) 6 M & S 282, 287; Great Western Insurance Co v Cunliffe (1874) LR been relegated to an unsecured claim in the brokers' insolv-ency, there being no
9 Ch App 525, 540.
53 Power v Butcher (1829) 10 B & Cr 329, 347. Nso Xenos v Wickham (1863) 14 CB (NS) 435, 456;
cross-claim with which to operate a set-off. However, the
Universo Insurance Co ofMilan v Merchants Marine Insurance Co Ltd [1897] 1 QB 205, 209,
[1897J 2 QB 93, 98-9, 99-100, 101; Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc
[199812 Lloyd's Rep 326, 334.
5S A comparison may be drawn with the former presumption in general agency law that an agent
54 Chapman JA) &Co Ltd o Kadirga Denizcilik oe Ticaret[19981 Lloyd's Rep 1R 377, 385. See
further 6.24ff below. that contracts on behalf of a foreign principal assumes personal liability on the contract: see
Bowstead and Reynolds on Agency (17th edo, 2001) para 9-020.
56 [1897J 1 QB 205, affd [1897J 2 QB 93.
226
227
defendants' argument was upheld, rendering them liable only ro the trustees there is no premium liability for the insurer to set off, since the insurer is
and in respect only of the premiums net of the amount of the set-off, thereby deemed ro have been paid. In addition, the liability of the broker qua borrower
leaving the reinsurers to prove in the brokers' insolvency. under the fictitious loan cannot impeach any entitlement under the insurance
contract. This, however, forms no part of the reasoning in any of the set-off
Set-off cases, which may suggest that one should not so extrapolate from the fiction.
A second consequence of the premium liability rule in section 53(1) is that an
insurer is precluded from raising a defence of set-off of unpaid premium (c) Premium default clauses
against a claim on the insurance where the policy was placed through a broker. Premium default clauses have already been discussed in principle. 63 The ques- 6.29
At common law, the courts have consistently denied any set-off because tion here is whether such clauses are compatible with the broker's liability for
common law set-off is confined ro liquidated debts or money demands premium. The difficulty is that, according to the fiction underpinning the liability rule
ascertainable with certainty at the time of pleading, 57 while a claim under an stated in section 53(1), as between assured and insurer, the pre-mium is regarded as
insurance policy is classified as an action for unliquidated damages for breach paid, even if no value has in fact passed from the broker ro
of contract. 58 Equit-able set-off, in contrast, is not so limited and requires only the insurer. Arguably, therefore, unless the contract contains wording
that the cross-claim be sufficiently connected ro the primaty claim as ro justify displacing the liability rule, the insurer cannot raise any defence against the
denying immediate and unabated recovery on the primaty claim. 59 A claim for assured based on non-payment of premium. On this basis, indeed, in Prentis
unpaid premium would cleatly so impeach an action by the assured on the same Donegan & Partners Ltd v Leeds & Leeds Co Inc,64 Rix] held that a clause
policy. 60 How-ever, both forms of set-off require mutuality of capacity in terminating cover automatically for non-payment of premium was ineffective in
which the parties incurred the opposing obligations." In marine insurance, with English law. 65 Questions have been raised, however, by the Court of Appeal
the exception of mutual insurance, this mutuality is absent where the risk is concerning such reasoning.
placed through a broker. As between insurer and broker, the broker is liable to
the insurer as a principal while loss moneys are owed by the insurer directly to The weakness in the reasoning is that the liability rule in the modern law is 6.30
staturory and the relevant staturory provision enunciates the rule with no refer-
the assured, although they may be collected by the broker qua agent of the
ence ro the fiction. 66 In Heath Lambert Ltd v Sodedad de Correta)e de
assured.6' As between insurer and assured, it is clear from section 53(1) itself
Seguros,67 a marine reinsurance contract provided that the premium was
that there is simply no liability for premium that the insurer can set offagainst a
warranted payable ro underwriters within 90 days of attachment of risk. The
liability on a claim.
issue appealed was precisely when premium fell due on the true interpretarion
6.28 It might, moreover, be added that the underlying fiction would indjcate that of the clause for the purpose of determining when the broker's right to seek
reimbursement from the assured arose and whether on the facts it was time
barred. The issue, there-fore, was when the obligation to pay arose under the
57 Hanak v Green [1958] 2 QB 9,17; AxelJohmon Petroleum AB v MG Minerai Group AG contract, rather than when the premium was regarded as paid. Whether the
[1992] 1 WLR 270. warranty had any effecr was not in issue. Of course, if the ficrion were to be
58 Castelli v Boddington (1852) 1 EI & B166; Luckie v Bushby (1853) 13 CB 864; Pellm (E) &
Co v Neptune Marine Insurance Co (1879) 5 CPD 34. There would appear, however, to be no applied, the premium would be deemed to have been paid so that the warranty
reason in principle why insurance law should reject the concept of common law abatement as could never be broken. In this context, Clarke L], delivering the judgment of
recognized in the law of sale of goods: F & f( Jabbour v Custoditm Of Israeli Absentee Property the Court, suggested that care should be taken before relying on the fiction
[1954) lWLR 139, 144. Moreover, under valued policies, although claims for partial losses have
been classified as unliquidated (Castelli; Luckie), in the context of total losses the loss is liquidated underpinning the liability rule and was clearly sceptical that the fiction could be
and the assured carries no burden of proving quantum: MIA 1906, s 27(3); Irving v Manning invoked to deny any possibility ofa breach of warranty. 68
(1847) 1 HLC 287,307; Ventour;, v Mountain (The ltalia Express) (No 2) [199212 Lloyd's Rep
281, 291-2. Adjustment of an unliquidated claim does not render it liquidated because the
assured must still prove the amount of the claim. The adjustment is admissible as evidence of
quantum, but it may be undermined by proof ofa mistake: F & KJabbourat 143.
" Rawson v Samuel(1841) Ci& Ph 161, 178-9. 63 See 6.18ff above. 64 [1998J 2 Lloyd's Rep 326, 335.
60 But not an action on a different policy: Hargreaves (B) Ltd v Action 2000 Ltd[1993] BCLC 65 See also Rix LJ in Charman v New Cap Reinsurance Corporation Ltd [2003J EWCA Civ
1111. 1372, [2004J Lloyd's Rep lR 373, para 10.
" Middkton v Pollock (1875) LR 20 Eq 29; Zernco Ltd vJerrom-Pugh [1993] BCC 275. 66 Chapman OA) & Co Ltd v Kadirga Denizcilik Ve Ticaret [1998] Lloyd's Rep 1R 377. 385.
62 See 22.116 below. 67 [2004] EWCA Civ 792, [200511 Lloyd's Rep 597. 66 ibid para 23.
228 229
Moreover, the fiction of payment must yield to express contrary stipulation. Thus, payment h"-,, in fact been made by the broker" or of the fact that the broker, by
where the policy contains a provision that deals expressly wirh the time when reason of insolvency, is unlikely ever to pay the insurer.'4 The contract between
payment will be deemed to occur, rights and liabilities must be deter-mined on broker and "-,,sured may, however, require the "-,,sured to place the broker in
the basis that premium remains unpaid until the specified time. In this funds in time to pay the premium to the insurers in accordance with the
connection, it is worth noting again that clause 35.6 of the International Hull insurance contract. In an era of electronic funds transfer, subject to contrary
Clauses (01111103) and LSW3000 provide that, where premium is to be paid intention, that requires the brokers to receive the funds 'a very short time
through a market bureau, payment is 'deemed to occur on the day of delivery of before' the premium is due to the insurers."
a premium advice note to the Bureau'. It follows that, prior to such day, premium
must be regarded as not paid, so that the fiction of payment can pose no By way of enforcement of its indemnity rights, the broker may rely on either or 6.34
impediment to the right to initiate the cancellation procedure under clause 35.2." both of the brokers' lien Or a brokers' cancellation clause. The former is dis-cussed in
Chapter 5 above. 76 The latter is a clause in the insurance contract that permits the
broker to cancel the insurance if the assured fails to pay the pre-mium to the broker in
Payment ofpremium and issuance ofpoliey accordance with the contract between broker and assured. A well-drafted brokers'
The Marine Insurance Act 1906 envisages that the assured will pay the premium to the cancellation clause should confer authority on
insurer as a condition precedent to recovering in respect of any casualty. the broker to cancel the insurance, should specifY whether cancellation is
Thus, no contract of marine insurance is admissible in evidence unless intended to operate retrospectively, should make it clear that such a cancellation
embodied in a policy in accordance with the Act, and the insurer is not bound right is not taken by way of alternative to or in substitution for the brokers'
to issue the policy until payment or tender of the premium.'o Section 54 of the
lien," and should address the question of rights to premium paid and payable
Act provides that, where a policy is effected through a broker, an acknowledge- "-" between broker and insurer. Premium is generally regarded as earned in full
ment in the policy of receipt of premium is conclusive "-" between insurer and as soon as the insurer comes on rlsk78 and, unless the clause provides to the con-
assured." Where the policy is placed by a broker, however, the fiction would trary, prospective cancellation will leave the insurer liable to the "-,,sured for
suggest that premium is regarded as paid and the insurer must issue the policy, any losses that may already have arisen and with a full entitlement as against
the broker to the premium.
obviating the need for section 54. Consequently, it must again be doubted
whether the simple statement ofliability in section 53(1) should be regarded as
supporting this extended consequence. (4) Displacing the Brokers' Premium Liability Rule
The rule of the brokers' liability for premium articulated in section 53(1) 6.35 applies
The Position as Between Broker and Assured only subject to contrary intention. However, given that the ordinary marine rule under
A problem may arise as between broker and "-,,sured. The broker may find itself section 53(1) proceeds on the basis of a relationship 'between parties with
liable to the insurer for the premium and yet incur difficulty in obtaining independent rights and obligations, clear words are required to
reimbursement from the assured. On ordinaty agency principles, the broker is bring about a fundamental change in that relationship and in the status of the
entitled to an indemnity from the assured, the right to which arises as soon as broker'." Thus, a term in the policy to the effect that the "-,,sured promises to
premium is payable under the insurance contract" regardless of whether any
73 Dalzell v Mair (1808) 1 Camp 532; Heath Lambert Ltd v Sociedad de Corretaje de Seguros
[2003J EWHC 2269 (Comm), [2004J 1 Lloyd's Rep 495, para 25.
" See 6.19-6.20 above. 70 MlA 1906, ss 22, 52.
74 Chapman (fA) 6- Co Ltd v Kadirga Denizcilik Vi? Tictrre, [1998J Lloyd's Rep IR 377.
" jenkins v Power (1817) 6 M & S 283, 287. In the old SG policy (see 7.02 below), under- 75 Hearh Lambert Ltd v Saciedad de Corrertrj, de Seguros [2004] EWCA Civ 792, [2005J 1
writers subscribed 'confessing ourselves paid the consideration due unto us for this assurance by Lloyd's Rep 597, para 37 per Clarke LJ.
the assured'. On the substantive issue, it is likely that the relaxation of the statutory requirements 16 See 5.76ff above.
for a document to qualify as a policy renders oflinle import the status as concurrent conditions of On loss of a security granted by law through contracting for a different security, see Capital
11
the obligations of the assured to"pay the premium and the insurer to issue the policy. It is difficult Finance Co L,d v Stokes [1969J 1 Ch 261; Burston Finance v Speirway L,d [1974J 1 WLR 1648
to see why any preliminary memorandum ofagreement, such as a slip, would today fail to qualify as
(equitable lien lost by contracting for an alternative security for outstanding purchase
a policy 'in accordance with the Act': see 3,65ff above, price). 18 See 6,02 above.
72 Heath Lambert L,d v Sodedad de Correraje de Seguros [20041 EWCA Civ 792, [2005J
79 Chapman (fA) 6- Co Ltd v Kadirga Denizcilik Vi? Ticarer [1998J Lloyd's Rep IR 377,386 per
Lloyd's Rep 597, para 20. Sir Brian Neill.
230 231
Premiums Mutual Insurance
pay premium to the insurers is insufficient to displace the ordinary rule, as it will be a solvent insurer might be expected to honour the agreements, an insurer's
construed as a promise that will be discharged in accordance with market custom.so .liquidator would not be bound to do so, Moreover, the operation of section 53(1)
In Chapman ijA) & Co Ltd v Kadirga Denizcilik 1,0 Ticaret,81 the Court of Appeal precludes the assured from refusing reimbursement of any payment by the broker
on the ground that it was made voluntarily."
accepted that a premium warranty whereby mstalm;nts of premium were to be paid
'to underwriters within 60 days of due dates could provide the basis of an argument
for displacement of sectIOn 53(1). The Court held, however, that it failed to do so in
the context of the pohcy as a whole. In particular, the policy contained a brokers'
E. Mutual Insurance
cancellation clause, which would be redundant unless the ordinary rule applied." The essence of the agreement between a mutual insurance association and irs 6.38
members is the pooling of losses and liabilities actually sustained, in contrast
In the conjoined appeal of Chapman ijA) & Co Ltd v C~ios Breeze Mari~e, a deferred with the commercial purchase of indemnity through payment of a premium
premiums clause provided that the brokers were speCially authonsed
which predicates no necessary connection between the money paid by the
... to receive payment on behalf of the underwriters', The Court ofAppeal held
assured and the volume of losses incurred during the currency of the policy.
that the onus was on the party so alleging to demonstrate an agreement to effect
fundamental change in the ordinary scheme ofobligations, and 'the presence of Accordingly, it has been observed that any reference to premium in the context
a f' al ' of mutual insurance must be treated with care: 'the foundation of the contract is
few discordant words in a clause dealing with the payment 0 lOst ments was not the payment ofa premium, but an agreement that each member should bear
:nadequate,83 Moreover, on the facts, the premiums clause w.as. inconsistent ,;.ith
his aliquot share of the losses of the year covered by the policy'." This sharing of
the cover note, which reaffirmed the ordinary rule by provldmg that premIUm was
liabilities together with the expenses of the association is effected through a
payable by the assured to the brokers."
series of advance and supplementary calls on the members.
MaIket Recapitalization Prior to the commencement of any policy year, the club directors determine the 6.39
level of advance premium payable by reference to a percentage of the club's
In practice, insurers mayor may not seek to enforce the liability arriculated in section
53(1). Under market agreements in 1996 and 1997, 10 return for par-ticipation by estimated liabilities for the following year. Each member contributes according
brokers in a financial plan to recapitalize the Lloyd:s market, insurers in both the to the premium rating and tonnage of its entered vessels. 89 Should the advance
Lloyd's and companies matkets agreed for a penod ofCfive calls prove inadequate to meet the liabilities that ultimately materialize in the
ears85not to enforce the statutory liability except in three circumstances,
course of that year, a supplementary call will be levied eithet during or after the
~amely where the broker: (a) knowingly did business with a client likely to end of the policy year. Since time needs to elapse after any given year of account
default; (b) failed to inform insurers of a known hkely default; or (c) fatIed to mal<e for liabilities incurred in the course of that year to be reported to the club and
every endeavour to collect premiums and pass them to the ins~rers wI:h-out delay. quantified with certainty, individual policy years cannot be closed, and a deci-
Howevet, while the agreements may operate as self-de~ymg ordm-ances, it is sion made on supplementary calls, for an appropriate period of time, often three
unlikely that they oust section 53(1) as a matter. of law s:nce8~hey ~re years." In order to avoid unexpectedly large supplementary calls in particularly
not agreements between insurer and assured as the subsection reql11res. WhIle bad years, associations may accumulate reserves of surpluses on calls in good
91
years. All calls are payable in such instalments and on such dates as specified by
the directors.
80 Universo Insurance Co ofMilan v Merchants Marine Insurance Co Ltd [1897] 2 QB 93.
" [1998J Lloyd's Rep IR377, 386.
82 See also 'llelos Group Ltd v Harbour Insurance Services Ltd [1997] 2 Lloyd's Rep 461, 464;
Heath Lambert Ltd v Sodedad de Corretafe de Seguro, [20021 EWHC 2269 (Comm), [20041 1 Heath Lambert Ltd v Sodedad de Correta)e de Seguras [2002J EWHC 2269 (Comm), [2004J
87
Lloyd's Rep 495, para 22. 1 Lloyd's Rep 495.
83 [1998J Lloyd's Rep IR 377,387. . '
88 Williams v British Marine Mutual Insurtmce Association Ltd(l886) 57 LT 27,29 per Wills J.
84 The CMos policy also contained a brokers' cancell.ation clause, although It was not relIed on
89 Additional per voyage premiums may be levied in respect of certain high risk voyages.
by the Court ofAppeal in rejecting the argument for displacement of MIA 1906, s 53(1).
Provision also exists in club rules for the levying of'carasrrophe' or 'overspill' calls in
8S The agreement was not renewed on expiry. . ,
respect of any liability of the association in excess of the General Excess Loss Reinsurance
" OKane v Jones (The Ma>tin P) [2003J EWHC 2158 (Comm), [2004J 1 Lloyd s Rep 389, Contract, as to which, see 16.11 below.
para 226. For a similar scheme in the cOntext ofemployers' liability, see Thomas v Richard Evans & Co
Ltd[1927J 1 KB 33, 52-3,
232
233
Premiums
Since association members do not pay premiums as such, rhe provisions of rhe
Marine Insurance Act 1906 relating to premiums are inapplicable to murual
insurance92 The rule in section 53(1) that the insurer looks to the broker for
premium and not to the assured has no relevance to mutual insurance. Financial
obligations for calls are owed to the club by the members and liabiliries for losses
covered by rhe terms of the club's rules are owed by the club to the members. In
7
principle, therefore, either the association or the member can invoke a right of
equitable ser-off. In Williams v British Marine Mutnal Insurance Association
Ltd," the Queen's Bench Division held a club member entitled to ser off the AN INTRODUCTION TO MODERN
balance of an outstanding claim against supplementary calls relating to the same MARINE COVER
policy year. Outside insolvency, however, the existence of such rights of set-off is
subject to the rules of the association. Accordingly, the rules of the United Kingdom
P&I club, for example, expressly preserve the association's rights of set-off against
the members while denying any right to the members to set off, A. The SG Policy
withhold, or delay payment of any sum due to the association by reason of any 7.02 (1) The significance of an agreed value 7.26
94 B. The Separation of Marine and (2) Determining whether a policy is
claim against it.
War Risks Cover 7.03 valued: agreed value v sum insured 7.33
C. Modern Cover 7.07 (3) Re~opening an agreed value 7.38
(l) The policy
War Risks and Additional Premium Areas 7.08 E. Burden and Standard of Proof 7.48
(2) Cargo cover 7.10 (1) General principles 7.48
(3) Hull insurance 7.15 (2) 'All risks' cover 7.54
War risks are underwritten both by the London market and mutual insurance (4) The euisdem generis clause 7.23 (3) Exclusions 7.58
associations, and a similar approach to premium is adopted." War risks present a D. Valued and Unvalued Policies
relatively modest risk except in areas of military tension or actual conflict,
where the risk is high, volatile, and impossible to rate on an annual basis.
Consequently, war risks cover is granted in return for an appropriately modest
In the modern London market, insurance is customarily written on the basis of 7.01 a
premium, but provision is made for the exclusion of such areas of high risk as
simple basic form to which is attached an appropriate standard set of more detailed
may be designated at any time. Such an area is termed an additional premium area clauses. It was not always thus.
(or APA). An owner that wishes to trade in such an area is required to notify the
insurer in advance and pay the appropriate, often substantial, additional premium
assessed by reference to the prevailing level of risk. Compliance with
the obligation to notify is often a condition precedent to the insurers' continued A, The SG Policy
liability on the policy, so that breach autOmatically terminates the assured's
cover. The agreements concluded in Lloyd's coffee house in the eighteenth century for
7.02
the assumption of risk in return for payment of a premium developed into a
MIA 1906,,85(2).
standard form contract, the SG policy.' This policy developed on an entirely ad
(1886) 57 LT 27. hoc basis, risks being amended and exceptions deVeloped in response to evolving
For confirmation of the right to exclude non~insolvel1CY set~off rights by contract, see law and practice. Moreover, a complex way of presenting the cover evolved.
Coca-Cola Financia! Corp v Finsat Internationa! Ltd [19981 QB 43, 50-3.
95 Maritime Transport Overs~as GmbH v Unitramp (The Antaios) [1981] 2 Lloyd's Rep 284, Although the SG policy itself spelt out the cover granted in terms of a list
291; Black King Shipping Corp v Massie (The Litsion Pride) [19851 1 Lloyd', Rep 437, 440. of risks and exceptions, ad hoc clauses were developed by individual insurers
or brokers and, from the late nineteenth century, the Institute of London
1 Although there is no clear evidence, it is generally assumed that 'SG' stands for 'ship and
234 goods'. The policy is reproduced in MIA 1906, Sch I.
235
An Introduction to Modern Marine Cover The Separation ofMarine and war Risks Cover
Underwriters also developed and promulgated a series of standard clauses for United States. The watching marine underwriters were acutely aware of the
particular types of tisk, known as 'Institute clauses'. 2 These mote detailed state- power of the navies of both Ftance and the United States, and a General
ments of the cover would be appended ro the SG policy. However, as both the Meeting of Lloyd's, held on 15 June 1898, resolved to insure war and marine
SG policy and the standard clauses had the force merely of contractual terms, risks separately. In the following year it was detetmined that, in the absence of
they were open ro amendment. A particulat tisk might be crossed out, or an contrary agreement, all marine policies should include an FC&S clause. The
endorsement slip might be attached to the policy or standard clauses with glue. insurance companies following suit, this became the practice of the London
The result was hardly a model of clarity. As early as 1791, Buller J remarked market. Although subject to revision, the FC&S clause endured until the 1980s.
that 'it is sufficient to say that a policy of assurance has at all times been
considered in courts of law as an absurd and incohetent instrument'. 3 The SG The principle of separation was further teinfotced, and further resttictions 7,04
policy nevertheless survived until the 1980s. on the writing of war risks insurance introduced, in the 1930s. On 26 April
1937, the German airfotce, fighting on the side of the Nationalist forces in the
Spanish civil wat, attacked the defenceless, historic Basque town of Guernica.
The Separation of Marine and War Risks Cover For over three hours, bombers drojJped a mixture ofhigh explosive and incendi-
aty devices, while fightet aircraft machine-gunned the population. The entite
In the seventeenth centuty, it was customary to insure against both marine and wat town was destroyed and over fifteen hundred inhabitants were killed. It was an
tisks in the same policy. This tradition endured into the nineteenth century, unprecedented demonstration of the horrific and devastating impact of the use
when 'it was still thought to be at once the duty and the advantage of a marine of air power against a built-up area. The atrocity was ptominently repotted in
underwriter to cover war as willingly as he covered collision, fire or srranding'.' the Btitish ptess. 6 Underwriters tealized that unrestricted writing of war risks
By the nineteenth century, however, the market had come to appreciate that the insurance could expose the market to catastrophic losses that could thteaten irs
two categories of risk constituted separate species and a movement towards solvency. Consequently, in order to guard against unsustainable aggregation of
separate coverage commenced. This fitst took the form of building upon the losses, the following year the market adopted the War and Civil War Risk
'FC&S clause', an exclusion of liability for the risks of capture and seizure. 5 The Exclusion Agreement. 7 This agteement stipulates that all 'loss, damage or liabil-
exclusion dates from tension berween Britain and France in 1739 and was ities occasioned by, contingent upon, or resulting directly or indirectly ftom
developed through the Napoleonic wars. In the early nineteenth century, the War and Civil War' shall be excluded from all contracts of insurance and
infant United States navy demonstrated the limits of the protection even/ the reinsurance by means of approved exclusion clauses. The agreement does, how-
British navy could extend to merchant shipping against determined predators. ever, further provide for a list of exceptions, within which war risks may be
1862 saw the invention of rhe propelled torpedo and 1893 the launch by the insured. Marine third party liability insurance is excepted without condition.
French navy of its fitst submarine. Moreover, the value of ships and cargo had Catgo may be insured againSt war risks within the limits laid down by the War
multiplied manifold since the Napoleonic Wars. There was, however, no formal Risk Waterborne Agreement, 8 while hull wat risk insurance must comply with
market response until 1898. In that yeat, a small group of French explorers, the War Risks on Hulls Agreement. 9
undet the command of Captain Jean Baptiste Marchand, planted a French flag in
The mechanics of the sepatation were, nevertheless, far from immediately 7.05
the village of Fashoda in the Sudan, then under rhe dominion of Great Britain.
The resulting diplomatic incident threatened to develop into war between apparent. A typical example is furnished by The Anita. lO The policy in the
Britain and France until Marchand was ordered to withdraw. In add- usual SG form had the FC&S clause deleted and incorporated the Institute War
and Strikes Clauses (Hulls-Time). Clause 1 of these clauses provided that,
ition, the 1890s saw a period of considerable tension between Britain and the
6 Flwo of the fouf foreign journalists who were able to repOft from the scene in the immediate
See 1.20 above. aftermath worked for British newspapers and a third for the Reuters agency in London. The coverage is
Brough v Whitmore (1791) '4 TR 206,210. It has also described as 'perhaps past praying for' described, and the main article in 'The Times' quoted in full, in Southworth, G'uernica!
(Trade Indemnity Co Ltd v Workington Harbour & Dock Board [19371 AC 1, 17 per Lord Atkin) Guernica!(l974, University of California Press) Book 1, eh L
and an 'obscure, loosely drawn and inaccurate instrument' (Rickards v Foresta! Land, Timber & : T~e current version is dated 1 April 1982, although it has been amended subsequently.
Railways Co [19421 AC 50, 78 per Lord Wrighr. . DIscussed at 17.22 below. 9 Discussed at 17.49 below.
4 D Gibb, Lloyd's afLondon (1957) 221. S Literally, 'free of Capture and seizure', 10 Panamanian Oriental Steamship Corp v Wrtght (The Anita) [1970] 2 Uoyd's Rep 365.
236 237
An Introduction to Modern Marine Cover Modern Cover
subject to certain exclusions, the insurance coveted the tisks excluded ftom the SG specific set of war and/or strikes clauses into the policy. The cover provided by war
policy by the FC&S clause. This provoked the following cry of despair from and strikes clauses reflects the war and strikes exclusions in the marine clauses, but
Mocatta J: 11 significant differences do exist. With respect to nomen-clature, the merget in 1998
of the Institute of London Underwtiters with the London International Insurance
It is probably too late to make an effective plea that the traditional ~ethods of
and Reinsurance Market Association to become the International Underwriting
insuring against ordinary marine risks and what arc usually called war rIsks should be
radically overhauled. The present method, certainly as regards war risks insurance, is Association of London (the IUA) led to a further revision of the policy and to
tortuous and complex in the extreme. It cannot be beyond the wit of subsequent standard clauses being titled
underwriters and those who advise them in this age of law reform to devise more (International' clauses.
straightforward and easily comprehended terms of cover. However the form taken by
the war risks cover here, since clause 1 of the Institute clauses only covers the
(1) The Policy
risks excluded from the SG form by the Fe and s clause, requires one to sec what
cover is given by the SG form on the facts, which would be excluded from it by The SG policy was replaced in 1983 by the simple Institute of London Undet- 1.08
the fc and s clause, for it is only in respect of such exclusion that the plaintiffs writets 'Companies Marine Policy' and similar 'Lloyd's Marine Policy' (known
can recover under the present policy. as the MAR forms). These had four pages. Apart from institutional crests and
Thus, only if the risk in question was prima jade within the SG cover but then excluded legends and space for formal embossment, the fitst page cattied the insurers'
by the FC&S clause was it within the war risks cover, subject to further exptess promise to insure coupled with a stipulation that the liabiliry of each parricipat-
exclusion or modification. Further condemnation came from the United Nations ing insurer was limited to the proportion for which it had subscribed. The
Conference on Trade and Development in its 1978 report on marine second page consisted of a schedule that identified the assured, detailed the
12 essenrial particulars of the marine adventure insured, and stated the premium
insurance:
and any special terms. The third page was for underwriters to initial their lines.
The very concept of granting an insurance cover and excluding it in the same
document (the SG Form), and then excluding it again in attached clauses, which The fourth page carried little more than institutional ctests and legends. In
override the first document in any case, and then granting it again (either in addition, an Institute or Lloyd's 'Matine Schedule' detailed the policy number,
another document or as an additional attachment) by reinstating the original the name of the assured, the period of insurance and the premium. Alternative J
exclusion, is so complicated and contorted that the uninitiated is confused by the andJ(A) forms, with complementary J andJ(a) Schedules, were similar but also
very procedure of insurance without even considering the complicated draftsman-
contained a ftaudulent claims provision and, in the case of the J fotm and
ship. The very complexity of the subject matter calls for the most simple and
schedule, an exclusion of war risks.
straightforward procedures.
In 1991, both Lloyd's and the Institute of London Underwriters introduced a 1.09
revised version of the MAR forms. This contained an exclusive jurisdiction
Modern Cover clause in favour of the English courts, reiterated in new Lloyd's and Institute
The 1980s saw the introduction of a new system for the provision of marine cover, Mar91 Schedules. Subsequently, in 1999, the advent of the International
together with new standatd Insritute clauses. The SG policy was aban-doned. In Underwriting Association of London saw the Insritute MAR forms (but not the
addition, while testrictions on covet against war tisks remained, the FC&S clause as Lloyd's MAR forms) replaced by a new, four-page 'IUA Marine Policy' to be used
in conjunction with an IUA Marine, Mar91, JOt J(a) Schedule. The new policy
the device for separating war risks insurance was also aban-doned in favour of a
simpler disrinction between 'marine' and 'wat and strikes' risks. All sets of clauses contained fewer substantive provisions and less information. It contained the same
basic promise to insure and space for underwtiters to initial their lines. Otherwise,
coveting marine risks expressly exclude enumerated war and strikes perils." War
the only substantive provisions were statements on both the face of the policy and
and/or strikes cover is provided by incotporating a
the third page limiting each insurer's liability to the proportion each has
14
underwtitten. There was no jurisdiction clause in the IUA policy
ibid 372.
Para 123. For discussion of the report, see K Goodacre, 'The UNCTAD Report on an
international legal base for marine insurance contracts, as related to Hull Claims' [1979]
LMCLQ315.
13 For discussion of the exclusions, see 15.70ffbelow. 14 See further 22.04 below.
238 239
itself. Finally, the advent ofins-sure Services Ltd in 2003,15 saw the replacement of loss. This is not true in point of law, bur it is cerrainly the case that the perils
the IUA documentation (but, again, not rhe Lloyd's documentation) by the covered are quite likely ro generare a total loss of the insured cargo. It is also
substantively identical Ins-sure 'Companies Marine Policy', together wirh Ins-sure the case thar common causes of partial loss of cargo, most norably rheft, are
Mar91, J and J(a) Schedules. 16 In modern marine practice, most hull and cargo not covered under the (C) clauses bur are covered under rhe (A) clauses. The
business is underwritten on Mar91 terms, with J and J(a) documentation employed rypes of cargo for which the (C) clauses might be regarded as adequate include
for rhe insurance of 'specie, namely fine art and bulk commodities and items of large, second-hand machinery.
antiquities. 17
Apart from rhe general cargo clauses, a range of more specialized clauses exist to
7.13 cater for cargoes that carry particular risks by reason of rheir own properries,
Cargo Cover
or rhe way rhey are rraded. Specialisr clauses, often agreed wirh a relevant
New cargo clauses were launched on 1 January 1982. They remain in use today. General trade association, accordingly exist for bulk oil, coal, commodities," FOSFA
cover is provided by three basic sers of clauses. The Cargo Clauses (A) provide 'all rrades," frozen food (excluding frozen meat), frozen meat, jute, narural rubber,
risks' cover, subjecr to a significant list of specified exceptions. The Cargo Clauses and timber. All are modelled on the general cargo clauses with appropriate
(B) and (C) are confined ro named perils, subject to rhe same amendments, usually to rhe range of covered perils or exclusions.
exclusions plus one more, the list of covered perils in (C) constituring a sub-set
All the cargo clauses contain exclusions covering war risks and srrikes risks. 7.14
of the list in (B).18 In practice, the (B) clauses are never used. Also covered
Cover againsr such risks is provided by separate Instirure War Clauses (Cargo)
under all the cargo clauses are liabilities in salvage and general average, and
and Institute Strikes Clauses (Cargo)." Unlike the position in hull insurance,
expenditure reasonably incurred in endeavouring to averr or minimize loss or
the two rypes of risk are addressed independenrly because the duration of cover
damage covered under rhe policy.19
is shorrer for war risks than for strikes risks. 24 The specialist cargo clauses are
Normally, cargo will be insured subject to the (A) clauses. Where, however, there is complemented in some cases by specialist war clauses and in all cases by
no appreciable risk to the cargo orher than by reason of an accident befalling specialist srrikes clauses.
the vessel or other conveyance in which it is carried, the (C) clauses will
suffice. These cover:'o (3) Hull Insurance
loss of or damage to the subject-matter insured reasonably attributahle to Standard clauses in the hull marker have rradirionally distinguished between 7.15
fire or explosion insurance on a time basis and insurance on a voyage basis. 25
In practice, how-
vessel or craft being stranded grounded sunk or capsized
ever, ships are normally insured on a time basis, wirh voyage policies reserved
overturning or derailment of land conveyance
collision or contact of vessel craft or conveyance with any external object
for cases where the ship has to undertal<e a one-off voyage of a particular
other than water nature, such as a voyage to a repair yard or a last voyage to be scrapped. The
1.1.5 discharge of cargo at a port of distress, new Instirute hull clauses thar were launched on 1 October 1983 to accompany
loss of or damage to the subject-matter insured caused by the new MAR form reflected these two bases of cover.
general average sacrifice
jerrison. In addition to the basic Insritute Time Clauses Hulls (1/10/83) and Institure 7.16
Voyage Clauses Hulls (1110/83), a number of variants, based on these models,
It is sometimes said that the (C) clauses insure againsr toral rather than partial
were promulgated to carer for particular rypes of hull risk. Fishing vessels and
yachts have their own dedicated clauses. 'Port risks' clauses cater for vessels that
See 2.23 above. eirher work within the defined geographical limits of a port, such as tugs and pilor
The Ins~sure Companies Marine Policy and Mar91 schedule are reproduced in boats, or will be laid up, perhaps for repair, within the port for a period of
Appendices 4 and 5.
Specie is underwritten in th.e cargo market, but often requires more extended on~land cover
than is permitted for standard cargo insurance (as to which, see 17,11-17.27 below).
The (C) perils are listed below. Some are discussed in the context of named perils in hull Meaning such cargoes as cocoa, coffee, fats and oils not in bulk, metals, and sugar.
policies in Ch 10 below. Oils, seeds, and fats.
For discussion of such cover, see Ch 24 below. 23 For discussion of the perils covered under war and strikes clauses, see Chs 13 and 14 below.
The causation language and some of the perils listed are discussed in later chapters. 24 See 17.22 below. 25 See 1.20 above.
240 24I
time. Further sets of clauses offer cover for resrricted ranges of perils or, con- liabilities arising out of collisions, salvage, and general average, and the incurring
versely, elements of cover additional to that offered under the basic time and . of expenditure in the course of reasonable efforts to avert or minimize the
voyage clauses. occurrence of an insured peril." A wide range ofliabilities are not insured, cover
for which will be obtained from a P&1 club.'o The fact that the market policy
From the insurers' perspective, however, the 1983 clauses emerged as flawed in one
concentrates on the ship as a physical asset rather than liability leads ro the
important respect, namely that cover was often present in circumstances whete the
market policy often being referred to as a 'hull and machinery' policy. While
root problem waS the sub-standatd condition of the ship, often due ro inadequate
this accurately reflects the primary focus of the market policy, its extension to a
maintenance. Since it is extremely difficult for insurers ro invoke a common law
number of significant liabilities and expenses should not be overlooked. Part 2,
defence of unseaworthiness in time policies,26 the Joint Hull Committee decided to
comprising clauses 34 to 44, contains 'Additional Clauses', including, inter
revise the standard hull clauses to insert express con-tractual protection against sub-
alia, optional extra elements of cover. These clauses had no direct counterpart in
standard maintenance, at the same time taking into account certain changes in the
the 1983 clauses, although most provisions reflect or reproduce other standard
law of salvage and general average. The result was a new complete set of hull
market clauses. Part 3, comprising clauses 45 to 53, contains 'Claims
clauses launched on 1 November 1995.
Provisions'. 31 These are entirely new standard clauses.
The new clauses were not widely used: the drafting process had not been charac-
While rhe Inrernarional Hull Clauses (01/11/03) have been more warmly 7.21
terized by appropriate consultation of assureds, and shipowners with high
received rhan the 1995 clauses, ir would be erroneous to think of them as the standard
standards and good records objected to being apparently stigmatized by reason
London marker form. The reality is that all thtee fotms ate used in
of an undifferentiated approach. Moreover, the hull market at the end of 1995
greater or lesser measure for time policies. From an underwriter's perspective.
was extremely soft" and foreign competition welcoming to assureds dis-
the 1995 clauses remain attractive because they offet the strongest protection
enchanted with London, so that insurers were unable to insist on adoption of the
against sub-standard shipping. Where, thetefore, a shipowner cannot demon-
new clauses.
sttate a proven ttack record of running a good quality fleet, eithet because of its
Nter the dust had settled, the Joint Hull Committee returned to the question of new claims record Ot because it is new to the industry, underwriters will seek to use
clauses under the auspices of the IDA. Nter a more sensitive drafting process the 1995 clauses. 32 From an assured's point of view, the International Hull
involving careful consultation, a new set of clauses, the International Hull Clauses offer the widest cover, a lowet thteshold for a constructive roralloss,33
Clauses (J/11/02), was introduced for time policies. At the same time, the Joint and more lenient provisions relating to navigation limits. With tespect ro sub-
Hull Committee made it clear that it would keep the clauses under regular standatd shipping, they offet underwriters greater protecrion than rhe 1983
review. The 2002 clauses received a warmer welcome, although their drafting clauses but less than the 1995 clauses. It remains to be seen to what extent the
gave rise to a few issues. The Joint Hull Committee responded by launching the International hull clauses will displace the Instirute clauses.
following year the International Hull Clauses (01/11/03), a slightly modified
The International hull clauses are designed for standard time policies. No vari- 7.22
version of the 2002 clauses.
ants for voyage policies, specific types of vessels, or diffetent Ot mote limited
The 2003 clauses are divided into three sections. Part 1, comprising clauses 1 to 33, perils were produced. Such insurance continues to be written on the Institute
contains the 'Principal Insuring Conditions'. This consists of an amended clauses. Moreover, as with cargo, all standard hull forms contain war and sttikes
and teorganized version of the 1983 clauses. The cover granted insures against risks exclusion clauses. In contrast with cargo insurance, however, cover against
loss of or damage to the insured ship by a series of named perils,28 certain such risks is conferred under one combined set of clauses. The clauses generally
26 See 19.30ff below.

21 In other words, there was excessive capacity in the market for the volume of hull risks
seeking cover. '" For cover against collision liability, see Ch 12 below; for cover against salvage and
28 The named perils are discussed in Chs 10 and 11 below. There is no standard 'all risks' general average liabilities and expenditure to avoid or minimise loss, see Ch 24 below,
policy for hulls in the London marker. Such policies are occasionally developed and offered The cover provided by P&I clubs is discussed in Ch 16 below.
by individual insurers or consortia of insurers, but thedominanr approach· remains use of For discussion ofclaims, see' Ch 22 below.
the standard forms with their named perils.
242
32 Albeit with the due diligence proviso curtailed: see 11.67 below.
243
An Introduction to Modern Marine Cover Valued and Unvalued Policies
employed in the matket ate the Institute Wat and Strikes Clauses (Hulls-Time) the acquisition of the insured propetty.41 From the insuret's perspective,42 an
(1/10/83).34 .agteed value that exceeds the market value, as is almost invariably the case,
will produce a higher premium. Moreover, a higher agteed value may reduce
The Eiusdem Generi< Clause an insurer's exposure. Where policies contain a franchise clause,43 rendering the
insurer liable only for losses that exceed a stipulated percentage of the agreed
The SG policy, having stipulated various perils, continued 'and of all other perils,
value, the higher the agreed value the greater a loss will have ro be before the
losses, and misfortunes, that have or shall come to the hurt, dettiment, or
insurer is liable. Likewise, where a policy makes the standard for a constructive
damage of the said goods and merchandises, and ship, &c, or any part thereof.
total loss the agreed value or a percentage thereof,44 a higher agreed value reduces
This clause provided cover for any loss caused by a peril not within the fore-
the likelihood of a casualty qualifying as such a loss.
going list but similar thereto. 35 The presence of such a clause served on occasion to
relieve the judiciary of nice questions of causation and definition of various
(1) The Significance of an Agreed Value
perils. 36 Such a clause was a feature of previous versions of the Institute
clauses but does not feature in any of the modern clauses produced from 1'982 Where a policy is unvalued, the measure of indemnity seeks to restore the 7.26
onwards, commensurately reducing the cover provided. assured to the financial position enjoyed as at the commencement of risk.
The measure of indemnity is calculated by refetence to the insurable value of
the insured property, and the insurable value is the market value the insured
Valued and Unvalued Policies prop-erty ttuly has at the time of inception of the tisk plus certain charges and
expenses.45 An agreed value ttansfotms the financial batgain. The insurable
All marine insurance policies are either valued or unvalued." 'A valued policy is a value of the insured property is fixed by contract in a manner binding on the
policy which specifies the agreed value of the subject-matter insured.'" In assured and insuret." Consequently, in the event of loss of or damage ro the
practice, the vast majority of marine policies are today valued. Section 27(3) of insured property, the agreed value generally serves as the yardstick for calcula-
the Marine Insurance Act then provides that: 'Subject to the provisions of this tion of the measure of indemnity'" The contract remains one of indemnity, but
Act, and in the absence of fraud, the value fixed by the policy is, as between the of indemnity according to its terms. Thus, where the property is totally lost, the
insurer and assured, conclusive of the insurable value of the subject intended to measure of indemnity is the agreed value. Where the property sustains a partial
be insured, whether the loss be total or partial.' loss, the measure of indemnity is generally" that proportion of the measure of
This institution of a contractual valuation rendered by law conclusive as the indemnity that corresponds to the proportion of the market value of the
property that has been lost. It should be noted, however, that at common law the
between assured and insurer benefits both parties. 39 From the assured's point of
agreed value is irrelevant in determining whether the loss sustained is total or
view, an agreed value dispenses with any need to prove the true market value of the
partial. Subject to contrary intention,49 that is a matter for the common law
insured property'o and allows the assured to insure for a sum in excess of the
market value, guatanteeing that insurance proceeds will be adequate to finance
acquisition of a replacement asset or dischatge financial obligations attached to See Glafki Shipping Co SA v Pinios Shipping Co (The Maira) (No 2) [198612 Lloyd', Rep
12, discussed at 7.29 below.
See General Shipping & Forwarding Co v British Generalinsurance Co Ltd (1923) 15 LlLRep
175,176-7.
See, eg the Institute freight clauses.
34Subject to amendment to comply with the War Risks on Hulls Agreement, discussed at As is the case with the Institute and International hull clauses: see 21.80 below.
17.49 below. MIA 1906" 16.
35 MIA 1906, Sch 1, r 12. Some instances of application of the eiusdem genens clause are Lewis v Rucker (1761) 2 Burr 1167, 1171 per Lord Mansfield, in the COntext of cargo
mentioned in subsequent chapters. See generally Arnould, Law ofMarine Insurance and Average insurance where the insurable value is the prime COSt of the insured goods plus certain
Sir Michael Mustill and] Gilman (eds) (16rh edn, 1981) para 823-5. " expenses: 'The effect of the valuation is only fixing, conclusively, the prime cost. If it be an
eg see Butler v Wildman (1820) 3 B & Aid 398. open policy, the prime COSt must be proved: in a valued policy, it is agreed.'
37 MIA 1906, s 27( 1). Unvalued policies are sometimes referred to as 'open' policies. This is See generally Ch 23 below.
to be distinguished from open covers, discussed. at 2.31 above. Damage to a vessel that is repaired before expiry of the insurance is an exception: see 23.16
" ibid, s 27(2). below.
Thames & Mersey Marine Insurance Co Ltd v Gunftrd Ship Co Ltd [1911}AC 529, 548~9. 49 Present in Institute and International hull clauses in the context of constructive total
Lidgett v Secretan (No 2) (1871) LR 6 CP 616, 627. losses: see 21.80 below.
244 245
An Introduction to Modern Marine Cover Valued and Unvalued Pollcies
principles governing the types of loss. 50 The agreed value then affects the meas-ure During this time, rhe freighr market from New Orleans declined considerably,
of indemnity yielded by whatever loss has occurred. In addition, the pres-ence of an but the court refused to reopen the valuation when the vessel and most of the
agreed value does not dispense with the need for a genuine insurable freight were lost on the delayed return voyage.
interest. 51
Again, in The Maira (No 2)," a loan secured by a mortgage on a ship required 7.29
7.27 To the extent of any discrepancy between the true loss susrained by the assured as at that the ship be insured for 130 per cent of the total secured amount. When the
the time of the casualty and the agreed value, marine insurance law clearly departs insurance came to be renewed, the insured value so required was just under
from a true indemnity principle,52 a departure sanctioned on the ground of US$12 million while the market value of the ship was only US$4,875,000. The
commercial convenience53 and that is not viewed as infringing prohibitions ship's managers obtained insurance for US$10 million. When the ship was
on wagering. The presence of a genuine insurable interest answers any accus- subsequently rendered a total loss, the assured successfully claimed against the
ation of wager, and the rule against wagets does not prohibit a contractual managers for the shortfall between the insurance obtained and the value
quantification of the measure of indemnity. 54 Lord Mansfield considered that a required by the loan, despite rhe fact that the policy proceeds were sufficient to
valuation in a cargo policy merely fixed the prime cost of the goods, as if discharge the outstanding liabilities on the secured loan and the shortfall repre-
admitted by the insurer at trial. 55 An analogy was also drawn between establish- sented a windfall to the assured. Insurance for 30 per cent above mortgage
ing a contractual yardstick for the measure of indemnity through an agreed liabilities was stated by the arbitrator to be common practice, even where the
value and fixing the damages to be paid for breach of contract through a liquid- value of the insured ship was considerably less than those liabilities, and rhis
ated damages clause. While such damages in principle are assessed by reference practice was duly endorsed by the courts.
to the loss in fact caused by the breach, the common law of contract permits the
The value of a ship fluctuates according to the freight markets. Over the lifetime 7.30
parties, subject to the constraints of the penalty jurisdiction, ro avoid disputes
of a policy, a ship's value may rise to reflect sttong rates and fall when cargoes are
about loss by establishing the damages payable by express contractual stipula-
rare and rares are weak. Under a valued policy, however, the measure of indem-
tion. There was no reason to deny a similar convenience and freedom to the
nity for a total loss remains constant. Regardless of the true value of the vessel at
parties to an insurance contract. 56
the time of the loss, the assured will be entitled to the agreed value. This borh
7.28 The result is that an assured under a valued policy may recover considerably in excess avoids any dispute as to rhe precise value of rhe vessel at the time of loss and, at a
of the loss in fact sustained. Over-valuation provides no ground of irself to defeat a time of weak freight rates, presents the unscrupulous shipowner with the rempt-
claim. 57 Outside the rare circumstances where the agreed value can be reopened, 58 ing prospect of a financial boon if the vessel is conveniently lost. Many cases
rhe agreed valuarion is binding upon the insurer even where con-siderably inflated involving overt allegations ofscuttling or where insurers put assureds 1'0 proof of
through erroneous assumption. In Barker vJanson, 59 rhe court refused to reopen a the cause of loss are contested against a backdrop of a general downturn in trade
ship's valuation agreed on an undamaged basis, despite the fact that, unknown to the or parricular financial problems affecting the assured.
parties, the vessel had been so severely damaged by a storm as to be rendered a
An agreed value is conclusive of rhe insurable value of the insured property not 7.31
constructive total loss. The Main" concerned insur-ance on return freight from New
only in the context of calcularing the measure of indemnity but for all monetary
Orleans reasonably valued. On rhe outward voyage, the vessel sustained damage
purposes under the policy. Ir affects rhe distribution of subrogation recoveries"
requiring repairs and resulting in delay.
and the rights of the assured in cases of double insurance.53 Ir also provides the
basis for the operation of average in cases of under-insurance 64 and of con-
tracrual provisions that a certain amount or percentage of rhe insured property
50 See 21.78-21.79, 21.85-21.86 below. shall remain uninsured. 65 Moreover, when the Institute or International hull
MIA 1906, s 75(2); Lewis v Rucker (1761) 2 Burr 1167, 1171.
51
clauses refer to the 'insured value' in rhe context of derermining whether the
52 Irving v Manning (1847) 1 HLC287.
53 Lidgett v Secretan (No 2) (1871) LR 6 CP 616, 627-8.
$4 Lewis v Rucker (l761) 2 Burr 1167.
ss ibid. The prime cost together· with specified expenses is the insurable value of goods: MIA --- -----------------
1906, s 16(3). 61 Glajki Shipping Co SA v Pinios Shipping Co No 1 (The Maira) (No 2) [1985] I Lloyd's Rep
56 Irving v Manning (I 847) I HLC 287, 307, 300, affd [1986] 2 Lloyd's Rep 12, 17.
Herringv]anson(I895) I Com Cas 177. 58 See7.38ffbelow. 62 See 25.67-25.71 below. 63 See 26.19-26.27 below.
57
59 (1868) LR3 CP 303. 60 [1894] P 320. 64 See 23.49-23.50 below. 65 See 18.80 below.
246 247
vessel has become a constructive total loss or determining the measure of while no particular form of wording is required to create an agreed value, the fact
indemnity for untepaired damage, the reference is to the agreed value. 66 that one part of the contract contemplates an agreed value will not necessar-ily
confer that status upon a figure in another part of the policy that does not describe
An agreed value is, however, a creature of contract and its conclusiveness is confined to
the assured and insurer as parties to the insurance contract in which it is found. As itself as an agreed value or carry wording orherwise linking it to the value of the
between the assured and a third party, liabilities will be quantified on market values. In insured property, In Wilson v Nelson," the policy stated that the insured ptoperty
Steamship Balmoral Co Ltd v Marten:' the insured vessel's 'shall be valued at as under', the last two words being added in handwriting. There
liability to contribution to general average and salvage was adjusted on the basis of was, however, no statement of value or any figure at all in the body of the policy,
its market value of £40,000 rather than its agreed value of £33,000. A majority of but rhe sum '£1,300' was written in the margin. The Court of Queen's Bench held
the House of Lords had no doubt that the adjusters had been correct to employ the that this figure could not, without more, be interpreted as more than a sum insured.
market value as the contributory value, since the agreed value could bind only Thirdly, a figure expressed to be a sum insured may also operate as an agreed value
parries to the insurance contract. alrhough clear wording to rhat effect will be required. In the non-marine case of
Elcock v Thomson," a policy con-tained a sum insured but also ptovided rhat: 'The
Determining Whether a Poliey is Valued: Agreed Value v Sum Insured sum set opposire each item in this specification has been accepted by the
A distinction needs to be drawn between an agreed value and a sum insured.
underwriters and the assured as being the true value of the ptoperty insured and in
The latter serves to fix the maximum exposure of the insurer on the policy and, as a the event of a loss the said ptoperty will be assumed to be of such value and will be
consequence, will affect the level of premium. It also provides the basis for the
assessed accordingly.' When rhe insured property was damaged by fire, Morris J
division of liability between assured and insurer in cases of under-insurance.'.
held rhat the measure of indem-nity should be calculated on a valued policy basis.
While an agreed value performs rhese functions, it goes further in valuing the
insured property. A sum insured fulfils no valuation function and, consequently,
has no role to play in calculating the measure of indemnity or in any other context These principles are further illusttated by Kyzuna Investments Ltd v Ocean 7.35 Marine
where the value of the insured property is relevant. A policy containing a sum Mutual Insurance Association (Europe).74 A yacht policy provided rhat whether the
insured and no agreed value is unvalued, and the measure of indemnity will be yacht had become a constructive total loss should be calculated by reference to 'the sum
calculated by reference to the insurable value. appearing in the schedule hereto as rhe value of the insured property'. The policy also
Whether a particular figure in a policy represents an agreed value or a sum insured depends incorporated the Institute Yacht Clauses (1111185), which twice refer to the 'insured value'.
upon the true interpretation of the policy in questiclll." The authorities, however, However, the main insuring clause provided that insurers would indemnifY 'up to the amounts
support the following propositions. Firsr, a provision that, in the event of a loss, andlor limits con-tained herein' and the only figure in rhe schedule was described as a 'sum
insurers will indemnifY 'not exceeding' or 'up to' a specified amount will be interpreted insured'. The assured contended rhat, in the context of the policy as a whole, the phrase 'sum
as a sum insured.'o Likewise, the phrase 'amount insured' is, without more, to be
equated with 'sum insured'.71 Secondly, insured' was to be understood as denoting an agreed value. The argument was rejected.
Authority clearly established that the phrase 'sum insured' served to denote a ceiling on
recovery and was distinct from an agreed value, and there was no evidence to displace that
66 Kyzuna Investments Ltd v Ocean Marine Mutual Insurance Association (Europe) [2000] understanding of the phrase. Despite the definition of constructive total loss, the inescapable
IJoyd's Rep IR 513. fact was that the schedule referred to in that definition ptovided for a sum insured, the ordinary
[19021 AC 511. meaning of which was reinforced by the main insuring clause. Those provisions
Reynolds v Phoenix Assurance Co Ltd [1978] 2 Lloyd's Rep 440, 450; Continental Illinois
National Bank 6- Trust Co ofChicago v Bathurst (The Captain Panagos DP) [1985] 1
Lloyd's Rep 625,630; Thor Navigation Inc v Ingosstrakh Insurance Co Ltd [2005] EWHC
19 (Comm), [20051 1 IJoyd's Rep 547, para 26, in the incorporated Institute clauses that depended for their operation on an agreed
69Kyzuna lnvestmertts Ltd v Ocean Marine Mutual Insunmce Association (Europe) [2000]
Lloyd's Rep IR 513; Thor value were simply inapplicable.
Navtgation Inc v Ingosstrakh Insurance Co Ltd [2005] EWHC 19
(Comm), 12005] 1 IJoyd's Rep 547.
Similar facts presented themselves in Thor Navigation v Ingosstrakh Insurance Co 7.36
BlascheckvBussell(1916) 33 TLR 74; Quorum v Schramm [20021 Lloyd's Rep IR292.
Continental Illinois National Bank & Trust Co·ofChicago v Bathurst (The Captain Panagos
DP) [1985J 1 IJoyd's Rep 625.
n (1864) 33 LJQB 220. [1949J 2 KB 755. [20001 Lloyd's Rep IR 513.

248 73 74
249
Inc. 7S
A leading Russian marine insurance company concluded a hull and not vety far to seek' but that commercial concerns may render 'inrelligible and
machinery policy incorporaring the Insrirure Time Clauses (1/11195) and con- legitimate' an agreed value 'going much beyond' the market value of the
raining the figure of US$1.5 million expressed ro be a 'sum insured'. The insured insured property.80 Indeed, while the statutory reference to a fraud exception is
shipowners believed that rhe policy was valued and argued that the figure of well supported by judicial dicta," examples of its application are rate. One
US$1.5 million policy should be undersrood and applied as an agteed value. It was example is provided by Haigh v de La Cour," in which the assured induced the
held, however, that Kyzuna was indisringuishable and rhat the policy was insurer to agree ro a value by producing forged invoices and bills of lading. 83
unvalued. In particular, the statement in rhe Institute clauses rhat 'This insurance is
More commonly, insurers will endeavour to re-open an excessive valuarion by 7.40
subject ro English law and practice', coupled with the invati-able practice of the
alleging that the overvaluation constituted a breach of a pre-formation duty of utmost
English market ro insute hull and machinety on a valued basis, provided no basis
good faith, in which context the state of mind of the assured is irrele-
fot displacing the clear meaning of the phtase 'sum insured' and regarding it instead
as code fot an enrirely different concept. The practice, aftet all, of the English vanr. If the extenr of the overvaluation is ro constitute an actionable non-
market was ro adopt a valued basis through use of phrases such as 'agreed value' or disclosure, the insurer has ro establish three things: first, that the assured knew
of the overvaluation or should have known of it in the ordinary course of
'valued at', and not by reference ro a sum
business; secondly, that the overvaluarion was material according ro the
insured.
standard of the prudenr underwriter; and, thirdly, that the non-disclosute of the
The result of Kyzuna and Thor Navigation is that, where a policy contains a figure over-valuation induced the actual insurer inro the conrract. Given that valued
expressed to be a 'sum insured' and does not clearly provide that that figure is policies routinely overvalue insured property, it is clear that the fact of over-
also ro operate as an agreed value, the policy will opetate on an unvalued basis. valuarion would not of itself sarisfY the tests of materiality and inducemenr.
The only exceprions ate where the evidence establishes either that the phtase Overvaluation requires disclosure only where its extenr is so great that it calls
'sum insured' was adopted by mistake and the policy should be tecrified ro for an explanation when judged against normal commercial practice. In The
substitute 'agreed value' for 'sum insured' or the phrase 'sum insured' was Grecia Express," where the insured vessel had allegedly been excessively
employed by the parties as meaning'agteed value' and an esrop-pel by overvalued by its managers, Colman J stated that:
convention tequites that it be so tead. Such argumenrs were advanced
.. . where the proposed value is consistent w.ith reasonably prudent ship manage-
unsuccessfully in Thor Navigation.76 ment, the excess over market value cannot be material to the risk, whatever its
precise extent. That which would render the overvaluation material would be
Re-opening an Agreed Value the want of any reasonable explanation for the disparity consistent with
prudent ship management. Accordingly, in cases where a reasonable
Although an agreed value is generally conclusive evidence as between assured and insurer explanation is established the true market value does not have to be disclosed.
of the insurable value of the insured property, there ate exceptions. Section 27(3) of
the Marine Insurance Act 1906 provides that the conclusive-ness of the agreed More generally: 'Itis only where the disparity [between the agreed and market
value is subject to the absence of fraud and to the othet provisions of the Act. It is values] cannot be justified on reasonable commercial grounds that it ought to
now clear that the relevanr staturory provisions include those relating ro pre- be disclosed.'''
formation utmost good faith. 77 Moreover, as noted above," valued policies remain
subject ro the rules on insurable interest so that a gtOSS overvaluation that crosses
the grey line ftom valuation to pure speculation 80 Thames & Masey Marine Insurance Co Ltd v Gunfird Ship Co Ltd [191 I] AC 529, 542 per
will render the policy void as a waget. 79 Lord Shaw. See also Barker v Janson (1868) LR 3 CP 303, 306 per Bovill C} 'Anexorhitant
valuation may be evidence of fraud, but when the transaction is bona fide, the valuation
7.39 It has been observed that 'Where there is heavy over-valuation fraud is, a priori, agreed upon is binding.'
81 ibid. See also Lidgett v Secretan (No 2) (1871) LR 6 CP 616, 629; Elcock v Thomson
[1949J 2 KB 755, 760.
(1812) 3 Camp 319.
7S [20051 EWHC 19 (Comm), [20051 1 Lloyd's Rep 547. See also Eagle Star Insurance C'o Ltd v Games Video Co (eVe) SA (The Game Boy) [2004]
76 On rectification, see 8.77ffbelow and on estoppel by convention, see 8.58 below. EWHC 15 (Comm), [2004J 1 Lloyd's Rep 238.
77 Inversiones Manria SA v Sphere Drake Insurance Co pI!: (The Dora) [1989] 1 Lloyd's Rep M Strive Shipping Corp v Hellenic Mutual \tilr Risks Association (Bermuda) Ltd (The Grecia
~n . Express) [2002J EWHC 203 (Comm), [2002J Lloyd's Rep IR 669, para 478.
78 See 7.26 above. 79 [onides 0 Pender (I 874) LR 9 QB 531 at 536. See 7.42 below. 85 ibid para 479.
250 251
Conversely, an overvaluation that is inconsistent with reasonable commercial practice insured it initially for £2,000, subsequently increasing the valuation on renewal to
raises questions about the nature of the risk and, as such, is one that, if £2,500. Roche J held that the assured had overpaid when buying the yacht, but was
disclosed, a prudent insurer would take into account in assessing the risk and prepared to accept that the initial valuation, albeir optimistic, was not commercially
one that the actual insurer could legitimately claim would have led to a different excessive and reflected the price the assured hoped to obtain on a resale. However,
decision on the acceptability of the risk or the terms on which to write it. An by the time of the increase of the valuation on renewal, the assured had repeatedly
insurer is entitled to know that an agreed value has an abnormal basis, not least failed to resell the yacht and was well aware that £2,500 was at least double the
since, without explanation, a prudent insurer would be concerned that an over- true market value. Roche J held that this overvaluation was excessive and should
valuation that defies explanation on commercial grounds might suggest an have been disclosed. Again, in Gooding v White,90 cargo probably worth no more
enhanced risk of a casualty being procured in order to claim on the policy. than £2,000 was insured at a value of £5,000. Accord-ing to Pickford J, it was
Indeed, it was common ground in The Grecia Express 'that the only possible unnecessary to decide whether the overvaluation was part of an attempted
basis for materiality is that excessive valuation suggesrs the risk of moral insurance fraud, as the insurers alleged, or merely reflected an unrealistic estimate
hazard'." of the cargo's profitability. The overvaluation was excessive and, therefore,
required disclosure whatever its explanation.
It should be noted that the test for materiality does not require such a level of overvaluation
as to render the agreed value pure speculation. Overvaluation to that extent Thames & Mersey Marine Insurance Co Ltd v GunfOrd Ship Co Ltd" concerned 7.44
transcends questions of disclosure since the insurance will be open to attack as a the analogous problem of over-insurance by double insurance instead of by an
wager. The thresbold for materiality of overvaluation is lower. Thus, in Ionides v excessive valuation. A combination of hull, freight, and disbursements policies
Pender," goods with a cost price ofJess than £8,000 were the subject of insurance on produced a cumulative overvaluation of £21,800 in excess of a true value of
cargo and profits valued at approximately £14,000 and orher insurances worth £11,400. The hull policy contained an agreed value of £18,500 in respect of a
£2,500. In particular, a quantity of spirits costing £973 was valued at £2,800. The ship worth £9,000. The House of Lords held that this overloading of insurance
assured argued that this valuation was justified because of was material. Indeed, even overlooking the overvaluation on the hull policy, the
the extreme ptofitability of the spirit, expected to be further enhanced by an remaining cumulative overvaluation generated by two ppi policies on disburse-
imminent heavy import duty. The trial judge directed the jury that over- ments, one ofwhich benefited the ship's managers, was still material. Lord Shaw
valuation was not excessive unless the contemplated level of profitability was quoted a witness for the insurers as condemning the vessel as 'insured fOr loss
greater than could be expected under any circumstances that could be reas~n and not againstloss'." According ro Lord Robson, once the level of insurance is
ably contemplated. The jury found that the overvaluation was excessive, that the such that, even allowing for any sum necessary for reinstatement, those who
evidence was insufficient to establish a fraudulent intent, and that the ,excessive own and control the insured property stand to make a handsome profit in the
valuation was a material fact not disclosed to the underwriters. The Court of event of a loss, 'the incentive to care over the safety of the ship begins to be
Queen's Bench refused the assured's application for a new trial on the ground of substantially affected, and the insurers are entitled to form their own opinion as
a misdirection with respect to overvaluation. It was held that the judge's direc- to how far they will trust the assured under such circumstances'. 93
tion was 'perhaps ... too favourable to the assured, as it makes the question,
whether there was an excessive valuation or not, depend on whether the valu- In contrast, expert evidence in The Dora" established that 'an assured insuring a 7.45
ation was so high as to amount in part at least to a wager' .88 A distinction, yacht will put forward the value he subjectively believes the yacht ro have. More
particularly, the purchaser of a yacht will naturally insure the yacht for the price
therefore, arises between overvaluation that is pure speculation and renders the
insutance vulnerable as a wager and that which is excessive, which, albeit not he pays.''' On this basis, Phillips J concluded that 'where a yacht owner insures
fraudulent, suffices for a defence of non-disclosure. for the price he has paid, a discrepancy between the insured value and the open
market value is not material.'96 On the facts, therefore, the insurer was unable ro
7.43 A number offurther examples of material overvaluation may be given. In Piper v avoid the policy because the assured failed to disclose that rhe market value of
Royal Exchange Assurance,89 the assured purchased a yacht for £1,000 and
so (1913) 29 TLR312. " [1911] AC 529. 92 ibid 545. " ibid 550.
86 ibid para 474. 87 (1874) LR9 QB 531. 94 lnversiones Manria SA v Sphere Drake Insurance Co pic (The Dora) (1989J 1 Lloyd's Rep
as ibid 536 per Blackburn J, delivering the judgment of the Court. 69,92.
" (1932) 44 ULRep 103. 9S ibid per Phillips J. 96 ibid.
252 253
An Introduction to Modern Marine Cover Burden and Standard ofProof
the yacht was US$80,000 less than the agreed value of US$480,000. It is a non-fraudulent misrepresentation would, therefore, require that the insurer
unclear to what extent the same apptoach applies to commercial vessels where esrablish rhat a facr had been wrongly stated. Bur whar is the fact represented by a
the value is less a matter of personal opinion and more a reflection of trading proposed agreed value? Given the acceptance of considetable overvaluation as
opportunity. often commercially legitimate, a proposed agreed value amounts to a proposal fot
the financial basis of the conttact tathet than any representation of fact regatding the
Similarly, there will be no breach of the pre-formation duty of disclosure where the
matket value of the insuted propetty. The commetciallegitimacy of any
difference between the agreed and market values represents an honest and 1Oo
reasonable estimate of the consequential loss the assured is likely to susrain from overvaluation must be regatded as a matter of opinion. Conceivably, the
the loss of the insured property. In The Grecia Express,97 a ferty with a market assured could be regarded as impliedly stating that any overvaluation lies within
value ofUS$4 million was insured under a policy with an agreed value ofUS$6 the tange of commetciallegitimacy. Howevet, establishing the inaccuracy of such a
million. That value was subsequenrly increased to US$8 million. Given that the statement tequites a judgment on a mattet of opinion, namely what is commetcially
vessel could be expected to generate an annual ptofit of about US$2.5 million and legitimate in the citcumstances, and Economides holds in essence that an inaccurate
that wete the vessel lost at the commencement of the season, a ptemium ptice would opinion cannot be held against an assuted unless advanced ftaudulently. It seems
difficult to avoid the conclusion that any attempted te-fOtmulation of a ptoposed
have to paid for a teplacement, there was no basis to conclude that the incteased
agteed value in the fOtm of a statement must fail as an inditect attempt to rendet an
agteed value was matetial to the motal hazard in suggesting that the assuted was
opinion statement actionable beyond the nat-row limits that Economides holds that
contemplating the possibility of a ftaudulent claim.
section 20(5) permits. No such difficulty atises in the context of the pte-fotmation
It will be appatent from the fotegoing discussion that the allegation btought against duty of disclosure. The assured is
the assured is genetally framed as non-disclosute of excessive ovet- required to disclose {every material circumstance' and overvaluation in excess of
valuation tather than being couched in terms of a misrepresentation, although in that which is commetcially teasonable can clearly constitute a 'citcumstance'.
The Dare?' Phillips J referred to 'the representarion made as to the value of
Dord. Ir is suggested that non-disclosure is indeed the apptopriate analytical tooL
Burden and Standard of Proof
Actionable misrepresentations are divided into statements of facr or opin-ion. Any
representation being made as to the commercial legitimacy of the proposed value General Principles
can only be regarded at face value as a statement of opinion. By virtue of section
20(5) of rhe Marine Insurance Acr 1906, such a sratement·is true if made in good It is always incumbent upon the assuted to prove accotding to the civil law 7.48
faith. Liability for a false Statement of opinion depends, therefore, on proof of standatd of proof of a balance of probabilities that the loss the subject of the
fraud. Clearly, if fraud can be esrablished, the agreed value can be re-opened. claim was caused by a petil insuted against under the policy. Courts ate genetally
However, as demonstrated above, fraud is rately the basis for re-opening an agteed reluctant to decide cases purely on the incidence of the burden of proof. 'OI
value. At common law, in approptiate citcumstances one can look behind a However, unless an assured can demonstrate on a balance of probabilities, fitst,
statement of opinion to an implied underlying reptesentation of the fact of the that an event happened that qualifies as a covered petil and, secondly, that that
existence of teasonable grounds to justifY the opinion. This petmits liability to arise event was causative of the loss in the manner dictated by the causation wotding
at least in cases whete the opinion has been attived at negligently, albeit not in cases in the contract, the insurer will win without having even to endeavour to
of simple error. However, in Economides v Commercial Assurance Co plc,99 the establish that the rtile cause of the loss was an event not coveted by the policy,
Court of Appeal held that the wotding of section 20(5) ptecludes the implication of much less to succeed in so doing.
such an underlying representation in
The importance of the burden of proof was teaffirmed by the House ofLotds in 7.49
the context of insurance contract law. Impugning an agreed value on the basis of
97 Strive Shipping Corp v Helknit Mutual 'U'lar Risks Association (Bermuda) Ltd (The Grecia
Express) [2002J EWHC 203 (Comm), [2002J Lloyd's Rep IR 669, paras 445-480. 100 Eagle Star Insurance Co Ltd v Games Video Co (GVC) SA (The Game Boy) [2004J EWHC 15
98 Inversiones Manria SA v Sphere Drake Insurance Co pte (The Dora) [1989] 1 lloyd's Rep (Comm), [2004] 1 Lloyd's Rep 238, para 118.
~,n . 101 Aquarius Financial Enterprises Inc v Certain Underwriters at Lloyd's (The Delphine) [2001]
99 [19981 QB 587, discussed ar 4. 139ffabove. 2 Lloyd's Rep 542, para 19.
254 255
An Introduction to Modern Marine Cover 256
102 A
vessel loaded with sugar sank in calm weather off the Algerian
coast in deep water. Claiming for a loss by perils of the sea, the assured ship-
owners alleged a collision with an unidentified submerged submarine. It was found
that the ship sank because of the inflow of water through an aperture in the shell
plating in the port side. The evidence did not permit a holding as to whether the
ship had been seaworthy when embarking upon the voyage. While conceding the
inherent improbability of the assureds' explanation for this inflow, Bingham J held
in the assureds' favour on the basis that the insurers' alternative explanation, namely
a loss by ordinary wear and tear, was unsustain-able on the evidence. The Court
ofAppeal dismissed the insurers' appeal, albeit on the basis that it was not necessary
to establish the precise nature of the operative sea peril. The insurers then appealed
to the House of Lords. This time, they were successful.
The House of Lords accepted that the defence of ordinary wear and tear had not been
substantiated. However, defending insurers were under no obligation to prove a
cause ofloss not covered by the policy. On the evidence, the lowet courts had not
been justified in inferring a loss by perils of the sea. Even the precept of Sherlock
Holmes that 'when you have eliminated the impossible, whatever temains, however
improbable, must be the ttUth"03 failed to petsuade. Fot the lawyer, the fictional
detective's aphotism has thtee weaknesses. First, the judge does not always have to
solve the case:
.. . the judge is not bound always to make a finding one way or the other with
regard to the facts averred by the parties. He has open to him the third alternative
of saying that the party on whom the burden of proof lies in relation to any ,
averment made by him has failed to discharge that burden. No judge likes to •
decide cases on burden of proof if he can legitimately avoid having ro do so. There
are cases, however, in which, owing to the unsatisfactory state of the evidence or
otherwise, deciding on the burden of proof is the only just course for him to
take. 104
Deciding a case on the burden of proof is, however, an option of last resort. A court
should always strive to arrive at findings of fact to enable it to dispose of
102 Rhesa Shipping Co Ltd v Edmur"ls (The PopiM) [198312 Lloyd's Rep 235, affd on different
grounds [198412 Lloyd's Rep 555, rvsd [198511 WLR 948. The case is discussed in more detail
in the context of proof of loss by perils of the sea at l0.33ffbelow.
103 See Sir Arthur Conan Doyle, The Sign ofFour, Ch 6, in the context of the method of
entry to the deceased's bedroom adopted by his killer, an Andaman Islander named Tonga,
Since he could not have entered through the"door (locked), the window (inaccessible) or the
chimney (toO small) and could not have been concealed in the room (no place for
concealment), it was deduced that he had to have entered through a hole in the roof.
104 [1985] 1 WLR 948, 955-6 per Lord Brandon, See also Campania Naviera Martiartu v
Royal Exchange Assurance Corp [1923) 1 KB 650, 657.
Burden and Standard ofProof
issues through a decision on substance. In an exceptional case whete that is not

possible, the court should generally provide a detailed explanation of why that is
SO.105
Secondly, the detective's maxim applies only once all televant facrs are known, 7.51
petmitting elimination of all possible explanations except one. On the facts,
some significant information was not available. Thitdly, 'the legal concept of
proof of a case on a balance of probabilities must be applied with common
sense'. If a fitst instance judge, as a tribunal of fact, finds that an explanation is
improbable, it cannot then with common sense be held that the assured has
established it to the requisite standatd. An explanation cannot at the same time
be improbable and more likely than not. 'OG
It is inhetent, however, in the standatd of proof on a balance of probabilities that 7.52
the assured is not requited expressly to disprove any alternative explanation
raised by the insurer no matter how imptobable. Pute conjecture on the part of
the insurer will not prevent a court ftom concluding that rhe loss has been
proved by supportive citcumstantial evidence adduced by the assured. The line
between surmise and legitimate inference may not be easy to draw,107 but, where
the probabilities support one view, a court is both justified in drawing a firm
conclusion and obliged so to do notwithstanding the existence of a contrary
possibility. 1as
The assured may succeed in proving only that parr of a loss sustained was caused 7.53
by a coveted peril. In such a case, it is in principle incumbent upon the assured
also to establish what proportion was so caused. Thus, in Kelly v Norwich Union
Fire Insurance Society Ltd,109 damage was occasioned by two incursions of water,
the tetms of the policy extending only to the second. As appottionment of loss
between the two incutsions was impossible, the assured tecoveted nothing."o
Stephens v Cannon [20051 EWCA Civ 222, [20051 CP Rep 31, para 46.
[1985) 1 WLR 948, 956. See also Lamb Head Shipping Co Ltd v Jennings (The MartI)
[19941 1 Lloyd's Rep 624, discussed at 10.30, 10.41 below. Other perils of the sea cases decided
against the assured on the burden of proof include Cobb & Jenkins v lIotga Insurance Co Ltd of
Petrogrltd (1920) 4 LlLRep 130, 178; Mitrovich Bros & Co v Merchants Marine Insurance Co Ltd
(1922) 12 LlLRep 451, (1923) 14 LlLRep 25; Miceli v Union Marine &
GeneralImnrance Co Ltd (1938) 60 LlLRep 275; Ne"r (NE) & Co Ltd v Licemes &
General Insurance Co Ltd (1944) 77 LlLRep 202.
As to which, see Kerr vAyr Steam Shipping Co Ltd[1915] AC 217, esp the speech of Lord
Shaw.
Campania Maritima afBarcelona v Wishart (1918) 23 Com Cas 264; Munro, Brice (} Co v
FW Marten (1920) 2 LlLRep 2, (1920) 36 TLR 241; United Scottish Insurance Co Ltd v British
Fishing Vessek Musual w"r Risks Association Ltd (The Braconhush) (1945) 78 LlLRep 70.
[19891 2 Lloyd's Rep 333. See also Stanley v Western Insurance Co (1868) LR 3 Ex 71.
But see Birds Cigarette Manufacturing v Rouse (1924) 19 LlLRep 301, discussed at 15.58
below.
257
An Introduction to Modern Marine Cover Burden and Standard ofProof
'All Risks' Cover rhat, unless rhe insurers proved arson, the assured's denial would have to be
accepred:'15 'the fire was eirher accidental so far as [the assured] was concerned or
Where insurance covers 'all risks', the assured's burden of proof is considerably eased,
it was deliberate. There is no third possibility. In reality, rhe question is whether the
bur it is not lifted altogether. All risks cargo insurance is not a guarantee that the evidence of arson is sufficiently strong for [the assured's] assertion that the fire was
insured cargo will arrive in an undamaged condition. The very term
accidental to be disbelieved'. The Popi M was disringuished on the basis of its
'risk' denotes an accidental cause of 10ss.111 Such cover is, however, 'quasi- 'unusual facrs' and rhe need, arising out of cover against perils of the sea, to
universal' so that the assured need not identifY the precise cause of the loss and
esrablish rhe precise operative peril. The House of Lords, according to Toulson J,
demonstrate that that cause is properly characterized as accidental. Instead, it
upheld rhe insurers' appeal 'because rhere might have been some other unknown
suffices that the assured establishes on a balance of probabilities that the cause of
cause of rhe casualty, not due to perils of the sea'."6
the loss, whatever it was, was accidental. The precise cause may remain in doubt,
yet the assured will recover.'12 It is respecrfully suggesred that this reasoning is erroneous. First, rhe House of 7.57 Lords
did not decide The Popi M on the basis of any appreciarion of alternarive causes of rhe
It is clear, therefore, that me burden of proof is considerably lighter for an assured under
loss. The reasoning of Lord Brandon in his dismissal of rhe aphor-
all risks cover than under a named perils policy. Consequently, it has been argued
ism of Sherlock Holmes is that a conclusion thar an assured's explanarion for a loss
that where named perils policies embrace a range of perils that collectively
is unproved does nor require any level of recognition of an alrernative
provide an 'uninterrupted continuum' of cover, they should be treated as akin to all
explanation,117 alrhough ir cannot be denied rhat rhe likelihood of an alrernarive
risks cover so that the assured need not identifY the precise cause of the loss bur
explanation may influence a conclusion as to wherher the assured's explanation
merely that it was fortuitous and fell somewhere within the continuum. Such an
should be rejected as unproved. Secondly, it is well esrablished that insurers under a
argument has been rejected. An assured that desires seam-
named perils policy who suspect scurtling are not required to respond to a claim of a
less cover and a lighrening of rhe burden of proof musr contracr for all risks
fortuitous loss by perils of the sea by affirmatively alleging scuttling. They are
cover.' 13
entitled simply to put the assured to proof of its claim according to the srandard of a
Notwithstanding the easing of the assured's burden of proof under all risks cover, that balance of ptobabilities. Logic does not dictate a difference of principle in the
burden is still present, and it seems logical that a claim may fail without the insurer context of all risks cover. The lighter evidential burden faced by an assured, in that
establishing on a balance of probabilities that the cause of the loss fell outside the the precise operative peril need not be proved, certainly renders less likely a
scope of cover or any other specific defence merely conclusion that the assured has failed to discharge its bur-den, but it cannot
because the assured has failed to establish on a balance of probabilities that the eliminate the possibility. Especially, bur not uniquely, because of the cogency of
loss was accidental. This reasoning has, however, been doubted. In The evidence required before a court will uphold an affirmative defence of scurtling,'18
Delphine,' 14 the assured claimed under an all risks yacht policy in respect of a it must be possible for a court to conclude that, although the evidence does not
sinking caused by fire. The insurers alleged arson by the assured. Toulson J warrant a positive holding of scuttling by the assured, nevertheless the accidental
rejected the possibility of a finding in favour of the insurers on the basis of failure nature of the loss has not been established on a balance of ptobability.
by the assured to discharge the burden of proving fortuity. The assured denied that
he caused the fire and, if that denial was to be believed, it followed
that the fire was a risk within the meaning of the policy. The burden of proving (3) Exclusions
arson clearly lay on the insurers. The consequence, according to Toulson J, was
A distinction needs to be drawn with respect to exclusions,'19 General exclusions 7.58
qualifYing the entirety of the cover must be disproved by the assured in order to recover.
Thus, in policies warranted free of particular average, the burden of proving a total loss
Schloss Bros v Stevens [1906] 2 KB 665 at 673; British 6- foreign Marine Insurance Co Ltd v Gaunt lies on the assured. Where the cover is subject to specific exclusions, however, the burden
[1921] 2 AC 41 at 46-7,52,57; PasqtulJi & Co v Traders' & Genera! Insurance Association
(1921) 9 LlLRep 514 at 516: Berk (FW) 6- Co Ltd v Style[195611 QB 180. of proof generally falls upon the insurer,12o and
British & Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41.
m ShellPetroleum Co Ltd v Gibbs (The Salem) [19821 QB 946, 959: Browmville
Holdings Ltd v Adam}ee Insurance Co Ltd (The Milasan) [2000]2 Lloyd's Rep 458, pata 15. 115 ibid para 21. 116 ibid para 17. 117 See 7.50 above. 118 See 15.18 below.
114 Aquarius Financiall::,uerprises Inc v Certain Underwriters at Lloyd's (The'Delphine)
Munro, Brice 6- Co v w:tzr Risks Association Ltd[1918J 2 KB 78.
[2001J 2 Lloyd's Rep 542. Green v Brown (1744) 2 Str 1199. But see further below.
258 259
An Introduction to Modern Marine Cover
an insurer cannot shift rhis burden to the assured by framing rhe exception as a
condition precedent to liability. It 'is axiomatic in insurance law, that, as it is
always for an insurer to ptove an exception, so it is for him to prove the breach
of a condition which would relieve him from liability in respect of a particular
loss' .'21 However, a reverse burden clause may oblige the assured to disprove 8
the operation of an exclusion where the insurer presents an arguable case for the
operation of an exclusion and satisfaction of the causal connecrion required by
the policy between the exclusion and the loss.'"
INTERPRETATION AND
Difficulty may arise in determining whether a specific restriction on cover is RECTIFICATION OF INSURANCE
appropriately characterized as an exclusion, in which case the burden of proof
falls on the insurer, or as part of the definition of a named peril or the scope of CONTRACTS
all risks cover, in which case the burden of proof falls on the assured.'" Certain
restrictions on cover that in the modern Institute clauses are drafted as exclu-
sions and form part of a clause headed 'Exclusions' previously formed part,
expressly or implicitly, of the definition of the covered perils. Thus, restrictions A. Principles of Interpretation 8.02 B. The Slip as an Aid to Interpretation
on the scope of the perils of artest, restraint, and detainment formerly expressed (1) The intention of the parties 8.04 of the Policy 8.63
(2) Factors taken into account in (1) General admissibility but variable
as part of the definition of such terms124 are now found within the 'Exclusions' in
interpreting contracts 8.06 evidential value 8,64
125
the Institute war and strikes clauses for hulls or freight. Again, 'all risks' (3) Contractual interpretation and the (2) The rule of law approach 8.72
cover has been regarded as a marter of interpretation of the term 'risk' not to doctrine of precedent 8.59 C. Rectification 8.77
cover loss or damage caused by inherent vice or ordinary wear and tear, wirh
rhe burden falling on the assured to adduce evidence rhat the loss or damage
was nor so caused."6 Under the Institure Cargo Clauses (A), the absence of This chapter is concerned with how one ascertains the content of the bargain 8.01
cover for such loss or damage is not left ro implication from the rerm 'risk' but is between insurer and assured. This necessarily involves interpretation of the terms
made the subject of express exclusions. 127 The provenance of these exclusions selected by the parties, in the same way as with any commercial contract.
has led to the view, in the context of the peril of detainment, that the assured In addition, however, the insurance context raises the question of the urility of
should remain subject to a burden of disproving the operation of these the slip as an aid to interpretation of any subsequent policy. The availability of
res,rictions notwithstanding their modern presentation as exclusions. 128 It is, rectification will also be considered.
however, sug-gested that attributing such significance to the historical provenance of
a con-tractual provision over the apparently clear contractual allocation of status is
highly questionable. A. Principles of Interpretation
Phillips J once observed, in the context of a reinsurance dispute: 'As is the way 8.02
with hotly contested issues of construction, Counsel on each side has assured
", Bond Air Services Ltd v Hill [1955J 2 QB 417, 427 per Goddard LC]. See also Simmons v me that my task is a simple one and that the answer is obvious. I do not find the
Gale [1957J 2 Lloyd's Rep 4S5 (Supreme Court of New Sourh Wales) (unsuccessfully appealed to rhe issue simple." Difficulries of interpretation should not be underestimated: 'The
Privy Council on other grounds: [195812 Lloyd's Rep I).
fact that a Court succeeds in construing a contractual provision does not
m Spinneyl (I948) Ltd v Royal Insurance Co Ltd[1980J 1 L1oyd's Rep 406, 426.
123 The issue of characterization is relevant also to the operation of concurrent cause rules: see
9.30-9.31 below.
"4 MIA 1906, Sch 1, r 11.
", eg Institute War aod Strikes Clauses (Hulls-Time) (1111/95), ell 5.1.4-5.1.5. -~--~----------------
British & Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41,52,57. 1 Youell v Bland Welch 6- Co Ltd (No 1) [1990J 2 Lloyd's Rep 423, 427. He cootioued: 'It
Institute Cargo Clauses (A), cl4.2-4. involves construing a single sentence, fifteen lines long, the grammatical structure of which is far
Ikerigi Compania Naviera SA v Palmer (The Wondrous) [1992J 2 Lloyd's Rep 566, 572. from dear.'
260 261
Interpretation and Rectification ofInsurance Contracts Principles ofInterpretation
mean that the provision is unambiguous, let alone that it is clear." Faced with designed to assist a court in the often challenging task of divining the intention
construing the word 'flood' in a household insurance policy, Lawron LJ was of the parties.'
moved to remark: 'This appeal raises a semantic problem which has troubled
many philosophers for centuries, and it can, I think, be expressed in the aphor- (1) The Intention of the Parties
ism that an elephant is "difficult to define but easy to recognise"." Sadly,
difficulties of interpretation are often the result of inadequate attention being The purpose of interpretation is to give effect to the intention of the parties as 8.04
8
paid to the drafting of contracts. Judges have often been moved to remark revealed objectively by the available and admissible evidence The focus must
disparagingly on the qualities of drafting displayed even in professionally pre- inevitably fall upon the words chosen by the parties to express their intention,
pared documents relating to commercial transactions involving considerable but the meaning to be given to those words may be affected by a wide range of
sums of money.4 factors. Testimony from the parties themselves will not, however, be received as
too likely to be coloured by self-interest. Both the objective narure of the process
In construing a contract, the court seeks to give effect to the bargain concluded and the breadth of material available to the court were encapsulated by Lord
by the parties. 5 The modern approach to interpretation is to reject any impedi- Hoffmann in the first of five principles enunciated in the Investors Compensation
ment to determining and implementing the intention of the parties in conclud- case: 'Interpretation is the ascertainment of the meaning which the document
ing the contract they did in fact conclude, while remaining vigilant not to would convey to a reasonable person having all the background knowledge
rewrite the contract. In particular, a commercial contract will be construed which would reasonably have been available to the parties in the situation in
through the eyes of reasonable commercial parties and not via the application of which they were in at the time of the contract.'9
abstract, technical legal rules. Thus, in comments prefacing the leading modern
judicial statement of the principles governing the interpretation of contracts, Lord It is often stressed that the role of the court is to interpret the contract and that 8.05
Hoffmann, in Investors Compensation System Scheme Ltd v W0st Bromwich any tendency rowards rewriting is to be strenuously avoided. Judicial rewriting
Building Society: stated that: 'Almost all the old intellectual baggage of "legal" would constitute an improper infringement of the liberty of the parties to order their
interpretation has been discarded.' That said, the process of interpretation is not own affairs, even if in a seemingly improvident fashion. It would, more-over, be
entitely at large. Principles of interpretation can be formulated. However, sub-ject to destructive of the certainty that commercial parties especially need to be able to
a few remaining rules of inadmissibility, these principles must be under-stood not as repose in the agreements they conclude.'o Often, however, the problem posed is the
rules in any formal sense but rather as suggested thought process_es application of the contract to circumstances that clearly were entirely beyond the
contemplation of the parties at the time the contract was concluded. The court's task
is then to determine the intention to be imputed to the parties: 'a solution should be
found which is both reasonable and realistic' .'1 In Casson v Ostley Ltd, 12 in the
context of the application of an exemption clause in a building contract to negligent
Youell v Bland Welch & Co Ltd (The Superhulls Cover case) (No 2) [19901 2 Lloyd's Rep 431, breaches, Sedley LJ openly acknowledged that any intention ascertained is 'in most
440 per Phillips]. 'The court's task is to make sense of the agreement as best it can, even if the eventual answer such cases a fiction'" and that the
cannot be regarded with any more enthusiasm than that it is the least unsatisfac~
tory construction': John v Price Waterhouse [2002] EWCA eiv 899, unreponed, para 75
per Robert Walker L].
3 lOung v Sun Alliance ImdLondon Insurance Ltd [1977J 1 WLR 104,108-9.
7 Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240, 244 per Devlin J: 'A rule of construc-
4 eg Kuwait Airways Corp v Kuwait Insurance Co SAK (No 1) [1997] 2 Lloyd's Rep 687, 701
tion cannot be more than a guide to enable the court to arrive at the true meaning of the panics.'
per Schiemann LJ: 'The problem arises because the policy has been constructed on the kebab principle
See also BOC Group pic v Crntean Ilc [19991 I All ER (Comm) 970, 980 per Evans L]: '1 would
of draughtsmanship: various clauses have been garnered together from various sources and skewered
guard against allowing tules, maxims or relevant factors becoming masters rather than servants';
together.' The case concerned the interpretation of a sue and labour clause in an aviation policy, a clause
Bank ofCredit & Commerce International SA vAli [2001] UKHL 8, [200211 AC 251, para 78 per
described by a witness as 'a mishmash ofNol'man French, marine doctrine and what the panies wanted
Lord Clyde: 'The exercise is not one where there are strict rules'.
in an aviation contract' (ibid 695 per Staughton LJ). See also the comments of Lord Hobhouse: [1999J 1
8 Bank ofCredit & Commerce InternationalSA vAli[20011 UKHL 8, [200211 AC251, para 8.
Lloyd's Rep 803, 808-9. Again, see Eagle Star Insurance
(1998] 1 WLR 896,913. On objectivity, see also Reardon Smith Ltd v Yngvar Hansen-Tangen
Co Ltd v Cresswell [20031 EWHC2224 (Comm), [20041 I All ER (Comm) 508 at [171 ('dog's [197611 WLR 989,996.
breakfast'); Petromec Inc v Petrako Brasileiro SA Petrobas [20041 EWCA Clv 156, [20041 I Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 387.
Lloyd's Rep 629, paras 21-22.
11 Per Lord Clyde, para 78. 12 [200 I] EWCA Clv 1013, [20031 BLR 147.
5 Reliance Marine Insurance Co v Duder [1913] 1 KB 265, 273.
13 ibid para 29. cf the analysis of the doctrine of frustration by Lord Radcliffe in Davis
6 [199811 WLR 896, 912-13.
Contractors Ltd v Fareham Urban District Council (1956] AC 696, 727.
262 263
process of interpretation of the parties' chosen terms 'is more nearly that of the what it says. Too ready a departure from the ordinary meaning of the words
concert artiste than that of the linguist' .'4 Acknowledging the creative aspect of used will also undermine commercial certainty." Accordingly, subject to the
the judicial function in such application of contracts to uncontemplated events, possibility of technical meanings, the inquiry as rothe true interpretation of a
Sedley LJ stated as follows: 15 contract 'will start, and usually finish, by asking what is the ordinary meaning
of the words used.'2Q
We mitigate the uncovenanted effects of literalism not by nakedly writing a new
contract for the parties but by construing the words according to principles which
In Melanesian Mission Trust Board v Australiim Mutual Provident Society," Lord
enable the contract, in effect, to be reconstructed. It is a very reasonable stopping place
8.08
on the road that runs between second-guessing parties who have simply
Hope reasoned as follows:
contracted incautiously and leaving a party at the mercy of unconsidered words.
Where ordinary words have been used they must be taken to have been used according
Factors Taken into Account in Interpreting Contracts to the ordinary meaning of those words. If their meaning is clear and unambiguous,
effect must be given to them because that is what the parties are taken to have agreed to
In the quest for the Holy Grail of the interpretation process-the intention of the parties- by their contract. Various rules may be invoked to assist interpretation in the event
a variety of factors may affect the meaning to be attributed to the contractual that there is an ambiguity. But it is not the function of the court, when construing a
document, to search for an ambiguity ... It is of course legitimate to look at the
words. Often, a number of factors corroborate one another in indi-cating the
document as a whole and to examine the context in which these words have been used,
same meaning. Sometimes, different factots may point towards dif-ferent
as the context may affect the meaning of the words. But unless the context shows that
meanings, in which case the court will have to decide which factor, or the ordinary meaning cannot be given to them or that there is an ambiguity, the
combination of factors, is the more persuasive in the context of the particular ordinary meaning of the words which have been used in the document must prevail.
contract in question.
(aJ The natural meaning ofthe words References to 'ordinary meaning' should not, however, mislead. The court's task 8.09
is not to ascertain in isolation the abstract meaning of a word as it may be
The srarting point in interpreting the words chosen by the parties to express their
employed in the English language, but to determine and give effect to the
agreement is their ordinary and natural meaning." According to Lord
intention of the parties behind the words chosen,22 while at all times stopping
Ellenborough in Robertson v French: 17 'The same rule of construcrion which
shott of judicial tewriting of the contract. An authoritative dictionary may be
applies to all other instruments applies equally to this insttument of a policy .of
consulted to reveal the natural English language meaning of a term,23 but: 'One
insurance, viz that it is to be construed according to its sense and meaning as
must beware confusing construction and definition.'24 As Lord Hoffmann
collected in the first place from the terms used in it, which terms are themselves to
observed in Investors Compensation:" 'The meaning of words is a matter of
be understood in their plain, ordinary and popular sense'. This 'reflects the common
dictionaries and grammars; the meaning of the document is what the parties
sense proposition that we do not easily accept that people have
using those words against the relevant background would reasonably have been
made linguistic mistakes, particularly in formal documents' .'8 Commercial
understood to mean.''' The search is for the intention of the parties as object-
insurance policies are compiled by informed professional people, namely
ively revealed by their chosen words in the context of the document as a whole
underwriters and brokers. The natural assumption, therefore, is that the language of
such patties in formal contractual documents says what it means and means
19 BP Explom'ion Operating Co Ltd v Kvaerner Oilfield Products Ltd [2004J EWHC 999
(Comm), [2005J I Lloyd's Rep 307, para 94.
20 Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 384 per Lord Mustill. See also T&N Ltd
" [200Ij EWCA CIv 1013, [2003J BLR 147, para 33. See also Petromec Inc vPetroleo Brasileiro v Royal 6-SunAlliance pic [2003J EWHC 1016 (Ch), [2004J Lloyd's Rep IR 106, para 132.
SA Petrobas [2004J EWCA CIy 156, [2004J I Lloyd's Rep 629, para 21 (poor quality drafrlng [1996) UKPC 53, (1997) 74 p & CR 297, 301.
rendering the identification of parties' intentions from words used 'a search for a mare's nest'). Aqua Design 6- Play International Ltd v Kier Regional Ltd [2002J EWCA CIy 797, [2003J
[200Ij EWCA CIy lOB, [2003J BLR 147, para 32. BLR Ill, paras 9, 24.
Robertson v French (1803) 4 East 130, Stadire Diamond Rings Ltd v Angel [1962J 2 Lloyd's 23 eg In Spinneys (1948) Ltd v Royal Insurance [1980J I Lloyd's Rep 406, 436, Mustill J
Rep 217; MIS Aswan Engineering Establishment Co Ltd v Iron Trades Mutual Insurance Co Ltd referred to the Oxford English Dictionary definition of 'rebellion', a standard war risk.
[1989J I Lloyd's Rep 289, 293-4. Lord Clyde, 'Construction ofCommercial Contracts: Strict Law or Common Sense' (2000)
" (1803) 4 East 130, 135. 27 JMCL I, 10.
18 Part of Lord Hoffmann's fifth principle in Investors Compensation Scheme Ltd v 'West [199811 WLR 896,914.
Bromwich Building Society [1998J I WLR 896, 914. See also Schuler (L) AG v Wickman Machine Tools Ltd [1974J AC 235, 256 per Lord Morris:
'Words are bur the instruments by which meanings or intentions are expressed.'
264
265
and the relevant background." The commercial context indicates, therefore, that ordinary meaning of the words was perhaps best articulated by Sir Thomas
the terms of a commercial conrract should be interpreted according to the Bingham MR as follows: 33
understanding of commercial parties." In consequence, literalism is an unteli-
Courts will never construe words in a vacuum. To a greater or lesser extent,
able guide to the interpretation of a commercial contract. To the question: 'Whar depending on rhe subjecr matter, they will wisb to be informed of what may
is literalism?' Lord Steyn has offered the following answer by way of example:" variously be described as the context, the background, the factual matrix or the
'The tyrant Temures promised the garrison of Sebastia that no blood would be mischief. To seek to construe any instrument in ignorance or disregard of the
shed if they surrendered to him. They surrendered. He shed no blood. He buried circumstances which gave rise to it or the situation in which it is expected to take
rhem all alive. That is literalism. If possible it should be resisted in the effect is in my view pedantic, sterile and productive of error. But that is not to say that
interpretative process.' Accordingly, in Hart v Standard Marine Insurance Co an initial judgment ofwhat an instrument was or should reasonably have been intended
to achieve should be permitted to override the clear language of the instrument, since
Ltd,'O a warranty not to exceed a specified quantity of iron was held to be infringed what an'author says is usually the surest guide to what he means. To my mind
by an excessive quantity of steel, rhe term 'iron' being construed not according to construction is a composite exercise, neither uncompromisingly lit-
scientific understanding but as used in commercial transacrions, all business people eral nor unswervingly purposive: the instrument must speak for itself, but it must do so
being aware thar sreel is merely processed iron. 31 in situ and not be transport~d to the laboratory for microscopic analysis.
The increasing significance paid in the modern law to context raises rhe ques-tion of As Lord Steyn stated succinctly in Total Gas Marketing Ltd v Arco British Ltd,"
the urility of the concept of an ordinary and natural meaning. Lord Hoffmann 'loyalty to the contractual text viewed against its relevant contexrual
has expressed doubt, 'at least in some cases':" 'Because the natural meaning of background is the first principle of construcrion'.35
words is so sensitive to syntax and context, the natural meaning of words in one
(b) Specialist meaning 1: technical legal meaning
sentence may be quite unnatural in another. Thus a starement that words have a
particular natural meaning may mean no more than that in many contexts they A word may carry both a technical legal meaning and a common parlance 8.12
will have that meaning. In other contexts their meaning will be different but no meaning. Occasionally, technical interpretation is required by law. The peril of
less natural.' 'riot' is construed in marine policies in accordance with the definirion in the
Public Order Act 1986 because s 10(2) of that Acr so dictates." More generally,
This is undoubtedly true, but the challenge is to permit context to shed light on the
parties' intentions while acknowledging that the parties are not prisoners of
their context. The relationship between the context of the contract and the
33 Arbuthnott v Fagan [1996] Lloyd's Rep IR 135,139. See also Lord Clyde, 'Construction of
Commercial Contracts: Strict Law or Common Sense' (2000) 27 JMCL 1,16: 'While the words
which commercial people use are still the focus to which construction is directed, the emphasis is
27 On the ordinary meaning of the words and extrinsic evidence, see further 8.42-8.43 below. not on literalism, but on the expectation of commercial people.'
Mannai Investment Co Ltd v Eagle Star Lift Assurance Co Ltd [1997] AC 749, 771. " (1998] 2 Lloyd's Rep 209, 218.
Sirius International Insurance Co (PUBL) v FAI General Insurance Ltd [2004] UKHL 54, 35 See also Sirius International Insurance Co (Pub!) v FAI General Insurance Ltd [2004J UKHL
[2004] 1 WLR 3251, para 19. 54, [20041 1 WLR 3251. para 18.1n King v Brandywine Reinsurance Co (UK) Ltd [2004]
(1889) 22 QBD 499. EWHC 1033 (Comm). [2004] 2 Lloyd's Rep 670, affd [2005] EWCA Civ 235. [2005] 1 Lloyd's
See also Kawasaki Kisen Kabushiki Kaisha ofKobe v Bantham Steamship Co Ltd [1939] 2 KB Rep 655, one issue was whether the COStS of cleaning up oil pollution were recoverable under the
544 (meaning of 'war' in a charrerparty cancellation clause, discussed at 13.19-13.21 below); heading of'removal of debris of property ... covered hereunder', which extended $600 million of
Yorkshire Dale Steamship Co Ltd v Minister of war Transport (The Coxwold) [1942] AC cover. According to Colman J (para 86): 'In order to identify the mutually intended meaning of
691. 707 (proximate cause, discussed at 9.45 below); Noten BV v Harding [1990] 2 Lloyd's Rep these words it is necessary first to identify the possible range of dictionary meanings, secondly to
283 (proximate cause, discussed at 15.57 below). This blends into the relevance ofcommercial investigate the setting of the words in their contractual environment and thirdly to investigate the
common sense as a factor in its own right, discussed at 8.26ffbelow. circumstances in which the contracts were negotiated, in patticular the circumstances of the parties
32 Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 391. See also Static Control and the mutually known features of the market in which they were negotiating.' It was held there
Components (Europe) Ltd v Egan [2004] 2 Lloyd's Rep 429. para 27 pc> Arden LJ: 'rhere ace was no cover. As a matter oflanguage, the term 'debris' was not associated with liquids; the
not twO possible constructions in any given situation, namely a purely linguistic one and one in the contract dearly regarded liability for pollution as distinct from liability for removal of debris; and
light of the factual background, but only one" the true interpretation. This is because the object of the extent of cover exceeded the limit of cover for pollution clean-up costs available in the London
interpret-ation is to discover the meaning of the provision in question in its context ... Thus, in market at the time the contract was concluded. The Court of Appeal upheld this ruling, although it
principle, all contracts must be construed in the light,of their factual background, that background relied purely on the ordinary meaning of the phrase 'removal of debris'. Spilled oil or pollution
being ascertained on an objective basis. Accordingly,'the fact that a document appears to have a from spilled oil was not 'debris' and dean-up of spilled oil involved much more than simply
clear meaning on the face of it does not prevent, or evetiexcuse, the Court from looking at the removal (paras 117-18).
background.' 36 See 14.12-14.14 below.
266 267
there is a rebuttable presumption that parties who employ a term of legal art in a Although the SG policy is no longer used, to the extent that the defined terms
formal legal document intend that term to carry its technical meaning,37 Thus, at f.emain in current usage, the rules of interpretation retain their value as expressions
common law, a technical approach was adopted by the House of Lords to the of the market's understanding and are given statutory force by section 30(2) of the
' 38 1906 Act unless the context of the policy otherwise requires and subject to the
pen'I0 f" flOt'berofe statute mtervene d.
provisions of the Act.
The technical meaning will not prevail, however, if evidence in the wording of the
contract or the background to the contract persuades the court that a (e) Context within the contract
different meaning was intended by the parties. 39 In particular, the policy con- The meaning of words can be affected by their context within the contract in 8.16
cerns that influence a particular branch oflaw to impart a particular meaning ro
various ways. First, meaning can be affected by the function a particular term is
a word may not carry across to the interpretation of a commercial contract.
designed to fulfil. In Charter Reinsurance Co Ltd v Fagan,44 the phrase 'actually
Thus, various strikes risks employ terms recognized in, for example, employ-
paid' in a reinsurance contract was held not to render payment on the primary
ment law, criminal law, or extradition law, It cannot be readily assumed that
policy by the reinsured a condition precedent to entitlement to payment under
the concerns of, for example, the criminal law correspond to those of the
reasonable commercial person taking out a policy of marine insurance'o the reinsurance contract. The ordinary meaning of the phrase, indicative of a
condition precedent, was held to be displaced by a meaning dictared by the
Specialist meaning 2: custom and usage function of the relevant rerm within rhe contract as part of the measure of
indemnity payable by the reinsurer,
Words may also acquire a particular meaning through the custom of a particular trade,
market, or locality." To be legally recognized, a cusrom must be certain, Secondly, rhe juxtaposition of words can influence interpretation through the 8.17
notorious, and reasonable,42 Once established, a custom usually binds all par- eiusdem generis principle. According to this principle, where the choice of words
ties. However, in the case of customs particular to the Lloyd's market and not within a clause indicates an intention that the clause should be confined to a
general to the London insurance market, the courts have declined to hold particular class or genus, the individual terms within the clause will be con-strued in
assureds bound by customs prejudicial to their interests unless it could be shown a manner that conforms to that class.45 Thus, in Young v Sun Alliance & London
that the assured knew of the custom and contracted with reference to it.43 Insurance Ltd," an ingress of water from a natural source in a ground floor
lavarory was held not to constitute a 'flood' within a policy term that covered 'storm,
Schedule 1 rules ofinterpretation tempest or flood'. The householder might in common parlance have referred to the
The old SG policy is reproduced in Schedule 1 to the Marine Insurance Act room as flooded, but the policy clearly contem-plated a genus, namely unusual
1906 together with seventeen rules of interpretation of terms used in tb.e policy. manifesrations of natural phenomena, and the rerm 'flood' was construed
accordingly, Similarly, in Tektrol Ltd v International Insurance Co ofHanover
Ltd,47 a policy covered business interruption caused, inter alia, by accidental loss
37 Schuler (L) AG 0 Wickman Machine Tool Sales Ltd[1974] AC 235, 264, Sunport Shipping Ltd of any property used at the business premises for business purposes. An exclusion
o Tryg-Baltica International (UK) Ltd (The Kleoooulos ofRhodes) [2003J EWCA Civ 12, [2003J I that covered damage caused by loss of informa-tion on computer systems 'caused
London & Lancashire Fire Insurance Co Ltd v Bolands Ltd [1924] AC 836, discussed at deliberately by rioters strikers locked out workmen persons taking part in labour
14.13 below. disturbances or civil commotion Ot malicious persons' was held not to include a
The tcchnicallegal meaning of the word 'condition' as indicating a major contractual tcrm, computer hacker who created and disseminated a virus that contributed to the loss
breach ofwhich constitutes a repudiation of the contract, was rejected as the correct interpretation
in Schuler (L}AG v Wickman Machine Tool Sales Ltd [19741 AC 235, discussed ar 8.23 below.
by the assured of a valuable computer source code. According to Buxton L] :48
40 See also the concern to ensure that the interpretation of a contract conforms with
commercial common sense: 8.26ffbelow.
" Robertson 0 French (1803) 4 East 130, 135. In Smich 0 Wi&on (1832) 3 B & Ad 728 a
contract to lease a rabbit warren in Suffolk provided for payment byrhe lessor for the rabbits left
in the warren at the end of the lease at the fate of £60 per 1,000 rabbits. Evidence was given
and accepted by the COUft of a local custom that, in respect of rabbits, '1,000'meant 1,200.
Cunliffe-Owen 0 Teather & Greenwood [19671 1 WLR 1421,1438. "" [19971 AC 313.
Gabay v Lloyd (1825) 3 B & C 793 (limitation on cover). See also the cases on settlemerit of 4S Chandris 0 Isbrandtsen-Moller Co Inc[195l] 1 KB 240. 246.
losses between insurer and assured by means of set-off on accounts between insurer and broker: 46 [1977J I WLR 104. " [20051 EWCA eiv 845, [2005J 2 Lloyd's Rep 701.
22.117 below. 48 ibid paras 11-12.
268 269
Interpretation and Rectification ofImurance Contracts Principles ofInterpretation
The concept of rioters, etc, causing damage to information on the computers at the 'inasmuch as the written words are the immediate language and rerms selecred by
insured's premises suggests strongly that the context envisaged by the draftsman rhe parties themselves for the expression of their meaning'. 55
is of interferences directed specifically at those computers and committed on or
near the insured's premises. 'Deliberately' fits well into that context, because such Fifthly, the courts will strive to avoid internal inconsistency. Any reasonable 8.21
per-sons might well damage information accidentally or carelessly in the course of interpretation that reconciles contractual clauses will be pteferred over an interpretation
other depredations. But suddenly to tag on at the end of the excepting clause a that prevents the clauses ftom conflicting with one another. 56
reference to remote hackers, a completely different category of person making a
complerely differenr kind of attack, significantly changes rhe rhtUst of rhe excep- Moreover, if a literal reading of a clause would defeat rhe main objecr and intent of
tion, in a way that one would expect to be done only by much more specific the contract, or alter the commercial nature of the contract, it will be read
wording. restrictively. 57 Thus, the courts will be reluctant to accept that an insurer has
.. . If the insurer wished to exclude all damage caused however indirectly by a waived any and every defence under a contract, thereby transforming an insur-ance
computer hacker he needed to place that exclusion in a separate clause, and not policy into an on-demand bond. 58 Similarly, if at all possible, a policy will not be
refer to malicious persons in the same terms as rioters or locked-out workmen. construed as affording cover under one provision and then removing that cover
The eiusdem generis rule will not, however, easily operate to displace a settled, normal under another. Thus, while failure to take reasonable care normally con-notes
meaning of a rerm in a commercial document. Long-standing authority negligence, a provision requiring the assured to take reasonable precau-tions to
cleatly establishes that the peril ofseizure embraces forcible takings of possession prevent loss or damage will be construed as confined to recklessness in a policy
designed to cover industrial risks including the assured's negligence. 59
both belligerent and peaceful.49 In Kuwait Airways Corp v Kuwait Insurance Co
SAK (No 1),50 the peril of 'seizure' was included in a series of perils of depriv- Sixthly, by virtue of the doctrine of repugnancy, a clause that can only be 8.22 construed
ation of possession by a government within its own jurisdiction. Rix J held that a in such a way as to reduce a contract to a declaration of intent can be disregarded and
government should be assumed to act peacefully within its own jurisdiction and effectively deleted from the contract." This is obviously an interpretation of last resort,
that, in context, 'seizure' should be interpreted as confined to peaceful takings. 51 and a court invited to apply the repugnancy doc-
However, the Court ofAppeal and House of Lords disagreed, holding that the trine will be astute to the danger of rewriting the contract. Similarly, in rare cases, a
policy wording contained no evidence of an indication to depart from the settled clause that makes no sense at all in the context of the contract may be
extent of the peril."
Thirdly, the express reference to one matter may impliedly include another similar matter
that is not mentioned. 53 Thus, where certain terms are descrilied as conditions 55 Robertson v French (1803) 4 East 130, 136 per Lord Ellenborough. See Mercantile Marine
Insurance Co v Titherington (1864) 5 B & S 765; Dudgeon v Pembroke (1877) 2 App Cas 284;
precedent and others are not, the obvious inference is that the latter do not have Homburg Houtimport BV vAgeosin Private Ltd (The Stanin) [2003J UKHL 12, [2004J 1AC 71 5,
condition ptecedent status, although ultimately the status of the clause will depend on para II.
the policy as a whole. 54 Pagnan SA v Tradax Ocean Iransportation SA [1987] 2 Lloyd's Rep 342; University o/Keele v
Price ViliIterhouse [2004J EWCA Ciy 583, [2004J PNLR 43.
Fourthly, marine policies are usually based on standard clauses promulgated by Glynn v Margetson & CO 11893J AC 351; Sze Hai long Bank Ltd v Rambler Cycle Co Ltd
[1959J AC 576.
the London market. These, however, are susceptible to modification according to BIB Casualty & General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA Civ
the requitements of the parties. Should a discrepancy arise between a written 735, [2001J 2 Lloyd's Rep 161, para 31.
endorsement on the policy and its standard terms, the former will prevail Fraser v BN Furman Productions Ltd [1967J 1WLR 898; Lane (W & J) v Spratt [1970J 2 QB
480. Likewise Aluminium Wire & Cable Co Ltd v Allstate Insurance Co Ltd [1985] 2 Lloyd's Rep
280; Legal & Generallnsurance Australia Ltd v Eather (1986) 6 NSWLR 390 (Court ofAppeal of
New South Wales); Cee Bee Marine Ltd v Lombard Insurance Co Ltd [1990] 2 NZLR I (Court
of Appeal of New Zealand). See also the interpretation of the delay exclusion under old forms of
marine policy covering perils necessarily involving loss of time: 15.38-15.41 below. For a non~
insurance, maritime parallel, see Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The
49 See 13.47 below. !Wpitan Petko Voivoda) [2002J EWHC 1306 (Comm), [2002J 2 All ER (Comm) 560, paras 23, 27;
so 11996J 1 Lloyd's Rep 664, [1997J 2 Lloyd's Rep 687, [199911 Lloyd's Rep 803. [2003J EWCA Civ 451, [2003J 2 Lloyd's Rep 1, para 20 (in cases of unauthorized deck
S> 11996J 1 Lloyd's Rep 664, 690-1. carriage, the carrier cannot rely on certain defences in the Hague-Visby Rules, such as perils
52 11997J 2 Lloyd's Rep 687, 695, 701, 11999J 1 Lloyd's Rep 803, 814. of the sea, that are relevant only because the cargo is carried on deck).
In accordance with the maxim expressio unius est exclusio alterius. 60 Tor Line AB vAlitrans Group ofCanada (The TFL Prosperity) [1984] 1WLR48; GreatNorth
George Bunt Cranes Ltd v Scottish Boiler & General Insurance Co Ltd (2001] EWCA eiv Eastern Iidilway Ltd v Avon Insurance pic [2001J EWCA Civ 780, [2001J 2 Lloyd's Rep 649,
1964, [2002J Lloyd's Rep IR 178, para 11. para 31.
270 271
disregarded as incompatible with the cleat and contrary intention of the par-ties. restricted to being a factor in its interpretation and not transformed into a ground
61 for rewriting. Parties, especially commercial parties, are entitled ro make
Thus, where a charterparty expressly incorpotated a statute that provided it
did not apply to charterpatties, the section that excluded charterparties was uncompromising or unwise contracts. Courts may look again at the contract if the
distegarded:' most obvious interpretation produces such an excessively unreasonable resulr as ro
raise the question of whethet the parties can indeed have intended that result.
Excessive unreasonableness However, in doing so, they must be careful not 'to force upon the words a meaning
The courts will have regard to the practical consequences of any parricular which they cannot fairly beat' and thereby 'substiture for the batgain actually made
interpretation as a factor in determining whether that is the intetpretation to be one which the court believes could better have been made'.68Jt is noteworthy that,
adopted. An interpretation that produces excessively unreasonable in Schuler itself, a majority of the House of Lords considered that, howevet
consequences is unlikely to reflect the intention of the parties. In Schuler (L) unreasonable the consequences of a technical inter-pretation of clause 7(b),
AG v Wickman Machine Tool Sales Ltd," clause 7(b) ofthe contract required construed in isolation it was at least difficult to find any alternative. Ultimately, it
exclusive sales agents to visit each of six named potential customers each week and was the relationship between clause 7(b) and another clause in the contract thar
ro ensure that the visits were all carried out by the same named representative or, in addressed termination for 'material breach' rhat
unavoidable default, by the same named alternative representative. The clause was permitted the rechnical interptetation of clause 7(b) to be rejected."
described as a 'condition'. The question was whether the word 'condition' was
In matine insurance law, the influence of the unteasonableness of a particulat 8.25
employed in its technical legal sense to denote a term any breach of which was a
interpretation may be seen especially in the courts' approach to clauses that are
repudiation of the contract. The House of Lords tefused to accept that the word
argued to be conditions precedent, including promissory warranties. Breach of a
'condition' was used in its technical sense. Such an interpretation meant that a
condition precedent triggers an auromatic prospective discharge of the insurer's
solitary failure to visit one firm in one week by the representative or alternative
contingent liabiliry, a response that may be wholly disproportionate to and,
entitled the principal to terminate the conttact. Yet rhere was no provision in the
indeed, unconnected with the breach. Consequently, courts will genetally scru-
contract for substitution of the primary or alternative represenratives even if one or
tinize an alleged condition ptecedent with considerable care in order to deter-
both should die, retire, or otherwise leave rhe company, or to covet simul-taneous
mine whether the clause is amenable to interpretation as a diffetent type of
illness of both eligible representatives, or to cover refusal by one of the customers to 70
accept a visir each and every week. A technical interpretation of the word contractual term.
'condition' could, therefote, have produced results described variously·as (g) Business common sense
'so unreasonable',64 'absurd',65 and 'grotesque'.66 On the issue of interpretation,
In a similar, atguably the same, vein, the objective nature of the search fot the 8.26
Lord Reid stated as follows:·' 'The fact that a particulat construction Itads to a
intention of the parties imports that a contract should be construed in a manner
very unteasonable result must be a relevant consideration. The more unteason-
consistent with what makes commercial sense. The less commercially sensible
able a result the more unlikely it is that the parties can have intended it, and if
an interpretation, the less likely the parties as deemed reasonable commercial
they do intend it the mote necessary it is that they shall make that intention
people are to have intended ir.71 Thus, it has been said that 'if detailed semantic
abundantly clear.' However, Lord Reid went on to affirm that, in the absence of
and syntacrical analysis of words in a commercial contract is going to lead to a
an alternative intetpretation, effect had to be given to the clause no matter how
conclusion that flours business commonsense, it must be made to yield to
unreasonable the consequences. On the facts, the ptesence of another clause in
business commonsense'. 72 Moteovet, 'the pootet the quality of the dtafting, the
the contract addressing termination procedures, permitted the word 'condition' to
be construed as catrying its non-technical meaning of contract term.
8.24 It is, however, essential that the excessive unreasonableness of a contract IS
Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 387 per Lord Mustill.
[1974J AC 235, 251-2 (Lord Reid), 265 (Lord Simon), 271 (Lord Kilbrandon). For Lord
Morris, the inter~re1ationship between the clauses reinforced the non~technical interpretation of
cl 7(b).
" Powell v General Electric Co [20051 EWHC 644 (QBD), unreporred. 70 See 18.79, 18.105-18.109,22.13-22.17 below.
62 Adamasto' Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959J AC 133. Mannai Investments Co Ltd v Eagle Star Lift Assurance Co Ltd [1997J AC 749, 771,
63 [1974J AC 235. 64 ibid 251 per Lord Reid. 6S ibid 265 per'Lord Simon. Antaros Compania Naviera SA v Sa/en Rederiema AB (The Antaios) [1985J AC 191,201 per
66 ibid 272 per Lord Kilbrandon. 67 ibid 251. Lord Diplock.
272 273
Interpretation and Rectification ofImurance Contracts Principles ofInterpretation
less willing any court should be to be dtiven by semantic niceties to attribute to Ultimately, if the contract on its tcue interpretation is commercially bizarre, the
the parties an improbable and unbusinesslike intention' provided the words are courts cannot rewrite it: 'any remoulding by the Court in the course of the
capable of sustaining a more sensible interpretation." construction process of the parties' obligations expressed in the language used
must be founded on the intention of the parties whether express or implied in
In Quorum v Schramm," in the aftermath of a fire that had probably damaged a
the document itself read in the relevant matrix of facts'.79
painting" insured under a fine art policy, the parties agreed a clause addressing
the measure of indemnity for partial loss. Part of this clause operated as an In Kuwait Airways Corp v Kuwait Insurance Co SAK (No 1),80 an aviation policy
average clause, rendering the assured its own insurer for the proportion of the 8.30 covered aircraft hulls against a range of perils set out in six paragraphs lettered
risk corresponding to the difference between the sum insured and the market (a) to (f). Paragraph (a) comprised war, invasion, hostilities, and similar perils
value of the painting immediately prior to the loss. This average clause left part while paragtaph (e) contained perils of deprivation of possession including seiz-ure.
of the risk with the assured if the value of the painting had risen above the sum An extension of the policy to aircraft spares covered the same range ofperils 'other
insured. This made commercial sense. However, on its wording, the clause also than Paragraph (a)', which was to apply only to spares in transit. This reflected the
left part of the risk with the assured where the value of the painting had fallen caution with which the insurance market approaches war risks cover for goods,
below the sum insured. This was 'an extraordinary commercial consequence, as which in principle is to be confined to goods in transit. A considerable quantity of
premium would have been paid on the basis of the sum insured and there would be insured spares was then seized by Iraqi forces when they invaded Kuwait. Prima
no commercial logic in this consequence'." Accordingly, and indeed at the insurers' fide, this loss could be regarded as caused by any one of a range of perils listed in
invitation, Thomas] held that the avetage clause should be construed in accordance paragraph (a) and also by seizure. The question was
with the plain intention of the parties that it should apply only where the market whether, in the context of the cover for spares not in transit, cover against the
value had risen above the sum insured. perils in paragraph (a) had been merely omitted from cover or, as argued by the
insurers, excluded." A majority of the Court of Appeal found in favour of the
In Kumar v AGF Insurance Ltd,77 a solicitors' liability policy contained a non-
avoidance clause under which insurers waived the right to 'avoid, repudiate or insurers. 82 If insurers did not want to cover loss ofspares by war except while
in transit, it made no commercial sense to cover exactly such a loss under
rescind this insurance upon any ground whatsoever', while conferring on the
insurers a right to seek indemnification from the assured in cases of fraudulent another name. Reading the extension as merely omitting paragraph (a) would
pre-formation non-disclosure or misrepresentarion relevant to any subsequent be an 'over-literal interpretation'.83 This holding was, however, reversed by the
claim. This was construed as including the right to rely upon the automatic, House of Lords. Background market concerns regarding the extent of cover that
prospective discharge triggered by a breach of promissory warranty. The clear it was prudent to offer for goods not in transir were irrelevant. The wording of
purpose of the policy was to provide a reliable source of indemnification for the extension was clear. The perils in paragraph (a) were omitted, not excluded,
injured third parties. Moreover, at the time the policy was concluded, the law on and there was simply no licence for a court to rescue an insurer from an
breach of promissory warranty had not been clarified and a body of opinion imprudent bargain. According to Lord Hobhouse, 'it must ... be stressed thar it is
assimilated such a breach to the repudiatoty breach of general contract law. not for the Courts to rell the parties what conttaer they should have made nor, after
the event, to evaluate the merits and demerits of their bargain. If, as here, the
Commercial common sense is not, however, to be regarded as encouraging parties have used plain language to express theit intentions, that should be the end
further liberality of interpretation than sanctioned in Schuler v Wickman." of it: the Courts should enforce the contract in accordance with its terms.'84
73 Mitsui Construction Co Ltd v Attorney-General o/Hong Kong (1986) 33 Build LR 1, 14 per 79Household Global Funding Inc v British Gas Trading
Rovers Football & Athletic Club pIc v Avon Insurance pic [2004J
Lord Bridge. See also Blackburn Ltd [2001] EWHC 400 (Ch),
EWHC 2625 (Comm), [2005] Lloyd's Rep IR 239, para 13, rvsd on other gounds [20051 EWCA unreported, para 22 per Lightman J.
Civ 423, [20051 Lloyd's Rep IR 447.
[1999J 1 Lloyd's Rep 803.
[2001] EWHC 505 (Comm), [2002) 1 L1oyd's Rep 249. So that the excluded perils in para (a) would prevail over the covered peril ofseizure: see 9.29
'La Danse Grecque' by DegaS~
below.
76 [2001) EWHC 505 (Comm), [20021 1 Lloyd's Rep 249, para 76 per Thomas J. 82 [1997] 2 Lloyd's Rep 687, 695, 701. 83 ihid 695 perSraughton LJ.
[1999) Lloyd's Rep IR 147. [1999] 1 Lloyd's Rep 803, 816. See also Schiemann LJ, dissenting, in the COUrt of Appeal
84
Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (Nos 2 & 3) [200l]/EWCA Civ 1047, who held that there was no linguistic basis for the insurers' suggested interpretation. It was,
[2001) Lloyd's Rep IR 667, para 85.
moreover, perfectly possible that the extension was designed not to cover hostile destruction of
spares while covering ho~tile confiscation.
274
275
Royal'& Sun Alliance Insurance pIc v Dornoch Ltd's concerned reinsurance of third precise. It is accotdingly the duty of the court to construe such documents fairly
party liability. A claims control clause required the reinsured, as a condi- and broadly, without being roo asture or subtle in finding defects.'
tion precedent to any entitlement to recover, to advise reinsurers within
72 hours of gaining knowledge of any loss or losses that might give rise to a claim. (i) Taking advantage ofone's own wrongdoing
The purpose of the clause was to permit the reinsurers to exercise control over the Conttacts ate presumed not to petmit wrongdoers ro take advantage oftheir own 8.33
response ro a claim falling within the tetms of the direct cover. On a literal reading, wrongdoing,90 although the ptesumption is rebuttable by cleat wording. In the
91
however, the clause made little sense. Under a reinsurance con-tract, there is no loss insutance context, it is thetefote unlikely that an obligation undertaken by the insurer will
until liability on the ditect cover has been established. Consequently, the obligation be construed as a promissory wattanty, a type of term that functions
ro notify arose only once it was too late for the reinsurers ro profit from as a contingent condition precedent to the continued liability of the insuter on the
notification. The reinsurers argued, therefore, that 'loss' meant alleged or claimed policy. Intetpretation as a promissory warranty would petmit the insurer to commit
loss. However, in the context of reinsurance of finan-cial liability, the commercial the wrong of breaking the obligation and profit from that bteach through the
imperative fot urgent notification is elusive so that forfeiture of cover in the event discharge from liability." Any such obligation, ifsufficiently signifi-cant, is instead
of failure ro notify within three days was highly unreasonable. The underlying likely ro be construed as a condition as that term is employed in general contract
problem was that an inappropriate clause had law, so that breach gives rise to a right on the parr of the innocent party to elect ro
been incorporated into the contract and the reinsurers were seeking a selective treat the contract as dischatged if that patty so wishes.
rewording. They were seeking ro invoke business common sense with respect to the
trigger for the notification obligation in order then to benefit from the commetcially (j) Context outside the contract
unreasonable urgency of notificarion. The Court of Appeal rejected this prayet. The traditional approach ro the interpretation of contracts denied the admissi- 8.34 bility
of extrinsic evidence, that is evidence ourside the four corners of the document, except in
defined circumstances coveted under other headings in this section of this chapter. Thus, it
Validity rather than invalidity was accepted that extrinsic evidence was admis-
Patties are presumed ro intend their contracts to be valid and enforceable. Con-sequently, sible ro prove the existence of a specialist meaning, or to resolve problems of the
an interpretation that produces a valid, enforceable contract will be applicability of the instrument, excessive unteasonableness, or ambiguity.93
pteferted over one that renders the contract or part thereof invalid or unenforce- Today, in contrast, language is understood as always contextual, a legal instru-ment
able.B6 Fot example, where a guarantee has been susceptible of being construed as as always a product of the circumstances in which it was drafted." Thus, even
given in teturn fot considetation that was either past or both past and future, the where rhe wording of a contract can be given meaning when read in isolation and
latrer interptetation has been preferred in order to tendet the guarantee valid. 87 none of the traditional grounds for admitting extrinsic evidence are operative,
Similarly, where one interptetation of the covet provided by a policy would produce extrinsic evidence remains admissible ro establish the background against which
an illegal contract, a court will favour an alternative interpretation." Where the the contract was concluded and, thereby, ro indicate the true intention of the parties
problem is uncertainty of meaning, courts should again endeavour ro respect the and ro influence the interpretation of the contract. 95 It does not, however, follow
parties' intention to conclude a binding contract and belief that they have done so. from increased admissibility thar extrinsic evidence will readily be regarded as
In Hillas'& Co Ltd v Arcos Ltd," Lord Wtight stated that: 'Business men often overriding the meaning otherwise attributed ro the language of the parties.
record the most important agreements in crude and summary fash-ion; modes of
expression sufficient and clear ro them in the course of theit business may appeat ro
those unfamiliar with the business fat from complete or
Alghussein Establishment v Eton College [1988] 1 WLR 587; Tesca Stores Ltd v Pook [2003]
EWHC 823 (Ch), [2004] lRLR 618.
Micklefield v SAC Technology Ltd [1990] 1 WLR 1002.
For discussion of promissory warranties, see 18.54ffbelow.
85 [2005] EWCA Civ 238, [2005J 1 All ER (Comm) 590. As previously held in Shore v Wi&on (1842) 9 CI & Fin 355, 565-7.
In accordance with the maxim verba ita sunt intelligenda ut res magis valeat quam pereat. Westminster City Council v NationalAsylum Support Service [2002] 1 WLR 2956, para 5.
Broom v Batchelor (1856) 1 H & N 255. See also Mare v Charles (1856) 5 E & B 978 On the demise of Shore v Wilson specifically, see Chitty on Contracts Beale et al (eds) (29th
(capacity in which bill ofexchange accepted). edn, 2004) paras 12-117 and 12-118, acknowledged in Sykes v Forster (QB, 30 March 2001).
Lancashire County Council v Municipal InsuranCe Ltd [1997J QB 897, 906; 910. 9S Admissibility that will be unaffected by a conventionally worded entire agreement clause:
(1932) 43 L1LRep 359, 367. John v Price Waterhouse [2002] EWCA Civ 899, unreported, para 67.
276 277
8.35 Evolution of the modern approach to admissibility The advent of this mote liberal generally more liberal approach ro the admissibility of extrinsic evidence, there
approach to the consrruction of contracrs was signalled by the judgment of remain three technical, legal limits on admissibility.lO' First, the exttinsic cir-
Lord Wilberforce in Prenn v Simmonds. 96 Lord Wilberforce stated: 'The rime cumstances sought to be adduced as evidence must have been reasonably
has long passed when agreements, even those under seal, were isolared from within the knowledge of, or reasonably available to, both parties no later than
rhe marrix of facrs in which they were ser and interprered purely on internal the time of conclusion of the contract.'os The question is a broad one, namely
linguistic considerations' and rhar contractual interpretarion required one to whether reasonable people in the position of the parties would have known of
'enquire beyond the language and see whar the circumsrances were wirh refer- the cir-cumstance, so that it can then legitimately be regarded as part of the
ence ro which the words were used, and the object, appearing from those background against which the parties concluded the contract and relevant to
circumstances which the person using them had in view'. illuminating their intention in doing so.
Subsequently, in Reardon Smith Line Ltd v Yngvar Hansen-Tangen," Lord Wilberforce, Secondly, evidence relating to the course of negotiations leading up to the 8.40
wirh the concurrence of a majority of the House of Lords, emphasized that no conclusion of the contract is as a matter of law inadmissible as an aid to its
contract was made in a vacuum and that, with respect to commercial contracts, interpretation.'06 The court is concerned with the contract ultimately concluded rather
courts were always entitled to 'know the commercial purpose of the contract than preliminary or interim negotiating posirions or intimations of the objectives of
and this in turn presupposes knowledge of the genesis of the transaction, the one of the parties. Evidence ofsuch positions or objectives is simply 'unhelpful' .'07
background, the context, the market in which the parties are operating' . Where the final version differs from eatlier versions, speculation
on the motivation behind rhe change is pointless.'os Moreover, admissibility of
The full width of the admissibility of evidence as to background was then reiterated"
negotiations might encourage the parties to generate statements favouring their
by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich
desired construction for the purpose of providing evidence in the event of any
Building Society." According to Lord Hoffmann, '00 with whom three further
subsequent dispute. 109 Consequently, such evidence is admissible only if it
members of the House agreed, the phrase 'matrix of fact' was 'if any-thing, an
reveals a common intention as to the meaning of a certain term so as to found
undetstated description of what the background may include'. In principle, it
an esroppel by convention'lO or an action for rectification of the subsequent
included 'absolutely anything which would have affected the way in which the
documentary record"' In practice, the line between extrinsic evidence that
language of the document would have been understood by a reason-able man'.
conttibutes to the factual matrix and evidence that merely relates to the process
Nevertheless, the evidence must be relevant'01 and cogent. Thus, according to Lord
of negotiation is often elusive, but the modern general admissibility of
Phillips MR: 102 'Before taking extrinsic evidence into account, it is important to
consider precisely why it is said to assist in deciding the meaning ofwhat was
subsequently agreed and to consider whether its relevance is sufficiently cogent to
the determination of the joint intention of the parties to have regard to it.' For discussion and criticism of the second and third limits on admissibility considered below,
see G McMeel, 'Prior Negotiations and Subsequent Conduct-the Next Step Forward for
Contractual Interpretation?' (2003) 119 LQR 272; Lord Nicholls, 'MyKingdom for a Horse: the
The factual matrix of the contract does not include the merits of the underlying Meaning of Words' (2005) 121 LQR 577.
Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976J 1 WLR 989,997; Youell v Bland
dispute. 103 Welch & Co Ltd [1992] 2 Lloyd's Rep 127, 133; Investors Compensation Scheme Ltd v \.\:lest
Bromwich Building Socicty [199811 WLR 896, 913: P&S Platt Ltd v Crouch [20031 EWCA Civ
8.39 Restrictions on admissibility of extrinsic evidence Notwithstanding the 1110, [2004J 1 p & CR 18, para 56.
106 Prenn v Simmonds [1971] 1 WLR 1381; Schuler (L) AG v Wickman Machine Thols Ltd
[1974J AC 235. It is also inadmissible where the issue is whether the parties intended a document
to be legally binding: Petromec Inc v Petroleo Brasileiro SA Petmhas (No 2) [2004) EWHC
" [19711 1 WLR 1381, 1383-4. 97 [1976J 1 WLR 989,996.
127 (Comm), unreported, para 27,
98 And arguably extended. 99 [1988J 1 WLR 896. "0 ibid 913.
"7 [1971] 1 WLR 1381, 1385 per Lord Wilberforce. See also P&S Platt Ltd v Cmuch [2003J
'" Bank ofCredit and Commerce International SA v Ali [2001J UKHL 8, [2002J 1 AC 251, EWCA Civ 1110, [2004J 1 p & CR 18, patas 39,52; Stroude v Beazer Homts Ltd [2005J
para 39. EWCA Civ 265, [2005J NPC 45.
'" MSC Mediterranean Shipping Co SA v Polish Ocean Lines (The Tychy) (No 2) [2001] EWCA 108 Canterbury Go!fIntermuional Ltd v Yoshimoto [2002J UKPC 40, unreported, para 28.
Civ 1198, [200I] 2 Lloyd's Rep 403, para 29. '" Sykes v Forster (QB, 30 March 2001).
103 Sirius International Insurance Co (PUBL) v PAI General Insurance Ltd [2004] UKHL 54,
Amalgamated Investment & Property Co Ltd v 1exas Commerce International Bank Ltd [1982]
[2004J 1 WLR 3251, para 16. QB84.
Rectification is discussed at 8.77f£ below.
278 279
background evidence is no licence to undermine rhe inadmissibility of evidence to a commercial contract have expressed themselves clearly and unambiguously, a
of negoriations. 112 The crucial distinction was stated by Lord Phillips MR in COUrt will not lightly find by reference to extrinsic contextual matrers that they
The Tychy (No 2)"3 in the following terms: 'When a formal contract is drawn up intended a different meaning. Thus, in one case, Bingham LCJ stated that the
and signed, care must be talten to distinguish between admissible background evidence failed to disclose 'such a clear consensus between the parties as would
evidence relating to the nature and object of rhe contractual venture and entitle the court to override what seems to me to be the clear effect of the
inadmissible evidence of the terms for which each party was contending in the policy wording."20
course of negotiations.'
In Kuwait Airways Corp v Kuwait Insurance Co SAK (No 1),'21 already dis- 8.43
The third rule of inadmissibility excludes evidence of post-formation statements cussed,122 iu which the assured sought to recover in respect of aircraft spares seized
or actions of rhe parties." 4 This is excluded for reasons that parallel rhe exclu- by invading Iraqi forces from Kuwait airport, the insurers relied on back-ground
sion of evidence of negotiations. The court is concerned to construe the con~ market concerns regarding the extent to which it was prudent to grant
rract the parties in fact concluded. The parties' beliefs in this respect may be war risks cover in respect of goods other than in transit. The House of Lords
mistaken or self-serving. In addition, if post-formation conduct could affect the dismissed such evidence as irrelevant: 'it must in any event be stressed rhat it is
interpretation of the contract, 'one might have the result that a contract meant not for the Courts to tell the parties what contract they should have made nor,
one thing the day it was signed, but by reason of subsequent events meant after the event, to evaluate the merits and demerits of their bargain'.'" The
something different a month or a year later'.'15 Such evidence is, however, parties had expressed their intentions in clear terms and 'that should be an end
admissible to support a claim for estoppel by convention,'16 as part ofthe ofit'.124
factual matrix to evidence the purpose of the contract,117 as evidence of a term
necessar-ily to be implied, 118 or as evidence of a variation of the contract or the An example from the insutance markets of extrinsic evidence having determina- 8.44
tive, or at least primary, evidential value is provided by Arbuthnott v Fagan.'"
making of a substitute contract. 119
This concerned the interpretation of a clause in the contract between Lloyd's
8.42 The utility of extrinsic evidence Although extrinsic evidence is always admis- names and Lloyd's members' agents. Under clause 9 of the contract, the names
sible to illuminate the background to the contract, if the words employed by rhe owed an autonomous dury to pay such cash calls as the agents might honestly
parties, when read against the internal context of the contract as a whole, have demand in order to fund the underwriting business. Clause 9(c) also ptovided
an ordinary and natural meaning, it may be rare that extrinsic evidence will that due compliance with such cash calls was a condirion precedent to the
persuade a court that the words should instead carry a different meaning. There issuing of any proceedings 'in respect of any matrer arising out of or in any way
is no formal presumption in favour of the ordinary and natural meaning as connected with either the malting of such requirement lie a cash call] by the
distinct from the meaning as revealed by extrinsic evidence. On the contrary, Agent or the subject matter thereof'. When the names sued the agents for breach
interpretation is said always to be a contextual exercise. Nevertheless, if parties of contract and negligence in the conduct of undetwriting, the agents argued
thar meeting all cash calls was a condition precedent to the names' entitlement to
sue. Construing the phtase 'in any way connected' in the abstract, it was possible
112 See the express acknowledgement of this rule of inadmissibility by Lord Hoffmann in to argue that underwtiting was not unrelated to the malting of calls. However,
Investors Compensation Scheme Ltd v west Bromwich Building Society [1998] 1 WLR 896, 914. the Court of Appeal held that clause 9(c) did not apply. It was com-mon ground
MSC Mediterranean Shipping Co SA v Polish Ocean Lines (The 7jchy) (No 2) [2001]
EWCA 1198. [2001] 2 Lloyd's Rep 403, para 29. See also New Hampshire Insurance Co v between the parties, but not stated in the contract itself, that the purpose of the
MGN Ltd [1997] LRLR24, 30-1. provision was to protect policyholders from disputes between names and agents
James Miller 6' Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 572; adversely affecting the flow of funds required to meet liabil-ities. Whatever
Schuler (L) AG v Wickman Machine Tooh Ltd [1974] AC 235.
James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd[1970] AC 572, 603 complaint the name might have regarding the call made, the call was first to be
per Lord Reid. honoured. However, clause 9(c) was in no way designed to protect
116 Amalgamated Investment & Property Co Ltdv Texas Commerce International Bank Ltd [1982]
QB84.
117 Dunlop 7jres Ltd v Blows [2001] EWCA Civ 1032. [2001] IRLR 629.
'" Wihon v Maynard Shipping Comultants AS [1978] QB 665. 120 Ham v Somak Travel Ltd[1998) EWCA eiv 153, unreported.
119 james Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 572,
121 [1999] 1 Lloyd's Rep 803. '" See 8.30 above.
603; MSC Mediterranean Shipping Co SA v Polish Ocean Lines (The 7jchy) (No 2) [2001] 123 [1999] I Lloyd's Rep 803, 816 per Lord Hobhouse. '" ibid.
EWCA Civ 1198, [2001] 2 Lloyd's Rep 403. '" [1996] LRLR 135.
280 281
agents against the consequences of breach of their underwriting duties. The Thus, where the policy contains a clear misnomer, as a matter of interpretation 8,47
Court accordingly construed clause 9(c) as confined to complaints relating to it will be read as evidently intended. In Nittan (UK) Ltd v Solent Steel Fabrication
cash calls. While it is probable that the Court would have reached the same Ltd,'31 Sargrove Electronic Controls Ltd was tal<enover by Solent Steel, a div-
conclusion on the wording of clause 9 even without the extrinsic evidence of ision of which carried on the business of the taken-over company under the
the purpose of clause 9(c), Steyn and Hoffmann LJJ took that evidence as the name of Sargrove Automation. Solent Steel's amended product liability policy,
foundation for their judgments. Their approach was not to construe clause 9 in however, referred to the assured as Sargrove E]ectronic Controls Ltd, an error
isolation and then refer ro extrinsic matters merely by way of corroboration.'26 the Court of Appeal classified as an obvious misnomer, reading the policy as if
the assured had been correctly identified.
Extrinsic evidence may, however, go further than revealing the rrue intetpret-ation of
the words chosen by the parties. It may reveal thar the parries made a wholly A further, arguably more controversial, example of clear error in rhe language is 8.48
inappropriate choice of words, or employed wholly inappropriate syntax to provided by the Investors Compensation Scheme case itself. 132 The Scheme was
express their intention. It is now clear that the words chosen should be established by stature to compensate victims of negligence on the part of persons
construed so as to give effect to the parties' intention. Thus, according to Lord authorized to carry on investment business. There was considerable mis-selling
Hoffmann in Investors Compensation Scheme: 127 of home income plans. 133 Under the Scheme, in return for compensation, the
The background may not merely enable the reasonable man to choose investor transferred to the Scheme all rights and claims against the negligent
between the possible meanings of words which are ambiguous but even (as adviser 'and other third parry claims'. Clause 3(b) then excluded the following
occasionally hap-pens in ordinary life) to conclude that the parties must, for from the scope of 'rhird party claims': 'Any claim (whether sounding in rescis-
whatever reason, have used the wrong words or syntax ... sion for undue influence or otherwise) that you have or may have against the
The 'rule' that words should be given their 'natural and ordinary meaning' reflects the [mortgagee] in which you claim an abatement of sums which you would other-
commonsense proposition that we do not easily accept that people have made wise have to repay to the [mortgagee under the home income plan].' The
linguistic mistakes, particularly in formal documents. On the other hand, if one
Scheme sued one of the lenders as assignee of the investors' claims. The lender
would nevertheless conclude from the background that something must have
gone wrong with the language, the law does not require judges to attribute to claimed that it was a third party and that, under the terms of clause 3(b), any
the parties all intention which they plainly could not have had. right an investor might have against the Scheme had not been assigned. The
House of Lords held, however, that the effect of clause 3(b) was to assign all
This principle can be seen as tying in with the principle of construing contracts claims to financial compensation while leaving the investor with any right to
consistently with commercial sense, '28 a connection that Lord Hoffmann seek rescission of the contract with the lender. The clause was to be read as
indeed went on to make. meaning 'any claims sounding in rescission (whether for undue influence or
It is worth noting that, while Lord Hoffmann's reformulation of the rules of interpretation otherwise) in which you claim an abatemenr'.'34
has attracted a certain measure of critical comment for its per~ ceived general
The difficulty with rhis principle of interpretation is that the correction of errors 8.49
relaxation of principles of admissibility of extrinsic evidence,129 it is only, or at
in recording the intention of the parties has traditionally been the province of
least predominantly, in cases of apparent drafting error, or at least infelicity, that the
the remedy of rectification. The latter requires proof of a clear conflict between rhe
courts in practice have resorted to extrinsic evidence to over-ride the interpretation
tenor of the instrument sought to be rectified and a prior outward expression
that would otherwise be afforded the parries' language. 130
'" See also Egan v Static Con".o! Components (Europe) Ltd [2004] EWCA Civ 392, [2004] 2
Lloyd's Rep 429. [1981] 1 Lloyd's Rep 633. Contrast Cee Bee Marine Ltd v LombardInsurance Co Ltd[1990]
127 [1998] 1 WLR 896, 914 (part of Lord Hoffmann's fourth principle). See also Lord 2 NZLR J.
Hoffmann's judgment in Jumbo King Ltd v Faithful Properties Ltd [1999) 4 HKC 707, quoted in See also Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd[1997] AC 749.
Zyxel Communications Corp v Fairbridge Communications Ltd [2004] EWHC These were loans secured by a morrgage on the borrower's house with the borrowed money
1388 (QBD), invested in equity-linked bonds. When the stock market fell, investors incurred heavy losses.
unreported, paras 20, 24. See also Heritage Insurance Services Ltd v Rotch Property Group Ltd [2003] NPC 100 (Ch)
128 See 8.26ff above. (reference to Appendix 2 in a contractual definition instead of to AppendiX 1 was a clear mistake
129 See McKendrick, Contract Law: Text, GlSes and Materials (2nd edn, 2005) 422-4. and to be read as obviously intended); Snowville UK Ltd v Holiclaybreak pic [2004J EWHC 1336
130 Lord Steyn, 'The Intractable Problem of the Interpretation of Legal Texts' in S Worthington (Ch), unreported (indemnity clause).
(ed) Commercial Law and Commercial Practice (2003) Ch 5, 128.
283
282
Interpretation and Rectification ofInsurance Contracts 284
of the common intention that the instrument purports to codifY.135 No such
evidential burden exisrs in the law of interpretation. In the light of Investors
Compensation Scheme, however, it would appeat that where the alleged error
consists of misrepresenting the common intention, the party alleging the error may
seek to have the contract read in the allegedly correct manner through either
rectification or interpretation. Nevertheless, where the alleged error con-sists in
including a provision that should not have been included or in omitting a provision
that should have been included, it is hard to see that interpretation
can provide an alternative to rectification.
8.50 Context excluding extrinsic evidence While the external context of a contract is
usually invoked to broaden the range ofadmissible evidence, that context may
dictate that extrinsic evidence should not be considered. A cargo policy is a
document that may be passed along a chain of purchasers and through banks
participating in documentary credits. This commetcial context sits ill with aids to
interpretation outside rhe four corners of the document. Thus, it has been held that a
negotiable bill of lading 'should be given the meaning it would convey to a
reasonable person having all the background knowledge which is reasonably
available to the person or class of persons to whom the document is
addressed' This excludes knowledge of circumstances surrounding rhe for-
mation of the contraer known to the original parties but not to subsequent
holders. Moreover, such a document needs to be able 'to be raken up or rejected
promptly and without any opportunity for prolonged inquiry'.137 The process
of examination by new holders may affect rhe interpretation of or significance
'38
to be attribured to a contractual rerm.
Ambiguity
Where the result of applying the principles of interpretation already outlined is
that the relevant clause is capable of twO or more equally legitimate interpret-
ations, the ambiguity entitles the court to invoke the contra profirentem rule. 139
Under this rule, the ambiguity is resolved against whichever party is the profirens
of the ambiguous clause. Thus, if the insurer is the profirens of an exemption
See 8.78-8.80 below.

Dairy Containers Ltd v Tasman Orient Line CV (The Tasman Discoverer) [2004] UKPC 22,
[2005J 1 WLR 215, para 12 per Lord Bingham. See also Homburg Houtimport BV v Agrosin
Private Ltd (The Starsin) [2003J UKHL 12, [2004J 1 AC 715, para 74.
Hansson v Hamel & Horlry Ltd [19221 2 AC 36, 46 per Lord Sumner.
Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003J UKHL 12, [2004J 1
AC 715.
139 The expression' contra proferentem rule' is a convenient abbreviation 'ofthe maxim verba
chartarum fortius accipiuntur contra proferentem.
Principles ofInterpretation
clause capable of either a broad or narrow interpretation, rhe clause will be

construed narrowly in favour of the assured. 140
It is, however, to be emphasized that the contra profirentem rule is available only 8.52
if a clause is genuinely ambiguous and not merely difficult to interprer. '4'
Merely because (expert) witnesses differ over the meaning to be ascribed ro a
term does not of itself render the term ambiguous. '42 Before concluding that a
clause is ambiguous, a court should first endeavour to ascertain its interpretation
in accordance with the guidelines already discussed. A court should not 'move
straight ro the contra profirentem rule without first looking at the context and,
where appropriate, permissible aids to identifYing rhe purpose of the commercial
document of which the words form part' .'43
The rule clearly requires identification of the profirens. Ironically, the term is 8.53
itself ambiguous, being capable of referring to either the party seeking to rely on
the clause (the profirens coram judice) or the party responsible for introducing
the ambiguity into the contract (the.profirens in contrahendo).144 It is, however,
now clear that the contra profirentem rule employs the term profirens in the latter
sense. 145
The wording of a policy is generally put rogether by the broker, who, as agent of 8.54
the assured, then tenders the wording in the form of a slip to the insurer for
consideration of acceptability of the risk, including the precise terms, and the
appropriate level of premium. Where the term that proves ambiguous is one
inserted by or on behalf of the assured, the contra profirentem rule requires
interpretation in favour of the insurer and against the interests of the assured. 146
140 Lawrence vAberdein (1821) 5 B & AId 107; Houghton v Traftlgar Insurance [19541 1 QB 247;
Ilktrol Ltd v International Imuram'e Co ofHarlOver Ltd [2005J EWCA Civ 845, [2005J 2 Lloyd's
Rep 701.
141 Higgins v Dawson [1902] AC 1; American Airlines Inc v Hope [1973J 1 Lloyd's Rep 233, 250.
'" Kirkaldy OJ & Sons Ltd v Walker [1999J Lloyd's Rep lR 410,419.
143 Dirett Travel Insurance v McGeown [2003J EWCA Clv 1606, [2003J Lloyd's Rep lR 599,
para 13 per Auld L]. See also Melanesian Mission Trust Board v Australian Mutual Provident Society
[l996J UKPC 53, (1997) 74 P & CR 297, para 8; Gan Insurance Co Ltd v Tid Ping Insurance
Co Ltd (Nos 2 & 3) [2001] EWCA Clv 1047, [2001] Lloyd's Rep IR 667, para 21 per Mance LJ:
'principle of last resort'.
Youell v Bland Walch & Co Ltd [1992] 2 Lloyd's Rep 127, 134.
See the cases cited below. Also Anderson v Fitzgerald (1853) 4 HLC 484, 507; Lancashire
County Council v Municipallnsurance Ltd [I997J QB 897, 905, 910; Kirkaldy OJ & Sons Ltd v
Walker [1999J Lloyd's Rep IR 410,416. It is possible that prima facie contrary statements that the
proferens is the party for whose benefit the clause in question was introduced into the contract
(eg Blackett v Royal Exchange Assurance Co (1832) 2 Cr & J 244, 251) may be predicared on tbe
assumption that a party who benefits from a clause wHi have been responsible for its introduction.
146 AlS Ocean v Black Sea & Baltic Generallnsurance Co Ltd (1935) 51 LlLRep 305; Bartlett &
Partners Ltd v Meller [1961] 1 Lloyd's Rep 487, 494; De Maurier Oewels) Ltd v Bastion Insurance
CO [1967J 2 Lloyd's Rep 550, 559; American Airlines Inc v Hope [1973J 1 Lloyd's Rep 233, 250;
Dmby v English & Scottish Maritime Insurance Co Ltd [1998J Lloyd's Rep IR 343, 358.
285
Interpretation and Rectification o/Insurance Contracts 286
Where, in conrrasr, the ambiguity resides in an amendmenr ro the slip inrro-duced

'47
by the insurer, the ambiguity will be resolved against the insurer.
Moreover, courts will not interpret ambiguities in insurers' own standard docu-
ments in favour of the insuret simply because of the technical analysis of insur-
ance conrtact formation. In MIS Aswan Engineering Establishment Co Ltd v Iron
the policy adopted rhe insurer's standard

liability fotm and excluded 'the cosr of replacing at making good defective
materials, plant, machinery, goods at commodities'. Inadequate packing and
srowage tesulted in liability fat breach of conrracr on the part of the assuted,
Lupdine, for goods lost because pails ir supplied collapsed owing ro rhe mode of
stowage. Lupdine being insolvenr, Aswan sued Lupdine's insutet under the Third
149
Parties (Rights against Insurers) Act 1930 Hobhouse J held rhat the insurer was
not protecred by the exclusion:
This was not a liability for the cost of replacing or making good anything. What
the wording refers to on its natural meaning is a situation where the assured has
undertaken a contracwal1iabiliry to replace or make good as under a guarantee
clause in a contract for the sale of goods. If, contrary to my view, it is not clear that
this wording has this meaning then it is at best ambiguous and capable of more
than one meaning, and the ambiguity must be resolved against the defendants. 1SO
It has even been suggested rhat a rerm that benefits the insurer will not be
inrerpreted in the insurer's favour even if included in wording advanced by brokers.
's,
This view, however, runs counter to established authority and ignores the
possibility rhat rhe clause might be deliberately inrroduced on the assured's behalf
ro render the risk more acceptable to insurers. In the case in quesrion, moreover,
there were other grounds for declining to inrerprer in the insurer's favour.
A third possibility is that the ambiguity might reside in a clause thar is, or must be
regarded as, the deliberare acr of both parties. In such a case, the contra
proftrentem rule cannot apply152 and the court will have to firid another roure to
interpretation.
Where the ambiguity is found in a standard market document, such as a set of Institute or
Inrernational Clauses, the position is less clear. On one view, the same principles
apply so rhar where such wording is incorporared into the proposal put
W Jaglom v Excess Insurance Co Ltd [1972J 2 QB 250, 261.

'"' [19891 1 Lloyd's Rep 289. . 149 The 1930 Act is discussed in Ch 20 below.
'so [19891 1 Lloyd's Rep 289, 293-4.
'" Royal & Sun Alliance Insurance pic v Dornoch Ltd [20041 EWHC 803 (Comm), [2004J
Lloyd's Rep 1R 826, para 82.
152 Birrell v Dryer (1884) 9 App Cas 345, 351-2, 354 (watranty defining'navigational limits
under a time policy).
Principles 0/Interpretation
ro the insurer, the assured remains responsible for introducing the wording that
.turns our ro be ambiguous, and, therefore, the ambiguity falls ro be resolved in
'53
favour of the insurer. On the other hand, there is something ro be said for a
second view, that documents prepared by bodies represenring the market's
underwriters, such as the Joinr Hull Committee and the Joint Cargo Committee,
,s4
should, if found to be ambiguous, be construed in favour of the assured. On a
third view, standard marker wordings should receive a standard inrerpretation
regardless of which party proposed inclusion of the relevanr wording in the
patticular case, so that the contra proftrentem rule is an inappropriate tool ro
adopt.155 The second view, although applying the contra proftrentem rule, would,
of course, be consistent wirh the third in producing uniform interprerarion.
(I) Estoppel by convention

As already seen, pre-contractual negoriations are inadmissible as an aid to inrer- 8.58
'56
pretation of rhe ensuing conrraer. They may, nevertheless, affect rhe inter-pretation of
the conrract by giving rise to an estoppel by convention. Where the
rwo parties have concluded the contract on rhe basis, expressly or impliedly
manifested by each ro the other,157 thar a particular term is to carry a particular
meaning, each party will be esropped as against the orher from disputing that
meaning, provided it is unconscionable to do SO.'58 Accordingly, the rerm in
quesrion will be consrrued in accordance with the meaning assumed by the parties,
regardless of any meaning otherwise indicated by the normal principles of
'59
interpretation. In Amalgamated Investment & Property Co Ltd v Texas
Commerce International Bank Ltd,160 C was a property company with a
'" AlS Ocean v Black Sea & Baltic Generallnmrance Co Ltd(1935) 51 LlLRep 305. 310;
Ikerigi Compania Naviera SA v Palmer (The Wondrous) [1991] 1 Lloyd's Rep 400, 416.
154 MIS Aswan Engineering Establishment Co Ltd v Iron Trades Mutua! Insurance Co Ltd [1989]
1 Lloyd's Rep 289, 293-4.
Gan Insurance Co Ltd v Tid Ping Insurance Co Ltd (Nos 26- 3) [2001] Lloyd's Rep IR 667,
[20011 Lloyd's Rep IR 667, para 21; Royal & Sun Alliance Insurance pic v Dornoch Ltd [20041
EWHC 803 (Comm), [20041 Lloyd's Rep 1R 826, para 82. See also Tersons Ltd v
Stevrnage Development Corp [196312 Lloyd's Rep 333, 368.
See 8.40 above.
Sometimes referred to as conduct 'crossing the line' between the parties.
Norwegian American Cruises A/S v Mundy (The VistafjordJ [1988] 2 Lloyd's Rep 343,
350-2; Furness Withy (Australia) Ltd v Metal Distributors (UK) Ltd (The Amazonia) [19901 1
Lloyd's Rep 236, 251; Hiscox v Outhwaite [19921 1 AC 562, 575-6; India v India Steamship Co
Ltd (The Indian Endurance & The Indian Grace) (No 2) [19981 AC 878, 891, 913.
159 The same approach was adopted as a matter of interpretation but without any reference to
estoppel by convention in The Karen Oltmann [1976] 2 Uoyd's Rep 708. If extrinsic evidence
revealed that the parties had applied a particular meaning to a certain word, in effect
constructing their own dictionary, the court should apply that meaning as representing the
intentions of the parties. For an application in a marine reinsurance context, see Allianz Marine
Aviation (France) v
GE Frankona Reinsurance Ltd London [2005J EWHC 101 (Comm), [20051 Lloyd's Rep IR 437.
It is, however, difficult to see how this approach differs from estoppel by convention.
160 [1982J QB 84.
287
Interpretation and Rectification ofInsurance Contracts The Slip tIS an Aid to Interpretation ofthe Policy
subsidiary, ANPP, registered in the Bahamas. D was a bank prepared to lend Where the parties contracting within a particular market subscribe to a standard 8.61
money to ANPP ptovided C guaranteed the loan. C duly executed a guarantee form promulgated for use in that market, such as the Institute or International
covering all sums due from time to time to D from ANPP. For exchange control Clauses in the London marine insurance market, .in the absence of contrary
purposes, however, the loan was not made directly by D to ANPP. Instead it was evidence, they will be taken to have intended the terms of that form to carry
made through one of D's subsidiaries, called Portsokon. ANPP defaulted on the such meaning as has already been established by law. The accumulated case law
loan and D claimed against C on the guarantee. C refused to pay on the ground that forms part of the background against which the parties conclude their contract.
the guarantee covered only sums owed to D, whereas the debt was owed to After all: 'Itis only if parties to commercial contracts can rely upon a uniform
Portsokon. C sought a declaration from the courts that it was not liable. The claim construction being given to standard terms that they can prudently incorporate
failed. The Court of Appeal held that both parties had assumed that the guarantee them in their contracts without the need for detailed negotiation or discus-
would cover the sums advanced by Portsokon and had acted accord-ingly. Each sion.'166 The applicability of the doctrine of precedent to decisions on the
was, therefore, estopped as against the other from disputing that the guarantee was interpretation of standard form contracts thus produces a result in complete
to be so understood. harmony with the ordinary principles of contractual interpretation. Decisions
unwelcome to the market can be avoided by the market altering rhe form.'67
Contractual Interpretation and the Doctrine of Precedent
Conversely, the interpretation of one-off contracts or one-off clauses wirhin 8.62
The doctrine of precedent artaches to propositions of law. The meaning that a contracts, or of clauses in standard form contracts that have nor previously been
word carries as a matter of language is a quesrion of facr, and therefore outside the rhe subject of judicial consideration, falls outside the doctrine of precedent and
doctrine,16' while the interpretation of a conttact is a matter of law, and potentially rhe urility of authority, even on a persuasive basis, is confined to illustration of
within.'6' In Chatenay v Brazilian Submarine Telegraph CO,163 Lindley LJ stated possible interprerations and arguments based on analogy. Ultimately, the court
as follows: must focus on the contract in question.'68 Where a standard form has been
The expression <construction', as applied to a document, at all events as used by marerially amended, it will be interpreted as a one-off contract. '69
English lawyers, includes twO things: first, the meaning of the words; and, sec-
ondly, their legal effect, or the effect which is to be given to them. The meaning of
the words I take to be a question of fact in all cases, whether we are dealing with a B. The Slip as an Aid to Interpretation of the Policy
poem or a legal instrument. The effect of the words is a question of law.
Insurance contracts raise a further particular issue relating to interpretation where 8.63
Of course, the issue for a court faced with a question of interpretation is always what the
a slip has been followed by a policy. The question is the extent, if at all, to which
parties to that contract intended by that choice of words in all the circumstances
the slip is admissible in evidence as an aid to interpretation of the policy. Two
surrounding the making of that choice. Nevertheless, if a sub-sequent choice of
words contains no material distinction in terms of parties, words, or circumstances, different approaches emerge from the case law. Fitst, a slip is always admissible
although its evidential value varies depending on the circumstances. Secondly, a
the decision reached on the earlier occasion will act as a precedent for interpretation
rule oflaw bars reference to the slip, which is consequently always inadmissible.
of the later instrument.'" In the absence of con-
trary intention, the reasonable businessman is tal<:en to have selected the relevant
165 (1) General Admissibility But Variable Evidential Value
term in the light of its interpretation by the courtS. This leads to a distinction
between standard form contracts and contracts concluded on a one-off basis. The most considered analysis of the admissibility of the slip as an aid to inter- 8.64
pretation of the policy is found in an obiter section of the judgment of Rix LJ,
'" Brutus v Cozem [1973J AC 854, 861.
162 Bahamaslnternational Trust CoLtdv Threadgold(1974] 1WLR 1514,1526; Commonwealth
Smelting Ltd v Guardian Royal Exchange Assurance Ltd(1986] 2 Lloyd's Rep 121. '" Pioneer Shipping Ltd v BTP Tioxide Ltd (The Hema) [1982J AC 724, 737 per Lord Diplock.
'" [1891J 1 QB 79, 85. See also Federal Commerce 6' Navigation Co Ltd v Tradax Export SA [1978] AC 1, 8.
'" Pioneer Shipping Ltd v BTP Tioxide Ltd (The Hema) [1982J AC 724,736. '" Ijrie v Fletcher (1777) 2 Cowp 666, 668; The Annefield[197lJ P 168, 183.
165 British Sugar pic v NEI Power Projects Ltd (1997) 87 BLR 42,50. Even if the expression of 168 Luxor (Eastbourne) Ltd v Cooper (1941] AC 108, 130; Ashville Investments Ltd v Elmer
judicial opinion on the point of interpretation did not form parr of the ratio decidendi of the case: Contractors Ltd[1989] QB 488, 495. For a distinctly hostile response to citation of authority, see
Sunport Shipping Ltd v Tryg-Baltica International (UK) Ltd (The Kleovoulo,"o! Rhodes) [2003J Aspden v Seddon (1874) LR 10 Ch App 394, 3960, 397-8.
EWCA Civ 21, [2003J 1 Lloyd's Rep 138, para 28. '" Pioneer Shipping Ltd v BTP Tioxide Ltd (The Hema) [1982J AC 724.
288 289
Interpretation and Rectification ofInsurance Contracts The Slip as an Aid to Interpretation ofthe Policy
with which Mummery and Peter Gibson LJJ agreed, in HIH Casualty & General The third possibility is that the parties intend the slip to prevail. In such a case, 8.68
Insurance Ltd v New Hampshire Insurance CO.'70 According ro the approach s1.lbject ro evidence thar rhe discrepancy results from a decision to vary the
advocated by Rix LJ, no rule of law renders the slip inadmissible, but the evidential contract, inconsistencies should be resolved in favour of the slip.
utility of the slip varies according ro whether the parties intended the contract as
Under this third approach, determining whether the parties intended the policy 8.69
stated in the policy to supersede the contracr as srated in the slip.
to supersede the slip is clearly important. An intention to supersede has been
If it is common ground or found by a tribunal that the policy was intended ro stated to be the understanding of the Lloyd's market where the slip is sent ro the
supersede the slip then, outside any rectification action,171 the slip cannot be used Lloyd's Policy Signing Office (now superseded by Ins-sure) and a policy is duly
ro add ro or alter the wording of the policy. It is, however, admissible as an aid ro issued.'75 Indeed, according to Rix LJ in HIH v New Hampshire, this is the
interpretation of the contract as stated in the policy as part of the contractual normal inference whenever a slip is followed by a policy.176 Ultimately, however,
matrix or surrounding circumstances. However, the parties' intention to super- in cases where the parties' intention is a matter of dispute, the dispute must be
sede will render the probative value of the slip weak indeed, since any difference in resolved in the ordinary way on the evidence before the court. Designation of
wording will be assumed ro reflect a deliberate decision to alter the terms of the the slip as a 'slip policy' or 'slip contract' serves as an indication that rhe wording
contract. Consequently, 'a cautious and sceptical approach to finding any assistance of slip is intended to be final. In HIH v New Hampshire itself, Rix LJ considered
in the earlier contract [in the slip] seems ... a sound principle'. 172 that rhe parties had not intended rhe policy ro supersede the slip for two
reasons. First, the slip was designated a 'slip policy' and, secondly, the policy was
It is, nevertheless, suggested that the probative value of the slip may be unduly
incomplete as demonsrrared by its silence wirh respect to premium.'"
downplayed. Clearly, any discrepancy between slip and policy will indeed be
resolved in favour of the policy. However, should the policy be unclear in meaning Likewise, in Assicurazioni Generali SpA v Ege Sigorta AS,'78 the slip was stated to 8.70
but the slip clear, there would appear ro be no reason auromatically ro assume that be a 'slip contract'. Colman J held thar rhe subsequent tendering of wording by
a change from clear to unclear language reflects a decision ro change substance the broker for approval by the insurer was a 'purely ministerial exercise'. In the
rather than an unfortunate alteration merely of expression. In con-sequence, the event that the wording did not accurately reflect the slip, its tender was not an
slip should be both admissible ro dispel the lack of clarity in the slip and afforded offer ro vary the contract but an errot in completing the contract wording and
full probative value, although precisely what that value is will inevitably depend an acceptance by the insurer was not an agreement to new wording. Moreover,
on the other evidence available. under the LMP200 I market reforms, wherever possible the slip should indicate
final wording with clariry, arguably promoting the slip as the primary source of
One needs then ro consider the situation where it is neither common gronnd nor found by
the terms of the contract and relegating the policy ro merely a formal record of
a tribunal that the policy is intended to supersede the slip. If the intention is that
the contract as agreed in the slip.'79
the twO documents should live rogether as records of the same,
unchanged, contract,173 one should strive to read the two documents together and On the approach as advocated by Rix LJ, therefore, the slip is never inadmissible 8.71
174
iron out any apparent inconsistencies. Irreconcilable inconsistencies will, in evidence as a matter of law although its probative value will vary according ro
however, have to be resolved in favour of the policy as embodying the later the circumstances.
expression of the parties' intentions.
(2) The Rule of Law Approach
An alternative approach would render the slip inadmissible as an aid ro inter- 8.72
[2001) EWCA Civ 735, [2001) 2 Lloyd's Rep 161, paras 69-97.
And the intention that the slip be generally superseded will raise the need in the context of
pretation of the policy as a matter of law. There are three suggested bases for
rectification for corroborative evidence that supersession in the relevant respect was not intended.
m [2001] EWCA Civ 735, [20011 2 Lloyd's Rep 161, para 83 per Rix L].
173 Rix LJ speaks of an intention that twO contracts live together; With respect, however, it is
difficult to see that the assured and insurer ever intend to have twO separate insurance contracts 17' New Hampshire Imuran,e Co v MGN Ltd [19971 LRLR 24, 33 (Comm Ct).
simultaneously in play. The intention contemplated here must be one contract unchanging in 176 [2001] EWCA Civ 735, [2001] 2 Lloyd's Rep 161. para 85. 'In the insurance matket ... it
content with the operative record of that contract being initially the slip and then the policy. may well by now be possible to talk ofa general presumption that a polic)' is intended to supersede
174 This is the approach to adopt where there is no policy but a slip that incorporates a a slip': ibid para 93.
standard Lloyd's form under the heading 'Conditions' and there are some differences between 177 ibid para 95. '" (20021 Lloyd's Rep lR 480,484.
the slip and the form: Quinta Communications SA v Warrington [2000] Lloyd's Rep-IR 81. 179 See 2.05-2.11 above.
290 291
Interpretation and Rectification ofInsurance Contracts The Slip as an Aid to Interpretation ofthe Policy
such a rule: the inadmissibility of contractual negotiations as an aid to construc- interpretation of the contract as opposed to whether a particular term has been
tion of the tesulting conttact, the parol evidence rule, and the wotding of section etroneously included in or omitted from the policy, a rule of inadmissibility that
89 of the Marine Insurance Act 1906. extends beyond exclusion of negotiations is inconsistent with the modern approach
to extrinsic evidence.'87 This was, indeed, the approach of Staughton L] in
(a) Inadmissibility ofcontractual negotiations Youel!.'88 At first instance, in contrast, it was suggested that this liberality should
8.73 As already seen, evidence of what the parties said in the course of negotiating a not extend to admitting earlier incarnations of the final document for fear of the
conttact is inadmissible as an aid to intetptetation of the final contract."o However, 'profusion of documents' that a court might have to consider.'89
while this principle is not in dispure, it is hard to see its relevance. The market has
always understood that subscription to a slip generates an immediate and binding (c) Marine Insurance Act 1906, section 89
undertaking. Once stamp duty laws ceased to restrict legal recogni-tion of a binding The judgment of Beldam L] in Youell v Bland Welch raises, obiter, a further 8.75
contract to a stamped policy, '81 it became possible to align insurance contract law difficulty. Section 89 of the Marine Insurance Act 1906 provides that 'reference
and market understanding so as to recognize that sub-scription to a slip genetated a may be made, as hetetofore, to the slip or covering note, in any legal proceed-
binding conttact, even if production of a policy remained a condition precedent to ing'. Interpreting the words 'as heretofore' as meaning only for the purposes
admissibility of the contract in court and even if the parties contemplated that the already established, Beldam L] refetred to Ionides v Pacific Fire 1& Marine
contract in the slip might be super-seded by a replacement conttact in a policy. The Insurance Co, "0 the decision codified by section 89, to ascertain those purposes.
televant point in the present context, however, is that there is no doubt at all today Ionides was the landmark decision in which a slip was held admissible to prove
that a slip does not constitute merely a stage in negotiating an insurance that the terms of the insurance contract were concluded at the initialling of the
contract. Since it is a binding contract, the evidential exclusion of contractual slip, the intention of the parties being that the subsequent stamped policy
negotiations is irrelevant.'82 should reproduce those terms.'" In the light of the prevailing stamp duty legis-
lation, which invalidated any contract of marine insurance not expressed in a
duly stamped policy, '92 Kelly CB observed that the slip was not being intro-
The parol evidence rule duced 'to contradict or to explain, or in any way affect the construction of the
In Youell v Bland Welch 1& Co Ltd,"3 reinsurers sought to inttoduce the slip as policy in question'.'93 Consequently, according to Beldam L]:'94 'If prior to the
evidence of the true construction of a clause in the reinsurance contract. The passing of the Marine Insurance Act, 1906, the slip was not admissible to
insurers argued that admitting the slip for this purpose would infringe the patol explain or in any way affect the construction of the policy, in my judgment it
evidence rule by virtue of which 'parol testimony cannot be received to contra- was not admissible for the purpose of affecting the construction of the policy in
dict, vary, add to or subtract from the terms of a wtitten contract, or the terms in question in this case:
which the patties have deliberately agreed to record any part of their con-tract' .'84
With respect, however, this reasoning can be criticized on various grounds. First, 8.76
It is suggested, however, that the parol evidence has little, if any, tele-vance in the
modern law. First, if the slip evidences an errot in transcription of the contract in
the statement of Kelly CB is ambiguous. It was construed by Beldam L] as
the policy, a recognized exception ro the parol evidence rule in the form of the asserting that the admissibility recognized in Ionideswas not to be extended into
remedy of rectification is available."5 Moreover, the etror may be susceptible to the domain of interpretation. However, it may simply be a careful, and accurate,
laundering by interpretation through the modern approach to admissibility of statement of the admissibility sought and accepted on the facts of Ionides, the
extrinsic evidence."6 Secondly, where the concern is indeed
'" See 8.34ff above but cf Shogun Finance Ltd v Humon [20031 UKHL 62, [20041 1 AC 919,
See 8.40 above. para 49.
On stamp duty and marine insurance contracts, see 3.65ff above. 188 [1992J 2 Lloyd's Rep 127, 133. Staughton L] concluded, however, that the slip in
'" Youell v Bland Welch 6' Co Ltd [1992) 2 Lloyd's Rep 127, 133; HIH Casualty 6' General question lacked sufficient clarity to assist in the construction of a term in the policy.
Insurance Ltd v New Hampshire Hisurance Co [200l! EWCA Civ 735, [200l! 2 Lloyd's Rep 161, 189 [199012 Lloyd', Rep 423, 428-9 per Phillips].
para 83. 190 (1871) LR6 QB 674; (1872) LR 7 QB 517. '" See 2.08-2.09 above.
'" [199212 Lloyd', Rep 127. 192 Customs and Inland Revenue Act 1867, ss 7, 9 (30 Viet, c 23). For the evolution of the
"" Bank ofAustralasia v Palmer [J 8971 AC 540, 545 per Lord Morris. relationship between stamp duty legislation and marine insurance law, see 3.65ff above,
185 Rectification is discussed at 8.77ffbelow. 186 See 8.45 ahove. '" (1872) LR 7 QB 517, 526. 194 [1992J 2 Lloyd's Rep 127, 141.
292 293
Interpretation and Rectification ofInsurance Contracts Rectification
cautious tone a product of the need to respect the then fiscal legislation."5 Since the remedy is equitable, undue delay in raising the discrepancy may see
Secondly, lonides was an emancipating decision in which the courtS took an the remedy batred by the doctrine of laches.'"
important step in freeing the slip from the fettets of stamp dury legislation,
Rectification is generally confined to failures of the wtitren record accutately to 8.78
construing the then stamp duty legislation testrictively in order to accommodate
reflect the common intention of the parties. The conditions to be satisfied were
commetcial practice. The effect of the intetptetation by Beldam LJ ofsection 89
summarized by Slade LJ as follows:"o
is to transfotm lonides into a restrictive decision, prohibiring furthet emancipa-
tion. Thitdly, the statement of Kelly CB, if intended to prohibir further First, there must be a common intention in regard to the particular provisions of
admissibility, is clearly obiter. Since there is no teason in ptinciple why marine the agreement in question, together with some ourward expression of accord.
insurance law should be insulated from the growing liberality of the approach ro Secondly, this common intention must continue up to the time of execution of the
instrument. Thirdly, there must be clear evidence that the instrument as executed
interpretation adopted in general contract law, the dictum if so intended should
does not accurately represent the true agreement of the parties at the time of its
not be followed unless statute so compels. Fourthly, section 89 does not so execution. Fourthly, it must be shown that the instrument, if rectified as claimed,
compel. It can be construed, consistenrly with the emancipating spirit of the would accurately represent the true agreement of the parties at that time ...
decision in lonides, as preserving the progress made in emancipation of the slip
Where rhe document accurarely reflects the intention of one party but not that 8.79
without prejudice to further progress. It confirms that teference to the slip may
of the other, the fact that transcription reflects such a unilatetal mistake does not
indeed be made as established befote the passing of the Act. Section 89, it is
suffice of itself for altetation of the recotd. Rectification will be granted only
suggested, is not designed to deny all possibility of furthet liberation after 1906 of
where the unilateral mistake has been induced by inequitable conduct or where
the slip from its earlier fiscal chains and to freeze this aspect of matine insurance
law for all time in the late nineteenth century. the non-mistaken party had actual knowledge of the mistake. For these pur-
poses, acrual knowledge includes the wilful shutting of one's eyes to the obvious
and the wilful and teckless failing to make such enquiries as to whether the orher
Rectification party was labouring under a misapprehension as an honest and reasonable per-
son would. 20 ' Only such conduct justifies imposing on the non-mistaken party a
With all contracts, there exists the possibility of discrepancy between the agree-ment and contract it did not intend to make and relieving the claimant from a contract
any subsequent written recotd thereof. With contracts of marine insurance, this that it did malee, albeit on the basis of a mistake. 202
possibility is exacerbated by the use of slips with a formal poticy nor being drawn
Generally, therefore, the key to rectification consists of evidence, adduced by 8.80
up until a later date. Recrification is the equitable remedy by which a court can
one patty, of incompatibility of the terms of a written document with a prior
remedy mistakes in the recording of rhe parties' agreement.'96 Thus, it has been
expression of the common intention of the parties, in the face of claims by the
said that: 'Courts of equity do not rectify contracts; they may and do rectify
othet party that rhe document accurately reflects the bargain that othet patty, at
instruments purporting to have been made in pursuance of the terms of contracts.'197
An inaccurate representation of a common continuing intention will, however, suffice;
a ptiot concluded contract need not be proved. "a
Cape pIc v Iron Trades Employers Insurance Association Ltd (1999) [2004] Lloyd's Rep IR 75,
94-6. Time runs from actual knowledge of the possible discrepancy, 'Constructive knowledge is
insufficient', T&N Ltd v Royal & Sun Alliancepic (20031 EWHC 1016 (Ch), (2004] Lloyd's Rep
IR 106, para 186 per Lawrence Collins J, See also ibid para 140.
Agip SpA v NavigazioneAlta Italia SpA (The Nai Genova and Nai Superba) (198411 Lloyd's
HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA Civ Rep 353, 359. See also Kiriacoulis Lines SA v Compagnie d:Assurances Maritimes Ariennes et
735, (2001] 2 Lloyd's Rep 161, para 92. Terrestres (CAMA'l) (The Demetrtt I!) (2002J EWCA Civ 1070, (2002] 2 Lloyd's Rep 581,
Or mistakes in the parries' shared understanding of the true import of the words para 22.
they have chosen: Re Butlin's Settlement [1976] Ch 251, 260. In this respect, 201 River/ate Properties Ltd v Paul [1975] Ch 133; Thomas Bates & Sons Ltd v Wyndham's
rectification overlaps with estoppel by convention. (Lingerie) Ltd (198111 WLR 505; Agp SpA v Navigazione Alta Italia SpA (The Nai Genova and
Mackenzie v Coulson (1869) LR 8 Eq 369, 375 per Sir WM James V-CO Just as rectification Nai Superba) (I984] 1 Lloyd's Rep 353; Commission for the New TOwns v Cooper (Great Britain)
cannot be used to correct mistakeS in the original agreement, nor may it be used to cure omissions Ltd (1995] Ch 259; Thor Navigation Inc v Ingosstrakh Insurance Co Ltd [2005J EWHC 19
in that agreement: Cape pic v Iron Trades Employers Insurance Association Ltd (1999) [2004] (Comm), (20051 1 Lloyd's Rep 547; George Wimpey UK Ltd v VI Components Ltd (2005J
Lloyd's Rep IR 75,94. EWCA Civ 77, (2005J BLR 135.
198 Etablissements Georges et Paul Levy v Adderley Navigation Co Panama SA'(The Olympic Pride) lO' George Wimpey UK Ltd v VI Components Ltd [2005J EWCA Civ 77, (20051 BLR 135,
(1980J 2 Lloyd's Rep 67, n. para 75.
294 295
least, intended. Although proof is tequired only to a balance of probabilities, binding contract between the parties or to contradict or to explain, or in any
since it is sought to contradict the cogent evidence of the parties' intentions way affect the construction of the policy in question: but it was given in evi-
ptovided by the document, clear and convincing evidence of the matters dence only to shew what their intention was in preparing the policy'.'" It is
203 unclear whether Kelly CB was being careful merely to state the extent of the
outlined must be adduced.
Much of the case law concerning rectification of insurance contracts involves admissibility being recognized on the facts of Ionides or was intending to go
claimants seeking to rectifY policies and to discharge the burden of proof by further and state that the concession recognized in Ionides was not to be
reference to the wording of a slip. Initially, the slip was recognized as capable extended into the fields of interpretation and rectification.
of supporting an action for rectification of a policy,204 but the Stamp Act 212
Subsequently, however, the Stamp Act 1891 considerably diluted the statu- 8.83
205 tory consequences of the absence of a stamped policy: the insurance contract
1795 then intervened to decree that, in the absence of a stamped policy, a
contract of marine insurance was 'null and void to all Intents and Purposes was simply invalid. The way was then clear for a slip to provide the evidence of
whatever' and inadmissible in evidence. This legislation was held to relegate the prior agreement required for rectification of an enforceable policy. That the
slip to the status of mere pre-contractual negotiation or proposal for a future prior agreement might not constitute a valid contract was not germane for
policy of insurance,206 so that it lacked the evidential value to found a rectification, and, only two years later, in The Aikshaw,213 a policy was duly
rectification action.207 rectified by reference to a slip.
However, the Stamp Act 1795 was replaced by the similarly but not identically worded Under the 1906 Act, the position of the slip was strengthened still further as a 8.84
208 policy was reduced to being a prerequisite to the admissibility in evidence of a
Cusroms and Inland Revenue Act 1867. In Ionides v Pacific Fire <& Marine
Insurance Co,'o, the differences in statut0ty language were employed to justifY marine insurance contracr. 214 Today, marine insurance contracts are no longer
restrictive construction of the statutory invalidity and the drawing of a distinction subject to stamp duty and there is no impediment, fiscal or otherwise, to a slip
between rhe existence and the enforceability of a contract. A slip was held admissible as providing the evidential base for a rectification action in accordance with
evidence of the parties' intentions regarding the existence of a binding agreement even if general principle.
a stamped policy was required for an enforceable
contract. Ionides, however, was a case in which the slip was adduced in evidence to The utility of the slip in any given rectification action will depend on the 8.85
prove the existence of an agreement before the date of the policy, not by way of a intention of the parties as to whether the policy should supersede the slip. Where it is
challenge to the terms of the policy, and it is uncertain whether and to what extent common ground or held that the policy is intended to supersede the
it sanctioned wider admissibility. At first instance, Blackburn J stated thar a slip slip, the natural inference is that any discrepancy in terms is the product of a
'may be given in evidence whenever ir is, rhough not valid, material'.210 On 215
deliberate variation of the contract agreed by the parties. Rectification is
appeal, in contrast, Kelly CB, delivering the leading judgment in the Courr of not precluded in such a context, but the evidential challenge faced by the party
Exchequer Chamber, stated that the slip was not being introduced 'to prove a seeking ro demonstrate that the slip contains the accurate record of the transac-
tion will be formidable. In the absence of such intention, however, the slip
represents the final terms of a binding contract, and, in the event of any discrep-
ancy between the slip and the later policy, the slip will prevail and the policy
203 Thomas Bates & Sons Ltd v wyndham' (Lingerie) Ltd [19811 1 WLR 505, 521: Agip SpA v
will be rectified accordingly.216
Navigazione Alta Italia SpA (The Nai Genova and Nai Superba) [19841 1 Lloyd's Rep 353, 359:
Commercial Union Assurance Co pic v Sun Alliance Insurance Group pic [1992] 1 Lloyd's Rep 475, 483;
Kiriacoulis Lines SA v Compagnie d'Assurances Maritimes Ariennes et Yerrestres (CAMAT) (The
An example of an assured successfully relying on the slip is provided by Wilson 8.86
Demetra KJ [2002J EWCA Civ 1070, [2002] 2 Lloyd's Rep 581, para 24: T&N Ltd v Royal &Sun Holgate <& Co Ltd v Lancashire <& Cheshire Insurance Corp Ltd 217 The
Allianceplc[20031 EWHC 1016 (Ch), [2004J Lloyd's Rep lR 106, para 135: Thor Navigation Inc v under-writers' defence of misdescription of the insured goods failed where the slip
Ingosstrakh Imurance Co Ltd [2005J EWHC 19 (Comm), [20051 1 Lloyd's Rep 547, para 50. accurately described the goods as palm oil but the policy referred to them as
Motteux v London Assurance (1739) 1 Atk 545 (see 8.87 below); Henkle v Royal Exchange
Assurance Co (1749) 1 Ves Sen 317.
35 Geo 3 c 63.
'os Parry v Great Ship Co Ltd (1864) 4 B & S 556: Xenos v Wickham (1867) LR 2 HL 296, '" ibid 526. 212 54 & 55 Viet, c 39. 213 (1893) 9 TLR 605 (see 8.87 below).
314--15,321.
214 MIA 1906, s 22. 215 See B.65ff above.
207 Mackenzie v Coulson (1869) LR 8 Eq 368. 206 30 Viet c 23.
216 BanqueSabbagSAL v Hope[197211 Lloyd's Rep 253, 263.
209 (1871) LR 6 QB 674, affd (1872) LR 7 QB 517. 210 ihid 685.
m (1922) 13 LlLRep 486.
296
297
palm kernel oil, a quite different substance. According to Bailhache J, the slip 'Talavera, Newcastle (NSW) to WCSA, and till loaded'. The reinsurer being
represented the original and real contract and rhe error in the policy was ro be unwilling ro accept this risk for the premium the insurer was prepared to pay,
the slip was altered, substituting rhe phrase 'and 30 days' for 'and till loaded'.
disregarded or, if necessary, rectified. Likewise, in Symington 6- Such alteration of wording, however, failed ro support the existence of an
Insurance Society ofCanton Ltd (No 2),218 insurers argued rhat the slip should be agreement on the terms alleged by the reinsurer.
read as incorporating an implied rerm that the contract was subject to the usual It is not only the assured who may benefit from rectification of the policy. In 8.89
terms of the insurer in order ro take advantage of a marginal note in the policy w"stern Assurance Co v Poole,223 expert evidence established that incorporation
restricting the cover that the slip recorded as granted. The Court ofAppeal held,
in the policy of a sue and labour clause 224 contradicted the phtase 'no sic' in the
however, that any intended disparity between the terms as recorded on the slip and
slip and the insurer was accordingly held not liable for suing and labouring
the final policy had ro be expressly contemplated on the slip.
expenses. In Eagle Star 6- British Dominion Insurance Co Ltd v AV Reiner,'" a
In similar fashion, policies have been rectified where the policy misrepresented the vessel was stranded while leaving the POrt of Valencia at the ourset of a
duration of cover granted by the terms of the contract as evidenced by the slip. voyage from Spain ro Antwerp. According .to the wording of rhe policy, the
In The Aikshaw,219 according to rhe slip a vessel was covered 'at and from any whole voyage was covered, but under the slip, as construed, risk did not attach
port or ports and (or) place or places on wesr coast of Sourh America in any until Gibraltar. As a result of this discrepancy, Salter J stated as follows:'" 'I am
rotation, while there' and for a voyage ro Europe. On the wording of the policy, satisfied that the policy is nOt in accordance with the contract the parties made
however, the cover attached only 'at and from any ports and (or) places of and that there was a mistake common to them both. The contract which they in
loading'. When the vessel was lost after arriving at a port on rhe west coasr of fact made appears upon the slip and was a contract under which the risk
Sourh America bur before arrival at a port of loading, the terms of the slip attached and was meant by both parties ro attach "at and from and off'
prevailed as the real expression of the parties' intentions. Again, in Motteux v Gibraltar. '
London Assurance,"o the policy was unclear whether it attached 'at and from' or Where the party claiming rectification cannot rely upon any discrepancy 8.90 between
only 'from' a port. The court read rhe policy in accordance with the clear slip and policy, rhe onus of establishing an outward manifestation of
wotding of the slip. a pre-existing common intention will be more difficult ro discharge. In The
Rectification of a policy by reference to a slip will not, however, be ordered unless the slip Demetra 1(,227 the insurers' unsuccessful rectification claim arose out of a change
does clearly evidence an error in ttanscription. Spalding v Crocker" concerned of terms on renewal. In 1995, the Demetra K was insured under a policy that
reinsurance of a voyage of the Talavera 'at and from Newcastle (NSW) ro any ports incotporated the Institute Time Clauses Hulls (1110/83) modified by a so-called
Ot places in any order, on the West Coast of South America and for 30 days in port 'Ocrober memorandum' that added war risks and 'risks of loss or damage by acts of
after arrival however employed'. The Talavera arrived and discharged its Newcastle vandalism andlor sabotage andlor malicious mischief. In 1996, cover was renewed
cargo at Valparaiso, a port on the west coasr of South America. She remained at on a slip that again incorporated the Institute Time Clauses Hulls (1110/83), bur the
Valparaiso for thirty days and rhen sailed loaded with ballast and sugar for a terms of the October memorandum, although originally incorporated, were struck
voyage ro Talcahuano, another South American west coast port, where a cargo our. During the currency of the renewed cover, the vessel was seriously damaged
would be loaded for a voyage ro Europe. However, the Talavera was lost on the by a fire that, for the purposes of the action, was assumed ro have been started
voyage to Talcahuano. The reinsurer argued that the term 'port' should be construed deliberately but not by the assured owners. The assureds claimed under the
as meaning port of insurance for loss caused by the covered peril of fire.
discharge of the Newcastle cargo or, alternatively, that the policy should be
rectified to bear that meaning. Mathew J, however, rejected the construction
m (1903) 8 Com Cas 108.
atgument, following a decision on another reinsurance policy on the same 224 A sue and labour clause extends cover by expressly aurhorizing the taking of reasonable
voyage, worded only slightly differently,'" and held that the slip failed ro fur- steps in mitigation of the consequences of an insured casualry and promising indemnification in
nish the requisite evidence for rectification. As originally drafted, this had read respect of expenses reasonably incurred thereby. Such clauses are discussed at 24.02ffbelow.
225 (1927) 27 LlLRep 173 (reinsurance). 226 ibid 177.
227 Kiriacoulis Lines SA v Compagnie d'Assurances Maritimes Ariennes et 7errestres (CAMAT)
(The Demetra K) [2002J EWCA Civ 1070, [2002J 2 Lloyd's Rep 581. See also IF P&C Insurance
'" (1928) 32 LlLRep 287. 219 (1893) 9 TLR 605 (reinsurance).
Ltd v Silversea Cruises Ltd [2004J EWCA Civ 769, [2004J Lloyd's Rep IR 696, paras 87-90.
220 (1739) 1 Ark 545. '" (1897) 2 Com Cas 189.
222 Crocker v Sturge (1896) 2 Com Cas 43.
299
298
Interpretation and Rectification ofInsurance Contracts
The insurers accepted thar war risks had simply not been included in the 1996
policy but argued that the underwriter and broker had agreed an express exclu-
sion of 'loss or damage by acts of vandalism and!or sabotage and!or malicious
mischief and sought rectification of the policy accordingly. The Court of
Appeal held that, in the absence of the express exclusion for which the insurers
contended, the loss would be covered by the policy. On balance, the evidence
9
favoured the assureds' contention that the underwriter and broker had agreed
merely to delete the October memorandum but not to add an express exclusion.
Alternatively, the insurers had failed to adduce convincing evidence of an ante-
PRINCIPLES OF CAUSATION
cedent agreement conflicting with the terms of the 1996 slip as required for
rectification. Although the parties had clearly agreed on the deletion, there was
no evidence of any agreement as to the intended effect of that deletion on the
A. Remote, Immediate, and (4) Exceptions or exclusions? 9.30
scope of the cover provided by the policy. Proximate Causes E. Applying the Effectiveness
Leyland Shipping v Norwich Test of Proximate Cause 9.33
Rectification of both slip and policy is possible where rhe contract they record is an Union 9.08 R Apprehension of a Peril 9.46
inaccurate representation of the true agreement between the parties, but the The Contextual Nature of G. Mistaken Belief of Peril 9.55
party seeking the remedy faces formidable difficulty in proving a different Proximity; also of Complex H. Response to Perils 9.56
Causes 9.12
antecedent agreement.
228 I. The Language of Causation 9.59
(1) The adhesiveness of the
Concurrent Proximate Causes
One proximate cause or more? 9.21 proximate cause rule 9.60
-- . ----- _ . ------------ Concurrent causes, one cause (2) Displacing the proximate
'" Pindos Shipping Corp v Raven (The Mata Hari) [19831 2 Lloyd's Rep 449. Also Henkle v specifically included, none cause rule 9.61
Roya/Exchange Assurance Co (1749) 1 Yes Sen 317. specifically excluded 9.22
Concurrent causes, at least one
specifically excluded 9.25
Causation is fundamental in defining the scope of marine insurance contracts. 9.01
The standard policies, in genetal, provide covet against losses caused by specified
perils. Consequently, consideration of whethet a particular loss is covered
involves two questions. First, did an event occur or a circumstance arise that
corresponds to one of rhe perils covered under the policy? Secondly, was that
event or circumsrance linked to the casualty in the manner required by the
causal phrase employed by the policy to link peril to loss or damage? Moteover,
the cover is invariably subject to a number of exceptions, most ofwhich are also
drafted in terms of loss caused by an excepted peril, although the language of
causation may be different. Again a question arises, not just of the definirion of
the excepted peril, but also of the causal link between the exception and the
loss.'
1 See gen~rallr' M Clar~e, 'Insuranc~: The Proximate Cause in English Law' (1981) 40 CL] ;84;
M DaVIes, The ProXImate Cause 10 Insurance Law' (1995) 7 IL] 135; Sir Michael Mustill,
Fault and Marine Losses' [1988J LMCLQ310.
300 301
Principles ofCausation Remote, Immediate, and Proximate Causes
In seeking to encapsulate the degree of causation oflegal significance for marine insurance What is being discussed is not a general principle of law, but the construction of
contracts, the law has traditionally adopted the concept of the 'prox-imate cause'. words which have been in common use during the last war and this. The words
are, indeed, wide, but they have to be construed in accordance with the general
Section 55(1) of the Marine Insurance Act 1906 accordingly pro-vides as follows:
purpose of the contract and the common understanding of commercial men, in
'Subject to the provisions of this Act, and unless the policy otherwise provides, the short in the same way as any other part of the law merchant.
insurer is liable for any loss proximately caused by a peril insured against, bur,
subjecr as aforesaid, he is not liable for any loss which is nor proximately caused by Similarly, in Reischer v Borwick,7 Lindley LJ stated that the proximate cause rule 9.05 'is
based on the intention of the parties as expressed in the contract into which
a peril insured against.' This gives rise ro a number of quesrions, including what is
meant by 'proximate': wherher there can be more than one proximate cause and, if they have entered: bur the rule must be applied with good sense, so as to give effect
so, how the law responds: and under what circumstances the Act or the policy will ro, and not defeat those intentions'. Accordingly, in ascribing legal tesponsibility,
be regarded as providing for a different causation test and, if so, what that test the courts have eschewed philosophical tefinements in favour of 'the commonplace
tests which the ordinary business man conversant with such matters would adopt'.8
should be.
Again according to Lord Wright:' 'Causation is to be
understood as the man in the street, and not as either the scientist or the
Remote, Immediate, and Proximate Causes metaphysician, would understand it. Cause here means what a business or seafaring
man would take to be the cause without roo microscopic [an] analysis but on a
The concept of the proximate cause serves to indicate the drawing of a distinc- broad view.'
tion berween 'proximate' and 'remote' causes and the relegation of the latter to legal
Viewed as a matter of interpretation of a commercial contract, what criteria 9.06
irrelevance, in accordance with the maxim causa proxima non remota spec-tatur.
characterize the proximate cause? Ttaditionally, reference has been made to Bacon's
Of itself, however, this injection of terminology is of no assistance: 'the
maxim that 'it were infinite for the law to judge the cause of causes, and theit
maxim ... is either meaningless or misleading until "remota" and "proxima" are
impulsions one of another; therefore it contenteth itself with the immedi-ate cause
defined' .2
and judgeth of acts by that, without looking to any further degree'. This led to
9.04 In searching for the proximate cause, it should never be overlooked that caus-ation identification of the proximate cause with rhat which was last in time before the
issues arise because the parties have chosen to formulate rhe extent of covet in damage. Thus, in a personal accident case, Denman J stated that 'we must look at
3 only the immediate and proximate cause of death, and it seems to me to be
terms that include causal expressions. The identification of the approptiate
causation test becomes, therefore, one of the tfue interpretation of a commercial impracticable to go back cause upon cause, which would lead us back ulrimately to
contract,' a process that involves attributing to the words used the meaning they the birth of the person, for if he had never been born the accident would not have
would have conveyed to a reasonable shipowner or cargo owner and a reasonable happened'.10 This style of reasoning assumes that in terms of causative potency the
5 only standatd that can be applied is that of the causa sine
insurer contracting in the context ofthe commercial Inarine market. 'Proximate'
is merely convenient shorthand for the causal significance that, in the eyes of rhe qua non. In time, however, the law of marine insurance came to accept, in line
law, the parties to a commercial marine policy are understood as having intended, with other areas of law," that it was possible to distinguish berween different
in the absence of evidence of contrary intention. Thus, in 1942, in the context of
interpreting a formula relating to war risks, Lord Wright stated as follows:'
, [1894] 2 QB 548, 550
Yorkshire Dale Steamship Co Ltd v Minister o[War Transport (The Coxwold) [1942] AC 691,
2 Monarch Steampship Co Ltd v I&rlshamm Oljefthriker[1949] AC 196,227 per Lord Wrighr. 702 per Lord Macmillan.
3 Questions ofcausation cannot be answered in the abstract. An informed response requires an ibid 706. 'The interpretation to be applied does not involve any metaphysical or scientific view
understanding of the purpose and context of the causation test: Scott v Copenhagen Reinsurance Co of causation': 698 per Viscount Simon. Likewise, in Harrisons Ltd v Shipping Controller (The
(UK) Ltd [20031 EWCA Civ 688, [2003] Lloyd's Rep lR 696, para 68. Inkonka) [1921] 1 KB 122, 130-1, McCardie Jobserved that causation 'is a topic of profound
4 ibid 713. See also Becker, Gray & Co v London 1muranee Corp [1918] AC 101, 112; juristic complexity. The Courts cannot act as metaphysical analysts. They can only administer or
Lloyds state the law in practical language upon particular aggregates of circumstances'. On avoidance of
TSB General Insurance Holdings v Lloyds Bank Group Insurance Co Ltd [200 IJ EWCA.Civ 1643, the microscope to discover the proximate cause, see also Clan Line Steamers Ltd v Board ofTrade
[20021 Lloyd's Rep lR 113, para 42. (The Clan Matheson) [1929] AC 514, 530.
S Investors Compensation System Scheme Ltd v W'est Bromwich Building Society [1988] 1 WLR 10 Lawrence v Accidental Insurance Co Ltd(1SS1) LR 7 QB 216, 221.
896,913-14. 11 See the contrast drawn between marine insurance and carriage of goods by sea in Pink v
6 Yorkshire Dale Steamship Co Ltd v Minister of War Transport (The Coxwold) (1942] AC Fleming (1890) 25 QBD 396.
691,713.
303
302
Principles ofCausation Leyland Shipping v Norwich Union
levels of causal potency with sufficient certainty to provide a foundation for legal ebb tide and refloat on the flood, a process that subjected its already weakened
principle. Consequently, albeit not before the twentieth centuty, it came to be structure to severe strain. On 2 February, the Ikaria broke its back as the tide
settled beyond doubt that the. proximate cause is identified by effect,12 nor riming. rose. The shipowners claimed for a loss by perils of the sea, namely the
That is not to say that the cause that is lasr in rime may not still be the proximate repeated groundings caused by tidal action while the Ikaria was moored
cause: it may, but the reason for its gaining the accolade of proximate cause will alongside the breakwatet. The insuters contended that the proximate cause of
not be its timing but its dominant role in producing the loss. the loss was the torpedo and fell within the exclusion.
The late settlement of principle has, however, bequeathed a legacy of cases decided The House of Lords held unanimously that the repeated grounding was not a 9.09
on an approach to causation that no longer represents orthodoxy. Such novus actus interveniens, the torpedoing was the proximate cause of the loss, and
jutisprudence requires careful handling. In terms of exposition of legal prin- the underwriters were protected by the exclusion. In a seminal judgment, Lord
ciple, it may no longer be good law. It should not, howevet, be automatically Shaw stated as follows: 14
assumed that application of a different approach to proximity of cause will
.. . one must be careful not to lay the accent upon the word 'proximate' in such a
identifY a different proximate cause on a parricular sets of facts, or that, even if sense as to lose sight of or destroy altogether the idea of cause itself The true and
a different causation question yields a different answer in terms of identifYing the overruling principle is to look at a contract as a whole and to ascertain
a different proximate cause or set of proximate causes, this different causation what the parties to it really meant. What was it which brought about the loss, the
analysis will in turn yield a different answer in terms ofliability on the wording event, the calamity, the accident? And this not in an artificial sense, but in that
of the policy in quesrion. real sense which parties to a contract must have had in their minds when they
spoke of cause at all.
To treat proxima causa as the cause. which is nearest in time is out of the question.
Causes are spoken of as if they were as distinct from one another as beads in a row or
Leyland Shipping v Norwich Union links in a chain, but-if this metaphysical topic has to be referred to-causation is not a
chain, but a net. At each point influences, forces, events, precedent and simultaneous,
The leading authority on the meaning of proximate cause is the 1918 decision of the meet; and the radiation from each point extends infinitely. At the point where these
House of Lords in Leyland Shipping Co Ltd v Norwich Union Fire Imur-ance various influences meet it is for the judgment as upon a matter of fact to declare which
Society Ltd 13 A vessel named the Ikaria was insured under a policy that of the causes thus joined at the point of effect was the proximate and which was the
covered loss by perils of the sea but excluded 'all consequences of hostilities or remote cause.
What does 'proximate' here mean? To treat proximate cause as if it was the cause
warlike operations', the formula then adopted to exclude war risks. On 50 January
which is proximate in time is, as I have said, out of the question. The cause which is
1915, when twenty-five miles from her port of destination ofLe Havre, the Ikaria truly proximate is that which is proximate in efficiency. That efficiency may have been
was torpedoed by a German submarine. Severe damage was sustained, No 1 hold preserved although other causes may meantime have sprung up which have not yet
filled with water, the fore peak half-filled with water and some water also destroyed it, or truly impaired it, and it may culminate in a result of which it still
penetrated No 2 hold. With the assistance of tugs, the vessel managed to reach Le remains the real efficient cause to which the event can be ascribed.
Havre and was able to berth at a quay. Had it been allowed to stay at that berth, it
might have been saved. However, when on 31 January a gale caused the Ikaria to Lord Shaw noted that to determine proximity exclusively by timing would be to 9.10
range and bump against the quay, the harbour authorities became afraid it might render it impossible for any exception to fasten upon an intervening factor between
sink and block the quay, which was needed for military purposes. Accordingly, they the entry ofwatet that characterizes most perils of the sea, and the loss.
ordered it to leave and either be beached outside the harbour or moot inside a Such destruction of the exception was hard to teconcile with interptetation of the
breakwater. Under the circumstances, this was a reasonable instruction and, in any contract so as to respect the intentions of the parties. He continued: 15 'In my
event, one that had to be obeyed. It was decided to moor the Ikaria inside the opinion, accordingly, proximate cause is an expression referring to the efficiency
breakwater. There it remained for two days, but the damage done by the torpedo as an operating factor upon the result. Where various factors or causes are
meant that the Ikaria was down some seventeen feet at the head. This caused it to concurrent, and one has to be selected, the matter is determined as one of fact,
go aground at the head with each
12 Such a cause is sometimes referred to as the causa causans. "[19181 AC 350. " ibid 369. " ibid 370.
304 305
Principles ofCausation The Contextual Nature ofProximity; also ofComplex Causes
and choice falls upon the one to which may be ascribed the qualities of reality, the loss. The same policies, howevet, address the ingress of water into a vessel
predominance, efficiency.' . diffetently. Cover is granted against loss caused by petils of rhe sea. This phrase
embraces all fortuitous events of a maritime nature." Clearly, the ingress of sea
Applying the law to the unfortunate tale of the lkaria, Lotd Shaw held as follows: 16 water has a maritime nature. However, in this context, that cannot be the end of
In my opinion the real efficient cause of the sinking of this vessel was that she was the inquity. It is necessary to trace the sequence of events leading up to the sinking
torpedoed. Where an injury is received by a vessel, it may be fatal or it may be in order to determine whether the ingress of water in quesrion possessed rhe
cured: it has to be dealt with. In so dealing w.ith it there may, it is true, be requisite characteristic of fortuity. One must ascertain why the water entered.
attendant circumstances which may aggravate or possibly precipitate the result, Moreover, having done so, it rhen makes no sense to regard the ingress
but which are incidents flowing from the injury, or receive from it an operative and
as constituting the proximate cause to the exclusion of the circumstance that
disastrous power. The vessel, in short, is all the time in the grip of the casualty. The
true and efficient cause never loses its hold. The result is produced, a result affords it a fortuitous character. Whatever lends the ingress of water its fortuit-
attributable in common language to the casualty as a cause, and this result, proximate ous nature must then be recognized as part of the peril of the sea and, as such,
as well as continuous in its efficiency, properly meets, whether under contract or part of the proximate cause to which the policy speaks in the context of this
under the statute, the language of the expression 'proximately caused.'
peril. In Leyland Shipping v Norwich Union,20 Lord Atkinson gave a salutary
warning against the tendency 'to split up complex causes into their components
and establish a sequence between them'. Where a policy grants cover against
C. The Contextual Nature of Proximity; also of Complex Causes loss caused by a complex peril, all the elements required to constitute that peril
are necessarily part of the ptoximate cause in the context of that peril.
9.12 Just as the concept of proximity, in the Leyland Shipping sense of effective cause,
is influenced by the nature of the exercise being one of interpretation of a Samuel (P) 6- Co Ltd v D1}mas21 is the leading case on scuttling. As discussed in 9.15
contract, so too which factual event or combination of events constitutes the the next chapter,22 the House of Lords held that the deliberate production of
ptoximate cause depends on the wording of the petils clause in question. the loss of a vessel by those in control of it was incompatible with recovety
under the heading of perils of the sea. First, however, it was necessaty to
9.13 Suppose a vessel is overwhelmed by bad weather so that both the vessel and its
dispose of an argument that the proximate cause of the loss was the intush of
cargo are lost. What is the proximate cause of the loss? Is it the entry of water into
water rather than the act of letting in the water. Viscount Cave did so in the
the vessel or the storm that precipitated the entry of water? Or is it the storm in
combination with the entry of water that it precipitated? Such a question cannot be following terms:23
asked or answered in the abstract. It does not arise in the abstract but in the context There appears to me to be something absurd in saying that, when a ship is scuttled
of the wording of a particular policy. If the policy covers loss caused by 'entty of by her crew, her loss is not caused by the act of scuttling, but by the incursion of
sea water' or 'vessel or craft being ... sunk', as standard cargo policies dO,17 all the water which results from it. No doubt both are part of the chain of events which
result in the loss of the ship, but the scuttling is the real and operative cause-the
policy asks is whether sea water entered or rhe vessel sank aud whether thar entry
nearest antecedent which can be called a cause; and the subsequent events-the
or sinking caused loss. Clearly, in such a entry ofthe sea water, the slow filling ofthe hold and bilges, the failure ofthe
context, it is correct to say that the entry of water or sinking was the proximate pumps and the break-up of the vessel-are as much pans of rhe effecr as is rhe final
cause of the loss. disappearance of the ship below the waves.
9.14 Standard hull policies treat rhe peril of fire in the same way." Cover is granted The argument that the proximate cause was the inrush of water was clearly 9.16
againsr loss or damage caused by fire. The only question of any relevance, unsustainable in the light of the demise of the last-in-time approach to proxim-
therefote, is whether there was a fire and whether the vessel was lost or damaged ity of causation and the fact that the policy, in the relevant context of perils of
by that fite. If so, it is clearly correct to state that fire was the proximate cause of the sea, mandated an enquity into why the water entered the vessel. With
respect, however, the relegation of the ingress of water to an effect goes toO far
the other way. The vessel did sink because of an ingress of water (all vessels
ibid 370-1.
See Institute Cargo Clauses (B), d 1.2.3; Institute Cargo Clauses (C), d 1:1.2.
The peril offire is discussed at lO.60ffbelow. 19 For discussion of perils of the sea, see lO.03ffbe1ow. 20 [1918) AC 350, 365.
" [1924] AC 431. 22 See 10.16 below. 23 [1924J AC 431, 448.
306
307
Principles ofCausation Concurrent Proximate Causes
ultimately do). In the context ofany discussion ofperils of the sea, rhe proximate cause of the casualry, as rhe proximate cause, or as an effect of the proximare
(complex) cause of the loss was an ingress of water deliberately engineered by cause is a question that arises in rhe context of a named peril (covered or excluded)
those in charge of the vessel. Moreover, suppose the vessel in Samuel v Dumas under the contract and the doctrine of proximate cause necessarily operares flexibly
had been carrying cargo insured against entry ofsea water. In rhe context of such a by reference to rhe relevant peril.
policy, which is not concerned with how the water came to enter, is cover to be
denied on the basis rhat the cause of the loss was the scuttling and not the entry of
24
water? The answer must be no. The causarion enquiry musr be affected by D. Concurrent Proximate Causes
the contractual context.
Although English courrs traditionally seek the proximate cause of a loss, ir is 9.20
A furrher example is provided by negligence. In the context of cover against loss or
neverrheless accepted that a loss may be proximately caused by a combination of
damage caused by fire, rhat the fire was starred by negligence is irrelevant since a
perils, although unclear how readily such a conclusion should be reached. The
negligently started fire is still a fire. Standard hull policies, however, nominate the
question then arising is how rhe policy responds where one operative peril is
negligence of specified persons as a covered peril in its own right. Negligence is a
covered and rhe other is either not covered or expressly excluded. The same
state of mind. The loss or damage will be caused not by a state of mind but rather
problem can arise where the loss is caused by just one event but that evenr may
through some act or omission thar can be characterized as negligent. In order ro
be classified under the policy in issue as both a covered peril and also a peril that
recover under rhe heading of negligence, it will be neces-sary to enquire into how
is either not covered or excluded. Thus, where a vessel is captured pursuant to
the act or omission came about. This is not to say that the state of mind was the
an agreement between the master and the captor, the loss qualifies as caused by
proximate cause to the exclusion of the act or omis-sion, merely that a different 28
both the marine risk of barratry and rhe war risk of capture.
rype of peril mandates a differently focused enquiry.
Suppose then that negligent navigation leads a vessel ro collide with another, resulting in (l) One Proximate Cause or More?
the first vessel sinking with a loss of both vessel and cargo. It cannot be incorrect In The Aliza Glada!," Potter LJ stated that 'whenever an argument as to caus- 9.21
ro say that rhe proximare cause of rhe loss, depending on the con-
ation arises in respect of rival causes contended for under a policy of insurance, the
tractual context of the enquiry, was negligence (a covered peril under standard first task of rhe Courr is to look to see wherher one of the causes is plainly the
hull clauses), a collision (a covered peril under the Institute Cargo Clauses (B) and proximate cause of the loss.' It is not, however, clear to whar extent a finding of
(C)" and hull clauses in rhe contexr of collision liabiliry), a peril of the sea (in rhe
concurrent causes is a finding of last resorr. In principle, there is no reason why a
form of an ingress of water caused by a negligently occasioned collision with the
court should approach a question of causation predisposed to arriving at the
negligence supplying the forruiry)," an entry of sea water (covered under rhe
conclusion that one event or circumstance is the sale proximate cause of the loss.
Institure Cargo Clauses (B)), or even rhe sinking of rhe vessel (a covered peril
The proximate cause test should be applied in a neutral fashion, with as great a
under the Institute Cargo Clauses (B) and (C)).27 .
preparedness to find concurrent causes as not. There is, however, a tendency in
Two separate, if related, points emerge from the discussion in this section. Firsr, all parts English law to avoid a finding of concurrenr causes unless that is inescapable.
of a complex peril, such as a peril of the sea, form parr of rhe proximate cause Thus, despite staring rhat rhe first question was whether one cause was 'plainly' the
when such a peril is operative. Secondly, whether a parricular event or proximate cause, Potter LJ also srated that it is 'only when a
circumstance should be regarded as background to the operation ofthe proximate Coun is driven to the conclusion' of more than one proximate cause) that the
concurrent cause rules apply.'o There are, however, contrary views. In Wtiyne
24 Although the Institute Cargo Clauses (B), which include entry of sea water among the
covered perils, also contain a deliberate acts exclusion: see further 10.83 below. Arcangelo v Thompson (1811) 2 Camp 626. See also Kuwait Airways Corp v Kuwait Insurance
25 Albeit that the cargo clauses do not apply the proximate cause test to the peril of collision, CO SAK[1997J 2 Lloyd's Rep 687, 694-5, 699-700. And see the hreadth ofcover under perils of the
see 9.63 below. sea: 1O.03ffbelow.
26 If the master deliberately rammed the second vessel in order to sink his command, Samuel v Svenska Handelsbanken AB v Dandridge (The Aliza Glacial) [2002J EWCA Clv 577, [2002]
Dumas would prevent the cause from being described as a peril of the sea. 2 Lloyd's Rep 421, para 48.
27 Albeit that the cargo clauses do not apply the proximate cause test to the peril of sinking of 30 ibid, emphasis added. See also Leyland Shipping Co v Norwich Union Fire Insurance Society
the vessel, see 9.63 below. [1918J AC 350. 363.
308 309
Tank & Pump Co Ltd v Employers' Liability Assurance Corp Ltd,31 Cairns L] side the collision was immaterial. According to Lindley L], however, the case was
stated as follows: one of concurrent causes:" 'The sinking of the ship was proximately caused by the
I do not consider that the court should strain to find a dominant cause if, as here, there internal injuries produced by the collision, and by water reaching and getting
are twO causes both of which can properly be described as effective causes of the loss. through the injured parts whilst she was being towed to a place of repair. The
[Counsel for the claimants] recognised that if there are two causes which are sinking was due as much to one of these causes as to the other, and it would, in my
approximately equal in effectiveness, then it is impossible to call one rather than the opinion, be contrary to good sense to hold that the damage by the sinking was not
other the dominant cause. I should prefer to say that unless one cause is dearly more covered by this policy.'
decisive than the other, it should be accepted that there are two causes
of the loss and no attempt should be made to give one of them the quality of
dominance.
(3) Concurrent Causes, At Least One Specifically Excluded
Where the loss has mulriple proximate causes one of which is specifically 9.25 excluded
Concurrent Causes, One Cause Specifically Included, None by the policy, which prevails depends on the facrual relationship berween the covered
Specifically Excluded peril and the exclusion. Where the covered peril constitutes
Provided the policy covers at least one of rhe perils qualifYing as a proximate cause of an example of perils covered by the exclusion, the covered peril is narurally
the loss and none are expressly excluded, the assured is entitled to recover. The understood as an exceprion to the exclusion. To hold that the exclusion pre-vailed
loss is caused by a covered peril and rhere is nothing in the policy to deny cover. would involve deleting the covered peril entirely and emitle the insurer to premium
Thus, according to Willes] in Grill v General Iron Screw Collier Co," 'it is only attributable to that peril while granting no cover in rerum. Such a holding would be
necessary to see whether the loss comes within the termS of the most unlikely to give effecr to rhe intention of the parties. In The Lydia Flag,37 a
contract and is caused by perils of the sea; the fact rhat the loss is partly caused by hull policy incorporating the Institure Time Clause Hulls (I I 10/83) also contained a
things not distinctly perils of rhe sea does not prevent it coming wirhin rhe suspensive condition of seaworthiness at rhe inception of the policy and of due
contrace. diligence to maimain the vessel in a seaworthy condi-rion throughout the duration of the
risk. Mfording ptiority to the seaworrhiness clause would have drastically reduced,
In the The Miss jay jay, 33 a yacht sank because it was unseaworthy (not a covered peril) although not entirely eliminated, the latent defect cover normally provided under the
and because of the sea conditions (an insured peril). The Court ofAppeal held the Institute and International clauses in a manner thar, it was held, did not represent a
underwriters liable, citing rhe dicrum of Lord Penzance in Dudgeon v Pembroke" commercially sensible interpretation of the policy. The seaworthiness clause was,
rhat: 'Any loss caused immediately by rhe perils of the sea is withift the policy, though therefore, read as subject to the latent defect cover. A ftrtiori, it cannot be doubted that
it would not have occurred bur for the concurrent action of some other cause which is in a voyage policy on hulls incorporating the Instirure or International hull clauses, the
not within it.' implied watranry of seaworthiness or any equivalent express warranty is subject to the
In Reischer v Borwick" the insured vessel was holed by the covered peril of latent defect cover under the Inchmaree clause."
collision and subsequently lost by an ingress of water when temporaly repairs
gave way in the course of towage co potr for permanent repairs. Viewed in Similarly, where the cover and the exclusion appear co-extensive, rhe approach 9.26 in
isolation, the final ingress of water was an uninsured peril of rhe sea. The Court rhe case law has been to endeavour to find a route to preserving cover, on the
ofAppeal held underwritets liable. Perils of rhe sea other than collision were not basis thar affording cover wirh one hand while retracting it with rhe other does not
expressly excluded and the collision could not be denied proximate cause starus. reflect the likely intention of the reasonable people the parties are assumed
Consequently, whether the final ingress ofwater had a causal significance along-
ibid 551. Contrast Lopes L] at 553: the damage caused by the collision 'never ceased to exist,
" [19741 QB 57, 68-9. " (1866) LR 1 CP 600, 611-12. but constantly remained the efficient and predominating peril to which the damage now sought to
33 ff LloydImtruments Ltd v Northern Star Insurance Co Ltd (The Missfay fay) [198711 Lloyd's be recovered was attributable'. However, as stated in the text, the only causation issue
Rep 32. was whether the ingress of water was the sole proximate cause of the loss to the exclusion of the
" (I877) 2 App Cas 284, 297. See also CCR Fishing v Tomemon (The La Pointe) [1991) 1 collision.
Lloyd's Rep 89, 92-3 (Supreme Court of Canada); Kuwait Airways Corp v Kuwait Insurance Co Martin Maritime Ltd v Provident Capita/Indemnity Fund Ltd (The Lydia Flag) [1998] 2
SAK(No I) [1999) 1 Lloyd's Rep 803, 815. Lloyd's Rep 652.
35 [189412 QB 548. 38 See also 19.56-19.58 below.
310 311
to be. The route espoused has been that of interpreting the exclusion so as to subsequent warnings against the possibility of further terrorist attacks issued by
remove the conflict. United States authorities. The insurers argued that the terrorist attacks them-selves
were not an insured event and were therefore .an excluded peril and that
In the leading case of Fraser v Furman (EN) (Productions) Ltd," employer's liability
consequently there was no liability. The Court of Appeal, however, rejected this
insurance covered the negligence of the employer but also provided
argument. The insuring clause contemplated warnings in the light of actual events,
that: 'The insured shall tal<e reasonable precautions to prevent accident and
which would often be characterized as a concurrent cause of subsequent loss in
disease.' Construing this condition, Diplock L] stated as follows: 40 income. 'There is no intention under this policy to exclude loss directly caused by a
'Reasonable' does not mean reasonable as between the employer and the employee. warning concerning terrorist activities just because it can also be said that the loss
It means reasonable as between the insured and the insurer having regard to the was also directly and concurrently caused by the underlying terrorist
commercial purpose of the contract, which is inter alia to indemnifY the insured . .. h 1 '43 Th l' h
against liability for his (the insured's) personal negligence ... Obviously, rhe aCtiVItIeS t ernse Yes. e exc USlOn was, t erefore, either regarded in context
condition cannot mean that the insured must take reasonable measures to avert as not amounting to an exclusion for rhe purposes of the concurrent cause rules or,
dangers which he does not himself fotesee, although the hypothetical reasonably alternatively, the interpret~tion of the contract was inconsistent with
careful employer would foresee them. That would be repugnant to the commercial priority being afforded to the cause of the warnings as to an expressly excluded
purpose of the contract, for failure to foresee dangers is one of the commonest concurrent cause.
grounds of liability in negligence ... What, in my judgment, is reasonable as
between the insured and the insurer, without being repugnant to the commercial Where, in contrast, the exclusion is confined to part of the scope of a covered 9.29 peril,
purpose of the contract, is that the insured, where he does recognise a danger converse reasoning dictates that the exclusion prevails and the insurers are
should not deliberately court it by taking measures which he himself knows are not liable. Otherwise the exclusion would be rendered impotent, again effect-ively
inadequate to avoid it. In other words, it is not enough that the employer's omis-
deleting part of the agreed terms. In the leading case of wayne Tank & Pump Co
sion to take any particular precautions to avoid accidents should be negligent; it
must be at least recldess, that is to say, made with actual recognition by the Ltd v Employers Liability Assurance Corp Ltd, 44 the coverage extended to all
insured himself that a danger exists, and not caring whether or not it is averted. sums the claimants might become liable to pay by way of 'damages consequent
upon ... damage to property as a result of accidents'. Excluded, however, was
This approach was subsequently followed by Roskill ] with respect to a due dili-
liability for 'damage caused by the nature or condition of any goods ... sold or
gence clause in a Lloyd's goods in transit policy which required the assured to take
supplied by or on behalf of the insured'. The claimants designed and installed
'all reasonable precautions for the protection and safeguarding of the goods'."
equipment for storing and conveying liquid wax in a plasticine factory. This
In IF P&C Insurance Ltd (Pub!) v Silversea Cruises Ltd,42 a loss of earnings policy taken equipment, having been switched on and left unattended, caused a fire to start that
our by an operator of cruise liners covered, inter alia, loss of anricipated cruise income destroyed the factory. The claimants sued rheir insurers for indemnification against
'resulting from a State Department Advisory or similar warning by competent authority their resulting £150,000 liability. The Court of Appeal, having resolved that the
regarding acts ofwar, armed conflict, civil commotions or terrorisin, whethet actual or equipment supplied fell within the terms of the exception, held that the fire was
threatened' bur excluded such loss unless directly resulting from an insured event. The caused by both unsuitable material in the equipment and also the conduct of the
assured claimed, inter alia, for loss of claimants' servant in switching on the machinery before testing and in leaving it
earnings resulting from the downturn in the cruise market following the terrorist unattended overnight. Lord Denning MR and Roskill L] held the defective
attack on the World Trade Center on 11 September 2001. It was found at first machinery to be the proximate cause, but stated obiter that had there been two
instance that the downturn was caused by the combination of the attacks and proximate causes, the exclusion would have operated. Cairns L] held that both
causes were legally proximate, with the consequence that the underwriters were
protected. 'The effect of an exception is to save the insurer from liability for a loss
which but for the exception would be
[19671 1 WLR 898.
ibid 905-6 (Winn and Willmer LJ] concuring), following Woolfall & Rimmer Ltd v Moyle
[1942] 1 KB 66, 76-7.
" Lane (W & J) v 5pra" [1970] 2 QB 480. Likewise Aluminium Wire & Cable Co Ltd v Allstate
Insurance Co Ltd [1985J 2 Lloyd's Rep 280; Legal & General Insurance Australia Ltd v Eather
(1986) 6 NSWLR 390 (Court of Appeal of New South Wales); Cee Bee Marine Ltd v ibid para 104 per Rix L].
Lombard Insurance Co Ltd [19901 2 NZLR 1 (Court ofAppeal of New Zealand). [1974] QB 57. This case is the sequel to the notorious Court of Appeal fundamental breach
" [20041 EWCA Civ 769, [2004] Lloyd's Rep lR 696. decision in Harbutts Tlasticine'Ltd v 1¥{,yne Tank & Pump Co Ltd [1970] 1 QB 447.
312 313
Principles ofCausation Applying the Effictiveness Test ofProximate Cause
covered. The effect of the cover is not to impose on the insurer liability for Section 55(2)(a) states a further limitation on cover, ptoviding that insurers are 9.32 not
something which is within the exception.'45 liable for loss 'attributable to' the assured's wilful misconduct. This is a public policy
limitation, not subject to contrary intention, to which the above approach would clearly be
Exceptions or Exclusions? inappropriate. An assured should not be able to circumvent the policy limitation by
arranging for the misconduct to be imple-mented through a covered peril and it is clear
Section 55(2) of the Marine Insurance Act 1906 amplifies the proximate cause
that such circumvention is indeed barred. Provided the loss is attributable to the assured's
rule of section 55(1) by providing that the insurer is not liable for certain losses. By
wilful misconduct, there
virtue of section 55(2)(b) and (c), subject to contraty intention, insurers are not
is no recovery regardless of the proximate cause(s) of the 10ss.48
liable for losses proximately caused by delay, or for 'ordinary leakage and
breakage, ordinary wear and tear, inherent vice or narure of the subject-mattet
insured, or for any loss proximately caused by rats or vermin, or for any injury to
machinery not proximately caused by maritime perils'. The application of the
E. Applying the Effectiveness Test of Proximate Cause
proximate cause test may, however, result in the conclusion that a given loss was Accidents generally occur because ofa combinarion of circumstances. Blackburn 9.33 ]
caused by a covered peril and also fall within one of the limitations on. cover once gave the following account:49
articulated by section 55(2). In such a case, the question arises of whether section
55(2)(b) and (c) should be read as importing exclusions into the policy, so that the The ship perished because she went ashore on the coast of Yorkshire. The cause of
her going ashore was pardy that it was thick weather and she was making for Hull
insurer is not liable, or merely as clarifying the true interpretation of the cover
in distress, and partly that she was unmanageable because full of water. The
offered under the policy. It has been srated obiter in Australia that the latter cause ofthat cause ... was, that when she laboured in the rolling sea she made
approach is correct. In HIH Casualty & General Imurance Ltd v V0tterwall water; and the cause of her making water was, that when she left London she
Shipping Inc," the insured vessel was lost because of ordinary wear and tear in the was not in so strong and staunch a state as she ought to have been ...
form of corrosion to the warer circulation system and also the covered peril of
Such an account may be factually accurate. However, it is oflimited assistance in 9.34
negligence of master, officers, and crew. While holding that insurers were liable
resolving the question ofwhether insurers are liable for the loss of the ship under
because the negligence was the proximate, the Court of Appeal of New South
the policy in question. All the events or circumstances mentioned by Blackburn ]
Wales considered thar insurers remained liable because, even if the corro-
may be termed causes ofthe loss ofthe ship in the sense that they all contributed in
sion was a concurrent cause, the statutory exception of wear and tear clarified
greater or lesser measure to its loss. Unless, however, the policy nominates each
the scope of coVer rather than enunciating an exclusion. It is respectfully sug- and everyone of the contributing factors as a covered peril, the question arises of
gested that this approach is correcr. their relative legal significance and of the identification among the various factually
The question of characterization of matters falling within section 55(2)(b) and contributory causes of the proximate cause or causes. Viscount Simon once
may arise also where the policy wording renders some or all of such matters observed'o that:
the subject of express provision. It then becomes a question of contractual Most results are brought about by a combination of causes, and a search for 'the
interpretation as to whether the policy wording transforms such matters from cause' involves a selection of the governing explanation in each case. The cause of
exception clarifying scope of cover to exclusion. The better view, it is suggested, is death of a human being may, I suppose, be scientifically stated to be the failure of
that the various terms headed 'exclusions' in the Institute cargo clauses that address the supply of oxygen to the brain, but when a medical man certifies
many of the matters falling within section 55(2)(b) and (c) do effect such a 'the cause of death' he looks for the thing which has predominantly operared to
bring death about.
transformation,47 so that insurers will not be liable for losses concurrently caused
by a covered peril and falling within the relevanr rerms. A critical feature in identifying the proximate cause of a loss is the actual 9.35
45 [1974] QB 57, 69. See also Stanley v Western Insurance Co (1868) LR 3 Ex 71, 75; Cory &
Sons v Burr (1883) 8 App Cas 393 (speech of Lord Blackburn); Samuel (P) & Co Ltd v Dumas 48 See 15. 14ffbelow. 49 Dudgeon v Pembroke (1874) LR9 QB 581, 595.
[1924] AC 431, 467; Board ofTrade v Hain Steamship Co [1929] AC 534, 541; Kuwait Airways 50 Yorkshire Dale Steamship Co Ltd v Minister o/War Tramport (The Coxwold) [1942] AC 691,
Corp v Kuwait Insurance Co SAK [1999] 1 Lloyd's Rep 803, 815; Tektrol Ltd v International 698. 'The adverb "proximately" does not greatly assist the solution of the problem, but it at
Imurance Co ofHanover Ltd [20041 EWHC 2473 (Cdrnm), [2005] Lloyd's Rep lR least serves to emphasise that it is the predominant and determining cause that is to be
358, para 17. " (1998) 146 FLR 76. " See 7.59 above. sought': 702 per Lord Macmillan.
314 315
infliction or rendering inevitable of loss or damage. Alternatively, even where ing inflicted no damage. Lord Kenyon held the loss to be by capture and not
the ultimate loss is not the inevitable consequence of the peril, where it follows perils of the sea, 'for had the ship been driven on any other coast bur that of an
from that peril in the ordinary course of events, other events intervening enemy, she would have been in perfect safety'. 58 Likewise, where cargo
between the peril and the loss will not break the chain of causation and deprive survives a shipwreck but is seized by enemy forces or its salvage is prevented
the original peril of proximate cause status. In Leyland Shipping v Norwich by the inter-vention of enemy forces, the cause of that loss is a war risk and not
Union, 51 the torpedo was not merely part of the background against which the the peril of the sea that caused the initial wreck. 59
repeated groundings sank the vessel. This was because the torpedo directly inflicted Proceedings in a Court of Prize resulting in condemnation of the insured prop- 9.38
damage from which rhe vessel was never able to recover. Given the circumstances, erty, being the natural consequence of a hostile seizure, complete the loss by seizure
including the wartime imperative that the relevant quay at Le Havre not be blocked, rather than break the chain of causation, whereas salvage proceedings in
all that followed from the impact of the torpedo was the natural consequence of that
a Court of Admiralty resulting in sale of the subject-matter insured cannot be
impact. Lord Dunedin stated as follows: 'After the torpedo struck her she was a
viewed as the natural, and therefore the proximate, consequence of the sea peril
doomed ship, unless she could get into a real place of safety. She nearly got to a
occasioning rhe need for the salvors' services."
place of safety, bur never quite did SO.'52
Another way of approaching the same issue of identifYing the proximate 9.39
Similarly, in Reischer v Borwick,53 a vessel insured against collision bur not against cause(s) is to distinguish between those events and circumstances that set the
perils of the sea generally sustained a leak by reason of a collision. Temporary
scene for the casualty to occur and those factors that constitute the operative
repairs were effected, bur, while the vessel was being towed to port for
cause of the casualty, a distinction between factors that permit a casualty to
permanent repairs, the motion of water (a peril of the sea) re-opened the leak.
occur and those that actively trigger it.
The vessel began to sink and was, therefore, run aground and abandoned.
The Court of Appeal held the undetwriters liable, rejecting an argument that the In a classic judgment in Ionides v Universal Marine Insurance Co," Kelly CB 9.40
proximate cause of the loss was the motion of the water that re-opened the leak gave four examples of the disrinction between background and operative cause
to the exclusion of the original collision. The hole was 'a continuing source of in relation to a policy covering loss by perils of the sea but excluding the
risk and danger'54 and the failure of the temporary repairs did not break the consequences ofhostilities. First, in seeking to escape capture, a ship runs ashore
chain of causation. Again, in the non-marine case of Re Etherington and The and is lost. The casualty is within the exception and the underwriter is pro-tected.
Lancashire & Yorkshire Accident Insurance Co, 55 the policy covered death Secondly, in order to avoid seizure, a pursued ship enters a bay where there is
ptoxim-ately caused by accidental injury. The assured suffered a heavy fall on V:er neither harbour nOt anchorage. Unable to get our, the ship is driven ashore by the
ground while hunting. A combination of shock and being soakedjnduced wind and lost. Again, the loss is a consequence ofhostilities. 62 The third example is
pneumonia resulting in death. The insurers argued unsuccessfully that the a variant of the second in that the ship escapes from the bay and
pneumonia broke the chain of causation. Vaughan Williams L] observed that 'the
accident itself is ordinarily followed by certain results according to its nature, and if
the final step in the consequences so produced is death, it seems ro me that the ibid 279.
Jonides v Universal Marine Insurance Co (1863) 14 CB (NS) 259, discussed further ac
whole previous train of events must be regarded as the proximate cause of the death 13.08-13.09 below. The contrary decision in Bondrett v Hentigg (1816) 1 Holt 149, of a total
which results'. 56 loss by perils of the sea where part of the cargo ofa wrecked vessel waS lost in the sea and
part was brought safely on shore where it was destroyed and plundered by the natives,
Conversely, where a peril neither inflicts nor renders inevitable the damage that is the appears irreconcilable and unsustainable.
60 De Mattos v Saundm (1870) LR 5 CP 570. " (1863) 14 CB (NS) 259, 286-7.
subject of the claim and such damage is not the natural consequence of the
62 See also Moor Line Ltd v Isaac King (1920) 4 LlLRep 286 in which incompetent navigation
peril, the test for proximity of causation will not be satisfied. In Green v ('a horrible bungling about the navigation of this ship which, on a fine day and in a calm sea, went
Elmslie,57 a vessel was driven on an enemy coast and there captured. The strand- four miles our of her course in fourteen miles') resulted in a master unwittingly sailing his vessel
into a passage between sandbanks that was impassable for a vessel of that size. While in this
passage, evasive aCclon was taken to avoid a mine and shortly thereafter the vessel ran aground.
Rowlatt Jdismissed all arguments that the cause of the loss was a war risk rather than a peril of
51 [19181 AC 350, at 9.08ff above. 52 ibid 364. 53 [1894J 2 QB 548. the sea. Either the vessel had resumed its original course after avoiding the mine or it had not
" ibid 553 per Davey LJ. resumed its original course because the master's ignorance of his true position meant that he did
55 1190911 KB 591. See also MardoifvAccident Imurance CO [1903J 1 KB·S84. not know there was any need to do so. On either analysis, the mine could not be said to be the
" [190911 KB 591, 599. 5" (1794) Peake 278. proximate cause of the vessel's running aground.
316 317
pursues her voyage, but is lost in a storm which would not have been It does not follow from the above discussion that events that are interposed 9.43
encountered but for the hostile attempt at seizure. Although the loss would not between the original peril metiting the status of proximate cause and the ultim-
have happened without the attempted seizure, the proximate cause of the loss is ate loss and rhat do nor break rhe chain of causation are necessarily excluded
a peril of the sea." Fourthly, a port may be entered by two channels, in one of from proximate cause status. 'Where a business interruption policy covers loss of
which torpedoes are sunk by way of defence. Unaware of this, the master of a income caused by government warnings of possible terrorist risk, it would be
ship enters the protected channel and the ship is lost. The proximate cause bizatre to deny such a warning proximate cause status in favour of an actual
would certainly be within the consequences of hostilities exception. However, terrorisr atrack that prompted the warning." But equally, one could not deny,
suppose the mastet, aware of the sunken torpedoes, selects the other channel, were it relevant in the context of the particular policy wording, that the actual
but runs aground through unskilful navigation. The loss would not fall within atrack was a proximate cause of the loss. Again, in Midland Mainline Ltd v
the exception. Eagle Star Insurance Co Ltd," the wear and tear could not be denied status as a
proximate cause of lost revenue merely because its deleterious impact on the
In MidlandMainline Ltd v Eagle Star Insurance Co Ltd," the distinction between
railway infrasttucture was brought to a head by regulatory intervention. How-ever,
background and proximate cause surfaced in the context of business interrup-tion
that should not mean that an assured that purchases cover for income lost by
insurance. Cracking in railway track caused a major accident when a train derailed
regulatory intervention should be denied indemnification wherever the regu-lator
at Hatfield. The cracking was a form of rolling contacr fatigue (RCF) and a clear
has a good reason for intervening on the ground that the proximate cause of the loss
example of wear and rear. This led to the imposition by rhe regula-rory authoriry of is the reason for the intervention, rather than the intervention itself"
emergency speed resrricrions (ESRs) wherever the cracking was known to exist.
This in turned caused disruption ro rail services and loss to the train operating Similarly, in Leyland Shipping, the policy excluded losses caused by war risks. On
companies. The policies excluded loss proximately caused by wear and rear, but the 9.44 established principles," therefore, provided it was true to say that the impact of
claimants contended, and it was found ar first instance, the torpedo was a proximate cause of the loss, the insurer was not liable regard-
rhat the cracking was merely part of the background againsr which rhe ESRs less of the causal significance of other events or circumstances. Suppose, how-
were imposed. David Sreel J reasoned as follows:" ever, the vessel had been insured against loss caused by grounding with no
mention of war risks. Could one then deny that the Ikaria sank because (in a
What brought about ,he loss? ReF was a known featute of the netwo,k (albeit the
scale of it was not). It was formerly dealt with as part of routine maintenance with proximate cause sense) of the repeared groundings? It is suggested rhat the
little, if any, disruption to the timetabled services. The losses are brought about by: contextual nature of the proximate cause would demand that the groundings be
the myriad of ESRs imposed to try and bring the network back to a safe shape as given full causarion credit regardless of why or how the vessel came into the
soon as possible. The gradual development ofcracks in numerous ReF sites .was posirion to be lost by grounding.'o Again, if on facts parallel to rhose in
no more than the underlying state of affairs providing the occasion for action. Reischer v Borwic!?' a vessel or cargo were insured simply against entry of water,
This decision on causation was reversed on appeal. While not necessarily deny-ing the it could not be denied that the ingress of water rhat sank the vessel merited
proximate causal significance of the ESRs, the Court ofAppeal held that the proximate cause srarus for the purposes of such insurance cover. Such wording is
defective nature of the track could not be relegated to remote background but clearly designed to avoid enquiries into why water entered. Denial of proximare
was either the proximate cause of rhe loss or a proximate cause concurrently cause starus to the entry of water in favour of the reason for rhe entry would
wirh the ESRs. The Court ofAppeal also rejected an argument thar the Hatfield frustrate ,the intention behind the wording.
derailment was the sole proximate cause of rhe business interruption losses
throughout rhe network. Its proximate effect was confined to closure of the line
IF P&C Insurance Ltd (PuM v Silversea Cruises Ltd [20041 EWCA Civ 769. [2004J
where ir happened, and even in that limited context it did not prevent rhe wear Lloyd's Rep IR 696, see 9.28 above.
and tear in the track from having proximate cause status. [2004] EWCA Civ 1042, [20041 Lloyd's Rep IR 22, see 9.41-9.42 above.
Such cover was indeed a feature of the policy in Midland Mainline, and no such causation
argument, dearly incompatible with the intention of the parties, was raised.
See 9.20ff, esp 9.29 above.
SeeaJsa Livievjanson (1810) 12&1st648,653. See the statement by Vaughan Williams LJ in Re Etherington: 'the whole previous train of
[2003] EWHC (Camm) 1771, [2004] Lloyd's Rep IR 22, rvsd [2004] EWCA Civ 1042, events must be regarded as the proximate cause of the [loss] which results': [1909] 1 KB 591> 599,
[2004J 2 Lloyd's Rep 604. see 9.36 above.
71 [1894] 2 QB 548, see 9.24, 9.36 above.
6S [2003] EWHC (Camm) In!, [20041 Lloyd's Rep IR22, para 109.
318 319
Principles ofCausation Apprehension Peril
In Yorkshire Dale Steamship Co Ltd v Minister ofWar Transport (The CoXWOld),72 the ship to proceed to another port where the cargo was sold at a considerable
the government assumed responsibility for the consequences of hostilities and .loss. Lord Alvanley CJ held that no claim lay against the underwriters:
warlike operations with respect to a requisitioned vessel. While sailing in convoy to
, . . where underwriters have insured against capture and restraint of pr.inces, and
a war base with a military cargo, rhe vessel altered course as ordered by the naval
the captain, learning that if he enters the port of his destination the vessel will be
escort to avoid a suspecred enemy submarine, lost sight of the leading vessel in lost by confiscation, avoids that pOft, whereby the object of the voyage is defeated,
poor visibility, and ran agtound. Previous authority esrablished that the vessel was such circumstances do not amount to a peril operating to the total destruction of
engaged on a warlike operation, the arbitrator held that the loss was proximately the thing insured. If they could, the same principle would have applied in case
caused thereby, and the House of Lords held there was sufficient evidence to information had been received at Falmouth that the ship could not safely proceed
support the arbitrator's decision. Lord Wright stated that: 'The stranding in this case to Naples. 78
was undoubtedly a peril of the seas, but we must look Observing rhat rhe peril must act 'immediately, and not circuitously'," 'directly 9.48
behind the stranding to ascertain if the cause of the casualty was a peril which and not collaterally','O Lord Alvanley justified the rule on the basis that other-
could be described as a consequence of warlike operations.''' Selecting the real or wise the courts would afford cargo owners 'the opportunity of creating imagin-
efficient cause ftom the contributing circumstances required the application of 'ary dangers whenever the cargo was not likely to reach the port of destination in
common sense. The question was 'what was the effective and predominant cause of a sound state, and, by giving notice of abandonment to throw a loss upon the
the accident that happened, whatever the nature of that accident may be'." Again, underwriters to which they were not liable by the terms of the policy.''' Again,
this was a case where the question was not wherher the proximate cause of the loss in Lubbock v Rowcroft,82 the port of destination was found on arrival to be in
was a peril of the sea. If the policy had simply covered perils of the sea with no hostile French hands or subject to a French blockade. Lord Ellenborough held
mention of war risks, that would have been the question and the answer would have that the ensuing abandonment of the cargo by the assured to the underwriter
been in the affirmative. However, since the policy excluded war risks, the question was 'from an apprehension of an en,emy's capture; and not from any loss within
became whether, regardless of the causative potency of any other matrer, there was the terms of the policy: That if such was allowed, every ship about to sail from
a war risk that satisfied the proximate cause test. the port of London for a POrt which had fallen into the hands of the French,
might be abandoned'" A policy on loss caused by capture and seizure is not a
policy on loss caused by fear of capture and seizure. 84
Apprehension of a Peril
Where, however, is the line drawn berween an apprehended peril and an opera- 9.49
If the master of a vessel anticipates a covered peril, takes action to avert it and thereby tive peril? Scrutron LJ put the question: 'Is it a fear of something that will
incurs a loss, the assured may not recover under the policy because the covered happen in the future or has the peril already happened and is so imminent that
peril is not the proximate cause of the loss. Where the owners of a vessel may not it is immediately necessary to avert the danger by action?'"
'with reasonable prudence' order their vessel to sail because of the probability of a
In Miller v Law Accident Insurance Co," a government decree forbidding dis- 9.50
casualty from a hostile attack, the cause of allY resulting loss is
charge of a cargo of diseased cattle was held to constitute the insured peril of
the apprehension of the peril rarher than the peril itself. 75 Although described as restraint of princes despite the absence of direct and immediate compulsion.
'unjust and somewhat absurd'," the principle is well established.
Stirling LJ stated that:"
The rule seems to originate in rhe case of Hadkinson v Robinson," which con-cerned
If, when about to enter the pOrt, the master had been informed of the existence ofa
insurance on a cargo of pilchards being carried in convoy from Falmouth to Naples law restricting the right to land cattle, and that the Government were likely to put
on a British ship. In the course of the voyage, it was learned that
Naples had been closed to British ships. The commander of the convoy ordered
78ibid 392. 79 ibid. 80 ibid 393. 81 ibid.
82(1803) 5 Esp 50. 83 ibid 51.

Nickels & Co v London & Provincia!Marine & Genera! Insurance Co Ltd (1900) 6 Com Cas
[19421 AC 691. 73 ibid 707.
See also Forster v Christie (1809) 11 East 205; Office Appliance 7rades Association of Great
72 74 ibid 698 per Viscount Simon.
Britain & Ireland v Roylance (1940) 67 LlLRep 86.
7S The Bamburi [1982] 1 Lloyd's Rep 312, 316. 76 ibid, perStaughtori J.
85 Symington & Co v Union Insurance Co ofCanton Ltd (1928) 31 LlLRep 179, 182.
77 (1803) 3 Bos & Pu1388. " [19031 1 KB 712. 87 ibid 721.
320 321
Principles ofCausation Mistaken BeliefofPeril
that law into force, and he had then gone on his voyage and not entered the suspending the voyage until the end of the war. Ultimately the voyage was
pOrt,the case would have been like that in Hadkinson v Robinson and similar abandoned. In the opinion of the Admiralty, had the voyage proceeded, the vessel
authorities. Here the master went as far as he could towards the completion and cargo would have been in peril of capture. The House of Lords held
of the venture, and only desisted when the Government intervened.
unanimously that the proximate cause of the lost voyage was the voluntary act of
9.51 In the leading decision of Kacianoff v China Traders Insurance Co Ltd,88 cargo the captain in not pursuing it. 'Itwas self-restraint, not restraint of princes, that
was again diverted by reason of a hostile blockade and the assured claimed for a hindered the captain from putting to sea.''' Had the master abandoned the
loss by capture. According ro Lush J, for capture ro be the proximate cause, the voyage in response ro an instruction from his government, there would have
ship had ro be 'in peril of capture'. He reasoned as follows: 'Whar was done in been an operative restraint of princes.97
discharging the cargo was really done to prevent the ship ever coming into the
Under the British rules of mutual war risks associations;' the doctrine of appre- 9.54
peril; it was not done ro avert the consequences of any peril in which the ship
hension of risk is mitigated by rule 2C.1.6, which covers a shipowner against
actually was. Thar being so, ir seems ro me quite impossible ro say that the one
loss sustained through the detention or diversion of an insured ship caused in
was the consequence of the other.'''
order to avoid loss of or damage ro rhe ship by the covered perils 'but only
To be contrasted is The Knight ofSt Michael,90 a case concerning fire insurance on a where and to the extent that the Directors in their discretion derermine that the
cargo of coal. The voyage was abandoned shortly arrer its commencement because loss should be recoverable from the Association'.
the coal started ro heat, although no fire actually broke out. GorelI
Barnes J held the underwriters liable for the resulting loss of freight as caused
91
by fire. In Kacianoff, Lord Reading CJ paraphrased the reasoning of Gorell G. Mistaken Belief of Peril
Barnes J as follows: 'was there at the time such a condition of things thar there
was an actually existing peril of fire and not merely a fear rhat ir might break out? Underwriters who insure against perils do not insure against errors of judgment 9.55
The danger was present, and if nothing had been done spontaneous combustion in deciding whether a peril exists. In joseph W't'ttson & Son Ltd v Firemen sFund
and fire would have followed in the natural course. That means the peril had begun Insurance Co ofSan Francisco," the master of a vessel saw what he assumed to be
to operate'.92 smoke issuing from a hold and triggered fire-fighting measures that damaged
In the alternative, Gorell Barnes J held the loss ro fall within the eiusdem generis clause, the claimant's goods. In the ensuing action by the claimant on his insurance
an analysis that has subsequently been preferred." Should this latter approach policy for, inter alia, a loss caused by fire, Rowlatt J held that what the master
prove correct and given the demise of the eiusdem generis clause, in such a saw was vapour emirted by cargo that had been heated by stearn escaping from
situation the assured would not today recover on insurance against 'fire'.94 On the a broken pipe. Consequently, the insured peril of fire had not occurred and the
facts of Kacianoff, the peril of capture was not operative. A reasonable certainty of insurer could not be liable. All depends, however, upon the wording of the
capture had the voyage been pursued was insufficient. policy. In Henry & MacGregor v Marten,100 the master of a vessel rammed
Had the carrying vessel been met and threatened by a hostile ship or been in what he genuinely believed to be an enemy submarine, the collision so severely
some danger, the result might have been different. Again, in Becker, Gray & dam-aging his vessel that it ultimately sank. Although there was insufficient
evidence to determine whether what had been rammed was indeed a submarine,
Co v London Assurance CO,95 goods shipped on board a German vessel were
the loss clearly fell within the purview of war risks insurance as caused by a
covered against war risks including a restraint of princes. In the course of the
voyage, war broke out between Germany and the United Kingdom. The master
warlike operation or a consequence of hostilities.
consequently put into a neutral POrt to avoid capture with the intention of
-------------------------
88 [191413 KB 1121. " ibid 1130. 90 [18981 P 30.
ibid 111 per Lord Sumner.
ibid 34-5_92 [191413 KB 1121, 1128_
Rickards v Forestal Land, Timber & Railways Co (The Minden) [1942J AC 50, discussed at
Tempus Shipping Co Ltd v Louis Dreyfts & Co Ltd[1930J 1 KB 699, 708.
13.50-13.51 below. Consequently, reliance should not be placed upon the dictum of Brett J in
94 Note, however, that the Institute Coal (:::Iauses cover loss or damage 'reasonably
Rodocanachi v Elliott (IS?3) LR 8 CP 649, 670 to the effect that the proximate cause of absten~
attributable to. , , fire explosion or heating, even when caused by spontaneous combustion,
rion from entering a blockaded port in response to orders of officers of the Crown is the
inherent vice or nature of the subject matter insured': d 1.1. "
master's voluntary obedience to such orders,
os [1918J AC 101. 98 See 16.14 below. 99 [192212 KB 355. "0 (1918) 34 TLR 504.
322
323
Principles ofCausation The Language ofCausation
Response to Perils ship to sail away under circumstances like these, instead of stopping until the goods
could be reshipped, which would be very mischievous' .'05
Once a peril occurs, steps taken to prevent damage occurring or to minimize losses do
Where the claim is for loss of chartered freight, the wording of the charter is 9.58 crucial.
not break the chain of causation and losses of or damage to the insured property
Perils of the sea that frustrate a voyage equally cause the resulring loss of freight.,06
thereby incurred are recoverable as proximately caused by the peril.'o, However,
Similarly, where rhe charter provides for automatic cessation ofhire in
once the vessel is free of the peril, if a prima facie loss can be made good but the
certain circumstances, the proximate cause of the relevant circumstances is also
master fails so to do, such a failure will break the chain of causation and the
the cause ofthe lost freight.'o, Where, however, liability to fteight will cease upon
underwriters will not be liable. Philpott v Swann'02 concerned insurance
the exercise of a contractual option to cancel, it has been held that the exercise of
on freight to be earned on a cargo of copper ore to be loaded at Hondeklip Bay for
such an option breaks the chain ofcausation berween that which triggers the right to
carriage to Swansea. Loading was interrupted by a storm that forced the ship to
cancel and the ensuing loss of freight.'os A ftrtiori, where a chartered vessel is
put to sea and caused damage. The master accordingly decided to sail to St Helena
seriously damaged by stranding so as to require repairs and to permit the cancella-
for repairs. On arrival, however, it was discovered that the relevant repairs could
tion of the charter and a decline in the freight market renders a replacement charter
not be effected there and the master then sailed for Swansea without a full cargo.
less lucrative, the proximate cause of the diminished profitability of the vessel on
The master could have sailed to the Cape of Good Hope instead of St Helena
returning to service is the decline in the market and not the stranding.'o,
where the necessaty repairs could have been completed, enabling the vessel to
load a full cargo. The jury found that the master had acred thtoughout as a prudent
uninsured owner would have done. Nevertheless, Willes J held that the
I. The Language of Causation
underwriters were not liable for the loss of freight with respect to the shortfall on
the cargo because it was not proximately caused by the storm. 'The damage done Section 55(1) of the Marine Insurance Act 1906 adopts the proximate cause 9.59 rule as a
was not of an extraordinary charactet. It was capable of repair and the means of default rule, operative unless the policy otherwise provides. Confus-
repair were within a reasonable distance ... ingly, the Institute clauses generally eschew the terminology of 'proximate cause'"0
The proximate cause of the loss was the course which the master pursued in going and employ a bewildering range of alternative causal expressions:
home instead of repairing at the Cape and then returning for the rest of the cargo. 'caused by','arising from', 'resulting from', 'attributable to', 'reasonably attrib-
'103
utable to', 'by', 'consequent on'. This raises the question of whether a different
In Mordy vJones, '04 upon a vessel seeking repairs in an intermediate port, it was causation test is contemplated.
discovered that the perils of the sea that had injured the vessel had also so
damaged a part of the cargo as to render it unsafe for carriage to the port of (1) The Adhesiveness of the Proximate Cause Rule
destination without treatment involving considerable delay and expense equal to
its freight. The master accordingly sold that part of the cargo and, having been
As already noted, the proximate cause doctrine is considered to represent the 9.60
intentions of the parties in the absence of evidence to the contrary. The courts,
unable to find a replacement, completed the voyage without a full cargo and
handed the proceeds of sale to the persons interested in the sold cargo without
deducrion for freight. It was held that, although on the facts the master had acted 105 ibid 400 per Abbott Cj. A fortiori where subsequent conduct is negligent or constitutes a
prudently and properly, nevettheless the underwriters should not be held liable for breach of duty: Tanner v Bennett (1825) Ry & Mood 182: Meyer v Ralli (1876) 1 CPD 358.
106 jackson v Union Marine Insurance Co (1874) LR 10 CP 125; Rt Jamieson 6-
any lost freight lest 'it would open a temptation to the master of a
Newcastle Steamship Freight Insurance Association [1895J 2 QB 90.
'07 The Alps [1893J P 109: The Bedouin [1894J P 1.
>0, Mercantile Steamship Co Ltd v 7jser (1881) 7 QBD 73, 75 per Lord Coleridge Cj; 'the
freight was lost by the exercise of the cancelling option which the charterers had the right to exercise.
'" Stanley v Western Insurance Co (1868) LR 3 Ex 71 (fire): The Thrunst'Oe [18971 P 301: The breakdown of the ship gave the charterers the opportunity which it was at their pleasure to avaH
Canada Rice Mills Ltd v Union Marine & General Insurance Co Ltd [1941 J AC 55 (perils of the themselves of or to decline ... Here it seems to me that it was not the perils of the seas which
sea). The cases are discussed in the context of the relevant peril, see 10.60, 10.44 below. See also caused the freight to be lost, though it may be that these perils gave the charterers the
Wikon v United Counties Bank [19201 AC 102, 125, explaining Leyland Shipping Co Ltd v right to cancel the charter.' But see Atlantic Maritime Co Inc v Gibbon [1954] 1 QB 88, 128.
Norwich Union Fire Insurance Society Ltd [1918] AC 350 on the basis of this_principle. For the >0, Continental Grain Co Ltd v Twitchell (1945) 78 LlLRep 251.
recovery of additional expenditure incurred in averting or-minimizing losses, sec Ch 24 below. 110 By way of exception, see the delay exclusion in the Institute Cargo Clauses (A), (B), (C),
'" (1861) 11 CB (NS) 271. '" ibid 280-1. >0' (1825) 4 B & Cr 394. d 4.5, discussed at 15.33-15.37 below.
324 325
Principles ofCausation The Language ofCausation
however, do not readily conclude that policy wording evidences an intention to (a) Displ4cement by a combination ofwording and other circumstances
adopt a different causal test. First, it is clear that such intention will be not inferred Although many different causal formulae have been held in and of themselves 9.62
from the mere fact of a change of causal wording.'" Precisely because not to evidence an intention to adopt a different causation test, the question is
the proximate cause test represents the presumed intention of the parties, its ultimately one of interpretation of the contract as a whole. King v Brandywine
applicability 'does not depend on nice distinctions between the particular var-ieties Reinsurance Co (UK) Ltd 15 concerned insurance cover relating ro the disastrous
of phrase used in particular policies'.'12 Secondly, the inclusion of a range of oil spill from the Exxon Valdez in Alaska. The policy covered, inter alia, liability
different causal phrases within the same contract equally fails to persuade. Indeed, in damages for personal injuty 'and/or loss of, damage to or loss of use of
the difficulty of formulating a wide range of different causation tests that may tangible property caused by or alleged ro have been caused directly or indirectly
sensibly be regarded as responding to the intentions of parties to a commercial by seepage, pollution or contamination arising out of the operations of the
contract may reinforce the applicarion of the proximate cause rule where a policy Insured'. The question was whether the navigation of the Exxon Valdez, which
adopts several causal formulae. Thirdly, the adoption of different causal formulae was the proximate cause of the pollution, arose out of an operation of Exxon,
for covered perils and exclusions will not of irself lead to rhe application of namely the consignment of a cargo of oil for carriage on the vessel on the
different causation tests.'13 Fourthly, causal phrases that taken in relevant voyage. Colman J held that, in context and especially given the contrast
isolation do not evidence the requisite intention to oust the proximate cause with the phrase 'caused by', the phrase 'arising out of imported a broader test
rule do nor necessarily increase in persuasive potency through cumulative use in extending to all contributing events so that a sufficient causal link was present
the same exclusion.'" Ultimately, however, it is a matter of interpretation of the on the facts."6
particular contract.
Clause 1.1 of the Institute Cargo Clauses (B) and (C) extends cover to loss or 9.63
Displacing the Proximate Cause Rule damage 'reasonably attributable to" named perils, such as fire, in contrast to the
'caused by' test required of the perils named in clause 1.2, such as jettison. The
Notwithstanding its encapsulation of the intentions generally expected of the contracting change in causation wording is the only distinction between the two categories
parries, the proximate cause rule will be displaced in two situations: firsr, where a of peril, clearly suggesting that the phrase 'reasonably attributable to' is intended
change of formula insufficient in itself combines with other factors to embody a more relaxed causation requirement than proximity of cause. Simi-
such as policy structure and wording to evidence the requisite intention larly, clause 7 of the Institute Cargo Clauses (A), (B), and (C) contains exclu-
and, secondly, where the espoused causal formula is unequivocal in adopting a sions of losses 'caused by' strikers, 'resulting from' sttikes, and 'caused by' any
different test. - terrorist. The alteration in causal wording clearly reflects the difference in
immediacy of impact upon cargo of the acts of people, as opposed to a with-
drawal of labour."7
Two provisions of the Marine Insurance Act 1906 depart from the proximate 9.64
111 Lawrence vAccidental Insurance Co Ltd (I 881) 7 QBD 216 ('arising from'); Coxe v Employers' cause formula articulated by section 55(1). In the context of the legislation, it is
Liability Assurance Corp Ltd [1916J 2 KB 629, 634 ('caused by, arising from, or traceable to'); clear that the departute contemplates a deliberate relaxation of the proximate
Symington dr Co v Union Insurance Society of Canton Ltd (I928) 34 Com Cas 23 ('reasonably
attributable to'); Panamanian Oriental Steamship Corp v Wright (The Anita) [1971J 1 WLR 882
cause rule. Section 55(2) (a) provides that the insurer is not liable for loss 'attrib-
('arising from'); Shell/nternational Petroleum Co Ltd v Gibbs (The Salem) [19821 QB 946, 998 utable to' the assured's wilful misconduct, in marked conttast to the adoption of
('attributable to'); Lloyds TSB General Insurance Holdings v Lloyds Bank Group Insurance Co Ltd the proximate cause test as a general proposition in subsecrion (1) and in specific
(200lj EWCA Civ 1643, (20021 Lloyd's Rep lR 113, para 40 ('result from'). One commentaror
has stated that the dropping of the adverb 'proximately' in favour of simply 'caused by' in contexts in subsections (2)(b) and (2)(c). Such a change in terminology within
the Institute clauses is reflective merely of a wish to render the English drafting more easily the same section of the Act reflects the concern that it may be necessary to look
accessible to foreign assureds: K Goodacre, Goodbye to the Memorandum (1988) 21. beyond the proximate cause in order to link the assured's wilful misconduct ro
Lloyds TSB Generaiinsurance Holdings v Lloyds Bank Group Insurance Co Ltd [200 1] EWCA
Civ 1643, (20021 Lloyd's Rep IR 113, para 40 per Porter LJ.
Handelsbanken Norwegian Branch of Svenska Handelsbanken AB v Dandridge (The Aliza
Glacial) 120021 EWCA Civ 577, (2002] 2 Lloyd's Rep 421, para 60 ('arising from' imports 115(2004] EWHC 1033 (Comm), (20041 Lloyd's Rep IR 554.
normal proximate cause test for exclusion in war risks policy where cover granted for losses '" ibid para 235, relying on Dunthorne v Bentley (1996) (19991 Lloyd's Rep IR 560 (interpret-
'caused by' named perils). ation of Road Traffic Ace 1988).
Coxe v Employers' Liability Assurance Corp Ltd[1916] 2 KB 629." 117 See 14.04 below.
326 327
Principles ofCausation
The Language ofCausation
the loss it somehow induced, particularly given the nineteenth-century ten-dency of
damage occasioned by or through or in consequence, directly or indirectly, of any
marine insurance law to adopt a last in time approach to proximity of causation."'
of a list of specified war risks. Having established that the general state of affairs in
Similarly, section 39(5) adopts the phrase 'attributable to' in the context of the Lebanon at the relevant time constituted two excluded perils,
unseaworthiness in time policies. Although the modern approach to Mustill Jconsidered the question ofcausation. The impact ofthe causation clause
proximity of causation would classify unseaworthiness as a proximate and not a was as follows: 124
remote cause of any loss attributable to the vessel's unfitness for the insured
adventure, such classification was not self-evident when the Act was drafted. '" ... it is quite clear that the draftsman has gone to great lengths to ensure that the
doctrine of proximate cause does not apply. Plainly there must be some limit on the
application of the clause, for the chain of causation recedes infinitely into the past. The
Displacement by simple change oflanguage
draftsman must have intended to stop somewhere: and that place must be the point at
Although fine variations of language will not displace the proximate cause rule, which an event ceases to be a cause of the loss, and becomes merely an item of histOly.
this does not mean that a choice of different words can never suffice to import a The draftsman has not explained how that point is to be identified, nor indeed do I
different causation test. In particular, it is clear that a reference ,to a 'direct or indirect' believe that words can be found to do so. It is, eventu-
cause is incompatible with the proximate cause rule. In Coxe v Employers' ally, a matter of instinct guided by the fact that this is a policy which (unlike others
in which similar clauses can be found) expressly insures against violent acts. In essence
Liability Assurance Corp Ltd, 120 a military officer was killed by a train while
the task is to assess whether the particular act of violence simply takes place against
walking along a line unlit because of wartime regulations. Life insurers invoked the background of a 'warlike' state of affairs, or whether it has itself (even if in a
an exclusion in respect of death 'directly or indirectly caused by, arising from, Ot rather remote way) a warlike aspect of its own.
traceable to ... war'. Scrutton J upheld the defence. The war had created the special Given the factual background, the assured had no possibility of evading the broad
danger of poor visibility, the assured had been exposed to that danger by his drafting of the exclusion.
military duties, and the special danger had caused his death. War was, therefore,
causally related to the assured's death. There had, however, to be some limits to the
scope of this more relaxed causation test. The same exclusion was highly unlikely '" ibid 441-2.
to protect the insurer where the assured was drafted into the army in time ofwar
and then killed by lightning at a military camp not particu-larly prone to lightning
strikes. 121 Again, in Tektrol Ltd v International Insurance Co ofHanover Ltd,122
the claimants sought indemnification in respect of a lost computer source code.
Five copies of the code were kept. Two were lost to a virus, while the remaining
three were subsequently stolen by burglarsi Insurers
were held entitled to rely on an exclusion of consequential loss 'arising directly or
indirectly from' the impact of the virus. The virus was a causa sine qua non of the
loss and clearly was at least an indirect cause within the meaning of the exclusion.
m
Spinneys (1948) Ltd v RoyalImurance Co Ltd concetned insurance on property in
Beirut against certain acts of violence. A claim for extensive looting admit-tedly
fell primapciewithin the cover. However, the policy excluded 'any loss or
For discussion of wilful misconduct and causation, see 15. 14ffbelow.

For discussion of unseaworthiness and causation, see 19.40-19.48 below.
"0 [1916J 2 KB 629. Followed in Oei v Foster[1982J 2 Lloyd's Rep 170.
m ibid 634-5.
122 [2004J EWHC 2473 (Comm), [2005jLloyd's Rep 1R 358, rvsd on other grds [2005J
EWCA Civ 845, [2005J 2 Lloyd's Rep 701.
'" [1980J 1 Lloyd's Rep 406.
328
329
10
MARINE RISKS
A. Hull and Freight Insurance 1000Z (5) Piracy 10.74

(1) Perils of the seas, rivers, lakes or B. Cargo Insurance 10.77
other navigable waters 10.03 (1) 'All risks' cover under the
(2) Fire and explosion 10.60 Institute Cargo Clauses (A) 10.78
(3) Violent theft by persons from (2) Named perils cover under the
outside the vessel 10.69 Institute Cargo Clauses (B) and (e) 10.81
(4) Jettison 10.70
The standard market clauses for hulls and freight provide cover against loss of 10.01
or, in the case of hull insurance, damage to the insured property on a named
perils basis and divide the list of covered perils into two groups, a division
necessitated by the fact that cover in respect of the second group of perils, but
not the first, is subject to a due diligence proviso. For convenience, the term
'marine risks' is adopted to designate the first group of perils. This chapter is
concerned with that fitst group, while the second group is considered in
Chapter II below. The scope of cover under the Institute cargo clauses is also
briefly considered.
A. Hull and Freight Insurance

The list of marine risks is substantially the same in the various Institute and 10.02
International hulls and freight clauses. Clause 2.1 of the International Hull Clauses
(01111/03), for example, provides as follows:'
This insurance covers loss of or damage to the subject-matter insured caused by
2.1.1 perils of the seas, rivers, lakes or other navigable waters
1 See also Institute Time Clauses Hulls (1/8/89 and 1/11/95), c16.1; Institute Voyage Clauses
Hulls (1110183 and 1111195) cl4.1; Institute Time Clauses Freight (I110183 and 1111195), cl 7.1;
Institute Voyage Clauses Freight (118189 and 1111195), cl5.I.
331
Marine Risks Hull and Freight Insurance
nre, explosion elements, as distinct from the silent, natural, gradual action of the elements upon
violent theft by persons from outside the vessel the vessel irself, which latter phenomenon properly belonged to ordinary wear and
jenison tear. There is no peril of the sea where a vessel sinks because of its general debility,
piracy 6
contact with land conveyance, dock or harbour equipment or installation old age, or decay. Such a sinking may be attendant with an element of chance in
earthquake, volcanic eruption or lightning. that there may be no inevitabiliry about precisely when or how it will happen.
accidents in loading, discharging or shifting cargo, fuel, stores or parts However, the assured cannot recover under the heading of peril of the sea because
contact with satellites, aircraft, helicopters or similar objects, or objects falling the operative cause of the loss is not a fortuitous mari-time occurrence but merely
therefrom. the succumbing of the vessel to its debilitated condition.' Insurance against perils of
the seas 'is not a guarantee that a ship will float'.' However, for the cause of the loss
Perils of the Seas, Rivers, Lakes or other Navigable Waters to be exclusively the state of the vessel: 'The loss must be disassociated from any
peril of wind or water, even if these form the immediate context of the loss, and
Accotding to Schedule 1 rule 7 to the Marine Insurance Act 1906: 'The term "perils of the
constitute the immediate agency (for example, the percolation of water through an
seas" tefers only to fortuitous accidents or casualties of the seas. It does not include
existing flaw in the hull) by which the loss takes place." The vessel must be in such
the ordinary action of the winds and waves.' However, despite such quasi-statutory
a condition as to sink at its moorings or in a millpond sea.'o
assisrance, the phrase 'perils of the seas' has generated a considerable body of case
law. Since 1887, it has been clear rhat the phrase carries the same meaning in
2
marine insurance law and in the law of carriage of goods by sea. Fortuiry is not to be equated with unforeseeabiliry." In Neter (NE) & Co Ltd v 10.07
Licenses & General Insurance Co Ltd,12 while rounding the Cape of Good
Hope in June, a vessel encountered weather rhat was rough but normal for those
Fortuitous accidents seas at that time of the year. A claim against cargo underwriters failed because of
Although, as a matter of interpretation, contracts of marine insurancepresump-tively an absence of proof that damage to the cargo had been caused by the weather.
provide an indemniry against risks rather than certainties, fortuiry is an integral However, Tucker J added obiter that:
element in the definition only of perils of the seas. Rule 7 itself excludes 'the ... it is clearly erroneous to say that because the weather was such as might reasonably be
ordinary action of rhe winds and waves' precisely because such action lacks anticipated there can be no peril of the seas. There must, of course, be some element of the
fortuiry. Yet the scope of this exclusion is narrow. fortuitous or unexpected to be found somewhere in the facts and circumstances causing the
loss, and I think such an element exists when
The requirement of fortuiry excludes 'rhat natural and inevitable action of the winds and
waves, which results in what may be described as wear and tear'. 3 Normally, issues
such as ordinary wear and tear and inherent vice are raised by the insurer by way of
Dudgeon v Pembroke (1874) LR 9 QB 581, 595-6, explaining Fawcus v Sars/ield(1856) 6 EI
defence, in which case the burden of proof rests upon the' insurer. In the context of BII92; Sassoon (ED) & Co v Western Assurance Co [1912] AC 561; Wadsworth Lighterage &
perils of rhe seas, fortuiry being part of the definition of the peril reverses rhis Coaling Co Ltd v Sea Insurance Co Ltd (1929) 34 LlLRep 285; Sipowicz v Wimble (The Green Lion)
burden, requiring the assured to show thar the loss was not attributable to such [1974] 1 Lloyd's Rep 593; Capital Coastal Shipping Corp v Hartftrd Fire Insurance Co (The Cristie)
4 [1975] 2 Lloyd's Rep 100. In Hamilton, Fraser & Co v Pandorf6oCo (1887) 12 App Cas 518, 524,
causes. Lord Halsbury LC observed: 'You would not speak of the danger of a ship's decay; you would
know that it must decay, and the destruction of a ship's bottom by vermin is assumed to be one of
In Merchants Trading Co v Universal Marine Co,' the Court of Common Pleas the natural and certain effects of an unprotected wooden vessel sailing through certain seas.'
approved the direction of Lush J to the jury at first instance that the under-writers , ]] Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss]ay]ay) [1985] 1 Lloyd's
Rep 264, 272; Lamb HeadShipping Co Ltd v]ennings (The Marel) [1992] 1 Lloyd's Rep 402, 426.
were 'answerable for casualties arising from the violent action of the , Grant, Smith & Co & McDonnell Ltd v S,attl, Construction & Dry Dock Co [1920] AC 162,
172 per Lord Buckmaster.
9 ]] Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1985] 1
2 Thomas Wiuon, Sons & Co v Owners of the Cargo per the Xantho (The Xantho) (1887)
Lloyd's Rep 264, 272.
ibid.
12 App Cas 503. For a comparative discussion of foreseeability and perils of the sea in the context of carrier's
3 ibid 509 per Lord Herschel!.
liability, see Great China Meta! Industries Co Ltd v Malaysian International Shipping Corp
<I Further on burdens of proof, see 7.48ffabove (assured's burden) and 19.51-19.55 below
Berhad (The Bunge Sero}a) [1998] HCA 65, [1999] 1 Lloyd's Rep 512.
(unseaworthiness).
12 (1944) 77 LlLRep 202.
5 (1870) (1874) 2 Asp MC 431n. See also Dudgeon v Pembroke (1874) LR 9 QB 581, 596-7.
332 333
you find that properly stowed casks, in good condition when loaded, have become wind and sea. They may happen on the voyage, but it cannot be said that they
stove in as a result of the straining and labouring of a ship in heavy weather. It is mlist happen. In their Lordships' judgment, it cannot be predicated that where
not the weather by itself that is fortuitous; it is the staving in due to the weather,
damage is caused by a storm, even though its incidence or force is not
which is something beyond the ordinary wear and tear of the voyage. 13
exceptional,
10.08 In the leading case of The Miss jay jay, 14 the insured yacht sustained consider-able a finding of loss by perils of the sea may not be justified.
damage during a voyage across the English Channel from Deauville to Hamble.
In contrast, a peril that is not only foreseeable but also inevitable lacks the 10.11
Mustill J described the conditions as follows: 15
requisite fortuity to qualify as a peril of the seas. The annual icing over of
In absolute terms neither the wind nor the waves were exceptional, being about particular seas in winter preventing any chance of passage 'is in no sense an
force four and three metres in height respectively. The sea was, however, confused accident; it is part of the ordinary course of things, like the ebb and flow of the
and these were difficult conditions for a boat of this particular type, which would tide'." However, there is a peril of the sea where the ice causing the obsttuction
deal quite adequately with larger seas having bigger intervals between crests, but 22
which tended in shorter seas to ride up and then from time to time fall down and is unusual for the time of year. Moreover, a seasonal peril of floating ice will
bang into the troughs. qualify as a peril of the sea in the same way as seasonal storms.
Later in his judgment, Mustill J found that: 16 'The sea conditions encountered by As indicated in the previous paragraph, the normal action of the tide lacks the 10.12
the Miss jay jay in the Seine estuary were such as a person navigating in those fortuity necessary to give rise to a peril of the sea. In Magnus v Buttemer,23 a
waters could have anticipated that he might find, but would hope that he would not vessel had to wait upriver in tidal waters for a few days for a discharging berth.
find. The conditions were markedly worse than average, but not so bad as to be The mooring place was a hard, steep, and shingly beach. The vessel floated
exceptional.' when the tide was in and went aground but not dry when the tide ebbed. The
grounding of the vessel damaged the hull but could not constitute a peril of the
In the light of these findings, Mustill J held that the cause of the loss fell within the covered sea. The damage was an ordinary incident of the normal operation of the vessel.
peril of 'external accidental means', the term 'accidental' equating with the fortuity 'Nothing has happened which the assured could have wished or anticipated to
requirement for a peril of the sea. Provided some extraneous maritime circumstance happen otherwise than it did happen. They intended the ship to tal<e the
intervened to produce a result that would not otherwise have occurred, there was ground as she did. There was no accident.'24 The loss was properly regarded as
fortuity even if the circumstance was not exceptional or incapable of anticipation." 25
ordinary wear and tear.
The Court ofAppeal affirmed this holding. Acco~d ing to Slade LJ: 'Even if the
occurrence of a particular unwanted event, which mayor may not occur, is a readily Perils of the sea embrace 'every loss by incursion of the sea, due to a vessel 10.13
foreseeable risk, the event may still be properly regarded as accidental when it does coming accidentally (using that word in its popular sense) into contact with a
occur.'" foreign body, which penetrates it and causes a leak' .26 However, although an
incursion of sea water is a common characteristic of a peril of the sea, it is
The same point was made in Canada Rice Mills Ltd v UnionA1arine & General neither necessary nor sufficient of itself to constitute such a peril. A collision at
Insurance Co Ltd' in the context of storms that may be foreseeable in terms of both sea between two vessels is a peril of the sea regardless of whether the collision
incidence and intensity. Delivering the advice of the Privy Council, Lord Wright results in either vessel being holed and water entering. An entry of sea water,
stated as follows:" moteover, is not a peril of the sea in its own right. It mayor may not be
.. . storms at sea may be frequent, in some cases seasonal, like typhoons in the fortuitous and the reason for the entry must be ascertained in order to deter-
China Seas, a ship may escape them, and they are outside the ordinary accidents of mine whether it possesses the requisite fortuity.27 In this sense, in Mountain v
13 ibid 205. The claimants failed to adduce evidence regarding the stowage of the cargo or
21 Popham 6- Willett v St Petersburg Insurance Co (1904) 10 Com Cas 31, 34 per Walton J.
the effect of inclement weather on unloading. 22 ibid, although no claim may be made today for loss of voyage, and the insurer may have a
" IJ Lloyd Imtruments Ltd v Northern Star Insurance Co Ltd (The Miss]ay]ay) [1985] 1 defence of delay, see 21.97 and 15.29ff below.
Lloyd's 23 (1852) 11 CB 876. 24 ibid 882 per Maule].
Rep 264, affd on different grounds, [198711 Lloyd's Rep 32. 25 Had the grounding been negligent, the negligence would have supplied the fortuity for a
" [198511 Lloyd's Rep 264, 267. 16 ibid 270. 17 ibid 271. peril of the sea or constituted a peril in its own right, see 10.14 and 11.37ffbelow.
16 [198711 Lloyd's Rep 32, 39. See also 36 per Lawton L]. " [1941] AC 55. Thomas Wi&on, Sons &Co v Owners ofthe Cargo per the XAntho (The Xantho) (1887)
20 ibid 70. 12 App Cas 503, 509 per Lord Herschell.
For further discussion of causation and perils of the sea, see 10.43ffbelow.
334 335
Whittle,28 Viscount Finlay stated that: 'A loss caused by the entrance of sea Where, however, those in control of a vessel damage it deliberately (in the sense 10.16
water is not necessarily a loss by perils of the seas. There must be some special .of wilful damage as opposed to deliberate conduct leading to unintended con-
circum-stance such as heavy waves causing the entrance of the sea water to make sequences), rhe assured, wherher implicated or not, may not recover under the
it a peril of the seas.' On the facts, a houseboat was towed by a tug too large and heading of perils of the sea. 35 In Samuel (P) & Co Ltd v Dumas,36 a mortgaged
powerful for the task. Some side seams above the normal water line opened, but vessel was fraudulently sunk on the owner's instructions but wirhout the com-
the bow wave of the tug raised that level so that the vessel took on water and plicity of the mortgagee. The question arose of whether the co-assured mort-
eventually sank. The House of Lords held that the size and power of the tug gagee could recover for a loss by petils of the sea. A majority of the House of
generating a wash of an extraordinary character furnished the requisite fortuity. Lords held that scutrling was not a peril of the sea,37 chiefly because fortuity
'involves an element of chance or ill luck which is absent where those in charge
Fortuity may be furnished by negligence. In The Lapwing," a vessel was neg-
of a vessel deliberately throw her away. '38 Fortuity was to be assessed in
ligently berthed twice. Since the berthing was deliberate, it was argued that
absolute terms, not relative to the assuted claiming under the policy in issue. 39
there could be no fortuity. However, Hodson J held that the presence or The decision preserves the distinction between perils of the sea and the peril of
absence of deliberation was not the ttue test of coverage: 'Itis true that it was barratry, which occurs when the masrer and crew damage rhe insuted vessel
intended that the vessel should be docked, but not that she should be so without the complicity of the owner.'o In this light, one may disringuish the
negligently docked as to be allowed to sit on a dangerous bottom, and I think situation where a vessel is lost or damaged by reason of the deliberate but
that the intervention of the negligence of those responsible for the docking legitimate conduct of the master or crew when confronted by fortuitous
provides the fortuitous circumstance which entitles the plaintiffto recover
under the terms of the policy.'" As pithily observed by Lord Bramwell: 'Is not
the chance of being run against by a clumsy rider one of the petils
Sumner: 'if(in Leyland ShippiniJ the insurance had been against perils of the sea and no more, the loss
ofhunting?'31 Under the Institute and International hull and freight clauses, the would have fallen within it'. In Cullen v Butler (1816) 5 M & S 461 a ship was mistaken for an enemy
negligence of certain parties is also a specified peril in its own right. 32 vessel and sunk The resultant loss of ship and cargo was held not to have been caused by a peril of the
sea but to be recoverable under the eiusdem generis clause. The case was, however, doubted by Lord
10,15 A peril may be fortuitous so as to qualifY as a peril of the sea even if deliberately Herscbell in The Xantho (1887) 12 App Cas 503,509. See also Samuel (P) &Co Ltd v Dumas
[1924J AC431, 458-9, 466, where Lord Herschell's doubts are noted with approval.
caused. Where a vessel is deliberately sunk by enemy action in time of war, rhe
35 Michalos (N) & Sons Maritime SA v Prudential Assurance Co Ltd (The Zinovia) [1984]
consequent death by drowning of a passenger qualifies as accidental under a 2 Lloyd's Rep 264, 271.
personal accident policy,33 and rhe loss of rhe vessel similarly qualifievas " [19241 AC 431.
37 Overruling the contrary view expressed, probably obiter, by the Court of Appeal in Small v
fortuitous for the putposes of a hull policy covering perils of the sea.34 United Kingdom Marine Mutual Insurance Association [1897J 2 QB 311, where the deliberate act
point was not argued.
38 [1924] AC 431,448 per Viscount Cave. The same view had been expressed by Collins L] in
28 [1921] 1 AC 615, 626. See also Wadsworth Lighterage & Coaling Co Ltd v Sea Insurance Co
Trinder, Anderson & Co v Thames & Masey Marine Insurance Co [1898] 2 QB 114, 127-8. A
Ltd (I 929) 34 LlLRep 285, 297. further reason advanced by Viscount Finlay was that 'the possibility of scuttling is not a peril of the sea;
29 Baxendale v Fane (The Lapwing) [19401 P 112. 30 ibid 121. it is a peril of the wickedness of man' (at 459). In which case, it is difficult to see why an incursion of sea
31 Thomas Wilson, Sons &Co v Owners ofthe Cargo per the ){amho (The Xantho) (1887) 12 App
water by reason of negligence is a peril of the sea rather than a peril of the carelessness of man (see Lord
Cas 503, 514. For other examples of negligence being viewed as supplying fortuity and contribut-ing to the Sumner at 467, and text on 'Causation' at 10.43ff below, and
broad pantheon of perils of the sea, see Davidson v Burnand (1868) LR 4 CP 117, explained in Samuel 'Negligence' at 11.30ffbelow).
39 A relative approach was argued for in the powerful dissenting speech of Lord Sumner and is
(P) & Co Ltd v Dumas II 9241 AC 431, 453; Blackburn v Liverpool, Brazil & River Plate Steam
Navigation Co [1902] 1 KB 290; Cohen, Sons & Co v National Benefit Assurance Co Ltd (1924) 40 supported by earlier dicta suggesting that scuttling is a peril of the sea: Thompson v Hopper (1856)
TLR 347; Canada Rice Mills Ltd v Union Marine & General Insurance Co Ltd [1941] AC 55, 68-9; 6 El & BI 172, 192-3; Issaias (Elfie A) v Marine Insurance Co Ltd (1923) 15 LlLRep 186, 193.
Century Insurance Co ofCanatkt v Case Existological Laboratories Ltd (The Bamcell II) (1982) Such an approach would permit parties not complicit in the scuttling to recover for a fortuitous loss,
133 DLR 727, 735 (Court of Appeal of British Columbia); affd (1984) 150 DLR (3d) 7 (Supreme Court of while any assured complicit in the loss would be barred from recovery by the defence of wilful
Canada); CCR Fishing Ltd v Tomenson Inc (The La Pointe) 119911 misconduct, although the burden of proofwould lie on the insurer to prove the misconduct of the assured
1 Lloyd's Rep 89 (Supreme Court of Canada). rather than on the assured to prove fortuity. It also requires a causation model that regards the entry of
See 1L37ffbelow. water occasioned by the act of scuttling to be the proximate cause of the loss, with the act of scuttling
Letts v Excess Insurance Co (1916) 32 TLR 361. See also lrim Joint District School Board of relegated to the status of a remote cause. This is expressly espoused by
Management v Kelry [1914] AC 667 (deliberate killing of a schoolmaster by two pupils held to Lord Sumner bur reiected by Lords Cave and Finlay ([19241 AC 431, 447, 455).
qualify as an accident for the purposes of the Workmen's Compensation Act 1906). 40 Barratry is discussed at 11.43ff below. The distinction does not, however, hold good with respect to
34Leyland Shipping Co Ltd v Norwich Union Insurimce Society Ltd[19171 (KB 873, 883, the peril of fire. Since fortuity forms no part of the definition of the peril of fire (see 10.65 below), a
894, [1918J AC 350, 363. See also Samuel (P) & Co Ltd v Dumas [19241 AC 431, 468 per Lord barratrous fire is still a fire.
336 337
circumstances. In Henry & MacGregor v Marten,41 the insured vessel was lost In consequence, ordinary wear and tear is excluded from perils of the seas, not 10.19
when the masrer deliberately rammed an object believed to be an enemy sub- just by an absence of fortuity, but also because it has nothing to do with the sea.
marine. Bailhache] stated that the marine underwriters were prima ficie liable for a In Sassoon (ED) & Co v Western Assurance CO,47 opium stored on a wooden
loss by perils of the sea, although on the facts they were entitled to rely on a hulk moored in a river was damaged by water percolating through a leak
war risks exclusion. caused by the rorten condition of the hull. According to Lord Mersey:
'Although sea water damaged the goods, no peril of the sea contributed either
In consequence of the decision in Samuel v Dumas, the insurance protection of
proximately or remotely to the 10ss.'48
mortgagees was revised. The current Institute Mortgagees' Interest Clauses (l/
3/97) insure against loss covered in principle by the shipowner's hull policy in A collision is a peril of the sea. In the carrier's liability case of Woodley v 10.20
the absence, inter alia, of'any deliberate or fraudulent casting away of or dam- Michell,49 it was held that a collision could not be a peril of the sea if occasioned
age to the Mortgaged Vessel', ptovided always that the casting away Or damage by the fault of any of the vessels involved. This was, however, overruled by the
occurs without the privity of the assured. 42 Consequently, where hull insurers House of Lords in The Xantho. 50 The collision must, nevertheless, still be for-
today declined to pay on the ground of scuttling by the master or crew with or tuitous so that there will be no peril of the sea where collision is the chosen
without the complicity of the owner, the assured mortgagee could still recover method for the scuttling of a vessel by its master and crew with or without the
on the morrgagee's interest policy ptovided the mortgagee itself had not been complicity of the owner. 51 It is irrelevant whether the collision results in an
privy to the scuttling.43 ingress ofwater or occasions damage to a vessel that remains watertight.
Ofthe seas Accidents in loading mayor may not possess the requisite maritime natute to 10.21
qualifY as a peril of the sea. In Stott (Baltic) Steamers Ltd v Marten,52 a floating
For a peril to be 'of the seas' it does nor suffice that it occurs in facr or even
crane lowering a boiler into the hold of a ship broke, causing the boiler to fall and
customarily at sea. 'Of the seas' imports a necessary connection with the sea. In
damage the hull. The House of Lords held the loss to be neither attributable to a
The Inchmaree," Lord Halsbury srated thar sea perils do not include 'p~rils whose
peril of the sea nor within the eiusdem generis clause. Viscount Haldane asserted
only connection wirh the sea is that they arise from machinery which gives motive
that 'the accident which occurred was one which might happen in loading a railway
power to ships.'45 The air chamber of a donkey-engine used to pump water into the
ttuck JUSt as much as in loading a ship, so far as its general
main boilers of a ship was broken when warer was forced into it because of a
character was concerned'. 53 The floating nature of the crane was unconnected to
closed valve. The House of Lords held that the cause of the accident was not even
the cause of the accident. By contrast, in The Stranna,54 the Court of Appeal
eiusdem generis ro perils of rhe sea: 'The damage to the donkey-engine was not
held losses incurred in loading to be of a character to which a marine adventure
through its being in a ship or ar sea. The saI)1e thing would have happened had the
was subject and, therefore, within the phrase 'perils of the sea'. While loading a
boilers and engines been on land, if the same
deck cargo of timber, the ship suddenly and unexpectedly listed, causing a parr
mismanagement had taken place. The sea, waves and winds had nothing to do
of the cargo to fall overboard and be lost. The list occurred because of negligent
with it.'46
stowage or mismanagement of ballast tanks. Scott L] observed of the accident
that:"
It could not have happened on land; it was a happening which is characteristic of
(1918) 34 TLR 504. the sea, and of the behaviour of ships. Nothing but a ship, waterborne and moving
Institute Mortgagees' Interest Clauses (1/3/97), ell 1.1, 2.1.4. freely under the two forces of grav.ity and buoyancy, could have listed as the
The normal meaning of privity in marine insurance law is knowledge, see 19.32ff below. It
does not connote any element of fault or responsibility. It is suggested, however, that mere
knowledge of an intended scuttling that the mortgagee was powerless to prevent should not --~------
bar the right to recover. In this context, privity should instead be read as complicity, " [1912] AC 561. 48 ibid 568. 49 (1883) LR 11 QBD 47.
certainly in the sense of active involvement in the scuttling plan or, possibly, passive 50 Thomas Wilson, Sons &Co v Owners a/the Cargo per the Xantho (The Xantho) (1887) 12 App
acquiescence in the sense of standing by and refraining from attempting to prevent a scuttling Cas 503. Damage to a vessel occasioned by a collision with a wreck is a peril of the sea: William France
of which the mortgagee had prior information. Fenwick & Co Ltd v North o/England Protecting & Indemnity Association [1917J 2 KB 522.
Thames & Mersey Marine Insurance Co v Hamilton, Fraser & Co (The Inchmaree) (1887) 12
44
See 10.16 above. 52 (1916J 1 AC 304.
51
App Cas 484, overruling W'est India & Panama. Telegraph Co Ltd v Home & Colonial Marine
53 ibid 309. This type of accident would today be covered under the heading of 'accidents in
Insurance Co Ltd(1880) 6 QBD 51. loading', see 10.22 below.
45 (1887) 12 App Cas 484, 491. " ibid 492-3 per Lord Bramwell. 54 [1938J P 69. 55 ibid 83.
338 339
Stranna did ... The liability of a ship floating in the sea, and free to respond to the is almost dry and a vessel placed in the dock is thrown on to its side and
changing interaction of the forces of gravity and buoyancy as the cargo is loaded,
damaged by the violence of the wind, the loss is not caused by perils of the sea,
and thereunder to list sideways and so to cause a sudden loss ofdeck cargo is in my
opinion essentially one of the sea risks to which maritime commerce is exposed. although it used to fall within the now obsolete eiusdem generis clause. 65
Although the modern clauses embrace 'contact with ... dock or harbour
Under the modern market clauses, however, this distinction under the rubric of petils
equipment or installarion', it is unclear whether the structure of the dock irself
of the sea is tendered academic by the inclusion as named perils in their own
falls within such phraseology. Where a vessel is hauled on to land for repairs
right of 'accidents in loading, discharging or shifting cargo, fuel, stores Of
and there bilges, the loss is not caused by a peril of the sea,66 nor, according to
parts'. 56
Thompson v Whitmore,'7 where the tide knocks away blocks supporting a vessel
In one ninereenth-century case, it was doubred whether a loss occurring in harbour laid on a beach for cleaning and caulking. The reasoning in the latter case is,
could be correctly described as caused by a peril of the 'seas'.'7 How-ever, the however, open to question. The vessel lay withour damage when the tide was out.
reference in the hulls and freight clauses to 'seas, rivers, lakes or other The proximate cause of the loss was unquestionably the action of the tide, without
navigable waters' should avoid such arguments. 58 which the loss would not have occurred. Lord Mansfield relied on rhe fact that the
damage occurred on land, but it is the nature of the cause of the loss that is
The theme of necessary connection with the sea is pursued in the context of rats and important, rather than the location of its immediate occurrence. The decision in
vermin. Underwriters are not liable for damage caused by rats and vermin unless Thompson may perhaps be explained by an absence of fortuity in the light of no
the policy provides to the contrary, 59 and coverage of perils of the sea does not reference to exttaordinary ride or wind action.
constitute the requisite contrary intention. Although damage by rats might
be thought to be a natural incident of sea carriage, it is not peculiar ro the (c) Proof
maritime context: it 'is a kind of destruction not peculiar to navigation, but to An assured claiming for a loss by perils of the sea necessarily carries the burden 10.26
which commodities are liable on land or in warehouses'. 60 Rats have appetites of proving not only that the loss was caused by a peril of a maritime nature but
whether on land or at sea. Thus: 'A rat eating a cheese in the hold of a vessel is not also the fortuitous nature of the peril. The maritime nature of the peril is most
a peril of the sea; the sea, or the vessel being on the sea, has nothing to do with the commonly demonstrated by establishing the fact of an ingress of water. The
destruction of the cheese.'61 In similar vein, illness has no unique maritime issue is then whether that ingress was fortuitous. An assured can seek to
connection. Consequently, where perishable cargo is lost because a voyage is discharge the burden of proving fortuity either directly or by inference from
delayed because of illness among the crew, the cause of the loss is not eiusdem circumstantial indications.
generis to petils of the sea. 62
Direct proof requires the assured to establish, on a balance of probabilities, 10.27
In Fletcher v Inglis," a ship was placed in a dry dock, the bed of which \vas hard and precisely what caused the ingress of water and its fortuitous nature. Alter-
uneven. The ebb of the tide coincided with a considerable swell in the natively, the assured could prove, on a balance of probabilities, that the cause of
harbour64 causing the ship to strike the ground several times. The damage so the ingress was one of a number of identified possibilities, all of which were
sustained was held to be caused by perils of the sea. Where, however, a dry dock maritime and fortuitous in nature. In such a case, although the precise cause of
the loss would not have been identified, the assured would have proved loss
caused by a peril of a fortuitous and maritime nature. There is nothing in policy
eg International Hull Clauses (01/11/03) el2.1.8. wording covering loss by perils of the sea that, in and of itself, requires
Davidson v Burnand(1868) LR4 CP 117 (damage to cargo in course of loading on the
facts within eiusdem generis clause if not within perils of the seas). identification of the precise peril that caused the loss.
58 Note also the existence of special Institute 'port risk~' clauses.
59 MIA 1906, s 55(2)(c). 60 Laveroni v Drury (1852) 22 L] Ex 2, 3 per Pollock CB.
" Hamilton, Fraser & Co v Pandoif& Co (1887) 12App Cas 518, 523 per Lotd Halsbury LC.
See also Thames 6'Mersey Marine Insurance Co v Hamilton, Fraser 6' Co (The Inchmaree) (1887) 6S Phillips v Barber (1821) 5 B & Aid 161. Fletcher v Inglis is reportedly distinguished in
12 App Cas 484, 493. Phillips on the unconvincing ground that in the latter case the ship was between voyages while in
62 west India & Panama Tt:legraph Co Ltd v Home 6'Colonial Marine Insurance Co Ltd (1880) the former it was in the course of a voyage. A more convincing distinction suggested in the text is
6 QBD 51, 61. the absence in Phillips of any involvement of water. See also Baxendale v Fane (The Lapwing)
(1819) 2 B &Ald 315. [1940J P 112 (stranding of vessel in open-ended tidal dock by reason of negligent positioning on
Supplying the element of fonuity absent in Magnus v Buttemer(1852) 11 'CB 876, wooden supports held to be within an eiusdem generis clause).
discussed above.
66 Rowcroft v Dunmore (1801), cited 3 Taunt 228.

340 341
Where the burden of proof cannor be discharged by direct evidence, the assured may both at first instance and on appeal. According ro Dillon LJ, the so-called 'pre-
resort to circumstantial proof. Where a vessel proved to have been sea-worthy sumption' is an expression of, and not designed to undermine, the burden cartied by
when embarking on what turns out to be its final voyage subsequently sinks in the assured to prove the cause of loss on a balance of probabilities.
unexplained circumstances, the assured is entitled to recover for a loss
68
If it is known that a ship was seaworthy when she set out, and she has never been
by perils of the sea. It is traditionally said that this is because the combination of seen since and nothing has been heard of her crcw, then on the balance of prob-
evidence of seaworthiness and an unexplained sinking gives rise to an eviden-tial abilities she must have sunk and, on the balance of probabilities, the sinking must
presumption of a loss by perils of the sea, the presumption serving as a risk have been due to 'perils of the sea' because she was seaworthy when she set out.
allocation device that places the risk of loss ftom unascertainable causes on the The only alternative would be that she was scuttled, but members of a ship's
company who scuttle their ship do not normally intend to commit suicide. They
insurers." That, however, implies that the combination of seaworthiness and
expect to be rescued.73
unexplained sinking does not render insurers liable according to the ordinary rules
of evidence and proof, but that the combination of such circumstances triggers a On the facts, the sinking of the Mare! was not an event of the requisite mystety
presumption that in turn enables the assured to discharge its burden of proof This is since evidence was available from the crew. Consequenrly, the presumption could
to abuse the concept of presumption. 70 nOt apply, as indeed it rarely will.74
The presumption was first judicially recognized in Green v Brown." The assured claimed These two authorities reveal the true nature of the so-called presumption'. 10.31 Vessels are
for a loss of the insured vessel by perils of the sea. The vessel was never heard of most likely to be lost by scuttling, by barratry, because they are unfit
again after setting sail. The policy excluded loss by capture and seizure and the for rhe voyage, by reason of a piratical or other hostile attack, or because they
insurers argued that the assured should adduce direct evidence of acci-dental loss. encounter a maritime accident. Where a vessel proved to have been seaworthy is
Evidence was, however, given of market practice that in such a case loss by perils of lost without trace or, a1rernatively, in waters where physical access is impossible
the sea was presumed because news generally filtered back of all . other types of and the master and crew must be presumed dead, the logical inference by
losses. The jury was directed that it was unreasonable to expect unequivocal elimination is rhat the vessel met with a maritime accident. First, the unlikeli-hood
evidence in cases where everyone on board was assumed to have died and that only of crew suicide renders scuttling and barratry improbable. It is possible that a
the best evidence that the case allowed could be expected. The jury accordingly scurtling or barratrous sinking went wrong, resulting in the death ofall on board, or
found for the assured. that the master and crew, having sunk the vessel, have been paid to disappear and
have done so. It is, however, unlikely. Secondly, a seaworthy vessel by definirion
In The Mare!," the insured vessel was lost by an ingress of sea water wirh rhe master and
is reasonably fit for the insured adventure. Although it remains possible that a
crew surviving and able to give evidence of the circumstances sur-rounding the
seaworthy vessel might be lost by reason of a lack of fitness that it was not
loss. The assured claimed for a loss by perils of the sea. The insurers advanced no
reasonable to expect, this eventuality is again unlikely. Thirdly, a piratical or other
specific contrary explanation for rhe loss but pur the assured to ptoof of irs case.
hostile attack is unlikely to occur without news lea1ting our. Consequently, the so-
The assured's primaty explanation of the vessel's loss was collision with a floaring
called 'presumption' is merely shorrhand for tbe normal inferential conclusion of
or partially submerged container. In the light of expert evidence, this was rejected
accidental maritime loss that flows from proof of initial seaworthiness coupled with
by the trial judge as wholly improbable and very neatly impossible. It was,
absence of further information" and the civil law standard of proof on the balance
however, held that the vessel had been seaworthy in all material respects when
of probabilities. 76
embarking on what proved to be its final voyage and the
assured argued thar such seaworthiness combined with an unexplained sinking
gave rise to a presumption ofloss by perils of the sea. This argumenr was rejected
ibid 629.
See also Campania NavieraMartiartu v Royal Exchange Assurance Corp [1923] 1 KB 650;
Brownsville Holdings Lcd v Adamjee Insurance Co Lcd (The Milasan) [2000J 2 Lloyd's Rep 458,
" Green v Brown (744) 2 $rr 1199; Anderson v Morice (874) LR 10 CP 58, 68; Rhesa Shipping paras 17 and 18.
Co SA v Edmunds (The Popi M) [198511 WLR 948,953. In Rhesa Shipping Co SA v Edmunds (The Popi M) [I 985J 1 WLR 948, 953, Lord Brandon refers to
69 Ajum Golam Hassen &Co v Union Marine Insurance Co [1901] AC 362,371. the presumption arising where 'a seaworthy ship sinks in unexplained circumstances in good weather
70 See also the discussion of the so~called 'presumption of inducement' in pre~formation and calm sea'. With respect, however, the reference to good weather and calm seas is an uncharacteristic
utmost good faith at 4.54-4.59 above. slip. It is dear from the case law that preofofsuch circumstances is not required.
" (744)2$rrII99. A similar explanation of the 'presumption of undue influence' was given by the House of
7lLamb Head Shipping Co Lcd vJennings (The Marel) [1994] I Lloyd's Rep 624. Lords in Royal Bank ofSeoclandpie v Etridge (No 2) [2001] UKHL 44, [20021 2 AC 773.
342 343
The question ofproof by circumsrantial evidence has also been raised in circumstances did not render such evidence inadmissible. Pearson ] upheld the insurers'
where the presumption cannot arise, because the seaworthiness of the vessel on ~ontention:81
embarking on what proves to be its final voyage cannot be established and/or

.. , ~n insured person is not entitled, in a case of this' kind, by any arguments or
evidence is available of the circumstances surrounding the sinking of the vessel.
tactIcs or manoeuvres, to force the insurer to assume a burden of proof which
In The Popi M,77 the insured vessel sank in calm waters off the coast of Algeria when a does not properly belong to him. SlIppase the insured person seeks to adopt the
attitude of saying to the insurer: 'I have made this claim: it is either true or
large aperrure opened in its side plating and water poured into rhe engine room.
fraudulent. If you resist it you are charging me with fraud. Fraud must be alleged
The assureds argued that the most likely explanation for the sinking was a by the party relying on it, and must be proved beyond reasonable doubt.
collision with a moving submerged object. In the absence of any other suggestion, Therefore, you cannot defeat my claim unless you prove beyond reasonable doubt
the judgments proceeded on the basis that this object was a submarine. The that my claim is fraudulent, and I am entitled to succeed if I prove a reasonable
insurers raised the defence of ordinary wear and tear. Expert evidence was possibility that the alleged casualty may have occurred.' In my view, this attitude
adduced by both sides. This, however, 'had one striking and novel feature: on each is untenable and involves an inversion and misstatement of the burden of proof. In
this case, with the pleadings as they are, the [claimants] have to prove on a
side there was recognition that the hypothesis for which that side contended was
balance of probabilities that the alleged burglary and loss occurred, in other
highly improbable; it was supported only because any other hypothesis, and in
words, to prove it is more probable than not that they occurred. The presumption
particular the hypothesis advanced by the other parry, was regarded as almost (if of innocence comes into the matter, not as a rule of law, but as a factor affecting
not altogether) impossible'." the probabilities. It is inherently unlikely that a company which has been carrying
on a respectable business in the City of London will fabricate evidence and
Of course, one possible explanation of a sinking that is so hard to explain is that the vessel knowingly present a false claim under an insurance policy. On the other side, it
was scuttled. However, since a claim based on a scuttling is fraudulent and may be suggested that sometimes when a business has failed, or is failing, a
criminal, particulatly cogent and convincing evidence is tequired before a COUrt fictitious fire or burglary is put forward for the purpose of obtaining payment
under an insurance policy. The question is a question of fact, and all relevant
will hold that a vessel has been scuttled, and an affirmarive case of scut-tling must
considerations have to be taken into account.
be expressly pleaded along with particulars of how it is alleged the
scuttling was carried our." Lack of evidence may, therefore, preclude insurers that The Court of Appeal affirmed the first instance judgment with only the caveat that
suspect scuttling from raising the defence. It does not, however, follow that a rebuttal evidence should be catefully watched by ttial judges to ensure that
failure to plead scuttling entitles the assured to claim that scuttling has been defendants do not cross the line between tebuttal and establishing an affirmative
eliminated as a possible cause of the loss of the insured vessel in order to prove a case that has not been proved, albeit that the distinction may be fine. 82
fortuitous loss by a process of elimination of alternatives. Insurers may always put
Similarly, in The Dias," Buckley L] stated: 10.36
the assured strictly to proof of a loss caused by a covered peril, relying
ultimately on the burden of proof. In such a case, insurers can lead evidence to Had the underwriters rested content with putting the owners to strict proof with-
counter the assured's case and can challenge witnesses in cross-examination. out affirmatively pleading SCuttling they could no doubt have cross-examined the
owner's witnesses at the trial to demonstrate the probability of the ship having
In Regina Fur Co Ltd v Blossom,so rhe assured claimed for a loss of furs by burglary. been lost by a peril of the sea and the possibility or probability of her having been
The insurers pUt the assured to proof that the alleged burglary ever took place but scuttled. They could also have called evidence to disprove evidence adduced by the
did not expressly deny that it had occurred or plead fraud. The insurers owners. They could not have called evidence directed not to disproving evidence
adduced by the owners but to establishing an affirmative case of scuttling which
nevertheless maintained that they were entitled to lead evidence dem-
they had not pleaded.
onstrating that the burglary had not occurred, and that the possibility that such
evidence, if accepted, might result in some adverse reflection on the assured Indeed, insurers who wish to prevent the elimination ofscuttling from the range 10.37
of possible explanations of the loss must challenge the evidence and the bona
77 Rhesa Shippi"g Co SA v Edmu"ds (In, Popi M) [19831 2 Lloyd's Rep 235, affd on different
grounds (19841 2 Lloyd's Rep 555, rvsd (19851 1 WLR 948. (195712 Lloyd's Rep 466, 469.
78 (1983] 2 Lloyd's Rep 235, 244 per Bingham]. 79 See 15.25-1526 below. 'The difference between putting up an affirmative case of fraud and seeking to establish by
cross-examination that the [claimant's] chief witness is putting forward a false story with perjured
" (1957] 2 Lloyd's Rep 466, affd (195812 Lloyd's Rep 425.
evidence is !feel rather fine', Rose/odge Ltd v Castle(l96612 Lloyd's Rep 113, 120 per McNair].
83 Palamisto General Enterprises SA v Ocean Marine Co Ltd (The Dias) [1972] 2 QB 625, 640.
344
345
fides of any of the assured's witnesses who are called to establish the fortuitous The House of Lords disagreed. First, the burden of proof of a loss caused by a 10.40
natute of the sinking and who must be giving perjured evidence if the ttuth is that covered peril lay on the assureds. Although insurers were free to advance alterna-
the vessel was scuttled. 84 In so doing, insurers are entitled to adduce any relevant tive hypotheses, there was no onus on them to succeed in proving an alternative
evidence in rebuttal of the crew's account of the sinking and to chal-lenge their explanation fot the loss. If a court was ultimately left in doubt at to whether the
bona fides, but not, to the extent that the distinction can be drawn, to advance an cause of the loss fell within the scope of policy cover, the decision had to be in the
affirmative case of fraud. Whether a challenge to bona fides succeeds in insurers' favour, since the assured would have failed to discharge its burden of
preserving scuttling as at least a possible cause of the loss depends on the proof Secondly, since it was unknown whether the vessel was seaworthy and
credibility of the challenge. Failure to challenge the bona fides of such since there was evidence as to circumstances surrounding the sinking, the pre-
witnesses in cross-examination involves accepting them as witnesses of honesty sumption of loss by perils of the sea was unavailable. Thirdly, Lord Brandon stated
and renders inadmissible any evidence designed to suggest the contraty.85 as follows:"
Scuttling was not alleged in The Popi M. At first instance, Bingham J was unable .. . once it was shown that the water which sank the ship had entered through an
on the evidence to make a finding either way as to the seaworthiness of the insured aperture in her shell plating, the burden of proof was on the shipowners to show what
peril of the sea, if any, could be shown, on a balance of probabilities, to have
vessel on embarking on its terminal voyage, although, on the expert evidence he created that aperture. The shipowners could not ... rely on a ritual incantation of the
was able to reject the insurers' account as to how otdinary wear and tear might generic expression 'perils of the sea,' ,but were bound, if they were successfully to
have produced the inflow of water that sank the vessel. However, the assureds' discharge the burden of proof to which I have referred, to condescend to particularity
contention of contact with a moving submerged object lacked plausi-bility. There in the matter.
was no indication of submarine activity in the vicinity of the insured vessel and Fourthly, the burden of proof could not be discharged by a process of elimin-ation
the nature of the damage sustained was hardly compatible with the suggested where the remaining explanation was itself inherently improbable. The maxim of
collision, or ctew accounts of the impact, or damage inflicted Sherlock Holmes that 'when you have eliminated the impossible, whatever remains,
by the crew. Consequently, the evidence failed to establish affirmatively a for- however improbable, must be the truth' overlooked the bur-den placed by the law
tuitous sinking, but Bingham J found in favour of the assureds on the basis of on the assured to prove on a balance of probabilities that the loss was caused by a
inference by elimination. The result of the evidence was to set up a choice between covered peril. Fifthly, Bingham J had fallen into error in overlooking the
the submarine explanation and the possibility of sinking because of weat and tear possibility of deciding that the cause of the loss was unclear and holding in favour
operating in a mannet not even suggested. 'My conclusion is th~t despite its of the insurers on a failure by the assured to discharge the burden of proof.
inherent improbability, and despite the disbelief with which I have throughout been
inclined to regard it, the owners' submarine hypoth"sis must be accepted as, on the
balance ofptobabilities, the explanation of this casualty.''' In The Mare~89 the prospect of proof of perils of the sea by elimination of other 10.41
causes of loss was enhanced by establishing the seaworthiness of the vessel in all matetial
10,39 The Court of Appeal upheld the decision in favour of the assureds, but on different
respects when embatking on the fateful voyage. As in The Popi M, scuttling was not
reasoning. Provided the assureds had proved on a balance of prob-abilities that the
alleged. Moreover, no challenge was made to the bona fides of
loss was fortuitous and maritime, it did not marter that they could not prove
the assureds' witnesses, who consequently had to be accepted as witnesses of truth,
precisely what peril of the sea had caused the loss: 'the inher-ently unlikely
so that on the facts any possibility of a loss by scuttling had to be considered as
submarine was in ttuth an itrelevancy: the yellow submarine was no mote than a
eliminated. Nevertheless, an atgument for proof of a fortuitous sinking by
red herring'." The Court held, first, that Bingham J had considered but rejected the elimination failed both at first instance and on appeal. As already noted, the
possibility that the evidence left in doubt whether the entry ofwater was fortuitous assureds' claim of a collision with a floating container was specifically tejected as
and, secondly, that there was sufficient evidence
so improbable as to be virtually impossible, and expert witnesses were unable to
to sustain that rejection. suggest any other explanation for the sinking. The courts also refused
ll4 This is not a proposition confined to fraud but a general rule of evidence. A party is always
---~ ...... _-
bound to accept the testimony of witnesses in the absence of challenge in cross~examination. sa [198511 WLR 948,954.
85 Lamb Head Shipping Co Ltd vJennings (The Marel) [199211 Lloyd's Rep 402, 417-18. " Lamb Head Shipping Co Ltd v Jennings (The Marei) [1992] 1 Lloyd's Rep 402, [19941
" [198312 Lloyd's Rep 235, 248. 87 [198412 Lloyd's Rep 555 per May LJ. 1 Lloyd's Rep 624.
346 347
to accept an alternative argument that it had to be accepted by a process of Similarly, damage to cargo 'due to action necessarily and reasonably taken to
elimination of scuttling and unseaworthiness that on a balance of probability the prevent the peril of the sea affecting the goods, is a loss due to the peril of the sea
cause of the loss was a peril of the sea. The idea that the vessel was lost by reason and is recoverable as such'." In The Thrunscoe,'4 ventilators were closed for abour
of some mechanism wholly unimaginable by expert witnesses whose best one week because of heavy weather and for the safety of the ship. The resultant
suggestion was itself wholly improbable could not satisfy the test of likelihood on heating of air in holds nearest the engine-room damaged part of the cargo. The
a balance of probabilities. The argument sought to resurrect the maxim of proximate and direct cause of the loss was held to be the severity of the weather."
Sherlock Holmes, contraty to the decision of the House of Lords in The Popi M
The assured, consequently, lost on the burden of proof.
With respect to causation and defining the term 'perils of the sea', the question 10.45 is of
It is clear, therefore, from the The Popi M and The Marel that an assured cannot prove a the proper characterization of circumstances leading up to and occasioning
fortuitous sinking purely by eliminating the possibility of loss by delib-erate a loss in the context of the contractual concept ofperils of the sea. Most perils of the
sinking or by reason of the unseaworthy condition of the vessel. The assured must sea involve an incursion of water into a vessel. However l an ingress of water is not
also 'condescend to particularity' by proposing a mechanism for the fortuitous necessarily a peril of the sea. It qualifies as such only if it is fortuitous and, in order
entry of water that, taken in isolation, constitutes a perfectly plausible explanation. to determine whether it possesses the character of fortuity, one has to look behind
The elimination of uninsured losses then renders it more likely than not that the the ingress in order to determine the reason for the ingress. In
proposed mechanism was indeed the cause of the loss, enabling the assured to Canada Rice Mills Ltd v Union Marine & General Insurance Co Ltd," Lord
recover for a loss by perils of the sea. Wright stated as follows:
Where there is an ac~idental incursion of seawater into a vessel at a part of the
Causation vessel, and in a manner, where seawater is not expected to enter in the ordinary
Causation issues may arise in two different ways. First, the occurrence of a peril course of things, and there is consequent damage to the thing insured, there is
of the sea may not be in doubt, merely whether the loss in question was caused by prima facie a loss by perils of the sea. The accident may consist in some negligent
the peril identified. Secondly, issues of causation may become entwined with the act, such as improper opening ofa valve, or a hole made in a pipe by mischance, or
it may be that seawater is admitted by stress ofweather or some like cause
definition of the peril.
bringing the sea over openings not ordinarily exposed to the sea or, even without
With respect to the causal reach of perils of rhe sea, as with any other peril, the question stress of weather, by the vessel heeling over owing to some accident, or by the
breaking of hatches or other coverings ... It is the fortuitous entry of the seawater
becomes whether the chain of causation has been broken and common sense
which is the peril of the sea in such cases.
seems the only guide. Case law provides a number of examples. In The Catherine
Chalmers,90 poor weather caused straining of a vessel leading to, first, wine Two possible analyses of the relevant circumstances then arise. First, the peril of 10.46 the
oozing from casks and staining some bags of nuts and, secondly, the bursting of sea is solely the ingress of water. There must be a circumstance that lends
other bags of nurS. The proximate cause of the resnlting damage to the nuts was the ingress a fortuitous character, but that circumstance is merely part of the
held to be perils of the sea. In Montoya v London Assurance Co," a vessel background leading up to the peril. In causation terms, this may lead to the
carrying a cargo of hides and tobacco shipped large quantities of sea water proposition that the proximate cause of the loss is the ingress of water to the
because of bad weather. Putrefaction of the hides in turn imparted a disagreeable exclusion of the circumstance that contributes the fortuity. Secondly, the peril of
flavour to the tobacco. The consequent loss relating to the tobacco was held to be the sea may be the combination of the circumstance that contributes the fortuity
caused by perils of the sea. Pollock CB laid down as a general rule that 'where and the resulting entry of water. A statement that the proximate cause of the loss
mischief arises from perils of the seas, and the natural and almost inevitable was a peril of the sea would then involve ascribing proximate
consequence of that mischief is to create further mischievous results, the under-
writers, in such case, are responsible for the further mischief so occasioned.'''
93 Canada Rice Mills Ltd v Union Marine 6- General Insurance Co Ltd [1941] AC 55, 71 per
Lord Wright. Weather caused closure of ventilators and hatches which resulted in heating
of the cargo of rice. The Privy Council held that the loss was caused by perils of the sea.
90 (1874) 32 LT 847. See also Gab,lJ' v Lloyd(l825) 3 B & C 793, where, in a storm, a 94 [18971 P 301.
cargo of horses broke the partitions separating them and by their kicking injured each other 9S Quaere whether such loss would be recoverable under the Institute Cargo Clauses (B) as
so that all died. The cause was held to be pedis of the sea. 'reasonably attributable to' entry of sea water.
" (1851) 6 Exch 451. " ibid 458. See also 460 per Platr B. 96 [19411 AC 55, 68-9.
348 349
Marine Risks HuaandF~~htlmumnu
cause status, for the purposes of that statement, to all the elements that combine to insured peril of the sea, arises from the combination of the incursion of water and
comprise the complex periL It is suggested that the latter approach is preferable. circumstances or events that characterize the entry as fortuitous. As both the
fortuitous circumstance and the act immediately causing the damage combine to
constitute one peril of the sea, any choice between the two as the proximate cause
10.47 First, ascribing proximate cause status to the circumstance that generates fortuity
of the loss is necessarily false.
as well as the resultant ingress of water corresponds to common sense. To
identilY an ingress ofwater as the proximate cause of the sinking of a vessel is In each of the cases, the'House of Lords rejected the arguments. In each case, it 10.50
both unhelpful and faintly ridiculous. Every vessel sinks because it fills up with is suggested that the result is correct. However, Some of the judgments contain
water. It is true that marine insurance law is not concerned with exactly why an dicta that, divorced from their context, suggest that the ingress of water can be
entry of water is fortuitous and, to that extent, does not need to focus upon separated from the circumstance that produced the ingress. Wbere such dicta
whether water entered because of negligent navigation or adverse weather condi- suggest that the ingress of water is the proximate cause in its own right, they
tions. However, in the law of marine insurance, the phrase 'perils of the sea' is fail, it is suggested, to take account of the requirement of fortuity as part of
ultimately a turn of phrase employed by business people in insurance contracts and the definition of perils of the sea, and they reflect a last-in-time approach to
should be interpreted in a manner consistent with the understanding of such proximity of causation that cannot be followed in the modern law.
persons. If one asked whether the Titanic was lost by a peril of the sea, the answer
In The Xantho," a shipowner sought to invoke a perils of the sea exception in a 10.51
would clearly have to be yes. If one then asked what was the maritime accident
bill of lading where the carrying vessel foundered as the result of a collision.
that caused the loss, what business person would respond that it was an entry
Previously, in Woodley v Michell, 100 the Court ofAppeal had held that a collision
ofwater to the exclusion of the impact with an iceberg?
could fall within the exception only where the carrier proved it had occurred
Secondly, in Samuel (P) <& Co Ltd v Dumas," the House of Lords held that an without the negligence of any vessel involved. In The Xantho, no evidence was
innocent mortgagee could not recover for loss caused by perils of the sea where adduced with respect to the reason for the collision and, consequently, the
the insured vessel was deliberarely scuttled by irs master and crew with the Court ofAppeal followed precedent in holding that the carrier could not rely on
complicity of the owner. This was not because the proximate cause of the loss was the exception. In the course of his judgment, however, Lord Esher MR also
the ingress of water but this could not be regarded as fortuitous. Instead, it was reasoned that where a collision was occasioned by negligence the doctrine of
because the proximate cause was the act of scurtling. Yet the causal signifi-cance proximate cause required one to distinguish between the negligence and any
of an act of scuttling is no different from that of a collision or any other event or ensuing ingress of water. He stated as follows: 101
circumstance that results in an ingress ofwater. According to Viscount
It must be borne in mind that the law with regard to bills oflading is not the same
Finlay: 'The entrance of water cannot be divorced from the act which occa-sioned as in regard to policies of insurance. In the latter, only the causa proxima is to be
it.''' That is as true of circumstances that permit the characterization of the entry as looked at, but in a case depending upon the liability under a bill oflading the teal
fortuitous as those that do pot. and moving cause of the loss has to be sought for. Although therefore the ship-
owners may have brought themselves within the terms of one of the exceptions, if
Nevertheless, in a number of/eading cases, it has been argued that the proximate cause of the plaintiffs' case shews that which is stated to be the cause was not the real
the loss either was the occurrence that resulted in an ingress of water to the moving cause, but that something else which was not an excepted cause was what
exclusion of the ingress itself and therefore was not a peril of the sea or, caused the loss, and that such moving cause was the consequence of the negligence
conversely, was solely an ingress of water to the exclusion of the occurrence that of the defendants, then the loss is not occasioned by an excepted peril.
resulted in the ingress and therefore was a peril of the sea. Such arguments, it is Later that same month, June 1886, litigation in a second similar case reached 10.52
suggested, are predicated on a false dichotomy. When considering whether the the Court ofAppeal. In Hamilton, Fraser <& Co v Pandorf<& CO,'02 rats gnawed a
proximate cause of a casualty involving an ingress of water is a peril of the sea, hole in a metal pipe on a ship, as a result of which water escaped from the pipe
the question is whether the ingress ofwater was fortuitous. An entry of sea water
cannot be its own accident.The forruitous maritime accident, and therefore the
" Thomas Wilson, Sons &Co v Owners ofthe Cargo per the Xamho (The Xantho) (1886) 11 PD
170, rvsd (1887) 12AppCas503.
100 (1883) LR 11 QBD 47. 10' (1886) 11 PD 170, 172-3.
97 [19241 AC 431, discussed at 10.16 above. " ibid 455. 102 (1885) LR 16 QBD 629, rvsd (1886) 17 QBD 670, rvsd (1887) 12 App Cas 518.
350 351
and damaged a cargo of rice. The question was whether the carriers were rely upon the perils of the sea exclusion was subject to the obligation to exercise
exempted from liability by a clause in the charterparty and bill of lading exclud- reasonable care in the carriage of the cargo. A new trial was, therefore, ordered
ing 'accidents of the seas', a phrase taken as synonymous with perils of the sea. to establish whether the carriers were at fault for the collision. In Hamilton v
For the cargo owners it was argued that rats' teeth had nothing to do with the sea, Pandorf,'°7 the House of Lords restored the decision of Lopes LJ and rejected the
that the rats were the cause of the loss, and that the entry of water was causation analysis of Lord Eshet MR. The phrase 'perils of the sea' encompassed all
merely a consequence of the rats' actions. fortuitous incursions of water, and it could not be denied either that the sea had
damaged the cargo or that such damage was accidental.
At fitst instance,'03 Lopes LJ held the carriets to be protected by the accidents of the sea
exclusion. On the subject of causation, he stated: 'The immediate cause of damage In each case, it is respectfully submitted that the decision of the House of Lords 10.56
in this case was the incursion of salt water through the hole in the was clearly correct. The difficulty with these two carrier liability cases for the law
pipe eaten through by the rats. The effective cause of damage was the rar or of marine insurance is that, in rejecting arguments that the collision in The
rats.'lO' On the scope of accidents (or perils) of the seas, he observed: 105 Xantho and the gnawing of the pipe by the rats in Hamilton v Pandorfwere the
sole proximate causes of the losses to the exclusion of the resulting incursions of
It seems to me that, where the effective cause is beyond human control, and in
consequence salt water enters which damages goods, it is an 'accident of the water, many of the speeches in the House of Lords contain statements that deny the
seas' within the meaning of the contract of affreightment and the true intention collision and the rats any status at all as proximate causes of the losses. Thus,
of the parties. Here, it is sea damage occurring at sea and nobody's fault ... according to Lord Bramwell in The Xantho, the collision 'was a causa sine qua
Suppose this same pipe had burst from frost or from some cause which human care non, but it was not the causa causans. It was causa remota, but not causa proxima.
and foresight could not have prevented, and goods damaged by entry of salt The causa proxima of the loss was foundering' .108 Lord Herschell accepted the
water, could it be successfully contended that the shipowners were not protected? contention ~hat, in marine insurance law, the proximate cause alone was relevant
I think not. and that one should not look behind it to discover 'the real and efficient cause'. 'If
This decision was teversed by the Court of Appeal. Lord Eshet MR repeated that that which immediately caused the loss was a peril of the
marine insurance law applied a strict, temporal approach to proximity of sea, it matters not how it was induced.'109 Likewise, in Hamilton v Pandorfi it
causation, attributing significance only to the cause immediate in time to the loss, was said variously that: (1) the peril was 'that the sea might get in and spoil the
while in the context of bills of lading the proximate cause was the causa rice. I cannot think it was less such a peril or accident because the hole through
causans or the 'real effective cause'. He held that, 'if rats gnaw through a pipe and which the sea came was made by vermin from within the vessel, and not by a
let the water in, nevertheless, as the rats are the cause, and the sea is not. a~d the
sword-fish from withollt,-the sea did get in'; 110 (2) the sea was the 'immediate
letting in of the sea-water is only an effect of the cause, the real effective cause
and efficient cause of damage';'" (3) 'the sea has damaged the goods';'12 (4) 'the
being the rats, what the rats do is not damage caused by perils of the sea'. The
remote cause was in a cettain sense the action ofthe rats on the lead pipe, but
other members of the Court concurred in the result, but upon the ground that the
the immediate cause of the damage was the irruption of sea-water'; 113 and (5)
carrier had failed to prove that the damage had not been occasioned by its the loss 'arose direcrly from the action of the sea'.'14
negligence, as required for the exclusion to operate.
In the modern law, it is, however, clear that the proximate cause is not to be 10.57
Both TheXanthoand Hamilton v Pandorfwere successfully appealed to the House equated as a matter of principle with the immediate, last-in-time cause. The proximate
of Lords, judgment in both cases being given on the same day, 14 July 1887. cause is precisely that which is 'real and efficient' and one can, if necessary, look
In The J&.ntho, '06 the House of Lotds held that no distinction was to be drawn behind the immediate cause in order to identifY it.'15 Moreover,
between contracts of marine insurance and contracts of affreightment with as suggested elsewhere, "6 the operation of the proximate cause doctrine depends
respect to the meaning of the phrase perils of the sea. Where a vessel foundered by upon rhe contractual context. Where a vessel sinks because of a collision
reason of a collision, there was a loss by perils of the sea for either class of
contract. However, in the case of contracts of affreightment, the carrier's right to
"7 (1887) 12 App Cas 518. '" ibid 514. '09 ibid 509-10.
110 ibid 524-5 per Lord Halsbury. 111 ibid 526 per Lord Watson.
112 ibid 527 per Lord Bramwell. 113 ibid 528 per Lord Fitzgerald.
(1885) LR 16 QBD 629. "" ibid 633. ,os ibid 635-6. 114 ibid 530 per Lord HerscheiL 115 See 9.09-9.10 above.
103
106 (1887) 12 App Cas 503. 116 See 9. 12ffabove.
352 353
Marine Risks Huil andFrnght Imumnu
occasioned by the negligence of the mastet, there is a peril of the sea wirh the combination of the entry of water and the reason for that entry that determines
negligence supplying the requisite fortuity. Equally, however, the assured should whether it should be characterized as fortuitous. 12 '
be able to recover under the standard market hull clauses for a loss proximately
caused by the negligence of the master.' 17 If one cannot look behind any incur-sion (2) Fire and Explosion
of water resulting from a negligent act, then one can never causally link the
'Fire', it has been stated in an American case,122 'is caused by ignition or com- 10.60
negligence to the loss as required by the policy. Consequently, where rhe neg- bustion, and it includes the idea of visible heat or light'. In Tempus Shipping Co
ligence produces an immediate cause that is not a peril in its own right, there will Ltd v DreyfUs & Co Ltd, Wright] stated that: 'Mere heating, which has not arrived
be no cover. The result is that negligence cover would be superfluous or illusory.' at the stage of incandescence or ignition, is not within the specific words
18
((fire":123 Once ignition has occurred, however, recovery is not confined to
The converse argument arose in Samuel (P) & Co Ltd v Dumas,"9 namely that the cause of damage inflicted by flames.'24 Subject to the terms of the policy, loss caused by
the loss was the ingress of water to the exclusion of that which caused the water to 125
fire includes smoke damage and also damage occasioned through fire-fighting
enter. The insured vessel was scuttled and an innocent co-insured mortgagee 126
efforts. In the fire insurance case of Stanley v ~stern Imurance CO,127 Kelly
claimed that rhe ingress of water could be considered separ-ately from the act of
CB observed that the petil of fire extended to:
scuttling that caused it so as to constitute a peril of the sea. The argument was
rejecred. Two members of the House of Lords categorically . . . any loss resulting from an apparently necessary and bona fide effort to put out
identified the act of scurtling as the proximate cause. The ingress of water was a fire, whether it be by spoiling the goods by water, or throwing the articles of
furniture out of the window, or even the destroying of a neighbouring house
denied any status as part of the proximate cause, being relegated to the status of a
by an explosion for the purpose of checking the progress of the flames, in a
mere effect of the proximate cause. 120 word, every loss that clearly and proximately results, whether directly or
indirectly, from the fire, is within the policy.128.
Again, it is suggested that the rejection of the causation argument advanced was correct~
but the causation reasoning needs to be confined to its context. Given that the In Symington v Union Insurance Society of Canton, 129 cork awaiting shipment 10.61
question was whether the proximate cause of the loss was a peril of the sea, that accumulated on a jetty. Fire broke our on the jetty at some distance from the
which characterized the ingress as fortuitous (or not) attracted proxim-ate cause cork. In order to cteate a fire break and prevent destruction of the jetty, some of the
sratus. However, it does not follow, it is suggested, that the entry of water is cork was thrown into the sea while water was poured on the rest. Greer L] held that
excluded from the same status. If the act of scuttling had failed ro let-in the entire loss was caused by fire.'30 However, according to Scruttan and Sankey
water, the vessel would not have sunk. In the context of cargo insured purely LJ],13' while the loss ofthe cork on which water had been poured was attributable to
against 'entry of sea water', it could not be denied that the cargo had been lost by the fire, the cork thrown into the sea was lost by a peril eiusdem generis ta jettison.
the entry. Moreover, just as Samuel v Dumas illustrates the shortcomings in the On the facts, this division of causation was immaterial as both perils were covered
reasoning in The Xantho and Hamilton v Pandor/, so the converse is equally true. by the policy. In principle, however, it is difficult to sustain
The navigation leading to the collision, the tats gnawing a hole in the pipe, and the
act of scurtling all explained and caused the entry of water into the vessels. In each
case, in the context of the contractual question posed by cover against loss caused See also the warning by Lord Atkinson against the artificial splitting of complex causes:
by perils of the sea, the effective cause of the loss is the Leyland Shipping Co Ltd v Norwich Union Fire 1murance Society Ltd [1918] AC 350, 365.
The Buckeye State (1941) 39 F Supp 344, 347 per District Judge Knight (District Court,
New York).
123 [1930] I KB 699, 708. See also Everett v London Assurance (1865) 19 CB (NS) 126, 133.
But see The Knight ofSt Michael [1898] P 30 distinguished in Tempus Shlppingas a
See 10.14 above, 11.29ffbelow, and 9.17-9.18 above. decision on the eiusdem generis clause. Sed quaere. See the discussion of imminent
A similar objection can be made against the decision in Covington v Roberts (1806) 2 B & perils at 9.49 and 9.52 above.
PNR 378. Chased by a privateer, an unusual press ofsail was hoisted enabling the Nancy to ,,, Tempus Shipping Co Ltd v DreyfUs & Co Ltd \1930] I KB 699, 709.
escape but causing damage. It was held that the proximate cause was 'only a common sea 125 Ine Diamond [19061 P 282.
risk' occasion-ing a partial loss rather than a general ave.f3.ge loss. The court thus rejected 126 ibid. See also Symington v Union Insurance Society of Canton (1928) 31 LlLRep 179; Re
the argument that the loss was attributable to the privateer and incurred for the common Hooley Hill Rubber & Chemical Co Ltd [19201 I KB 257, 271-2.
good of those interested in the adventure. This seems unsustainable in the modern law. (1868) LR 3 Ex 71, 74.
119 [1924] AC 431. 120 ibid 446-7 per Viscount Cave and455 per Viscount Finlay. Note that under the Institute Cargo Clauses (B) and (C) the required causal link is merely
that of 'reasonably attributable to' fire.
,,, (1928) 31 LlLRep 179. >30 ibid 183-4. ,,, ibid 182 and 184.
354
355
the view that the cork thrown into the water was not lost by fire, without denying Once loss by fire is established, prima ficie it matters not whether that fire 10.65
that the causal attribution to a peril euisdem generis to jettison was also correct. started accidentally or deliberately, 'if the ship is destroyed by fire, it is of no
consequence whether this is occasioned by a commo.n accident, or by lightning,
A number of the above principles are articulated in fire insurance through a distincrion 13
or by an act done in duty to the state' .138 A negligently started fire is still a fire. '
between 'friendly' and 'hostile' fires. The Canadian case of Young
Even a deliberate fire is still within the peril of fire, whether started by a stranger
Waterloo Mutual Fire Insurance Com concerned coverage of 'direct loss or to the vessel or by the master or a member of the crew.'4' An argument that the
damage by fire'. Kennedy CoCt] stated as follows: 133
peril of fire in a mortgagee's interest policy is confined to accidental fires has
... it must be a 'hostile' fire, that is, one wh.ich becomes uncontrollable and breaks been described as 'preposterous'.'41 Arson by the assured would, of course, be
out from where it was intended to be and becomes a hostile element, and where excluded by the wilful misconduct defence."2 Likewise, the assured may rely on
there is such a fire the insured may recover resulting losses or damages including
fire occasioned by spontaneous combustion, '43 or one that ought to have been
losses or damages in regard to which there has been no actual ignition, such as a
loss or damage caused by smoke. On the other hand, where the fire is a 'friendly' contained by fire-fighting equipment,'44 leaving a hull insurer to seek to raise a
one, such [as] a fire employed for the ordinary purpose of heating, and such fite is defence based on unseaworthiness.'4s
confined within its usual limits, it is not a fire within the usual terms of a policy
The above propositions are, however, subject to rhe terms of the policy and the 10.66
and the insured cannot recover loss or damage caused thereby, such as damage
caused by heat which does not result in ignition or damage by smoke or soot. In doctrine of proximate cause. In Gordon v Rimmington,'4' the master deliberately
other words, the insurer is not responsible for the collateral effectsof a 'friendly' set fire to his vessel in order to prevent it being taken by a faster and stronger
fire which is contained within its usual and proper limits; 134 if, however. such a enemy privateer. Lord Ellenborough held the assured entitled to recover for a loss
'friendly' fire gets out of control and extends beyond where it was intended to be caused by fire. Given that the peril of fire does not distinguish between reasons for
contained, it then changes its character and becomes a 'hostile' fire, and the the fire, the decision is correct; following rhe modern approach to proximity of
insurer is liable for the loss or damage which results therefrom.
causation, 147 however, the causal relevance of the privateer cannot be denied. It is
A marine example of recovery for a 'friendly' fire getting our of control is suggested that the assured in Gordon v Rimmington could have recovered under a
13S war risks policy for loss proximately caused by the peril of attempted capture, the
provided by Busk v Royal Exchange Assurance Co. A Russian ship frozen up
for the winter was, in accordance with custom, left in the sole charge of the mate. act of the master in duty to the state not breaking the chain of causation between the
He lit a fire in his cabin but failed properly to extinguish it before going aboard peril that prompted the master's acts and the ensuing 10ss.'48 Although section
another vessel for the night. The fire spread and destroyed the ship. 55(1) of the Marine Insurance Act 1906 denies recovery 'for any loss not
proximately caused by a peril insured against', Gordon v Rimmington should be
The case of Harris v Poland}" warns, however, against relying toO heavily upon the
viewed as a case where the loss could
'friendly' fire limitation. For protection against theft, the assured concealed
jewellery in a grate beneath coal and wood, which, forgetful of the jewellery, she
later lit. Atkinson] held rhe assured to be entitled to recover for the resulting
Gordon v Rimmington (1807) 1 Camp 123, 124, discussed below.
damage to the jewellery under a Lloyd's household policy, regardless of the fact Busk v RoyalExchange Assurance Co (1818) 2 B & Aid 73; Rosa v Insurance Co ofthe State of
that the fire was 'friendly', deliberately started, and confined to its usual and proper Pennsylvania (The Belle a/Portugal) (1970] 2 Lloyd's Rep 386.
place: 'it mattered not whether the property had gone to the fire or the fire had gone Continental Illinois National Bank & Trust Co ofChicago v Alliance Assurance Co Ltd (The
Captain Panagos DP) (No 2) (1986] 2 Lloyd's Rep 470, 510-11; S,hiffihypothekenbank zu Luebeck AG v
to the property. There had been ignition of insured property not intended to be Compton (The Alexion Hope) (1988] 1 Lloyd's Rep 311; Kiria,oulis Lines SA v Compagnie d'Assurances
ignited'. 137 Maritimes Ariennes et urrestres (CAMAJ) (The Demetra K) [2002J EWCA Civ 1070,
(2002] 2 Lloyd's Rep 581, para 19.
The Alexion Hope (n 140 above) 319 per Nourse L]. Contrast the position under the
Institute Cargo Clauses (B) and (C), see 10,83 below.
But once the assured has proved a loss by fire, the- insurer bears the burden of proving the
132 (1955] 5 DLR35 (County Court, Ontario). 133 ibid41-2. assured's wilful misconduct: National Justice Compania Naviera SA v Prudential Assurance Co Ltd
134 Thus, in Austin v Drewe (1816) 6 Taunt 436, the assured was unable to recover for (The Ikarian Reefer) (1993) 2 Lloyd's Rep 68, 71.
heat damage to sugar caused by mismanagement of fires in a heating chimney. Tempus Shippi"g Co Ltd v Dreyfus & Co Ltd (1930) 1 KB 699, 708.
135 (1818) 2 B &AJd 73. '" [1941] 1 KB 462. '" Manifest Shippi"g Co Ltd v U"i-Polaris Insurance Co Ltd (The Star Sea) (2001] UKHL 1,
137 Headnote. See especially ibid 468. At 473, Atkinson Jdiscounts a dictum in the course [2003] 1 AC 469, discussed ar 19.36 below.
of argument of Scrutton L] in Upjohn v Hitchens [1918]2 KB 48, 51 to the effect that fire in 145 See further Ch 19 below, 146 (1807) 1 Camp 123. 147 See Ch 9 above.
a fire policy means a fire that has broken bounds, 148 See Rickards v Forestal Land, Timber & Railways Co (The Minden) [1942] AC 50.
356 357
be described as proximately caused either by fire or attempted capture. attributable to the explosion tather than the subsequent fire was also 'from fire'
Consequently, the assured could recover under a policy which covered either of and therefore excluded. The defence failed, There was no appreciable amount
the two perils, but equally the insurer wonld be protected by an express of time between the commencement of the ignition and the explosion: 'Each
exclusion of either peril.'4' was a part of the same event, the ignition being the first and the explosion the
final stage of the disaster, There was no separate fire which burnt in the roOm
10.67 The peril of explosion received consideration in Commonwealth Smelting Ltd v
before the explosion took place.'155
Guardian Royal Exchange Assurance Ltd'50 A smelting complex included a
blower house containing machinery to provide a supply ofair to be blown into a
(3) Violent Theft by Persons from Outside the Vessel"6
furnace. The blower itself consisted of a steel impeller attached to a shaft from a
gearbox, with front and back shrouds and a cast iron casing. Having developed a There is no requirement from use ofthe word 'violent' thar an assault be commit- 10,69
fatigue ctack, the impeller broke up while rotating at speed, pieces sttiking the ted upon a person,157 although merely unlawful behaviour would not suffice."8
casing with sufficient force to cause it to crack and shatter, releasing the pressur- Some manifestation of force is required, although it may be directed towards
ised air. Flying pieces of impeller and casing damaged the whole boiler house. property. It has been observed thar 'theft' is not to be interpreted in the strict sense
Witnesses attested to 'a big cloud of fire and smoke' and a 'very loud bang' and of the criminal Jaw, 159 Theft by a person within the vessel ranks as barratry, 160
described what they had observed as an explosion. The courts disagreed with this
characterization. Staughton J held that 'explosion' meant 'an event that is violent, (4) Jettison
noisy and ... caused by a very rapid chemical or nuclear reaction, or the bursting out
of gas or vapour under pressure', adding that the cause of the damage was not such Jettison is 'any casting over board ex justa causa'. 16' It is usually associated with 10.70
an explosion but centrifugal disintegration.'s, In the Court of Appeal, Parker LJ general average, being the paradigm example of a general average sacrifice. If a
stated152 that the damage was 'caused by the failure of the impeller and pieces of the marine adventure is in jeopardy, cargo or patt of the ship itself may be voluntar-
impeller shattering the casing. That was not an explosion'. Damage to the boiler ily sacrificed by jettison in the common good, giving rise to a general average
house had possibly been contribured to by an explosion, 'namely the explosion of loss. Yet jettison is a puzzling peril. Inclusion of jettison in a list of covered perils
the air from its confinement within the casing, the casing having been shattered by is not needed ro extend cover to general average, as the Insritute and
the entirely independent operation of the failure of the impeller. However, even so, International clauses uniformly provide cover elsewhere for general average.
it appears to me that the proximate cause and effective cause of all the damage was Moreover, it is difficulr, given the modern law of proximity of causation, to
the failure orthe impeller and not an explosion'. contemplate a role for jettison as a nominate peril in the hulls and freight clauses
independent of general average and the other specified perils.
One might contrast the decision of the Privy Council in Boiler Inspection & Since jettison is casting overboard fOr a reason, the peril of jettison arises when- 10.71
Insurance Co ofCanada v Sherwin-Williams Co ofCanada. 153 In the event of ever the reason justifies the casting overboard. Under rhe modern approach to
an accident to the assnred's bleacher tank, the insurer undertook to pay for loss proximity of causation, it will be appropriate, if relevant, to regard the reason as
'directly damaged by such accident ... excluding Ca) loss from fire'. An accident a proximate cause of the loss in its own right. Thus, if jettison is prompted by
resulted in the door to the tank being blown off and an escape of gas which ignited
and exploded, resulting in a fire. Considerable damage was occasioned
by the explosion and resulting fire. That attributable to the fite was admittedly [1951] AC 319, 337.
excluded from the scope of the cover.'54 The insurer's defence was that a flame The Lloyd's SG policy referred merely to 'thieves'. However, MIA 1906, Seh 1, r 9 provides that
must have ignited the gas, that that flame constituted fire, and that all loss 'the term "thieves" does not cover clandestine theft or a theft committed by anyone of the
ship's company, whether crew or passengers'. Rule 9 is now superseded by the wording of the
Institute clauses. -
La Fabrique de Produits Chimiques SA v Large [1923J 1 KB 203.
Dina Services v Prudential Assurance [1989J I Lloyd's Rep 379.
'" See 9.29 above. 150 [1984J 2 Lloyd's Rep 608, [1986J 1 Lloyd's Rep 121.
Nishina Trading Co Ltd v Chiyoda Fire & Marine Insurance Co Ltd (The Mandarin
'51 [1984] 2 Lloyd's Rep 608, 612. 1S2 [1986] 1 Lloyd's Rep 121, 126.
Star) [1969J 2 QB 449 (although no guidance was given as to where the strict criminal law
153 [1951] AC 319.
and insurance law might diverge).
IS4 The broad drafting, 'loss from fire', dearly rendered otiose any causation arguments attrib~
The peril ofbarrarry is discussed at 11.43ffbelow.
uting all the loss to the explosion as the proximate cause, rather than--the resulting fire.
'51 Butler v WIldman (1830) 3 B &Ald 398, 403 per Bayley J.
358 359
Marine Risks Cargo Insurance
adverse weather at sea, the proximate cause may be viewed as either jettison or proceeded to the nearest pOrt, where, according to the insurer's pleadings, they
perils of the sea. released the vessel. Pollock CB considered that the facts constituted piracy
In Butler v Wildman,162 the captain of a Spanish ship threw a quantity of dollars into the provided the Chinese acted animo fUrandi (with the intention of theft).
sea to prevent them from falling into enemy hands. While the court In The Andreas Lemos,'67 a vessel anchored within port limirs and within the 10.76
held unanimously that the assured was entitled to recover, the judges disagreed territorial waters of Bangladesh was boarded by thieves armed with knives.
over causation. Abbott C] and Bayley and Holroyd JJ all considered that the cause When discovered by the crew, the thieves at first offered resistance by brandish-
was jettison or, alternarively, a peril eiusdem generis to jettison. Bayley and ing their knives but then fled. Some equipment was stolen. This did not consti-
Holroyd JJ also attributed the loss to the peril of enemies. Best J opted for a tute piracy, but rather clandestine theft. In the absence of any prior authority,
different cause, namely a peril eiusdem generis to enemies, in which he was Staughton J held that force or a threat of force waS necessary to elevate rheft to
joined by Holroyd J. Best J, therefore, identified one relevant cause, Abbott C] piracy under a policy of marine insurance: 'Itis not necessary that the thieves
twO, Bayley J three (although also stating he rhought 'the enemy was the prox- must raise the pirate flag and fire a shot across the victim's bows before rhey can
imate cause of loss') and Holroyd J a grand total of four causes. Given rhe be called pirates. But piracy is not committed by stealth."68 He concluded thar
definition of jettison, and the modern doctrine of proximate cause, it is suggested 'the act of appropriation had finished in this case when the force or a rhrear of
that the loss did indeed fall within both jettison and enemies. force was first used, or at any rate the contrary is not proved. The act ofappropri-
Similarly, in Symington v Union Insurance Society o/Canton,163 some cork was thrown ation finished when the goods were thrown into the sea' .'69 Staughton Jalso held
from a quay into the water to prevent the spread of a fire. The atttibu-tion by that piracy is not confined to acts outside territorial waters, 'if a ship is, in rhe
Scrutton and Sankey LJJ of the loss thereby caused to jettison 164 was correct, as the ordinary meaning of the phrase, "at sea" ... or if the attack on her can be
fire provided the justification for the response. The cork was lost by events that described as "a maritime offence" ... rhen for the business purposes of a policy
could be correctly labelled as either fire or jettison, the two perils overlapping on ofinsurance she is, in my judgment, in a place where piracy can be committed'.170
the facts.
Piracy B. Cargo Insurance

For rhe purpose of insurance contracts, the term 'pirate' receives a popular and business Modern cargo insurance operates sometimes on an (all risks' basis and sorne- 10.77
meaning. Pirates, therefore, are people who plunder indiscriminately times on a named perils basis. Under rhe Institute Cargo Clauses (A), cover is
for their own ends rather rhan people who are simply operating against the property granted against 'all risks of loss of or damage to the subjecr-matter insured except
'65
of a particular state for a public end. Schedule 1, rule 8 of the Marine Insurance as provided' to the contrary. The Institute Cargo Clauses (B) and (C), in contrast,
Act 1906 provides that 'the term "pirates" includes passengers who mutiny and provide insurance against a number of specified 'Risks Covered'. One feature of the
rioters who attack the ship from the shore'. cargo clauses is that they do not employ the phrase 'perils of the sea'. The following
paragraphs will consider the extent to which the cargo clauses provide cover
In Naylor v Palmer,'66 insurance was taken out on money advanced to cover rhe cost of
against such risks and also the relared question of the approach of the cargo clauses
shipping emigrant Chinese workers from China to Peru. The emigrants, however,
to loss and damage caused by deliberate acts.
changed theit minds, murdered the captain and some of the crew, and
167 Athens Maritime Enterprises Corp v Hellenic Mutual \-%r Risks Association (Bermuda) Ltd
(1830) 3 B & Ald 398. (The Andreas Lemos) [19831 1 All ER 590.
(1928) 31 LlLRep 179, discussed at 10.61 above with respect to fire. 168 ibid 600. 169 ibid.
The court actually held the cause to be a peril eiusdem generis to Jettison, possibly feeling
170 ibid 598. The issue had elicited conflicting dicta in Republic ofBolivia v Indemnity
that jettison as such is confined to casting overboard from vessels.
165 Republic of Bolivia v Indemnity Mutual Marine Assurance Co Ltd (1909) 1 KB 785 (no
Mutual Marine Assurance Co Ltd [1909] I KB 785, 798, 802. The view of Staughton Jthat
piracy where Brazilian insurgents sei~ed goods intended for Bolivian troops). Follow:d in Banque piracy may occur within territorial waters is consistent with the opinion of Lord Kenyon
Moneteca 6'Carystuiaki v Motor Umon Insurance Co Ltd(1923) 14 LlLRep 48 (no pIracy that piracy was committed on the facts of Nesbitt v Lushington (1792) 4 TR 783. A ship
where a Greek vessel was seized by a brigand actuated predominantly by nationalist motives). carrying wheat was forced by weather into Elly harbour in Ireland where corn was very
166 (1853) 8 Ex 739. scarce. The ship was boarded 'in a tumultuous manner' by local people who took control of
her, ran her aground and compelled the master to sell the wheat for 75% of the invoice price.
360
361
Marine Risks Cargo Insurance
'All Risks' Cover under rhe Institute Cargo Clauses (A) but only by forming the basis for a possible defence of unseaworthiness. In rime
policies, under which most vessels are insured, rhis defence requires the insurer to
In British & Foreign Marine Insurance Co Ltd v Gaunt,'71 the House of Lords held that prove not just the state of the vessel and that its condition caused the loss, but also
an assured under an 'all risks' policy benefits from 'quasi-universal' cover and is not that the assured was subjectively aware of the vessel's condirion. This is extremely
required to identifY the precise, operative peril. It suffices that the assured prove on difficult.'76 In contrast, 'all risks' cover is interpreted as implicitly excluding loss
a balance of probabilities that the cause of the loss was a risk, as that term is caused by the condition of the goods rarher than the operation upon the goods of
understood. In the context of cover against sea perils, since some external circumstance.'" Moreover, rhe modern Insri-tute cargo clauses
cover is graoted againsr all risks that are not excluded, the question of the maritime contain three provisions expressly denying cover where the cause of the loss is the
nature of the case of loss does not atise.'" Moreover, although the deliberate innate condition of rhe goods, none of which require proof of awareness by the
infliction of damage by the assured itself does not fall within the concepr of 'risk', assured of the condition of the goods.'78 Con-sequently, a defence based on the
173 the deliberate act of those in charge of rhe insured property, recoverable under a
state of the insured property presents less formidable problems of proof for a cargo
hull policy only under the heading ofbarratty and not perils of the sea because of a insurer than a hull insurer.'79
lack of fortuity, would be regarded as a risk under 'all risks' cargo cover. In other
words, the fortuiry inherent in the concept of risk is understood in a sense relative The same contrast arises in the context of the peril of fire by spontaneous 10.80 combustion
to the assured.'74 So, for example, in cases of composite insurance, loss or damage or that the insured property should have been able to withstand. A
occasioned by the wilful misconduct by one co-assured is still regarded as cargo insurer may invoke the defence of inherent vice while a hull insurer will have
fortuitous with respect to another co-assured not complicit in the misconduct. 175 to establish an unseaworthiness defence, including, in time policies, the knowledge
of rhe assured. While the cargo insurer may fail to establish thar inherent vice
caused the 10ss,180 a hull insurer that succeeds in proving that the vessel was
Perhaps paradoxically, an assured may, in certain circumstances, find it easier to recover unseaworthy by reason of defective fire-fighting equipment, and that this defect
under the named perils approach of hull insurance than the <all risks' approach of caused the loss, will still fail if it cannot also prove that rhe assured knew of the
the Institute Cargo Clauses (A). Where insured property is lost or sustains damage 181
unseaworthiness at the time the vessel put to sea.
when faced with no more than a foreseeable peril, the possibil-ity arises that the
condition of the property was at least a proximate cause of the loss. The question (2) Named Perils Cover under rhe Institute Cargo Clauses (B) aod (C)
then atising is whether the insurer can rely on the condition of the property in order
to deny recovety. Where a vessel sinks because· of inability to withstand sea Both the Institute Cargo Clauses (B) and (C) adopt a named perils approach to 10.81 the
conditions of a type that are not unusual for the scope of cover. They do not, however, adopt the phrase 'perils of the sea' or
relevaot sea area at that time of year, rhe condition of the vessel will afford the hull define the scope of cover by reference to a family of perils. Instead, a number of
insurer a defence, not through denying the operation of a peril of the sea, specific perils capable ofqualifYing as perils of the sea if fortuitous are identified,
and cover is granted in respect of loss of or damage to rhe insured cargo caused by
those individual perils. Both the (B) and (C) clauses cover loss or damage
m [1921] 2AC41.
'reasonably attributable to ... vessel or craft being stranded grounded sunk or
172 It could if placed in issue by the wording of an exclusion, but there is no appropriately worded capsized'.182 Stranding is defined according to the nature of the contact between
exclusion in the Institute Cargo Clauses (A). the vessel and the bottom rather than by reference to any degree of damage to
British & Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41,57.
Prior to the advent of the new cargo clauses in 1982, cargo policies afforded cover against
perils of the sea, raising the problem of how to avoid the approach to fortuity adopted by the House of
Lords in Samuel (P) 6- Co Ltd v Dumas [1924] AC 431. The market response was a 'Seaworthiness
For discussion of unseaworthiness, see Ch 19 below.
Admitted Clause'. When eventually tested in the courtS in Shell International Petroleum Co Ltd v
British & Foreign Marine ItlSurance Co Ltd v Gaundl921] 2 AC 41.
Gibbs (The Salem) [1983] 2 AC 375, the view was expressed that this clause, despite the clear
For uncertainty surrounding the burden of proof in this context, see 7.59 above.
intentions of the market, possibly failed on its -wording to achieve its purpose but that, because of the
clear intentions of the market, could always be rectified in order to achieve its purpose. Given the
See, eg Mayban General Assurance Bhd v Alstom Power Plants Ltd [2004] EWHC 1038
emphasis today placed upon the parties' intentions in the interpretation of contracts (see generally 8.03, (Camm). [2004J 2 Lloyd's Rep 609, discussed at 15.52-15.54 below.
8.45ff above), it is unlikely that recourse to rectification would be Boyd v Dubois (1811) 3 Camp 133.
needed.
Manifest Shipping Co Ltd v Uni~Polaris Insurance Co Ltd (The Star Sea) [2001] UKHL 1,
175 State o/the Netherlands v YOuell [1997] 2 Uoyd's Rep 440, 454. OtherWise, of course, if the [2003J 1 AC 469, discussed at 19.32ff. 182
policy is one of joint insurance. cl 1.1.2.
362 363
Marine Risks
the vesseL 183 Momentary contact does not constitute stranding 184 nor does
grounding in the ordinary course of navigation,185 hence rhe specific inclusion of
grounding in the Institute clauses. With respect to sinking, a vessel has not sunk
186
11
even if substantially awash and partly kept afloat by its buoyant cargo.
In addition, within the context of perils of the sea, Institute Cargo Clauses (B) and (C) also
cover most collisions or comings into contact by the carrying vessel,
187
craft, or conveyance. This is discussed in a later chapter. The rarely, if ever,
used Cargo Clauses (B) also cover loss or damage 'caused by ... washing over- THE INCHMAREE CLAUSE
board [or] entry of sea lake or river water into vessel craft hold conveyance
container lifrvan or place of storage"88 and 'total loss of any package lost over-
board or dropped whilst loading on to, or unloading from, vessel or crali:' .'89
Othet forms of 'wet' damage remain at the assured's risk. Thus, damage by Cover"d Perils under the (3) Barratry of masters, officers, or crew 11.43
rainwater will not render the insurer liable and canal water poses ptoblems of Inchmaree Clause
11.03 B. The Due Diligence Proviso 11.66
Bursting of boilers, breakage of
defiuition. shafts, and latent defects in the C. Relationship Between the Cover
machinery or hull Provided under the Inchmaree
10.83 The various perils as enumerated in the 'risks covered' clauses of the Institute 11.03
Negligence Clause and that Provided in
11.29
Cargo Clauses (B) and (C) do not distinguish according to whether they occur Respect of Maritime Perils 11.73
through accident or design. However, by virtue of clause 4.7, insurers are not
liable for 'deliberate damage to or deliberate destruction of the subject-matter
insured or any part thereof by the wrongful act of any person or persons.' This
In The Inchmaree,' the House of Lords ruled that the brealcage of a piece of 11.01
exclusion would clearly embrace the deliberate act limitation on the concept of
machinery on a ship was recoverable neither as a peril of rhe sea nor under the eiusdem
fortuity under perils of the sea, which excludes from cover losses caused by
generis clause because the accident lacked the necessary maritime con-nection. This prompted
deliberate damage to a ship by those in charge ofit, although the burden of proof the introduction of the Inchmaree clause, designed to provide such cover. Today, however, the
in respect of the exclusion will fall upon the insurer. The exclusion is, however, clause referred to by that name is of somewhat broader scope. Thus, clause 2.2 of the
broader, since it extends to all 'deliberate' loss or damage occasioned by. the International Hull Clauses (01/11103)' provides as follows:
'wrongful act ofany person'. In consequence, cover for fire will not extend to any
act of arson or deliberately caused explosion. A number of other deliberate acts
This insurance covers loss of or damage to 3 the subject-matter insured caused by
discussed above in the context of hull and freight insurance are not covered in
bursting of boilers or breakage ofshafts but does not cover any ofthe costs of
any event as falling outside the risks covered clause. For example, the perils
repairing or replacing rhe boiler which bursts or the shaft which breaks
covered under the (B) and (C) clauses do not extend to violent theft or piracy. any latent defect in the machinery or hull but does not cover any ofthe costs
of correcting the latent defect
negligence of Master, Officers, Crew or Pilots
negligence of repairers or charterers provided such repairers or charterers
are not an Assured under this insurance
'83 Harman v 1&ux(1831) 3 Camp 429.
M'Dougle v Royal Exchange Assurance Co (1815) 4 Camp 283; Bryant & May Ltd v London
barratry of Master, Officers or Crew,
Assurance Corp (1886) 2 TLR 591.
Hearne v Edmunds (1819) 1 Brod & Bing 388; Rayn" v Godmond (1821) 5 B & Ald 225;
Bishop v Pentland (1827) 7 B & C 219; Wells v Hopwood (1832) 3 B & Ad 20; KingsfOrd v Thames & Mersey Marine Insurance Co Ltd v Hamilton, Fraser & Co (The Inchmaree) (1887)
Marshall (1832) 8 Bing 458; Corcoran v Gurney (1853) 20 LTOS 221. There is a stranding, 12 App Cas 484.
however, where the vessel is intentionally grounded in the ordinary course of navigation but the 2 See also Institute Time Clauses Hulls (1/8/89 and 1/11/95), cl 6.2; Institute Voyage Clauses
bottom proves to be in a different state from normal: Letchflrd v Oldham (1880) 5 QBD 538. Hulls (1/10/83 and 1111195), cl4.2; Institure Time Clauses Freight (1110183 and 1111/95), cl
Bryant 6- May Ltd v London Assurance Corp (1886) 2 TLR 591. See also Jackson Oohn 7.2; Institute Voyage Clauses Freight (1/8/89 and 1111/95), d 5.2. There are, however,
C) Ltd v Sun Insurance Office Ltd (1962) 38 WWR 294 (Supteme Coun of Canada). material differences in wording.
See 12.02ffbelow.188 Institute Cargo Clauses (B), dl1.2.2, 1:2.3. 3 The words 'or damage to' are naturally omitted from the freight clauses as freight is not
189 Institute Cargo Clauses (B), d 1.3.
susceptible to damage, only loss.
364 365
The Inchmaree Clause Covered Perils under the Inchmaree Clause
provided that such loss or damage has not resulted from want of due diligence by 5
In jackson v Mumford, a destroyer was insured 'against fire in shops and on 11.07
the Assured, Owners or Managers. board on stocks, trials and all marine risks to complerion and acceptance by
The presence of the 'due diligence' proviso distinguishes rhe perils covered under the the Admiralry'. The policy also contained an Inchmaree clause. During trials,
the connecting-rod in the engine broke so that the piston-rod flew up against the
Inchmaree clause from the 'stricr liabiliry' marine perils discussed in Chapter 10
above, in respect of which the cover provided is subject ro no such qualification. cylinder cover resulting in a large escape of sream. Kennedy J held that, in the
context of the policy, 'trials' constituted a risk that covered the casualry.' How-
ever, he held also that there could have been no recovery under the Inchmaree
Covered Perils under the Inchmaree Clause clause on the basis that the cause of the loss was a weakness of design. According
ro Kennedy J, a businessman, reading a commercial document, would not
Bursting of Boilers, Breakage of Shafts, and Latent Defects in the associate design defects with rhe phrase 'latent defect'. 7 That phrase did not
cover 'the erroneous judgment of the designer as ro the effect of the strain which
Machinery or Hull
his machinery will have ro resist, the machinery itself being faultless, the work-
The cover provided in respect of burst boilers, broken shafts, and latent defects raises both manship faultless, and the consttuction precisely thar which the designer
issues of definition, such as what is a defect and when is it latent, and also the intended ir ro be'. 8
question ofthe extent to which cover is confined ro consequential loss as opposed jackson v Mumford was considered by Robert Goff J in The Caribbean Sea" The 11.08
to replacement of the boiler or shaft or curing of the latent defect. design of the vessel in question involved the use of a particular sort of welding
that proved subsequently to lead ro a loss of farigue strengrh and the gradual
'Shafts' development of fatigue cracks. These led ultimately ro rapid crack growth and a
The term 'shaft' received a restrictive interpretation in jackson v Mumford.' According ro fracrure in a pipe through which water entered the engine room, resulting in the
the evidence adduced in that case, in the language of engineers connecting-rods sinking of the vessel. The underwriters were held liable under rhe Inchmaree
and shafts are always distinguished, their common functions of clause. Robert Goff] reasoned as follows: 10
the transmission of power being effected through strains of an essentially differ-ent
It is important to appreciate that a defect of design may be relevant in more than
character, and Kennedy J duly held that the reference to shafts in the Inchmaree
one way. It may, for example, in due time result in a defect (eg a crack) in the
clause should not exrend to connecting rods. In the absenclof
material from which the hull or machinery is constructed, which in its turn may
authoriry, it might be questionable ro what extent the linguistic usage of engin-eers cause a casualty. On the other hand, it may, because the ship is subjected to work
affords reliable evidence of the intended scope of cover under a contract between for which it is (by reason of the defect in design) inadequate, result in a casualty
two parties neither of whom is an engineer. It is, however, to be assumed that without any determinate intermediate defect developing in the material, to which
parties roday contract on the basis of the interpretation espoused the casualty can be attributed as the proximate cause. Furthermore, in considering
whether there was a defect in the hull or machinery which ditectly caused the loss
in jackson.
of or damage to the ship, one is concerned with the actual state of the hull or
machinery and not with the historical reason why it has come about that the hull or
'Latent defect' machinery is in that state. If the hull or machinery is in such a state that there can
The expression 'latent defect' invites enquiry both as to the nature of a 'defect' and the properly be said to be a defect in it, and such a defect is the proximate cause of the
appropriate test for determining whether a defect is latent. casualty, it would seem to matter not that it had come into existence by virtue of
(for example) poor design, or poor construction, or poor repair, unless a casualty
'Defect' The case law excludes design defects from the concept of latent 'defect' as so caused is excluded from the cover ...
employed in the Inchmaree clause. A hull and machinery underwrirer offers cover
against accidental loss and damage rather than a guarantee of fitness
for purpose of the insured vessel.
s (1902) 8 Com Cas 61.
6 The unsuccessful appeal was confined to this holding: (1904) 9 Com Cas 114.
7 (1902) 8 Com Cas 61. 68. 8 ibid 69.
Prudent Tankers Ltd SA v Dominion Imurance Co Ltd (The Caribbean Sea) [1980J 1 Lloyd's
, (1902) 8 Com Cas 61, 70.
Rep 338.
ibid 345-6.
366
367
The fundamental point is that the Inchmaree clause covers loss of or damage to the correctly according to its design specification bur occasions damage because it
insured vessel where the proximate cause of the loss is a latent defect, is unsuitable for the purpose ascribed to it by rhe design.
tegardless of how the latent defect was produced. There is no exclusion in
A defect must also be disringuished from a generally weakened state resulting 11.12
respect oflatent defects caused by design defects. Provided ir can be said thar
from gradual deterioration by reason of ordinary wear and tear.'4 Moreover, the
the insured vessel sustained a latent defect and that the latent defect caused the
opinion has also been expressed that a latent 'defect' must be present at or
loss, the requirements of the clause for the assured to recovet are fulfilled.
originate from the construction of the vessel, the installation of the relevant
In jackson v Mumford, Kennedy J stated that 'the phrase "defect in machinery" in a part, or the carrying our of some maintenance work. Where, accordingly, a
business document means a defect of material, in respect either of its original vessel develops a weakness by reason, for example, of an accidental grounding
composition or in respect of its original or after-acquired condition'." This does not and such weakness subsequently results in damage, the assured may not recover
exclude a defect of material in its after-acquired condirion result-ing from a defect under the Inchmaree clause."
in design (as in The Caribbean Sea). Thus, if the defect in design causes the loss
'Latent' In jackson v Mumford, 16 Kennedy J expressed the view that the mean- 11.13
directly, the assured is not covered. If the defect in design causes a defect in the
ing of the term 'latent' might vary with the circumstances of the case, such as
material from which the hull or machinety is constructed, which in turn causes the
'the legal duty and the means of knowledge for which the owner or the user of it
loss, the underwriter is liable. However, Robert GoffJ
ought in the particular case ro be held responsible'. In The Caribbean Sea, 17
expressed misgivings concerning the view of the scope of the term 'defect'
Robert Goff J rejected a submission that latent should be equated with not
expressed by Kennedy J. If machinery were perfectly constructed but wrongly discoverable by any known and cusromary test,18 preferring to define it as not
assembled, in the opinion of Robert Goff J, there would be a defect in the detectable 'on such an examination as a reasonably careful skilled man would
machinery" Nevertheless, he conceded: 'However, if the machinery were so make' ,19 Such an interpretation was 'more in accordance with commercial sense,
designed or constructed that a particular piece was inadequate for the ordinary
taldng into account as it does the possibility that a ship may be properly and
tasks for which the ship was designed ... it may be that the inadequacy of the
carefully maintained and yet a defect may not be discovered although a more
particular part would constitute a shortcoming of, rather than a defect in, the
machinery. This appeats to have been the conclusion of Mr Justice Kennedy in meticulous examination would have revealed its existence: a casualty caused by
jackson v Mumford . . .' such a defect is surely covered by the Inchmaree clause'. 20 The question of
whether a defect is latent then becomes synonymous with the exercise of due
The twO cases, therefore, establish the following propositions. Where the IDSS is caused diligence by the assured under the due diligence proviso to the Inchmaree
by a latent construction defect, the assured may recover under the Inchmaree clause,21 although the incidence of the burden of proof may vary. An assured
clause. Where the loss is attributable to a design defect, one must determine alleging a latent defect will have ro establish its latent nature, while the insurer
whether the design defect in turn caused a defect in material that in law may be
regarded as a proximate cause of the 10ss,13 or whether the design defect resulted
in a mere shortcoming in the vessel that is not susceptible of characterization as a Sipowicz v Wimble (The Green Lion) [197411 Lloyd's Rep 593, 598.
defect. In the former case, the assured may recover, but not in the latrer. There is a Houghton (RA) (} Mancon Ltd v Sunderland Marine Mutual Insurance Co Ltd (The
mere shortcoming where the hull or machinery functions Ny-Eeasteyr) [1988] 1 Lloyd's Rep 60, 63-
4. 16 (1902) 8 Com Cas 61, 69.
H [1980] 1 Lloyd's Rep 338.
18 The test adopted by the New York Supreme Court, Appellate Division in Parente v
" (1902) 8 Com Cas 61, 69. Bayville Marine Insurance (1975] 1 Lloyd's Rep 333, rejecting the argument that latent
12 It is in fact unclear whether Kennedy Jwould exclude poor assembly from the concept of a meant simply not discoverable through ordinary use and maintenance,
defect. It would not fall within the definition as cited earlier in this paragraph, but where the [1980] 1 Lloyd's Rep 338, 348-9.
assembly was not as contemplated by the designer the resultant state of affairs would not fall ibid 348. See also Charles Brown 6'Co Ltd v Nitrate Producers' Steamship Co Ltd (1937) 58
within the description of a design defect given earlier in his judgment: see 11.07 above. LlLRep 188 (bill oflading): Sipowicz v Wimble (Tbe Green Lion) 11974] 1 Lloyd's Rep 593. The test
13 The judgment of Robert ,Goff J refers to an intermediate defect that operates as 'the' propounded by Robert Goff Jwas accepted by both sides in Houghton (RA) 6'Mancon Ltd v
proximate cause of the loss, It is, however, suggested that, where a vessel sinks because of a Sunderland Marine Mutua/lmurance Co Ltd (The Ny-Etasteyr) [19881 1 Lloyd's Rep 60. For
latent defect that developed by reason of a design defect, both the design and latent defects United States jurisprudence, see generally Tetreault, 'The Hull Policy: The Inchmaree Clause'
could be correctly characterized as proximate causes, The original design defect operates (1%7) 41 Tnl LR 323, 336-8.
through the latent defect, but, as Robert Goff Jpoints out, its status as a proximate cause is 21 Charles Brown & Co Ltd v Nitrate Producers'Steamship Co Ltd (1937) 58 L1LRep 188. See
irrefevant in the absence of an appropriately worded policy limitation, further 11.66ffbelow.
368 369
should shoulder the onus of demonstrating absence of due diligence under the ~he structure occurs. It will be appreciated that the presence of a fatigue crack will
• 22 Itself concentrate stresses at its tip and thereby lead to an extension of that crack
provIsO.
u~less and until those stresses are relieved. Similarly the presence of a fatigue crack
WIll weaken the structure and therefore tend to cause' other fractures or failures of
Requirement ofconsequential loss or damage the structure.
The Inchmaree clause is not designed to provide insurance against the bursting of a
Nter the Nukila had been in service for about four years, a routine inspection 11.17
boiler, the breaking of a shaft, or the existence of a latent defect. The insurance
covers 'loss of or damage to the subject"matter insured caused by' a revealed that cracks extending most of the way around the legs had developed in
the welding and that the cracking had spread into both the legs and spud cans.
burst boiler, broken shaft, or latent defect. Consequently, if all that happens is
that a boiler bursts, a shaft breaks, or a latent defect is discovered, insurers On the facts, the Court of Appeal had little hesitation in holding undetwriters
liable under the Inchmaree clause. In doing so, the Court of Appeal rejected
incur no liability. For the assured to have a claim, the casualty must cause
the argument that a latent defect could be said to have damaged the insured
consequential loss or damage."
property only if it had caused damage to a different 'part' of the property from
In the latent defect case of The Nukila,24 Hobhouse LJ suggested that recovery that containing the defect. This restriction had no basis in the wording of
depended upon a positive answer to the following three questions: '(1) Was the Inchmaree clause and introduced fresh uncertainty in identifying what
there damage to the subject"matter insured? (2) Did that damage occur during would be regarded as a separate part of the insured structure.
the period covered by the policy? (3) Was that damage caused by a latent defect
in the machinery or hull of the vessel?' The same approach applies to the The Court of Appeal did acknowledge the potential for evidential difficulty in 11.18
bursting of boilers and breaking of shafts. determining whether a la~ent defect had progressed so as to have occasioned
damage. According to Hobhouse LJ:" 'There is potentially a factual problem
11.16 Damage With respect to latent defects, a line has to be drawn between a previ" involved in distinguishing between an embryonic fatigue crack as a latent defect
ously latent defect simply becoming patent and the defect operating upon the and a system of cracking of such magnitude and severity that it significantly
insured property so as to occasion damage to it. The Nukild-' itself concerned a weakens the integrity or tensile or shear strength of the structure of the vessel
mobile accommodation and work platform that, when in position, stood on .. . it must, at least in part, be a question of degree.'
three legs. The foot of each leg passed through a square steel box, known as a
'spud can'. These boxes prevented the platform from sinking into the soft A contrast may be drawn between the damage clearly present on the facts of The 11.19
seabed where it was used. Unfortunately, the welding that attached the top Nukila and the facts of earlier latent defect cases. In Hutchins Bros v Royal
plates of the spud cans to the legs was not properly profiled when the platform Exchange Corp,28 it was discovered that the stern frame of a vessel had not been
was built. The result was an excessive concentration of stress on the inetal and properly cast and required replacement. While the frame was clearly defective,
the development of metal fatigue. The progressive nature of the impact of metal its condition had not altered while the vessel had been in service. Consequently,
fatigue was described by Hobhouse LJ as follows:" all that had happened was that the concealed defect in casting had become
apparent and undetwriters were not liable. In Scindia Steamships (London) Ltd v
Metal fatigue starts with microscopic changes in the structure of the metal which London Assurance,29 a propeller shaft broke because of a latent defect in the shaft.
lead to the formation of minute cracks which then grow in size. As they develop
Branson J held that the underwriters were not liable for the cost of a replace"
over time these fatigue cracks progressively become more detectable, initially by
scientific investigation and eventually by the naked eye. Assuming that the cycles of
ment shaft. First, the Inchmaree clause did not cover broken shafts but damage
stress continue and that the process ofcracking does not itself relieve the stress, the consequential upon the breaking of a shaft. Secondly, the broken shaft could not
fatigue crack will continue to grow until the metal shears or some other failure of be regarded as damage to the insured property consequential upon the breakage
of the shaft itself. Thirdly, by parallel reasoning, the assured could not recover
under the head of latent defect. The breaking of the shaft was merely the
manifestation of the previously latent defect. If underwriters were not liable for
22 But see further 11.71 below on the burden of proof under the due diligence proviso.
23 Compare the requirement -'ofconsequential damage in product liability insurance: Rodan
International Ltd v Commercial Union Assurance Co pic (1999J Lloyd's Rep IR495; Pilkington
27 ibid 156. See also at 151, 157 (Ward L]: 'Where the line is to be drawn is a matter of fact
United Kingdom Ltd v CGU Imurance pic [20041 EWCA Clv 23, [2004J Lloyd's Rep lR and degree').
891. 28 [1911J 2 KB 398. 29 [1937J 1 KB 639.
" Promet Engineering (Singapore) Pte Ltd v Sturge (The Nukila) [1997J 2 Lloyd's Rep 146, 157.
2S [1997J 2 !.loyd's Rep 146. 26 ibid 149.
371
370
The Inchmaree Clause examination, it makes no sense for underwriters to become liable if the flaw is
revealed through fracture of the defective shaft in the course of a routine
operation.
In The Nukila,30 it was sought ro mal<e inroads on the need for damage by arguing
that the imminenr risk of damage sufficed. The argument was, however,
rejected. Actual damage is required: 'damage is physical damage which has
occurred'.31
11.21 Timing of the damage Not only must there be damage to the insured prop-erty, but
that damage must have occurred during the period when the insurer was on risk. In
The Nukila,32 Hobhouse LJ developed this point in the context oflatent defects:
A policy of insurance does not cover matters which already exist at the date when
the policy attaches. The assured if he is to recover an indemnity has to show that
some loss or damage has occurred during the period covered by the policy. If a
latent defect has existed at the commencement of the period and all that has
happened is that the assured has discovered the existence of that latent defect
then there has been no loss under the policy. The vessel is in the same
condition as it was at the commencement of the period.
Timing of damage may well present difficulty, especially in the context of latent
defects. 33 Three problematic factual possibilities may be envisaged. First, the
damage may already have been inflicted by the time risk incepts. Secondly, the
threshold for characterization of the impact of a defect as damage may/be
crossed after risk terminates. Thirdly, damage may be occasioned on a progres-
sive basis, over a period of time spanning two or more insurance policies. In each
case, insurers are liable only for such damage as the assured can prove on a balance
of probability was caused during the period when the insurers were on risk. In the
third situation, in order successfully to claim under anyone policy, the assured will
have to be able to prove the extent of damage sustained during the period of cover
of that policy. If the assured is unable to establish apportionment to the required
standard of proof, the assured will recover nothing."
11.23 An example of the first situation is provided by Oceanic Steamship Co v Faber.35
30 [1997J 2 Lloyd's Rep 146.

In the context of burst boilers and broken shafts, it is more likely that consequential damage will
occur immediately or within a shorr time of the bursting or breaking.
[-l989] 2 Lloyd's Rep 333, see 7.53 above.
35 (1906) 11 Com Cas 179, affd (1907) 13 Com Cas 28.
372
the cost of curing a defect in the form of a flaw in a shaft that has occasioned
no consequential damage to the insured structure if rhat flaw is discovered by
Covered Perils under the Inchmaree Clause
The policy attached in May 1902. In October 1902, a routine examination

.revealed a surface crack in a shaft. It transpired that this was caused by defective work
carried out eleven years previously. There was no evidence of any change in condition
of the shaft since inception of risk. It was held rhat there was no consequential damage
at all: 'The crack which is the damage is really nothing but the development of the
flaw-that is, of the latent defect itself and nothing more; a latent defect becoming patent
is all that has happened.''' However, even if that were wrong and the crack was to be
regarded as consequential damage, no such damage had been occasioned while the
insurers were on risk. The trigger to liability under the Inchmaree clause was not the
finding of a latent defect during the period of cover bur the occasioning of loss or
damage during that time." In The Nukila," in contrast, the assured was able to establish
that the cracking that necessitated the repairs occurred between the inception of
risk in September
1986 and the discovery of the damage in February 1987.
Causation In accordauce with the normal understanding of insurauce con- 11.24
tracts, the burst boiler, brokeu shaft, or latent defect must be the proximate
cause of the loss. As established in The Caribbean Sea,39 provided that anyone of
the three perils can properiy be characterized as the, or a, proximate cause of the
loss or damage, ir does not marter how that peril came about unless an express
policy term renders that origin of significance.
(d) Measure ofindemnity

Just as no claim may be made under the Inchmaree clause in respect of a burst 11.25
boiler, broken shaft, or latent defect in the absence of consequential damage to
the insured property, so the measure of indemnity is confined, subject to con-
trary intention, to the consequential loss. Clearly, where the property is totally
lost, the assured recovers in respect of the entire property. Where, however, the
insured property is merely damaged, the assured is prima facie entitled to be
indemnified only in respect of the consequential damage and not in respect of
the boiler, shaft, or defect that caused the damage. Thus, in Wills & Sons v
World Marine Insurance Ltd,40 the assured recovered for damage to a dredging
ladder occasioned by a latent defect in the dredger chain for hoisting the ladder, but
not the cost of replacing the chain itself Likewise, in Scindia Steamships
(London) Ltd v London Assurance,41 the breaking of a shaft caused a propeller to
fall to the bottom of a dock and one ofthe propeller blades to break off. Liability
(1906) 11 Com Cas 179, 186.

ibid 188. See also the discussion of Scindia Steamships (London) Ltd v London Assurance
[1937J 1 KB 639 in Promet Engineering (Singapore) Pte Ltd vSmrge (The Nukila) [1997J 2 Lloyd's
Rep 146, 156.
38 ibid 150. 39 [1980J 1 Lloyd's Rep 338, see 11.08-11.09 above.
'0 (1911) [1980J 1 Lloyd's Rep 350n. 41 [193711 KB 639.
373
was admitted with respect ro the propeller but successfully resisted with respect (2) Negligence
ro the shaft. .Marine insurance law responds to casualties occasioned by negligence in two 11.29
Some difficulty arises, however, where the only way to repair the consequential damage ways. On the one hand, section 55(2)(a) of the Marine Insurance Act 1906
involves curing the defect or, factually less likely, replacing the shaft or boiler that denies the insurer any defence on the basis of negligence on the part of
caused it. Are insurers liable for the full COSt of repair or only for such cost as is the master or crew. On the other hand, the negligence of specified persons
attributable solely ro the consequential loss, namely that part of the cost that constitutes a covered peril in its own right under the Inchmaree clause.
exceeds the cost of repairing the defect or replacing the shaft or boiler had there
been no consequential loss? The Institute hull clauses do not address the issue (aJ No defence ofoperational negligence ofthe master or crew
specifically. In The Nukila,42 the assureds claimed and recovered the full COSt of The issue of negligence of the master or crew in the conduct of their duties in 11.30
the repairs, although no objection was raised in the litigation on the basis that this the course of the insured adventure, here referred ro as 'operational negligence',
sum represented in part the cost of curing the defective welding. arose in the first half ~f the nineteenth century. Where the policy did not
expressly cover negligence and a specified peril was occasioned by the negligence
Subsequently, on the introduction of the International Hull Clauses (01/1 1/ 02), the of the master or crew, it was argued that the underwriters were not liable. Such
opportunity was taken to provide expressly that insurers' liability excluded the a contention was invariably unsuccessful, being refuted by two different
cost of repairing or replacing the burst boiler or broken shaft or
arguments.
correcting the latent defect." However, while insurers may have believed that
this merely reaffirmed the position as they had undersrood it to be all along, it First, the policies in question covered perils of the sea and barratry, the latter 11.31
proved commercially contentious. Consequently, under the International Hull embracing fraudulent cond~ct of the master or crew to the prejudice of the
Clauses (01/11/03), insurers also accept liability for one-half of any costs shipowner.46 Given that it was the express intention of the parties that the
common ro, on the one hand, repairing or replacing the burst boiler or broken underwriters accept both the risk of specified perils if occurring without any
shaft or correcting rhe latent defect and, on the other hand, repairing the fault of the master or crew and also the risk of fraud on their part (the highest
consequential damage.
44 species of misconduct), exonerating the underwriters in the case of the inter-
mediare category of a peril produced by the negligence of the master and crew
(eJ 'Additional perils' cover was contrary to the evident contractual intention to place on the underwriters
In return for an additional premium, cover under the International Hull Clauses the risk of all inappropriate conduct of the master or crew. 47 Secondly, neg-
(01/11/03) can be extended via the 'Additional Perils' clause ro cover that part of ligence was classified as a remote, and rherefore legally irrelevant, cause-'the
the loss sustained where a burst boiler, broken shaft, or latent defect'occasions underwriters are liable for a loss, the proximate cause of which is one of the
consequential damage ro the insured property that is not covered under the enumerated risks, though the remote cause may be traced to the negligence of
Inchmaree clause. This extension embraces, first, the costs attributable purely ro the master and mariners' .48
replacing ot repairing the boilet or shaft or correcting the latent defect and,
The remote cause approach ro negligence was alive towards the end of the 11.32
secondly, the remaining one-half of the costs common to, on the one hand,
nineteenth century. In The Xantho,49 Lord Herschell opined: 'If that which
replacing or repairing the boiler of shaft or correcting the latent defect and, on
immediately caused the loss was a peril of the sea, it matters not how it was induced,
the other hand, repairing the consequential damage. This cover is expressed to be
even if it were by the negligence of those navigating the vessel.' Accotd-
subject ro the same due diligence proviso as applies to the Inchmaree clause. 45
ing ro AL Smith LJ in Trinder, Anderson 6- Co v Thames 6- Mersey Marine
[19971 2 Lloyd's Rep 146.

International Hull Clauses (01/11/02), dI2.2.1, 2.2.2. The peril of barratry is discussed at 11.41ffbe1ow,
International Hull Clauses (01/11/03), cIl2.3, 2.4. V0l1ker v Maitland (1821) 5 B & Ald 171.
International Hull Clauses·{01l11/03), d 41. For the corresponding extension of cover for Bishop v Pentland (1827) 7 B & Ct 219, 223 per Bayley J. See also Bask v Royal Exchange
the Institute hull clauses, see the Institute Additional Perils Clauses-Hulls (1/10183 and 1/11/ 95). (1818) 2 B &Ald 73 (fire); Walker vMaitland(l821) 5 B &A1d 171 (perils of the sea); Redman v
No cover is provided in respect of design or c?nstruction defects in the absence of consequen~ W1hon (1845) 14 M & W 476 (perils of the sea).
rial loss or damage. See also the International HuH Clauses (01/11/02), d 4L The due 49 Thomas Wihon, Sons &Co 0 Owners ofthe Cargo per the Xantho (The Mntho) (1887) 12
diligence proviso is discussed at 11.66ffbelow. App Cas 503, 510.
374 375
it is discounred by a separate rule arriculated by section 55(2)(a), but because it

Insurance Co:50 'It cannot be doubted that a policy upon ship covering perils of
the sea covers a loss brought about by the negligenr navigation of the captain and forms parr of the risks the insurer has agreed to cover.
crew, if the loss is immediately caused by a peril of the sea.' A peril would not Originally, the insurers' assumption of the risk of operational negligence was 11.36
cease ro be a peril of the sea merely because brought about by negligenr
conditional upon the owner or charrerer properly equipping the vessel at the
navigation.
outset, including procuring a competent master and crew. As Parke B observed
This line of authority forms the basis of that part of section 55(2)(a) of the Marine in Dixon v Sadler. 53
Insurance Act 1906, which provides that, subject ro the terms of rhe policy, the The great principle ... is that, if the vessel, crew, and equipmenrs be originally
insurer 'is liable for any loss proximately caused by a peril insured against, even sufficient, the assured has done all that he contracted to do, and is not responsible
though the loss would not have happened but for the misconduct or negligence of for subsequent deficiency occasioned by any neglect or misconduct of the master
the master or crew'. The absence of an operational negligence defence is therefore or crew; and this principle prevents many nice and difficult inquiries, and causes a
clear, but the approach ro negligence as a causal factor requires reassessmenr ~ore complete indemnity to the assured, which is the object of the contract of
against the modern approach to proximity of causarion. 51 lilsurance.
This translated, in terms of legal principle, inro a trade-off between the

The causal significance of negligence depends ultimately on rhe peril in issue. In the
requirement of seaworthiness of a vessel at the commencemenr of the voyage
context of a claim for a loss by perils of the sea, it is never sufficient to asserr that
the vessel was lost because it sank; one has to enquire why it sank. Where a vessel and the lack of a defence of operational negligence of the master and crew. In
is scuttled, the proximate cause is deliberate sinking, even if the immediate cause the modern conrext, however, the developmenr of the law of unseaworrhiness
renders this trade-off largely illusory. Since the vast majority of vessels are
is an incursion of water.52 If the answer is negligenr navigation, the
insured under time policies, -in which context the insurers' unseaworthiness
modern law requires the negligence to feature as parr of the proximate cause in
defence is largely impotent, the lack of any defence of operational negligence is
order ro provide the essential elemenr of fortuity. In contrast, the peril of fire is
better seen as a simple allocation of risk rather than as part of any realistic
construed as covering all fires, whether starred accidenrally, negligently, or
bargain of responsibility for seaworthiness in return for assumption of risk.
deliberately. Since the contract does not distinguish between different types of fire,
the cause of the fire has no conrractual significance, the only causal question the (b) Negligence as a coveredperil
contract asks is whether the loss or damage was caused by fire, and any negligence
Negligence may give rise to a casualty without the other causative factors consti- 11.37
that gave rise to the insured peril of fire has no relevance in -the contractual
tuting an insured peril. In such a case, the question is whether the negligence is
context.
itself a covered peril. Under the Inchmaree clause, cover is afforded against loss
The better approach to modern insurance contracts, therefore, is that, depend-ing on the or damage caused by negligence of the master, officers, or crew of the insured
definition of the relevant peril, negligence is either part of the insured peril or the vessel, a pilot, and repairers or charterers provided they are not an assured under
peril operates irrespective of negligence. Against such analysis, the denial in the policy. Under the Additional Perils clause, however, cover may be exrended
section 55(2)(a) of any defence based on the negligence of the master and crew has to include loss or damage'caused by any accident or by negligence, incompetence
no role independent of the definition of insured perils. Where negligent navigation or error of judgment of any person whatsoever'. 54
causes the ship to collide with another object and sustain damage, the better
The exclusion from cover under the Inchmaree clause of repairers and charterers 11.38
modern analysis is not that the vessel sustained loss by an insured peril of the sea
who are co-assureds reflects the wish of insurers to preserve the right to seek
in the form of the collision and, thus, the insurer is liable, even though the insured
recoupment of moneys paid out by way of indemnification. By virtue of the
peril would not have occurred but for operational negligence. The collision is not a
doctrine of subrogation, the insurer can exercise the assured's legal rights against
peril of the sea in the first place unless it
occurred fortuitously. The negligence supplies the fortuity and constitutes part of
the operative peril. Operational negligence provides no defence, not because
" (1839) 5 M &W 405,415; Walker v Maitland (1821) 5 B & AId 171, 175.176; Shore v
Bentall (1828) 7 B & C 798(b). See also Tilit v Levi (1811) 14 East 481 (breacb of implied
warranty that the master was reasonably competent for the insured adventure).
so [189812 QB 114.123. " See Ch 9 above, esp 9.17-9.18. 54 Institute Additional Perils Clauses-Hulls 0110/83 and 1/11/95), d 1.2; International Hull
" SamuellP) & Co Ltd v Dumas [1924J AC 431. 448. Clauses (01111/03). cl41.1.3.
376 377
third parries responsible for the loss. Subrogation is, however, unavailable where Donegal." Freight insured under a policy incorporating the Institute Voyage
the third parry is a co-assured under the policy. 55 In such a case, therefore, cover is .Clauses Freight (1/8/89) was lost by reason of a major engine failure, the
denied. Incorporation of rhe Addirional Perils clause would, however, override this proximate cause of which was held to be the negligence of the master and
exclusion. engineering officers in dealing with problems associated with the vessel's
turbocharger. Such negligence was a covered peril under the Inchmaree clause.
11.39 Case law examples of the negligence peril in the Inchmaree clause are rare. In The
Lapwing," a vessel had been negligently berrhed. Hodson J held the insurers to be Where a dury ro exercise reasonable care to avert or minimize a loss is broken, 11.42
liable for a loss caused by a peril of the sea, bur added that the claimant succeeded rhe negligent actor may be a parry specified in the Inchmaree clause. In such a
also under the Inchmaree clause in respecr of the loss caused by the master's case, provided rhe negligence can be properly characterized as the, or a, proximate
negligence 'whether or not the damage was due to a marine peril'." In Lind v cause of the loss, the assured can recover under the Inchmaree clause. The
Mitchel!58 a vessel damaged by ice was set on fire in order to sink it and prevent specific negligence cover prevails over the insurer's defence under any statutory
it from becoming a danger to shipping. This action was held to be premature and or contractual duty to exercise reasonable care to avert or minimize 10ss.63
negligent. The Courr ofAppeal held that the underwriters should pay for a loss by
perils of the sea. The impact with ice was a forruirous event and the vessel was (3) Barratry of Masters, Officers, or Crew
raking in warer and eventually sank because of the inflow ofwater. That the loss
This peril covers any fraudulent or criminal conduct by the specified persons to 11.43
could have been prevented was rendered irrelevant by section 55(2)(a) of rhe
rhe prejudice of the owner of a ship. In particular, it embraces the scuttling of a
Marine Insurance Act 1906, which required the courr ro disregard the negligence
vessel, an event excluded from perils of the sea.
enrirely. Scrutton LJ, however, added as follows: S9 'Now if it were true-and I do
not think it is-thar under the existing law bur for [the Inchmaree] clause you would (a) Prejudice
treat the direct cause of the loss as being the premature abandonment and not the 64
Barratry, by definition, can be committed only against an owner of rhe vessel: 11.44
entry of sea warer from a previously existing peril, in my view that clause requires
'Barratry necessarily involves a damnification of the shipowner whether he or
the underwriters to pay where the negligence of the master has caused the loss of
someone else is the person insured under the policy sued upon.'65 Consequently,
the ship.'
a shipowner who is a parry to the fraud cannot recover under the heading of
As suggested above,'o the primary approach adopted is inconsistent with House of Lords barratty, not only because of the insurer's wilful misconduct defence,66 but also
aurhoriry on rhe meaning of proximate cause. Secrion 55(2)(a) is no because there has been no battatry. The position is the same where the maSter
licence to disregard negligence where ir constitutes the proximate cause of loss. If has acted on the instructions of the owner's agent. 67 The absence of the peril is
the negligence of the master and crew between the ice and the sinking quali-fies as fatal also to an innocent mortgagee that has insured its mortgagee's interest
ar least a proximate cause of loss, the question is whether a sinking caused by under a policy incorporating standard clauses for the insuring of hulls." The
negligence is covered by the policy. However, the obiter dictum of Scrutton LJ same point has been made in the context of old form cargo insurance:
does support a sphere of applicabiliry for the Inchmaree clause independent of
enumerared marine perils."
62 Project Asia Line Inc v Shorle (The Pride ofDonegaO [20021 EWHC 24 (Comm), [2002J
11.41 A prime example of negligence as a covered peril is provided by The Pride of 1 Lloyd's Rep 659. paras 50-51.
63 S'ate of'he Netherlands v Youeli [19981 I Lloyd's Rep 236. See further 24.19-24.24 below.
64 Nutt v Bourdieu (1786) 1 TR 323; Shell International Petroleum Co Ltd v Gibbs (The Salem)
[1983] 2 AC 375, 391. It cannot be committed against cargo owners: Rickards v Forestal Land,
ss See 25.27-25.35 below. 56 Baxendale v Fane (The Lapwing) [1940J P 112. limber & Railways Co L,d [1940J 4 All ER 96.
S' ibid 123. 58 (1928) 45 TLR 54. 59 ibid 57. 6S Shell Interna'ionai Petroleum Co L,d v Gibbs (The Salem) [1982J QB 946, 959 per Mustill].
See 11.33-11.35 above. " MIA 1906, S 55(2)(a), discussed at 15.lOffbeiow.
See also 7ttnner v Bennett (1825) Ry & Mood 182 (negligent act of the owner's agents 67 Hobbs v Hannam (1811) 3 Camp 93; Commercial Trading Co v Hartford Fire Insurance CO
constituted the proximate cause of a loss, albeit to break the chain of causation and exonerate the [1974J 1 L1oyd's Rep 179.
underwriters); Rosa v Insurance-·eo a/the State o/Pennsylvania (The Belle o/Portugal) [1970] 2 68 Scuttling is not a peril of the sea at common law: Samuel (P) 6- Co Ltd v Dumas [1924] AC 431,
Lloyd's Rep 386 (skiff used for abandonillg ship damaged allegedly by negligence of the crew of discussed at 10.16 above. The Institute and International hull clauses do not contain any contrary
the rescuing vessel); Capital Coastal Shipping Corp v Hartford Fire Insurance Co (The Cristie) provision, but special Institute Mortgagees Interest Clauses Hulls (1/3/97) afford cover against scuttling
[1975J 2 Uoyd's Rep 100 (claim that loss was caused by master's negligence<defeated by provided the assured is not privy thereto. See also Shell International Petroleum Co
breach of warranty). Ltd v Gibbs (The Salem) [I9831 2 AC 375, 391 on the old Institute catgo clauses.
378 379
Barratry is an act of fraud not directed against the owner of the goods which of barratry. This issue of attribution of knowledge occurs in a number of con-
a.re lost, but a fraud against the owner of the ship; and, however innocent
textS and is discussed elsewhere. 74
may be the owner of the goods, who seeks to recover against the underwriter,
yet, if the owner of the ship concurs in the act which caused the loss. it takes The conduct of a master who is the owner of the vessel cannot constitute 11.48
from it the character of barratry; for the very definition of barratry is, a
barratry, as one cannot commit a fraud upon oneself. Neverrheless, a master
fraud by the master and mariners against the owner of the ship.69
who is only a part-owner can perpetrate a fraud upon the other part-owners who
Today, however, a cargo owner can recover under the modern Institute Cargo can recover for barratry.75 Similarly, a conspiracy between the master and one
Clauses (A) for loss of or damage to cargo caused by scuttling of the carrying vessel part-owner can be barratrous as against the other owners. 76 An undelwriter who
by its master or crew with the compliciry of the shipowner, since the cover is not wishes to dispute a daim of loss by barratry on the basis of rhe master's owner-ship
confined to a list of specified perils including barratry and there is no of the vessel must so prove; an assured claiming for barratry is not required to
relevant exclusion. 70 adduce evidence ofthe vessel's ownership. 77 That the master is also a supercargo
is no bar to barratrous conduct. 78
11.45 Bartatry is excluded by knowledge on the patt of the assured or its agent even in the
absence of active consent to the relevant acts. In Grauds v Dearsley,71 Mrs The issue ofwho is an owner for the purposes of barratly has been raised also in 11.49
Gtauds, the registeted owner ofa vessel, had a purely nominal interest while her the contexr of mortgages and charterparties. As barratry is a breach of duty,
husband exercised all effective control. When the vessel was scuttled on his it cannot, in general, be committed against a mortgagee because a master's
instructions, it was held that the delegation of responsibiliry rendered his acts hers obligations are owed to the owners, including the mortgagor, and not to the
and that she could not tteat them as batratrous. Likewise, there will be no barratry mortgagee whose interesr is entirely distinct from that of the mortgagor. Con-
where the master of a ship abandons a voyage in compliance with a government sequently, if the mortgagor is a party to the fraud, the mortgagee will be unable
72
instruction, as the shipowner will be assumed to acquiesce in the master's acts. to recover for barratry. However, in Small v United Kingdom Marine Mutual
Insurance Association," Small lent money to Wilkes, his son-in-law, in order that
Wilkes might purchase a part share in a vessel and become its master, with Small
That failure to prevent barratry may also bar the assured from recovering is a cognate
taking a mortgage on the vessel. The Court ofAppeal held that the realiry of the
principle. In Pipon v Cope,73 a vessel was seized for smuggling on three successive
arrangement was that Wilkes became captain for Small and the other co-owners
voyages. According to Lord Ellenborough, this constituted 'a clear with the consequence thar the subsequent scutrling of the vessel was barratrous as
case of crassa negligentia on the part of the assured. It was the claimant's dUJY to against Small.80
have prevented these repeated acts of smuggling by the crew. By his neglecting to do
so, and allowing the risk to be so monstrously enhanced, the underwriters are discharged'. With respect to charterparties, Schedule 1, rule 11 of the Marine Insurance 11.50 Act
The decision establishes that an assured that turns a Nelsonian blind eye to barratrous 1906 recognizes that barratry may be committed against a charterer, but
misconduct cannot found an insurance claim based on it is dear from the case law that a complete transfer of dominion is required.
such conduct, even in the absence of active condonation. Where there is a simple voyage contract fot the carriage of goods, the
shipowner remains in control of the vessel, hiring out merely space on board
Who is the owner? (locatio operis vehendarum mercium). On the other hand, a charter by demise, or
A determination of whether the owner was complicit in the allegedly barratrous act may bare-boat charter (locatio navis), involves the furnishing of hull, machinery, and
require a consideration of whether the knowledge or conduct of an
agent of the assured is to be attributed to the assured for the purposes of the peril
74 See 4.113-4.116 above. For an example in the context of barratry, see Cornpania Naviera
Martiartu v Royal Exchange Assurance Corp [1923J 1 KB 650.
7S Jones v Nicholson (1854) 10 Exch 28. 76 ibid 37-8.
Ross 0 Hunter (1790) 4 TR 33.
" Soares 0 Thornton (1817) 7 Taunt 627,639-40 per Gibbs q. See also Samuel (P) 6oCo Ltd v Earle v Rowcroft (1806) 8 East 126. A supercargo is someone appointed by a cargo owner
Dumas [19241 AC 431, 463-4: with complete authority, subject to express or implied restriction, regarding the cargo and
On deliberate acts and all risks cover, see further 10.78 -above. every-thing concerning it: Davidson v Gwynne (1810) 12 East 381.
(1935) 51 LlLRep 203, 236. [189712QB311.
Rickards 0 Forestal Land, 11mber & Railways Co [19421 AC 50, 80. As there were twO innocent co~owners who could establish the barratry, it is unclear why it
(1808) 1 Camp 434. was important to ascertain Small's status as an owner for the purposes of barratry.
380 381
equipment, leaving the charterer to crew and supply the ship of which the charterer contract and held that the policy in issue meant the de iure government officially
is regarded as the owner pro hac vice. Today, all forms of charter in common recognized by the United States.84
mercantile use fall into the above two categories. However, a third, intermediate
variant, namely a hiring of the vessel with master and crew (locatio navis et (c) Fraudulent or criminal conduct
operarum magistrl), used also to be frequently employed. In this context, it was a Not every breach of duty by the master that prejudices the shipowner consti- 11.54 tutes
question of fact whether the charterer had sufficient dominion ovet the vessel to be barratry. There must be fraud or criminality: 'The innocent violation ...
the owner pro hac vice for the purposes of barratry. of a blockade or of any law, does not amount to [bartatrous] misconduct; there
must be some wrong act done.''' The master must breach his obligations 'with
In Soares v Thornton," the charterparty gave the shipowner the right to put goods on
that perverseness required to satisfy the ancient characterization of criminal
board for part of the voyage should the charterer not load a full cargo. The
barratty'.86 Accordingly, in the absence of rebuttal evidence, there is no barratry
charterer, however, filled the vessel, as a result of which the shipowner was
where the master of a vessel seized in a blockade ZOne claims to have been driven
precluded from loading any goods and the charterer had the right to require the
into the zone against his will by force of weather. 87 In Bottomley v Bovil!," Abbott
vessel to proceed free of interference to the POrt of destinarion. Consequently, the
subsequent conspiracy of the shipowner and master wilfully to run the ship ashore CJ instructed the juty that a 'mere mistake by the captain as to the meaning of his
instructions, or a misapprehension of the best mode of acting under the instructions
was held to constitute barratty.
and carrying them into effect, would not amount to
However, in The Salem," Mustill] refused to let the operation of the modern law barratry'.
ofbarrarry be shackled by commercial practices of previous centuries. Mod-ern
Deviation from the voyage contemplated by a voyage policy is always against the 11.55
practice may result in a form of charterparty not conferring the same degree of
interest of an insured shipowner as the insurer's liability will automatically be prospectively
dominion as previously. The intermediate form of charterparty developed out of a
discharged." However, unless the deviation be fraudulent, there is
desire for the charterer to have immediate control over his goods without the
no barratry.90 In Roscow v Corson,91 a vessel on a voyage from St Petersburgh to
responsibility of a demise charter. Today, vastly improved communications enable
Liverpool artived at Yarmouth on 15 October in need of repairs. These were
the charterer to exercise the same degree of control without the previous
completed by 25 December, but the captain had gone to see his family in Ireland,
direct authority over the vessel. Although the charterer may give orders to the
where he stayed until February. Eventually the ship sailed again on 13 March, but
master, such instructions 'are essentially directed to the owner, not the master.
the master fraudulently deviated from the original course and sailed to the Azores.
The charterer avails himself of a contractual liberty to insrruct the shipowner's
The insurers argued that, although this deviation constituted bartatry, they were
captain what to do. The latter nevertheless remains the shipowner's captain, not the
already discharged by virtue of the deviation, in the form of delay, at Yarmourh.
charterer's; and his duty to comply with the charterer's instructions is owed to the
The jury, however, found that this delay also constituted barratry, a finding held to
shipowner alone'." Consequently, while the underlying legal principle remains that
be sustained by evidence that the deviation to the Azores was prepared and
a charterer may be an owner pro hac vice, such classification is today highly
effectively commenced during the stay in Ireland. The insurers were therefore
unlikely unless the charter is by demise.
liable. According to Richardson ]: 'The detention at
Public law issues can also impinge on the question of ownership. A decree of
nationalization or a change of government can lead to the question of whether the
owner of the vessel is the old or new regime. Faced with the question of
Republic a/China v National Union Fire Insurance Co o/Pittsburgh (The Hai Hsuan) (1958] 1
whether the regime in Taiwan or Beijing was the government of China, a United Lloyd's Rep 351.
States court observed that the matter was essentially one of interpretation of the Australasian Insurance Co v Jackson (1875) 33 LTNS 286, 287 per Martin C] (Supreme
Court ofNSW); Bradftrd v Levy (1825) Ry & Mood 331.
Commercial Irading Co v Hartford Fire Insurance Co [1974] 1 Lloyd's Rep 179, 182 per
Brown Cj (US Court of Appeals 5th Circuit) (delivery of goods in absence of bills oflading
not barratry in the absence ofany criminal intent to defraud the shipowners).
Everth v Hannam (I815) 6 Taunt 375.
S1 (1817)7 Taunt 627. See also vallejo v Wheeler (1774) 1 Cowp 143: Ross v Hunter (1790) 4 88 (1826) 5 B & C 210, 212. 89 MIA 1906, s 46(1).
TR 33, 38. 90 Stamma v Brown (1743) 2 S" 1173; Phyn v Royal Exchange Assurance Co (1798) 7 TR 505:
" ShellInternalional Petroleum Co Ltd v Gibbs (The Salem) [1982] QB 946, 959-65. Earle v Rowcroji(1806) 8 East 126, 139.
" ibid 964. " (1819) 8 Taunt 684.
382 383
The Inchmaree Clause ': Cot/eret!: Perils'iinaer<ihe,'Inchmaree Clause
'.- i"" ".-. ..•...... -,:,;:; {; i'·i '
Yarmouth, if done in the prosecution of a batratrous act, is part of the barratry, for sufficient evide e of barratry to go t~t~e!1ti.t¥:'T~erF i~ i:wt'gnant evidence that
which the underwriters are liable, and is not a deviation for which they are Brockson was c ncerned with the pri§'crner?'gg, ,,"' c,"' ,J
"",~-=.==....--e".-_=_=-,-...,,,,,,"==~...,,,,,,,'="'''"._')'''==----='''''''''''''''''''''''''~'''''"e="'~="",="""CC·="'·~·';·-":-:'-:-·""":',-·,·:~·;.',
excused. 192
(e) Causation
Barratry can arise in the absence of fraud on the shipowner where the master's conduct is
In Cory & Sons v Burr,'°O a barratrous act of the master of the insured vessel 11.58
flagrantly illegal. In the leading case of Earle v Rowcroft,93 the master traded
(smuggling) caused it to be seized by the Spanish revenue authorities. The
knowingly with the enemy, bur, it was argued, in the belief that he was furthering
assured sought to tecover expenses incurred in obtaining the release of the vessel.
his owner's best interests (in other words, his acts were criminal but not
The policy covered marine risks, including barratly, bur an FC&S clause excluded
fraudulent). Lord Ellenborough had no hesitation in classifYing the master's acts
losses caused by seizure. It was argued that the proximate cause of the loss was
as barratrous:
barratry and that the FC&S clause excluded only losses proximately caused by
.. . it is not for him to judge in cases not intrusted to his discretion, or to suppose seizure. The House of Lords held in favour of the underwriters. The decision must
that he is not breaking the trust reposed in him, but acting meritori~:)llsly, when he be correct. Clearly the FC&S clause extracted from the policy some of the
endeavours to advance the interest of his owners by means which the law forbids,
coverage prima fide conferred. The reason why the vessel was seized was because
and which his owners also must be taken to have forbidden, not only from what
ought to be, and therefore must be presumed to have been, their own sense of of the barratry, which in the light of the modern approach to
public duty, but also from a consideration of the risk and loss likely to follow from proximity of causation,101 must be viewed as at least a proximate cause of the
the use of such means.94 loss. However, withour the seizure there would have been no loss. Consequently,
the exclusion clause then operated to protect the underwriters. Such was the
Likewise, the requisite culpabiliry seems to have been assumed in early cases
reasoning of Lord Blackburn, holding that both barratry and seizure wete prox-
concerning barratry by leaving port either withour leave in breach of an embargo" 102
imate causes. Two members of the House stated, however, that seizure was the
or without paying port fees for which the master was responsible. 96
sole proximate cause. Theit remarks must be put in the context of rhe policy as a
Barratry ofmariners whole, namely that it was the clear intention of the parties that the underwriters
should not be liable for losses caused by seizute, and a seizure, albeit one trig-gered
Few reported instances of barratry involve mariners acting independently of the master.
by barratry, had caused the losses. Nevertheless, Lord Fitzgerald emphatic-ally held
However, not only is the crew legally capable of committing barratry unaided," but
the cause of the loss to be seizure alone. He reasoned as follows: 'The barratry
just one crew member can give rise to the peril. In Hucks v Thornton," Spanish
created a liabiliry to forfeirure or confiscation, but might in itself be quite harmless;
prisoners took over a ship, put ashore the master and all
bur the seizure, which was the effecrive act towards confiscation, and the direct and
crew members except one (a man named Brockson), and escaped with the vessel.
immediate cause of the loss, was not because the act of the master was an act of
The assured claimed for a loss by barratry. Gibbs CJ ruled tha~there was
barratry but that it was a violation of the revenue laws of Spain.'103
92 ibid 688, and see MIA 1906, s 49(1)(g), Where a voyage is illicitly interrupted in order to pursue
Such an approach cannot be sustained. The master's criminal act in violating 11.59 Spanish
the master's own interests, there is barratry from the moment the anchor is dropped: Ross v Hunter revenue laws to the prejudice of the shipowner was a blatant instance of barratry. That
(1790) 4 TR 33. It is irrelevant that the master may intend to benefit both himself and the criminal and barratrous act was clearly a proximate cause of the
shipowner, Moss v Byrom (1795) 6 TR 379, loss. In the absence of a seizure exclusion, it is not credible that the assured would
93 (1806) 8 East 126. " ibid 139.
Robertson v Ewer (1786) 1 TR 127.
have been denied recovery for a loss by barratry. Although the seizure was an
Knight v Cambridge (1724), cited in Stamma v Brown (1743) 2 Str 1173. An extreme essential addition to produce the loss, it cannot be viewed as breaking the
contrast is provided by TOdd v Ritchie (1816) 1 Stark 240, where the master broke the vessel's ceiling
and end bows in order to ensure condemnation. Lord Ellenborough held, however, that: 'In order to
constitute barratry, which is a crime,the captain must be proved to have acted against his better
judgment; as the case stands, there is a whole ocean between you and barratry.' Presum-ably no
evidence had been adduced as to the master's intentions and the court was not prepared to draw any
inference. The decision is quer~ed by Arnould, Law ofMarine Insurance and Average 99 ibid 33. 100 (1883) 8 App Cas 393. 101 See Ch 9 above.
Sit Michael Mustill and J Gilman (Eds) (16th edn, 1981) pata 8ll, n 25. 102Lords Bramwell and Fitzgerald. The Earl of Selborne did not address the question of
97 lOulmin v Inglis (1808) 1 Camp 421 (mutiny of part of the crew). whether barratry could be viewed on the facts as a proximate cause,
98 (1815) Holt 30. 103 (1883) 8 App Cas 393, 406.
384 385
chain of causation. Thus, in Goldschmidt v Whitmore,104 where a vessel was prove one element of the peril alleged to be the proximate cause of the loss. In
captured by an enemy warship while trying barratrously to run a blockade, Lord The Zinovia,108 Bingham J stated persuasively that:
Mansfield had no hesitation in finding that the loss was caused by barratry.'os
To succeed in a claim for loss by any insured peril, it is necessary for an owner to
If seizure was the sole proximare cause of the loss in Cory v Burr, then the prove the loss and its causation by that peril. In barratry this would involve him
proxim-ate cause of criminals being imprisoned is their arrest by the police proving a deliberate casting away and the absence of consent on his parr. In the
rather than their commission of the crimes for which they are imprisoned. absence of suspicious' circumstances, lack of consent might readily be inferred, and
very little in the way of proof might be necessary, but it would still seem to me
Burden ofproof wrong in principle that the onus should be laid on underwriters of disproving an
essential ingredient of the owner's claim.
The issue of burden of proof in the context of barratry is rendered problematic by the fact
that rhe definirion ofrhe peril places in issue a marrer that is generally for the It is suggested that rhe concerns of the Court ofAppeal in Issaias are predicated 11.63 on a
insurer to raise and prove by way of defence. There is no doubt that the burden of false assumption. Pursuing a claim on an insurance policy in respect of
proof lies on the assured to demonstrate that rhe loss of or damage to the insured loss of or damage to the insured vessel in which the assured is complicit is
vessel was caused by fraudulent or criminal conduct of the master or admittedly a criminal matter. However, a finding by a court that a shipowner's
crew. lO' However, barratry also requires absence of compliciry of the shipowner. innocence has not been established on a balance of probabilities in litigation to
Assuming that the assured is the shipowner, which is genetally the case in modern which the shipowner may not be a party'o, is far removed from a finding
named perils insurance that covets barratly, complicity of the assured in procuring beyond reasonable doubt that an owner was guilty of connivance in a scuttling.
the casualty prevents barratry from occurring. While such complicity creates a Moreover, the fact that the complicity of the assured is a matter usually raised
general barrier on recovery, it normally does so through the defence of wilful by way of defence is insufficient of itself to justify dispensing the assured from
misconduct, in respect of which the burden of proof falls on the insurer. This raises bearing the burden of proving an elemenr in the definition of the insured peril.
the question of whether the inclusion in the definition of barratty of Ordinary wear and tear is also a matter normally for the insurer to raise by way
the shipowner's involvement in the casualty places instead a burden on the of defence. Where, however, the peril in question excludes loss by ordinary
assured to adduce evidence of the shipownet's lack of complicity. wear and tear as part of its definition, it is accepted that the evidence adduced
by the assured must enable the court to discount any likelihood of ordinary wear
In Issaias (Elfie A) v Marine Insurance Co,'o, the only issue was whethet the ownet
and tear constituting the proximate cause of the loss. 11 0 It is, accordingly,
was complicit in the scuttling of the insuted vessel by the mastet. The Courr of
submitted rhat the assured should bear the burden of proof with regard to all
Appeal held unequivocally that the insurets bore the onus of proving that the
components of the peril of barratry as with any other. It is, nevertheless,
loss was not to the prejudice of the owner by virtue of rhe owner's connivance.
irrefutable that, as a resuIt of Issaias, ir is 'impossible for any Court below the
The allegation of complicity was a criminal accusation, albeit in a civil context,
House of Lords to conclude that where it is common ground . .. that a stranding
and the assured was entitled to the presumption of innocence. was caused by a deliberate act, the onus of proving an absence of
Issaias has attracted little acclaim in dispensing the assured from the need to consent or connivance rests on the owners' ,111 Moreover, where the insurer
1(l4 (1811) 3 Taunt 508. The question was not raised whether the loss was proximately 108 Michelos (M) & Sons Maritime SA v Prudential Assurance Co Ltd (The Zinovia) [1984] 2
caused by barratry alone or in combination with capture. Lloyd's Rep 264, 272. See also Piermay Shipping Co SA v Chester (The Michael) [1979] 1 Lloyd's
105 In Atlantic Maritime Co Inc v Gibbon [1954] 1 QB 88 the act of a Chinese warship Rep 55, 66-7; Continental Illinois National Bank & Trust Co ofChicago v Alliance Assurance Co Ltd
during the Chinese civil war constituted a restraint of princes resulting in a loss of voyage. The (The Captain Panagos DP) (No 2) [1986] 2 Lloyd's Rep 470. 511.
policy excluded such losses and the Court of Appeal held, clearly correctly, that the assured could 109 Because the shipowner may not be the assured. 110 See 10.05 above.
not evade the exclusion by relying on the peril of civil war rather than restraint. However, Lord 111Continental Illinois National Bank & Trust Co ofChicago v Alflance Assurance Co Ltd (The
Evershed MR, relying on Cory v Burr, stated that, even in the absence of the exclusion, the Captain Panagos DP) (No 2) [1989] 1 Lloyd's Rep 33, 40 (CA). See also Micheli" (M) & Sons
assured could not have recovered fora loss by civil war (at 118-21). Sed quaere. The facts Maritime SA v Prudential Assurance Co Ltd (The Zinovia) [1984] 2 Lloyd's Rep 264, 272; Houghton
constituting the proximate cause ofa loss may be susceptible of classification as both civil war and (RA) & Mancon Ltd v SunderfarJd Marine Mutual Imurance Co Ltd (The Ny~Eeasteyr)
restraint. Where one is excluded, it is clearly right that the exclusion shall prevail, but that result [1988] 1 Lloyd's Rep 60; National justice Campania Naviera SA v Prudential Assurance Co Ltd
should not deny the proximate cause status of the other: see the judgment of Morris L] at 137-8. (The lkarian Ree.ftr) [1993] 2 Lloyd's Rep 68. An attempt by Kerr J at first instance in The Michael
106 Compania NavieraMartiartu v Royal ExchangeAssurance Corp [1923]YKB 650. to 'explain' Issaiaswas clearly regarded on appeal asunconvincing ([1979] 2 Lloyd's Rep 1,
'"(1923) 15 LlLRep 186. 13) and has not been relied upon since.
386 387
The Inchmaree Clause The Due Diligence Proviso
alleges complicity, a standard of proof commensurate to the gravity of the Conversely, the 1995 Institute war and strikes clauses for hulls provide cover
allegation will be required.'12 against 'loss of or damage to the Vessel caused by ... any person acting
maliciously', provided the loss is not covered under the Institute Time Clauses
Proofofcomplicity Hulls (1/11195), amended to provide four-fourrhs collision liability cover and to
The burden of proof currently placed on the insurer to prove the complicity of the owner delete any deductible.'15 Since a barratrous act will qualifY as malicious,'16 it
may be difficult to discharge, although it does not require proof of follows that, whete the master or crew employ a weapon or an explosive to destroy
parricipation in planning, srillless direction of, the operational aspects of the or damage the vessel, the resulting loss will be excluded under the International
casualty occasioning the loss of or damage to the insured vessel. In The Captain Hull Clauses (01111103) a~d will fall instead within the war and strikes cover. 117
Panagos DP (No 2), '13 Evans J stated as follows:
.. . any tendency to infer the owner's connivance from the mere fact that a casualty was
deliberately caused must be resisted, even when there is no reason for suppos-ing B. The Due Diligence Proviso
barratry. The allegation of connivance must be proved in the circumstances of the
particular case. This requires proof of a connection between the owner and the The distinguishing characteristic of the cover provided by the Inchmaree clause, 11.66
loss, or those persons who were directly responsible for it, which amounts to as opposed to that provided in respect of the maritime perils considered in
connivance on his part. Chapter 10 above, is that it is subject to a due diligence proviso. If the loss or
In my judgment however it does not follow from this that the [insurers] must damage occasioned by an insured peril under the Inchmaree clause is the result
prove, by inference or otherwise, that there was a detailed plan, or any plan to of the 'want of due diligence' of specified persons, the insurer is not liable.
which the owner was party, for the method by which the desired loss was to be
achieved. The barest signifying of assent by the owner could suffice, even if the The range of specified persons has proved controversial. Under the 1983 Insti- 11.67
operation is conceived, planned and executed by others, who mayor may not be tute hulls and freight clauses, the relevant lack of due diligence is that of the
known to the owner himself The difficulty for the [insurers] is not so much that assured, owners, and managers. However, under the 1995 Institute clauses,
the plan cannot be inferred but that the owner's connection with it may consist of
pursuant to the desire to exclude liability in respect ofloss or damage attributable
a limited number of communications, the occasion and nature of which are likely
to be inherently difficult to identifY and prove. Once assent is given, the owner to the failure properly to maintain and equip vessels, the range of persons whose
himself need not necessarily know when, or even definitely whether, the operation lack of due diligence would provide a defence was extended to include supet-
is to take place. intendents and onshore management. This proved commercially unacceptable
and the 1995 clauses have seldom, if ever, been incorporated without the refer-
(h) Relationship with war and strikes cover ence to superintendents and onshore management being deleted. Under the
11.65 The cover provided under the International Hulls Clauses (01/ 11 /03) is subject to International Hull Clauses (01111102), the due diligence proviso was restored to
three exclusion clauses stated to have paramount effect. These include an exclusion the 1983 wotding, and this remains the position under the 2003 clauses.
ofany 'loss, damage, liability or expense arising from ... the use ofany weapon or
A 'want of due diligence' is negligence. Under the Inchmaree clause, therefore, 11.68
the detonation of an explosive by any person acting maliciously'.'14
insurers provide covet against the consequences of various types of machinery
damage and damage occasioned by various types of human fault, but not where the
loss, although prima ficie within the scope of the Inchmaree clause, results
See the discussion of the wilful misconduct defence at 15.18 below.
Continental Illinois National Bank & Trust Co a/Chicago v Alliance Assurance Co Ltd (The
Captain Panagos DP) (No 2) (1986] 2 Lloyd's Rep 470, 501. Likewise in Piermay Shipping Co
SA v Chester (The MichaeO (1979] 1 Lloyd's Rep 55. Kerr J stated as follows (at 66): 'It is cleat
that
\IS eg Institute War and Strikes Clauses (Hulls-Time), ell 1.5, 5,3, This could of course be
consent or privity can range from active complicity to mere passive connivance. An owner
who makes it elear that he would like to see his ship at the bottom of the sea, but does not amended to refer to the International Hull Clauses (01111/03),
want to know any more about it, is privy to its sinking in just the same way as Henry II was For the meaning of 'malice' in this context, see 14,23-14,27 below.
privy to the murder of Thomas aBecket when he said: "Will no one rid me of this turbulent This appears to have been overlooked in North Star Shipping Ltd v Sphere Drake Insurance pic
priest?" Even if the suggestion of scuttling comes from someone else and the owner implies (2005] EWHC 665 (Camm), (2005] 2 Lloyd's Rep 76, patas 82-83, in which the insured
consent by saying nothing against it, he would be privy and couldnot say that the act was "to vessel was rendered a total loss by explosion. See further 15.78-15.79 below.
his prejudice".' See also proofof wilful misconduct at 15.19ffbelow.
'14 International Hull Clauses (01/11/03). c130.3.
389
388
The Inchmaree Clause Cover Provided under the Inchmaree Clause and in Respect ofMaritime Perils
from negligence on the part ofthe assured, owners, or managers. In the was expressed rhat the lattet approach was correct, although no basis for that
Canadian case of The Brentwood,118 a claim under the Inchmaree clause for characterization was articulated.
loss caused by negligent loading on the part of the master was unsuccessful
In the context of contracts of affreightment subject to the Hague or Hague- 11.72 Visby
because the assured had failed to provide adequate loading instructions
Rules, a carrier's obligation to exercise due diligence to make the ship seaworthy is
regarding the stability of the vessel.
broken by negligence on the part of not only the carrier but also
Cover against the negligence of the persons occupying certain roles but subject to the any other person, including an independent contractor, to whom is delegated the
exercise of due diligence by persons occupying certain other roles raises the task of maintaining or restoring the seaworthiness of the vessel. The obliga-tion is
question of how the Inchmaree clause responds to a person who occupies roles personal to the carrier and is not discharged merely by exercising reason-able care
in both categories, for example an owner who is also the master. In such a in selecting persons to whom the seaworthiness of the vessel is entrusted.'" The
case, it is necessaty to determine the capacity in which that person is acting Inchmaree clause indirectly adopts the same approach with respect to latent
when the relevant negligence occurs. In Holm v Rice, 119 the assured was both defects. Vessels are required to undergo a variety of periodic inspections.
the owner and master of the insured yacht, which broke down during a voyage Consequently, shipowners enter theit vessels with a classification society, to which
and had to be left moored in a port of refuge. The assured negligently left an is delegated the task of carrying out the inspections. If a surveyor negligently fails
exhaust port open and two weeks later the yacht sank by reason of ingress of to notice a defect, it will not qualifY as latent. It will not avail the assured that due
water through the open port. The Supreme Court of British Columbia held that diligence was exercised in the choice of classifica-tion society. In this context,
the assured was acting qua master when negligently leaving open the port. therefore, the exercise of due diligence is non-delegable. However, in the context
However, it was incumbent upon the assured qua owner to have the yacht of the perils of negligence insured under the Inchmaree clause, the position is
inspected by a competent person within a reasonable time, which on the facts obviously different. Since negligence of the specified persons is itself a covered
was about three days. Failure to do so constituted negligence qua owner. Had peril, it cannot be attributed to the assured so as to give rise to a defence under the
such an inspection occurred, the yacht would not have sunk. There was, there- due diligence proviso.
fore, an operative failure of due diligence under the proviso.
Dual status as 'owners' for the purposes of the due diligence proviso does not accrue to
the master or to officers, crew, or pilots merely because they hold some shares C. Relationship Between the Cover Provided
in the insured vesse1. 120 under the Inchmaree Clause and that Provided in Respect of
Maritime Perils
The burden of ptoof in respect of the due diligence proviso has, yet to be resolved.
This depends on the correct characterization of the proviso. If it con-stitutes an Where a casualty gives rise to a claim under either the Inchmaree clause or a 11.73
exclusion from the scope of cover, it will fall to insurers to prove a causally maritime peril not subject to the due diligence proviso, the assured is entitled to
relevant failure of due diligence. If, however, the proviso is properly regarded hold the insurer to either part of the bargain. Thus, where negligent navigation by
as patt of the definition of each of the petils insured under the Inch-maree the master results in the loss of the iusured vessel in a collision, the proximate cause
clause, the onus will lie on the assured to demonstrate on a balance of of the loss may correctly be regatded as either a peril of the sea or the negligence of
probabilities that the loss did not result from a failure of due diligence on the the master. If the master has a history of negligent navigation of which a reasonably
part of any relevant person. ," At first instance in The Brentwood, 122 the view prudent employer should have been aware, the assured's lack of due diligence in
appointing that person as master of the insured vessel would defeat a claim under
124
the Inchmaree clause but not a claim for loss by a peril of the sea. In similar
vein, a barratrous fire is still a fite, so that should a vessel be
118 Coast Ferries Ltd v Century Insurance Co afCanada (The Brentwood) [1975] 2 SCR 477,48
DLR (3d) 310 (Supreme CouttofCanada), affg [1973] 2 Lloyd's Rep 232 (Court of Appeal of
British Columbia),
119 (1981) 124 DLR (3d) 463 (Supreme Court of Brirish Columbia). Riverstone Meat Co Pty Ltd v Lancashire Shipping Co (The Muncaster Castle) [1961] AC 807.
120 International Hull Clauses (01111103), el2.5-, 121 See 7.59 above. An incompetent master would render a vessel unseaworthy but the fact of
m (1971) 23 DLR (3d) 226, para 25 (Supreme COUrt of British Columbia). unseaworthiness does not of itself provide insurers with a defence under time policies, under
which most vessels are today insured, see 19 .30ff below.
390 391
The Inchmaree Clause
lost by teason of a fite started by a ctew membet with a history of pyromania of

which a teasonably prudent employer should have been aware, the assured will
still be able to recover under the peril of fire, albeit that a claim for loss by
barratry will be barred because of a lack of due diligence.'"
12
125 Continental Illinois National Bank 6- Trust Co of Chicago v Alliance Assurance Co Ltd
(The Captain Panagos DP) (No 2) [19861 2 Lloyd's Rep 470, 510-11, [1989] I Lloyd's Rep 33,
41.
COLLISION AND CONTACT LOSSES
A. Loss of or Damage to the (4) Cargo insurance 12.08

Subject-matter Insured 12.02 B. Third Party Liability 12.09
(1) Contact 12.03 (1) CoIlisionliabiliry under hull
(2) Aircraft, helicopters, and policies 12.10
satellites 12.04 (2) Collision liability under cargo
(3) Accidents in cargo handling 12.06 insurance 12.23
Contact between the insured vessel under a hull policy, or the freight-earning 12.01
vessel under a freight policy, and anothet vessel or structure may produce two distinct
rypes of loss. The subject-matter insured may be lost or damaged and
third party liability may result.
A. Loss of or Damage to the Subject-matter Insured
For the purposes of the hulls and freight clauses, a fortuirous collision or coming 12.02
into contact of a matitime nature is a peril of the sea,' although consequential
loss beyond the cost of repairs would not be viewed as caused by the collision.'
In addition, the market clauses also include cover against loss of or damage to
the insured property caused by 'contact' with a range of items that has vatied
slightly from revision to revision. The Internarional Hull Clauses (01111103),
for example, also specifY as a named peril'contact with land conveyance, dock
or harbour equipment or installation' and 'contact with satellites, aircraft, heli-
copters at similar objects, or objects falling therefrom'.' Such contact is an
insured peril regardless ofwhether it is fortuitous or has a maritime nature in the
1 Thomas Wilson, Sons 6- Co v Owners ofthe Cargo per the X4ntho (The Xantho) (1887) 12 App
Cas 503.
, Shetbourne 6- Co v Law Investment 6- Insurance Corp [J 898] 2 QB 626.
, c112.1.6,2.1.9.
392 393
Collision and Contact Losses Loss ofor Damage to the Subject-matter Insured
sense in which those two requirements are understood in the context of perils of 'aircraft' and the teturn of the contact perils provision to the list of matine tisks.'o
the sea. Thus, contact with harbour equipment deliberately induced by those in Nevertheless, by virtue of clause 37, that the engaging of helicopters did not
charge of an insured vessel would not be fortuitous for the purposes of a peril of prejudice cover was subject to the proviso that helicopter operations were
the sea,' but would be insured under the contact cover. Collision and contact 'carried out in accordance with the recommendations and procedures contained in
damage may also be incurred in the context of cargo, fuel, and stores handling the International Chamber of Shipping "Guide to HelicopterlShip Oper-ations"
operations, which are the subject of specific provision. dated May 1989 and any modification thereof. Most recently, however, the
International Hull Clauses (01/11103) retained the expanded contact provi-sion in
Contact the list of marine tisks but omitted any equivalent to clause 37. In consequence, no
distinction is drawn under the 2003 clauses between loss of or damage to the
The meaning of the term 'contact' was considered in The Nassau Bay.' Ammu-
insured vessel depending upon whether the cause is contact with a satellite Ot
nition was sucked up by a dredger and exploded in the discharge pipe. Refusing to
aircraft or object falling therefrom on the one hand, or with a helicopter or object
ascribe a limited meaning to the word 'contact', Walton J stated that' 'the
falling therefrom on the other. Underwriters will always be liable unless they can
mere fact that the typical case of contact is an external contact appears to me to be
establish a defence unconnected to the nature or origin of the item with which the
neither here nor there ... In many types of mine the vessel never actually hirs
vessel has come into contact, such as wilful misconduct of the assured or
anything: rhe mine explodes acoustically or electrically ... The precise nature of
unseaworthiness.
the "contact" is therefore a matter of some difficulty, but nobody doubts that it has
taken place'.
(3) Accidents in Cargo Handling
Aircraft, Helicopters, and Satellites The Institute hull clauses include in the list of covered perils loss ofor damage to 12.06
the insured vessel caused by 'accidents in loading discharging or shifting cargo
The matine tisks in the Institute hulls and freight clauses of the 1980s included 'contact
or fuel'. In the 1983 clauses, this element of cover is subject to the due diligence
with aircraft or similar objects or objects falling therefrom'.' Successive
proviso as part of the Inchmaree clause, while in the 1995 clauses it ranks as a
revisions of the market clauses have seen this cover extended and qualifications to
marine peril not so subject." Under the International hull clauses, cover is
cover introduced, modified, or reduced.
extended to 'stores and parts' and remains in rhe list of marine perils."
A reference to helicopters was first introduced in the 1995 clauses, recognizing their
The damage covered under this heading is of broadly rwo types. First, there is 12.07
common employment in the transportation of people and equipmen~to and from
loss or damage to the vessel caused by the cargo, fuel, stores, or parts being
vessels. The 1995 clauses saw 'helicopters' added to this provision immediately
dropped, escaping, or being mishandled. Whether an accident causing such loss or
after 'aircraft' and the addition of a provision that 'rhe practice of engaging
damage qualifies as a peril of the sea depends upon whether it possesses the
helicopters fot the rransportation of personnel, supplies and equip-ment to andlor
requisite maritime nature. It is not, however, satisfactory from a shipowner's
from the Vessel shall nor prejudice this ins11rance'.' However, protection against
perspective for cover to depend upon such a distinction. Secondly, the insured
imprudent use of helicopters was afforded by moving the contact perils provision
vessel may be damaged by collision or contact with other craft employed in
to rhe Inchmaree clause where it was subject to the due
loading, discharging, and shifting operations. For example, where the insured
diligence proviso.' The International Hull Clauses (01/11/02) saw the scope of
vessel is too latge to enrer the port of destination, dischatge will necessitate
cover broadened further by the addition of 'satellites' immediately befote
transhipment into smaller vessels, which may come into contact with and dam-age
the insured vessel. Collision or contact loss or damage so occasioned should
qualifY as caused by a peril of the sea, but the question need not be asked since it is
, Samuel (P) 6- Co Ltd v Dumas [1924] AC 431, discussed at 10.16 above. Of course, if those cleatly caused by a cargo handling accident. Transhipment of cargo at sea
in charge of the vessel were acting at the behest of the assured shipowner, the insurers
would have the defence of wilful misconduct of the assured.
S Costain-Blankevoort (UK) Dredging Co Ltd v Davenport (The Nassau Bay) 11979] I Lloyd's
Rep 395. On the facts, the loss would today fall within war risks cover. -- _ . _ ---
6 ibid 406. 7 eg Institute Time Clauses Hulls (1110183), d 6.1.7. " International Hull Clauses (OIilli02), c12.1.9.
, eg Institute Time Clauses Hulls (IilOI83), d 1$. 11Institute Time Clauses Hulls (1110183), c16.2.I; (1111195), c16.1.8.
9 eg Institute Time Clauses Hulls (lIIli95), d 6.2.5. " International Hull Clauses (0Iilli03), c12.1.8.
394 395
Collision and Contact Losses Third Party Liability
pursuant to normal trading operarions, as opposed to emergency operations, would independent from the property cover conferred in respect of marine perils and
in principle be similarly covered, but is specifically excluded under the Institute under the Inchmaree clause. 20
and Internarional hull clauses in the absence of prior agreement with
insurers. 13 (l) Collision Liability under Hull Policies
Clause 6.1 of the Internarional Hull Clauses (01/11/03)21 provides as follows: 12.10
(4) Cargo Insurance
The Undcrvvriters agree to indemnifY the Assured for ,three-fourths of any
12.08 In the context of cargo insurance, collision or contact liability falls within the 'all risks' sum or sums paid by the Assured to any othe~2 person or persons by reason of
cover of the Cargo Clauses (A) as not being excluded, while clause 1.1.4 of rhe Cargo the Assured becoming legally liable by way of damages for
Clauses (B) and (C) specifies as a covered peril 'collision or contact of vessel craft or loss of or damage to any other vessel or property thereon
conveyance with any external objecr other than water'. In Union Marine Insurance delay to or loss of use of any such other vessel or property thereon
general average of, salvage of, or salvage under contract of, any such other
Co v Borwick,'4 Mathew J rejected an argument that a 'collision' necessarily involved
vessel or property thereon,
the upper works of a vessel srriking a foreign body as opposed merely to running
aground. Although ultimately the matrer is always one of interpretation of the particular where such payment by the Assured is in consequence of the insured vessel
policy, 'any external object' would seem to embrace even ordinary natural objecrs in coming into collision with any other vesseL
their natural places.'s 'Collision
(a) 'Legally liable by way ofdamages'
with water', which is not covered, has been said to embrace 'contact with a
heavy wave or with a tidal bore or something of that kind' ." Although ice is but The reference to the incurring oflegalliability confines the underwriter's liability 12.11
frozen water, it is suggested that it would rank as an object rather than water for the under this collision clause to indemnification of 'payments the obligation to
purposes of this peri!." make which arises from a fault of some kind on the part of the ship insured'." In
Furness, Withy & Co Ltd v Duder,24 Branson J held that underwriters were liable
under the collision clause ouly in respect of torrious damages payable to third
Third Party Liability parties. In consequence, no liability lay in respect of money paid pursuant to an
assumption of risk in a contract of towage by the assured shipowner regardless of
In De Vtlux v Salvador,18 both vessels involved in a collision were to blame. Under an fault. In Hall Bros 55 Co Ltd v Young,2S the insured vessel was involved in a
old Admiralty mle, the losses of the two ships were aggregated and divided equally collision with a pilot boat for which the vessel was blameless. Nevertheless, under
between them." The insured vessel had done mot.e damage than it had sustained, French law it became liable to pay for the damage to the pilot boat. Holding that the
underwriters were not liable, the Court of Appeal held that where the liability arises
and the balance of half the aggregate loss was paid over. An action to recover that
under a foreign law, the act generating the liabiliry need not 'necessatily be tortious
sum from the underwriters as a loss by perils of the sea failed, as the proximate cause
by English law, but it must be at any rate of that character'.2. Moreover,
of that loss was the Admiralry rule. As a consequence of this decision, an express
clause governing third party collision liability (often known as a 'Running Down MacKinnon LJ held that the phrase 'in consequence of' required the collision to be
Clause') was introduced into hull the proximate cause of the damages liability." This provided an alternative defence
policies. The scope of this clause and the availabiliry of cover under it are for the underwriters as the cause of the liabiliry lay iu French statute law rather
than the collision.
B Institute Time Clauses Hulls (III 0/83), d 1.2: (1111/95), d 104; International Hull Clauses
(01Illf03), d lOA, II. Xenos v Fox (I 868) LR 3 CP 630, 635: Adelaide Steamship Co Ltd v Attorney-General (No 2)
" (1895J 2 QB 279. (19261 AC 172.
15 Mancomunidad del Vapor Frumiz v Royal Exchange Assurance [1927J 1 KB 567.
The Institute time and voyage clauses for hulls and freight all contain provisions cast
" ibid 577 per Roche J. in identical or similar terms.
In Mancomunidad (n 15 above), the policy referred expressly to 'collision with any Where liability is incurred as between vessels both owned by the assured, d 6 still operates
object (including ice) other than water'. subject to the quantum ofliability being assessed by a sole arbitrator: d 7.
(1836)4 A & E 420.
23 Hall Bros SS Co Ltd v Young [I 9391 I KB 748, 759 per Sit Wilfred Greene MR.
Apportionment in proportion to respective degrees of fault was iiltroduced by the
24 (193612 KB 461. 25 [19391 I KB 748.
Maritime Conventions Act 1911. See now the Merchant Shipping Act 1995,s'187.
26 ibid 760 per Sir Wilfred Greene MR. 27 ibid 762.
396 397
The indemnity provided under rhe collision liability clause should extend not only to cover offered by murual insurance associations and the subject of an optional
compensatory damages bur also to exemplary, or punitive, damages. As a matter extension provided for by the International hull clauses. 33
oflanguage, the reference to 'damages' in the collision liability clause is
(dJ 'Vessel'
unqualified. 28 Moreover, a contrary view would produce practical difficulties.
First, the award of exemplary damages would not disentitle the assured in principle The collision generating the damages liability must be with another 'vessel'. In 12.15
from recovering in respect of the compensatory element of the award. However, Polpen Shipping Co Ltd v Commercial Union Assurance Co Ltd,34 Atkinson J
the award may well not apportion the overall sum between the two types of stated: 'I do not want to attempt a definition, but I think a ship or vessel does
damages, rendering the assured unable to prove the extent of the recoverable involve two ideas. If! had to define them, I should say'a vessel was any hollow
liability and providing the insurer with a fortuitous windfall in the form of structure intended to be used in navigation, that is, intended to do its real work
unenforceable liability. Secondly, the limited liability of the insurer in respect of upon the sea or other waters, and which is capable otfree and ordered movement
claims thar include exemplary damages may produce a conflict of interest between from one place to another.'
assured and insurer so as to discourage settlement of claims.
Consequently, neither a flying-boat35 nor a pontoon crane" may be classified as 12.16
Thirdly, the collision liability cover extends also to certain costs incurred in
a ship or vessel. A collision with the anchor of another vessel would be a
contesting or limiting liability. Such cover would not extend to costs incurred
collision with that vessel,37 but when a ship collided with nets attached to and
in defending a claim for exemplary damages if they fell ourside the scope of
extending from a fishing vessel abour one mile away, the Court of Appeal held
insured liability. Yet the apportionment of COSts could prove problematic,
there was no collision with another vessel. 38 Nets were not part of a ship in the
especially since costs might be incurred for the purpose of defending both
same sense as an anchor 'nor are they things which it is necessary for her to
insured and uninsured liability."
have and withour which she could not prudently put to sea'.39 A wrecked
(bJ /iny sum or sums paid' vessel remains a vessel for the purposes of the collision clause provided 'the
reasonably minded owner would continue salvage operations in the hope of
A further restriction lies in the phrase 'any sum or sums paid'. This phrase has been
completely recovering the vessel by those operations and subsequent repair.'40
stated in England" and held in Canada" to render payment a condition
The absence of the means of self propulsion," even if coupled with the absence
precedent to entitlement to indemnification. On this basis, where the assured
of the means of self direction," does not disqualify from status as a vessel.
becomes insolvent withour malong payment, no liability will arise under the
However, a floating structure that is not used in navigation but moored in one
policy and the third party will be unable to invoke the Third Parties (Rights
place is unlikely to qualify as a vessel.43
against Insurers) Act 1930."
(cJ 'Three-fturths'
The measure of indemnity under clause 6.1 is confined to three-fourths of sums falling
International Hull Clauses (01111103), c138,
within its terms. There is, however, no injunction in rhe Institute or [1943] 1All ER 162, 165. CfMerchant Shipping Act 1894, s 742; International Convention
International clauses against the assured obtaining cover for the remaining one- on Salvage 1989, Art l(b).
3S ibid. But cf Harbours Act 1964. s 57(1).
fourth. Such insurance is a standard feature of the protection and indemnity
Merchants'Marine Insurance v North ofEngland Protecting & Indemnity Association (1926) 26
LlLRep 201.
Re Margetts & Ocean Accident & Guarantee Corp [1901] 2 KB 792.
Bennett Steamship Co v Hull Mutual Steamship Protecting Society [1914] 3 KB 57.
28 The phrase 'legally liable to pay as compensation' in a public authority liability policy has ibid 61 per Phillimote LJ.
been held to include exemplary damages in tort because all ton damages, whether awarded on a Pelton 55 Co Ltd v North ofEngland Protecting & Indemnity Association (1925) 22 LlLRep
compensatory or exemplary basis, ultimately go to the claimant byway of compensation for harm 510,513 per Greer J.
suffered: Lancashire County Council v Municipal Insurance Ltd (1997) QB 897. 41 The Mac (1882) 7 PD 126: The Mudlark [1911J P 116: The Harlow [1922] P 175: Marine
29ibid, although the costs pr~yjsion in Lancashire County Council was differently drafted. Craft Constructors Ltd v Erland Blomqvist (Engineers) Ltd [19531 1 Lloyd's Rep 514.
Re Nautilus Steam Shipping Co Ltd [19361 Ch 17, 31: Raiffiisen Zentralbank Osterreich AG v 42 The St Machar (1939) 65 LlLRep 119, 125: Cook v Dredging & Construction Co Ltd [1958J
Five Star Trading llc [2001) QB 825, 857. cf the approach to pay first clauses in mutual 1 Lloyd's Rep 334.
insurance, see 20.62-20.64 below. 41 Welh v Owners ofGas Flaat Whitton No 2 [1897J AC 337: The Upcern, [1912J P 160: The
Conohan v Cooperators 2002 FCA 60,2004 AMC 1661 (Fedesal Couriof Appeal). Craighall(1910J P 187. Quaere whether a ship permanently moored and acting as a museum but
Discussed in Ch 20 below. retaining motive and directional power is a vessel for collision liability purposes.
398 399
Where agreed, the limitations imposed by the reference to collision with a vessel may be In respect of anyone collision, their maximum exposure is 'their proportionate
avoided by extending cover to contact with any fixed or floating object. The option part of three-fourths of the insured value of the Vessel' 48 Secondly, the following
of such an extension is expressly provided for by clause 37 of the International exclusions are inserted by clause 6.4:49
Hull Clauses (0111 1/03). Otherwise, such cover is available as part of the In no case shall the Underwriters indemnify the Assured under this Clause 6 for
protection and indemnity cover offered by mutual insurance associations. any sum which the Assured shall pay for or in respect of
removal or disposal of obstructions, wrecks, cargoes or any other thing
'Coming into collision' 50
whatsoever
A maritime accident may occur berween vessels without any direct contact. any real or personal property or thing whatsoever except other vessels or property
Thus, negligent navigation by the insured vessel may compel another to take on other vessels
the cargo or other property on, or the engagements of, the insured vessel
evasive action, as a result of which that other either runs aground or collides with a
loss of life, personal injury or illness
thitd vessel.44 Hull underwriters would, however, incur no liability since the pollution or contamination, or threats thereof, of any real or personal prop-erty or
insured vessel would not have come into collision with another vessel. The thing whatsoever (except other vessels with which the insured Vessel is in
optional extension of cover under clause 37 of the International Hull Clauses collision or property on such other vessels) or damage to the environ-ment, or
(01/11/03) would not avail the assured since it requires a 'striking' of a fixed or threat thereof, save that this exclusion shall not exclude any sum which the
Assured shall pay for or in respect of salvage remuneration in which the skill
floating object. P&I clubs, however, provide cover against liability for 'non-contact
and efforts of the salvors in preventing or minimising damage to the environment
damage' to ships and property carried in them. as is referred ro in Article 13 paragraph I(b) of the
International Convention on Salvage, 1989 have been taken into account.
Once, however, the requirements for the operation of the collision clause are fulfilled, the
underwriters are liable for three-fourths of all liability within clause 6.1 caused by Thirdly, the collision damage exclusion in respect of cargo handling at sea in the
the collision. Thus, where an insured vessel was at fault in colliding with another and course of trading operations extends to collision liability. 51
that other collided in rurn with a third by reason of a proper and necessary manoeuvre
as a result of the first collision, the underwriters' liability extended to the damage to (h) Legal costs cover
45
both the second and third vessels. In addition to the above, by virtue of clause 6.3 the assured may recover three- 12.22
fourths" of any legal costs connected with contesting or limiting liability with
Basis ftr the assessment ofliability the priot written consent of the underwriters. Liability in respect ofsuch costs is
Where both vessels involved in the collision are to blame, the question arises-of whether limited to 25 per cent of the agreed value, if any, of the insured vessel. Cover
the quantum of liability is to be assessed on a cross-liability or single liability basis. does not extend to costs incurred in claiming against the other vessel involved in
Fot the purposes ofAdmiralty law, liability is calculated under the the collision. 53
latter method, a set-off being operated so as to produce a net liability from one
vessel to the other.46 The International hull clauses, however, expressly provide for (2) Collision Liability under Cargo Insurance
the former basis,47 permitting the assured to recover in full from its insurer in
In a contract for the carriage of goods by sea, the carrier will generally exclude 12.23
respect of third party liability, the insurer being entitled by way of subrogation to
the benefit of the assured's cross-claim.
Supplementary cover against the possibility that three-fourths of the assured's liability prima
Limitations and exclusions facie covered under the standard hull clauses might exceed three-fourths of the agreed value of the
There are three restrictions on the scope of collision liability cover. First, clause 6.2.2 vessel is provided for by the Institute Time Clauses-Hulls Excess Liabilities (1/11/95).
These exclusions would appear to be purely by way of clarification, since their subject-
imposes a ceiling on the underwriters' liability under clauses 6.1 and 6.2. matter does not fall within the cover provided under cl 6.1.
50 The exclusion operates equally whether the sum is paid directly or indirectly to the person
who removes or disposes: The North Britain [1894] P 77; Tatham, Bromage 6'Co v Burr (The
The Eglantine, Credo & Inez[I9901 2 Lloyd's Rep 390. Engineer) [18981 AC 382.
4S William France Fenwick 6'Co Ltd v Merchants' Marine Insurance Co Ltd [1915] 3 KB 290. S1 Institute Time Clauses Hulls (1/10/83), cl 1.2; (1/11195), d 1.4; International Hull Clauses
46 Stoomvaart Maatschappy Nederland v PininsulfJ1 6'Oriental Steam ~avigation Co (The (0l/lIf03), clIOA, II.
Khedine) (1882) 7 App Cas 795. . S2 Or four-fourths if cl 38 applies.
47 International Hull Clauses (01/11103), d 6.2.1. S3 As to which, see Rules of Practice of the Association ofAverage Adjusters, r AS.
400 401
Collision and Contact Losses
liability for damage to cargo as the result of a collision. Under Unired Srares law,
however, where borh vessels are to blame for the collision, the cargo owner can
recover in full againsr the non-carrying vessel, which in turn is entitled to claim
contribution of one-half of this liability from rhe carrier. In consequence, a carrier
solely liable for the collision is fully protected by its contractual exclu-sions, 13
whereas a carrier partly responsible indirectly bears one-half of the cargo loss. To
attempt to reinstate the otiginal contractual division of risk, contracts of
affreightment customarily contain a 'both to blame collision' clause requiring the WAR RISKS'
cargo owner to indemnifY the shipowner with respect to such liability54 and the
Institute cargo clauses cover such potential liability under the following 'Both to
Blame Collision' clause: 55
This insurance is extended to indemnifY the Assured against such proportion A. Perils of War, Uprising, and (1) Capture and seizure 13.45
of liability under the contract of affreightment 'Both to Blame Collision' Hostility 13.05 (2) Arrest, restraint, and detainment 13.48
(1) Perils of war 13.05 (3) The consequences thereof 13.53
Clause as is in respect of a loss recoverable hereunder. In the event of any
(2) Revolution, rebellion, and (4) Any attempt thereat 13.55
claim by the ship-owners under the said Clause the Assured agree to notify insurrection 13.31 (5) Confiscation or expropriation 13.58
the Underwriters who shall have the right, at their own cost and expense, to (3) Civil strife arising thereform 13.37 (6) Restrictions on scope of cover 13.62
defend the Assured against such claim. C. Derelict Weapons
(4) Any hostile act by or against 13.84
a belligetent power 13.38
B. Perils of Deprivation and
For a fuller discussion, see JWilson, Carriage ofGoods by Sea (5th edn, 2004) 259-60. Inhibition on Use 13.43
Institute Catgo Clauses (A), (B), (C), cl 3.
This chapter is concerned with war perils as covered under the Institute clauses, 13.01
although it should be noted that the mutual insurance associations are import-
ant providers of war risks cover.' In the context of hull and freight insurance, war
and strikes risks are insured together under the same sets of clauses. Cargo
insurance, however,_ separates war risks cover from strikes risks cover. Strikes
risks are discussed in Chapter 14 below.
The advent of new Institute clauses in the I980s saw a major rethinking with 13.02 respect
ro the insutance of war risks. 3 The approach of defining war risks cover
by reference to an exclusion from what may, for convenience, be termed marine
risks (Ie non-war risks) cover was discontinued. 4 Moreover, the opportunity was
taken ro escape ftom a difficult body of case law that had developed around the
traditional war risks wording by adopting, in part, new perils. The discussion of the
scope of war risks cover will be based on the Institute War Clauses (Cargo). Clause
1 lists the risks covered as follows:
See generally, M Miller, Marine 1.%r Risks (3rd edn, 2005).

See 16.14... 16.19 below.
, See M Millet, Ma,ine war Risks (3td edn, 2005) Cb 1.
4 Further on this, and on the earlier separation of war risks cover from non-war risks cover, see
7.03...7.06,7.14,7.22 above and 15.70... 15.77 below.
402 403
War Risks Perils ofWar, Uprising, and Hostility
war civil war revolution rebellion insurrection, or civil strife arising therefrom, or
necessary or desirable by the existence of a state of war. Merchant vessels sailing
any hostile act by or against a belligerent power
capture seizure arrest restraint or detainment, arising from risks covered under
withour lights, sailing in convoy, and changing course in conformity with naval
above, and the consequences thereof or any attempt thereat instructions in time ofwar were held not to constitute warlike operations even if
derelict mines torpedoes bombs or other derelict weapons of war. pursuanr to Admiralty regulations and in response to the waging of general
submarine warfare by the enemy. 'To go ahead in the dark may be foolish or wise
Cover is granred, therefore, in respect of three groups of perils: perils of war, uptising and
bur it is not warlike, nor is it made warlike because what would otherwise be
hostility; perils of deprivation and inhibition on use; and derelict weapons ofwar. It
blameworthy is done in obedience to lawful commands." 'In brief, sailing with
will be nored thar cover in respect of the perils of deprivation and inhibition on use
convoy is only sailing in company and is no more a warlike operation than sailing
is restricted under the cargo clauses by the requiremenr that such perils must arise
alone." Such measures are merely precautions designed to safeguard merchanr
from a peril of war, uprising or hostility. There is no such restriction in the war and
vessels in dangerous waters, taken perhaps in anticipation or fear of a war peril but
strikes clauses for hulls and freight.
not warlike of themselves. Lord Wrenbury enunciated the essential principle: 10 'If
In addition to the perils listed above, this chapter will also consider the perils of the operation relied upon as a warlike operation is one which
'confiscation' and 'expropriation', which feature in the war and strikes clauses for creates no new risk, but only aggravates or increases an existing maritime risk by
hulls and freight but in neither the war nor the strikes clauses for cargo. removing something which, but for the war, would have been a safeguard against
the risk, then the risk is not a war risk. But if the peril be direcrly due to hostile
action, it is a war risk.' Accordingly, the screening of/ighrs in a town as a
← Perils oEWar, Uprising, and Hostility precaution against air raids is not a warlike operation although it might increase the
danger of accidenrs in darkened streets."
Perils ofWar
In similar vein, while the extinguishing by hostile forces of a shore light is a 13.07 warlike
Prior to the revision of the Institute clauses in the early 1980s, war risks cover embraced
operation, where a merchant vessel not itself engaged on a warlike operation goes aground
the 'consequences of hostilities and warlike operations'. This formula has now been
because the master is mistaken in navigation, the prox-
replaced by the perils of 'war' and 'hostile act by or against a belligerent power'.
imate cause of the loss is an error in navigation even though the error would nor
The latter is discussed below' along with the old hostilities peril. The 'warlike
have occurred without the warlike operation.
operations' limb of the cover generated a considerable body of case law, requiring
the courts to address two separate issues, namely the definition of the peril and the In the American civil war case of Ionides v Universal Marine Insurance CO,12 a 13.08
operation of the proximate cause doctrine in connection with the peri],' Particular neutral cargo of 6,500 bags of coffee on board the Linwood, a federal ship, was insured
difficulty was occasioned by the appropri-ate classification of prima ficie marine under a policy that excluded all consequences of hostilities. In the mistaken helief that he
casualties involving merchant vessels but occurring in a war context. There is no had passed the dangerous headland of Cape Hatteras,
judicial analysis of the relationship between 'warlike operations' and 'war'. This the master changed course and ran ashore. A light visible in ordinary weather for
section reviews the authorities on the old peril before addressing the new. up to thirty miles, which had until recently burnr on the headland as a warning for
shipping, had been extinguished by confederates in order to mislead federal
(aJ Warlike operations
vessels. The master and crew were taken prisoner. Officers appointed by the
In the conjoined appeals in The Petersham and The Matiana,' the House ofLords,
upholding the Court of Appeal, drew a fundamental distinction between a warlike
operation and a peaceful operation conducted under conditions rendeted
ibid 128 per Lord Sumner. In the Court ofAppeal, Atkin L] enquired whether the
status ofa vessel's activities was supposed to alter at sunset ([1919J 2 KB 670, 696).
See 13.38ffbelow. [19211 AC 99, 129 per Lord Sumner. Merely because escorting warships are engaged in the
Yorkshire Dale Steamship Co Ltd v Minister o[War Tramport (The Coxwold) [19421 AC 691, warlike operation of protecting non~combatant vessels from the enemy does not affect the classifi~
716. cation of the operation engaged upon by the merchant vessels, which mayor may not be warlike.
7 Britain Steamship Co Ltd v R (The Petersham) and. Green v British India Steam Navigation Co 'The sheep are not the shepherd; and are not engaged in the operation of shepherding': [1919]
Ltd (The Matiana) [191912 KB 670. affd [1921] 1 AC 99. 2 KB 670. 698 per Atkin Lj.
10 11921] AC 99,135. See also [191912 KB 670, 700.
'1 [19211 AC 99.114. " (1863) 14 CB(NS) 259, 286-7.
404
405
federal governmem salvaged 150 bags of coffee. Confederare rroops prevemed rhe Line Steamers Ltd v Liverpool & London War Risks Insurance Association Ltd,18
removal of any more before rhe ship broke up and rhe remainder of rhe cargo was Atkinson J held that the carriage of materials destined to be used in the manu-
10s1'. Had rhe rroops nor inrervened, anorher 1,000 bags could have been saved. facture of munitions to a port used mainly for commercial purposes was not a
The courr held rhar rhe insurer was liable for a parrial loss of rhe cargo. The warlike operation. On the concept of rhe peril, he srated: 19
proximate cause of the loss of the coffee on board that could not have been saved
even ifthe troops had not intervened was a peril ofthe sea (namely the master being ... a warlike operation is one which forms parr of an actual or intended belligerent act
or series of acts by combatant forces. It may be performed preparatory to the actual act
fifty miles out of his reckoning and either not keeping an adequate look-alit or not
or acts of belligerency, or it may be performed after such act or acts} bur there must be
lying ro when in doubt about his position) and not the hostile act of the confederates a connexion sufficiently dose between the act in question and the belligerent act or acts
in extinguishing the light. Byles J reasoned as follows: 13 to enable a tribunal to say, with at least some modicum of ...
common sense} that it formed parr of acts of belligerency.
. . . the original meritorious cause (and in popular language the cause of the loss)
was the captain's being out of his reckoning. He was some fifty miles to the Any vessel that is engaged in acts prepararory to embarking upon a warlike
westward of his course, without knowing it. The absence of the 'light was ... operation" or is ar anchor awaiting such orders" is not yet engaged upon a warlike
merely the absence of an extrinsic saving power. Could that be said to bs:: the cause of operation.
the ship's destruction? Suppose a man throws himself into the Serpentine, and the
means of rescuing him are not at hand, and he is drowned. Could it be said in that case Given that the voyage during which the loss or damage occurs is a warlike 13.11 operarion,
that the man was drowned because of the absence of saving power? Apply 'almost any casualty befalling a vessel as a result of her own action in proceeding on [the]
that here. The absence of the light at Cape Hattetas was but the absence of a
voyage' will be viewed as caused by the operation." Although collision is prima ficie a
warning, leaving the proximate and immediate cause of the loss, the miscalculation
of the captain which is plainly a loss by the perils of the sea. marine peril, any collision involving a vessel engaged on a warlike operation is classified
as a war risk unless the other vessel
In consequence, the underwriters were not liable for the coffee saved and rhat which would is not engaged on a warlike operation and is solely to blame for the collision. Thus,
have been saved bur for the intervention of the troops, which was lost as a the cause of the loss is a warlike adventure where the collision is the fault of a
consequence of hostilities. The important point in Ionides was that the confederates vessel pursuing a warlike operation, whether the vessel is a warship" or a
were not responsible for the navigation of rhe vessel: their act in extinguishing the merchantman.24 Again, where both vessels are to blame for the collision and one is
light merely formed parr of the background against which the master ran the vessel engaged on a warlike operation while the other is not, the cause of the loss is the
aground. warlike operation. 25 Similarly, although running aground is prima ficie a marine
Any movement of a warship 14 at sea on an errand of war qualifies as a warlike operation. peril, where a merchant vessel runs aground in the course of pursuing a warlike
Merely proceeding to dock for an overhaul or re-fit does not." Whether a merchant operation, the cause of rhe loss is considered to be the warlike adventure. In The
vessel is engaged upon a warlike operation depends upon Coxwold,26 a merchant vessel sailing in convoy and engaged upon a warlike
the nature of the cargo and rhe destination. In The Gee!ong,16 the House of Lords operation altered course to avoid a suspected enemy submarine and
held that the transportation by sea of war materials in time of war between war
bases was prima facie a warlike operation. 17 In contrast, in Clan
" [19431 KB 209. 19 ibid 221.
20 Admiralty Commissioners v Brynawel Steamship Co (I923) 17 LlLRep 89; Wharton UJ
13ibid 296. See also Britain Steamship Co Ltd v R (The Petersham) [1921J 1 AC 99, 135. (Shipping) Ltd v Mortleman [194l] 2 KB 283.
14 Fornaval control transforming a merchant vessel into a warship, see Hindustan Steam 21 Wynnstay Steamship Co v Board ofTrade (1925) 23 LlLRep 278.
Shipping Co v Admiralty (1921) 8 LlLRep 230. YOrkshire Dale Steamship Co Ltd v Minister ofWar Transport (The CoxwoldJ [1942] AC
Liverpool & London War Risks Insurance Association Ltd v Marine Underwriters of5S 691, 719 per Lord Porter. See also Lord Wright at 704; Athel Line Ltd v Livapool & London
Richard de Lareinaga [1921] 2 AC 141. War Risks Insurance Association Ltd (The Atheltemplar) [l946J KB 117.
Commonwealth Shipping Representatives v Peninsular & Oriental Branch Service (The Geelong) Attorney-General vArd Coasters Ltd (The Ardgantock) [192l] 2 AC 141; Liverpool &- London
[1923/ AC 191. war Risks Insurance Association Ltd v Marine Underwriters of 55 Richard de Larrinaga [1921] 2
11 Similarly the transportation-'of trOOps (Charente Steamship v Director of Transports (1921) 9 ACI41.
LlLRep 355) and the evacuation of wou.qded (British & Foreign Steamship Co Ltd v R (The St 24 Commonwealth Shipping Representatives v Peninsular & Oriental Branch Service (The Gee/ony
Oswald) [1918J 2 KB 879), although the presence on board of only a few: soldiers, whether wounded or [19231 AC 191.
unwounded, does not transform a merchantman into a troop 'transport: Harrisons 25 Board of Irade v Hain Steamship Co Ltd [19291 AC 534.
Ltd v Shipping Controller (The Inkonka) [19211 1 KB 122. 26 Yorkshire Dale Steamship Co Ltd v Minister of war Transport (The Coxwold) (1942] AC 691.
406 407
Perils ofwar, Uprising, and Hostility
war Risks
moving and maintaining a zigzag course. The House of Lords held that the first
subsequently ran aground. The House of Lords held that there was sufficient
category of damage was caused by the vessel's warlike operation but not the
evidence to justifY the atbitrator's holding that the proXImate cause of the loss
second. A distinction was drawn between loss or damage actively caused by a
was the watlike operation. vessel pursuing a warlike operation, as where the vessel is an active agent in
The negligent execution of a warlike operation does not alter its ,:,arlike charac- striking a rock or colliding with another vessel, and loss or damage sustained
terization," although should a negligent marine act break the cham of causanon the passively by the operation of a maritime peril upon a vessel embarked on a warlike
ensuing casualty will be marine in nature. 28 Both th: pervasive causal signifi-cance operation, as where a vessel so embarked is subjected to a battering from high
of a warlike operation and the irrelevance of neghgence were summanzed winds and heavy waves.
by Lord Wright in The Coxwold" as follows:
Similarly, there is no connection with the execution of a warlike operation 13.15 where
The warlike operation is, as it were, an umbrella which covers every active s:ep loss is caused by an accidental fire unconnected with either the nature of
taken to carry it out, including the navigation, the course ,and hel~ actlOll the journey or a military cargo,33 a bteakdown in steering gear,34 or a
intended to bring the vessel to the position required by t~e warlIke operation, ~nd
defective part in the vessel." Such losses remain marine losses.
that none the less because accident or mischance or negligence leads to strandmg
or collision. No doubt a wilful act such as barratry or scuttling would raise different The distribution of losses between war and non-war cover was, therefote, 13.16
questions. determined by the courts in a manner that attributed most losses sustained in
Nevertheless, the fact that a merchant vessel is engaged on a warlike operation does not the course of a warlike operation, even from perils of a prima ficie marine nature,
automatically render war risks underwriters liable for all losses sustained during the to that operation. A body of case law of daunting complexity failed to establish a
operation. 'To suggest the contrary would be just as illogical as to say that if a sensible commercial allocation of risk berween marine cover and war risks
postman, while engaged in the opetation of delivering letters, meets with an insurance. In particular, the allocation of losses caused by stranding and
accident in the street, this is necessarily the proximate consequence of his collision to war risks cover alarmed marine underwriters, who saw an unaccept-
delivering letters.'30 There must be a causal link berween acts done in execu- able diminution in scope of the financial product they were offering. The dis-
tion of the warlike operation and the casualty.31 In the absence of any such tinction drawn in The Priam" between active and passive merchant vessels in
connection, damage occasioned by the action of the sea upon the vessel remains the context ofprima fide marine risks while in the course ofa warlike adventure
may be regarded in terms oflegal principle as subrle or desperate, depending on
a marine loss.
one's view of the earlier decision in The Coxwold. 37 For marine underwriters,
In the leading case of The Priam," the insured merchant vessel was engaged on the however, it was too little and too late.
watlike operation of catrying a cargo consisting largely of wat Stotes from one
war base to another. In the course of the voyage, the vessel experienced In the light in particular of the decision in The Coxwold. marine underwriters 13.17
exceptionally heavy weather and sustained damage falling into two categories. had already sought to redress the distribution of losses by introducing a revised version
First, heavy cargo carried on deck because of militaty urgency broke loose, of the FC&S clause. The amended clause, introduced in 1943, classified
causing some physical damage ro hatch covers on the No 2 cargo hold, which perils of a prima ficie marine nature (such as stranding, collision, and heavy
permitted water to enter the hold. Secondly, furthet damage was occasioned by the weather) as war risks only where 'caused directly (and independently of the
fotce of the srotms, accentuated by the wartime imperative to keep the vessel nature of the voyage or service which the vessel concerned or, in the case of
collision, any other vessel involved therein, is performing) by a hostile act by
or against a belligerent power'. This revised clause, therefore, both removed the
" Adelaide
Steamship Co Ltd v R (The Witrilda) [1923) AC 292: Eagle Oil Transport Co Ltd v
Board o[Trade(I925) 23 L1LRep 301. . ' YOrkshire Dale Steamship Co Ltd v Minister of 'U'ilr Transport (The Coxwold) [1942J AC
28 Owners ofSteamship 'Larchgrove'v R (1919) 1 LlLRep 408, 498; Moor Ltne Ltd v Isaac J(tng
691, 697.
(1920) 4 L1LRep 286: Mazarakis Bros v Furness, Withy <0 Co (1923) 17 L1LRep 113.
Clan Line Steamers Ltd v Board o[Trade (The Clan Matheson) [1929J AC 514.
29 YOrkshire Dale Steamship Co Ltd v Minister of \.fa'r Transport (The Coxwold) [1942] AC
Willis Steamship Co Ltd v United Kingdom Mutual 'War Risks Associatt'on Ltd (1947) 80
691, 704. LlLRep 398.
30 ibid 696 per Viscount Simon LC. 31 ibi,? 708, 713.
See 13.14 a.bove.37 See 13.11-13.12 above,
32 Liverpool 6'London 'U'ilr Risks Association Ltd v Ocean Steamship ,Co Ltd (The Priam) [1948]
~W. .
409
408
Wt!r Risks Perils ofWt!r, Uprising, and Hostility
reference ro warlike operations and required a direct causal link be"",een a hostile Sir Wilfred Greene MR then expressly refuted the argument that one should 13.20
act and a prima ficie marine peril before the latter could be characterized as .seek and then apply a technical meaning of war within the principles of inter-
falling within war risks cover. The ttue interpretation of the revised clause was 43
nationallaw:
never tested in litigation.
"Where these principles of international law for this purpose are to be found I
The modern perils of'war' and 'civil war' must confess that I remain in complete doubt, since the only source of these principles
suggested to us was the writings of various writers on international law. It is to be
In defining 'war' for insurance purposes, it is clear that contract law prevails over
international law." In Driefimtein Consolidated Gold Mines Ltd v janson,39 observed, as indeed it was to be expected, that these writers do not speak with one
voice, and it is possible to extract from their pages definitions of 'war' which not
Mathew J, at first instance, quoted the following definition from Hall on Inter-
40
only differ from one another, but which are inconsistent with one another in
national Law: 'When differences between States reach a point at which both important respects ... [T]o say that English law recognises some technical and
parties resort ro force, or one of them does acts of violence, which the other ascertainable description of what is meant by 'waeappears to me to be a quite
chooses to look upon as a breach of peace, the relation ofwar is set up, in which impossible proposition.
the combatants may use regulated violence against each other, until one of the rwo
has been brought ro accept such terms as his enemy is willing to grant.' Similarly rejected was an argument that war requires an animus beiligerendi on 13.21
the part of both, or at least one, of the combatants. 'What precisely animus
In the leading case of Kawasaki Kisen Kabushiki Kaisha of Kobe v Bantham belligerendi means is again a matter of great obscurity. In fact, to define "war" as
Steamship Co Ltd," however, both the Court of Appeal and the Foreign Office a thing for which it is requisite to have animus beiligerendi is coming very near to
emphasized that the true issue was not a search for a term of international legal art defining the thing by itself.'44 It was held that 'war' in its Context was ro be
but the construction of a commercial contract. The case concerned a char-terparty construed in accordance with commercial common sense, resulting in a finding of
which gave liberty ro cancel 'ifwar breaks out involving Japan:. Fighting broke out war at the relevant date: 'to suggest that, within the meaning of this charter-party,
berween Japan and China, but there was no formal declaration ofwar and war had not broken out involving Japan on the relevant date is to attribute to the
diplomatic relations remained intact. The shipowner purported ro exercise the parties to it a desire to import into their contract some obscure and
liberty ro cancel. When consulted for its opinion, the Foreign Office responded uncertain technicalities of international law rather than the common sense of
that 'the curtent situation in China is indeterminate and anomalous and His
business men'.45 The court expre~sly rejected the suggestions that war presup-
Majesty's Government are not at present prepared ro say that in ,their view a state
posed either a formal declaration of war" or the severing of diplomatic
of war exists}. However, the statement went on to say that the meaning of the 47
relations.
word 'war' in a charterparty may be viewed rather. as turning upon the
interpretation of the contract and that the attitude of the government was not The distinction between war in the technical sense, formally declared at the 13.22
necessarily conclusive of such interpretation. Sir Wilfred Greene MR observed outset and terminated by a peace treaty, and war in the material sense, consisting
that the question was not whether there had broken out a war recog-nized by the of an outbreak of hostilities on a sufficient scale, nevertheless requires further
government, otherwise the court would either have taken judicial notice of such comment. In New lOrk Life Insurance Co v Bennion,48 a case arising out of
recognition or have sought an answer from the appropnate government
the Japanese attack on Pearl Harbour without a formal declaration of war, an
department. The question was left open of whether recognition
American Circuit Court of Appeals adopted a similar approach to that of the Court
by the government that war had broken out would have determined the
. ., 42 of Appeal in Bantham. Whether war existed was a question of grim reality, not
interpretation iSsue. technical nicety, Consequently, life insurers were able ro rely upon an
38 For a discussion of the meaning of war in international law, see Y Dinstein, 1Ntr, Aggression 43 [1939J 2 KB 544, 556, It should be noted that imernationallaw has itself moved away from a de
and SelfDefence (3rd edn, 20~l) Chs 1 and 2, C Greenwood, 'The Concept of War in Modern iureconcept of 'war' to a de facto notion of 'armed conflict': C Greenwood, 'The Concept of
International Law' (1987) 36 ICLQ283. War in Modern International Law' (I987) 36 ICLQ 283. 44
39 [190012 QB 339, 343-4. 40 (4th ,dn, 1895),63. [19391 2 KB 544, 557. 45 ibid 559.
41 [193912 KB 544. . 'Nobody would have the temerity to suggest in these days that war cannot exist without a
42 ibid 554-5. A government certificate is conclusive in municipal public law: R v declaration of war': ibid 556 per Sir Wilfred Greene MR. Likewise Swinnerton v Columbian
BottrilL ex p Insurance Co 35 NY 174, 186-8 (1867) (American civil war).
Kuechenmeister [1947] KB 41. [19391 2 KB 544, 557.
158 F 2d 260 (1946), 13 ILR 224 (US Circuit Court ofAppeals, 10th Circuit).
410
411
W0r Risks Perils ofW0r, Uprising, and Hostility
exclusion clause limiting the measure of indemnity in cases of death r~sulting insurance peril of 'war'. However, to the extent rhat any doubt may remain
from 'war or any incident thereto'. A dissenting judgment, however, articulated the about the scope of tbe peril of 'war', a material war would certainly constitute a
h " hostile act by a belligerent power.
view that alternative technical and material meanings of t e term war created
ambiguity, that the exclusion consequently amacted the contra proftren- The precise relationship between the modem peril of war and the old peril of 13.25
tem rule of construction and that the technical meaning of the term was to be warlike operation is unclear. However, marine perils which occur in a war
applied as the meaning most favourable to the assured. In the opini~n of the context are today much less likely to be classified as war risks. The doctrine of
majority, in contrast, in the absence of any indication th~t :he partles might proximate cause will not attribute marine losses to the general wat during which
have intended the technical meaning, there was no ambiguity to trigger the
they are sustained, as opposed to a particular warlike operation. Moreover, the
operation of the contra proftrentem rule.49 The distinction is between modem alternative of a 'hostile act by ... a belligerent power' probably requires an
ambiguity in context, tiling into account the clear intention of the parties, as immediate hostile threat. Collisions between friendly vessels in the absence of
perceived by the majority, and ambiguity in the abstract meaning of the tetm.
actual attack would, therefote, appear today to be marine casualties. Similarly, a
The former approach corresponds to that of the English courrs. 50 collision between an insured vessel and the wreck of a vessel sunk by enemy action
However, the position in the United States with respect to war exclusions in life insurance will be tegarded as a peril of the sea and not a war risk, 53 unless the wreck was
policies is far from uniform. In a clear conflict of case law, the weight of authority deliberately situated to damage passing vessels.
favours the definition of war in the material sense,51 although the minority view
in Bennion has attracted substantial support. In particular, m two Civil war will normally be addressed expressly in the policy, but, failing express 13.26
cases arising out of the armed conflict between the United States and No:th mention, it is included within the term 'war' unless the context clearly demon-
Viernam, no formal declaration of war had been made and the courts, echomg 54
strates a conttaty intention. The leading authority on the definition of 'civil
the dissenting judgment in Bennion, applied the contra proftrentem rule to an war' as an independent peril is Spinney's (1948) Ltd v Royal Insurance Co
exclusion of liability relating to deaths 'in time of war', confining 'war' to a Ltd,55 in which Mustill J had to determine whether there was a civil war in
formally declared war. 52 Beirut in Januaty 1976. Declining to proffer a general definition, MustillJ
In the context of the Institute clauses, the absence of any possible distinction between identified and elaborated upon three relevant questions." First, can it be said
material and technical wars is put beyond doubt by the extension of cover that the conflict was between opposing 'sides'?
beyond the peril of 'war' to that of 'any hostile act by ... a belligerent
It must be possible to say of each fighting man that he owes allegiance to one
power'. The English authorities suggest, following the natural understandmg of side or another, and it must also be possible to identify each side by reference
commercial parties, that a material war would fall within the concept of the to a community of objective, leadership and administration.
It does not necessarily follow that the objective ofall those on anyone side must be
identical. There may be considerable differences and even animosities between
49 See also Gagliormella v Metropolitan Life Insurance Co 122 F Supp 246 (1954) (an alleged
allies. But there must be some substantial community of aim, which the allies have
ambiguity of the status of the conflict in Korea in 1952 could only exist in the minds o~ banded together to promote by the use of force. Nor in my view need there always
lawyers, not laymen. 'And what a layman can see, is not to be looked at with a squint unfnendly be only twO sides. Two factions might fight one another, and also the state, in
to insurance companies in their capacity as amhors': per Wyzanski, District Judge, at 249). order to seize power. This would still be a civil war. But if the factions are tOO
See 8.51-8.57 above, numerous, the struggle is no more than a melee, without the clear delineation of
Langlas v Iowa Life Insurance Co 63 NW 2d 885 (1954),21 lLR 416, following New York
Lift Insurance Co v Bennion, and cases therem citcd. Subsequently, the material ~pproach was
combatants which is one of the distinguishing factors of a war.
adopted in Christensen v SterlingInsurance Co 284 P 2d 287 (1955), 22 ILR 893; Canus v New
Thrk
Secondly, consideration needed to be given to the objectives of the 'sides' and 13.27
Life Insurance Co 124 F Supp 388 (1954); Lynch v National Life & Actident Insurance Co 278 SW how those objectives were pursued. Classically, the objective should be the
2d 32 (1955). The Supreme Court of Pennsylvania, which adopted the technical approach to
'war' in Beley v Pennsylvania Mutual Life Insurance Co 95 A 2d 202 (1953), has neverthe~ess
recognized that an 'act of war' ·Qges not require a formally declared war: Thomas v. Metropolttan Life ----- . _ -----
Insurance Co 131 A 2d 600 (1957). For adoption of the material approach With respect to S3 William France Fenwick 6' Co Ltd v North ofEngland Protecting 6' Indemnity Association
cessation ofwar, see Scheiderman v Metropolitan Casualty Co ofNew Thrk220 NYS 2d 947 (1961). [1917] 2 KB 522.
S4 Curtis &Sons v Mathews (1918] 2 KB 825; Pesquerias y Secaderos de Bacalao de Espana SA. v
52 Hammond v National Life & Actident Insurance Co 243 So 2d 902 P971), 54 ILR 522
(Court of Appeal of Louisiana); Jackson v North American Assurance SpcietX ofVirginta Inc 183 SE Beer (1949) 82 LlLRep 501, 513, 514; Spinney; (948) Ltd v Royal Insurance Co Ltd [1980] 1
2d 160 (1971), 54 ILR 525 (Supreme Court of Virginia). Lloyd's Rep 406, 429.
55 [1980] 1 Lloyd's Rep 406. 56 ibid 429-30.
412
413
Wilr Risks Perils ofWilT, Uprising, and Hostility
seizure of power, but ordinary usage, which will reflect the intention of the of fighting, a suspension of all normal life, a casualty list of over 1300 ... and
parties, embraces '[forcing] changes in the way power is exercised without fun- great destruction of property.161 It was no mere riot, but civil conflict
damentally changing the existing political structure' or conflict motivated by amounting to war.
racial, tribal, or ethnic animosities.
In United States case law,62 ir is stressed that a war, whether civil or otherwise, 13.30
Nevertheless, one should ... always begin by enquiring whether the parties have
the object of seizing or retaining dominion over the whole or part of the state. If it must involve governments whether de iure or de jacto, that is <entities that have
is found that they do not, there may still be a civil war; but it will then be necessary to at least significant attributes of sovereignty'. 63 However, English law's recipe for
look closely at the events to see whether they display the degree ofcoherence and 'war' includes no such ingredient, as the discussion in Spinney's demonstrates.
community of purpose which helps to distinguish a war from a mere tumultuous Although Curtis saw the declaration of a Provisional Government, this authority
internal upheaval. can hardly be said to have enjoyed 'significanr attributes of sovereignty'.
Prospect of success is not relevant. 57
(2) 'Revolution, Rebellion and Insurrection'
The third issue generally to be considered is the scale of the conflict and its effect on
public order and the life of the general populace. 58 In the event, Mustill ] held These perils are the modern successors to the peril of 'usurped power', which 13.31
there was no civil war in Beirut at the relevant time by reason of the sporadic first appeared in a fite policy in 1720 in an exclusion prompred by the 1715
nature of the fighting and the absence of both ascertainable sides and clear ]a~~bite uprising and covering losses caused by 'invasion, foteign enemy, or any
purpose. Indiscriminate, random and pointless violence did not constitute a ml1ltary or usurped power whatsoever'. Given the paucity of authority on the
civil war. modern perils, there follows a discussion of'usurped power' to clarify the general
terntory.
A contrast may be drawn with rhe Easter uprising in Dublin in 1916, con-
sidered in Curtis & Sons v Mathews. 59 The General Post Office and other public The concept of usurped power emerged through the Jaw of treason. A rebelli- 13.32
buildings were occupied by persons calling themselves a Provisional Govern-ment, ous mob sought to usurp power because it sought to arrogate to itself the
who proclaimed an Irish Republic. Bombardment by the British army of the post prerogatives of Parliament and monarch, amounting to rreason under the Trea-
office caused a fire that spread and destroyed the claimant's premises and contents. son Act 1351. In COntrast a common mob, which sought merely the tedress of
The claimant brought an action on his policy which covered loss and damage private grievances, committed no treason, although the 1710 Riot Act ren-
'directly caused by war, bombatdment, military or usurped p6wer dered felonious the failure to disperse within one hour mer the reading of a
... and fire ... directly caused by any of the foregoing, whether originating on statutory proclamation. In Drinkwater v London Assurance COrp,64 a mob in
the premises insured or elsewhere'. Roche] entertained no doubts as to rhe Norwich, protesting at the high cost of provisions, destroyed a quantity of
existence of a connecrion berween the uprising and the World War then flour before dispersing when the Riot Act was read. The next day, however,
raging:'o 'As to the actual course of the rising in Dublin itself, there was a week another mob formed and burnt down the claimant's malting house. The
defendant insurer unsuccessfully soughr to rely upon the above exclusion.
Wilmor C] stated as follows:" 'My idea of the words burnt by usurped power,
" Curtis 6- Sons v Mathews [1918J 2 KB 825, 829.
58 Some factors suggested (Spinney s(n 54 above) 430) as relevant in this context include
from the context, is that they mean burnt, or set on fire by occasion of an
'the number of combatants; the number of casualties, military and civilian; the amount and invasion from abroad, or an internal rebellion, when armies are employed to
nature of the armaments employed; the relative sizes of the territory occupied by the suPPOtt it. When rhe laws are dormant and silent, and firing of towns is
opposing sides; the extent to which it is possible to delineate the territories so occupied; the
degree to which the populace as a whole is involved in the conflict; the duration and degree unavoidable, these are the outlines of the picture drawn by the idea which
of continuity of the conflict; the extent to which public order and the administration of these words convey to my mind.'
justice have been impaired; the degree of interruption to public services and private life;
thequestion whether there have been movements of population as a result of the conflict; the
extent to' which each faction purports to exercise exclusive legislative, a4ministrative and
judicial powers over the territories which it controls'.
" [191812 KB 825, affd [1919J 1 KB 425. "._"-" " ----
60 'The existence of the alliance [between Sinn Fein and Germany] thereis no reason to doubt,
" ihid 829.
62 Pan American World Airways Inc v Aetna Casualty 6- Surety Co [1975] 1 Lloyd's Rep 77,
though the Germans lacked the gallantry to attempt to support thei! dupes by themselves
93-5.
ing into thi, zone of danger', [191812 KB 825, 829.
ventur~
63 ihid 93. 64 (1767) 2 Wil, KB 363. 65 ihid 364.
414
415
mtr Risks Perils ofmtr, Uprising, and Hostility
'Usurped power' did not, therefore, embrace the power of a common mob. A mob government. 75 In Rogers v Whittaker,76 in the COntext of an exclusion
'wants a universality of purpose" to destroy, to make it a rebellious mob, or covering ',insurrection, riots, civil commotion') an insurrection was stated to be
high treason'." In Langdale v Mason," Lord Mansfield, in his direction to the a form of 'domestic disturbance' not embracing Zeppelin air raid damage. It has
juty concerning the meaning of 'militaty and usurped power', admitted the been said that' "rebellion") "revoluti,on" and "civil war" are progressive steps in
terms to be ambiguous but stated that they must involve rebellion where the the development of civil unrest, the most rudimentary form of which is
loss is sanctioned by authority.69 "insurrection" ',77
'Usurped power' is more akin to wat and civil war than to mere riot.'o It is more In National Oil Co ofZimbabwe (Private) Ltd v Sturge,78 activities of the Renamo
than the action of an unorganized rabble. 71 In Spinney's (J948) Ltd v Royal 13.36 movement in Mozambique were characterized as an insurrection, enabling
Insurance Co Ltd," MustillJ stated that the English cases 'clearly establish the underwriters to rely on the war risks exclusion in the Institute Cargo Clauses (Strikes).
proposition that one of the tests for a usurped power is whether the acts in question According to Saville]:" ' "Rebellion" and "insurrection" have some-
amounted to constructive treason ... The usurpation consists of the what similar meanings to each other. To my mind, each means an organised and
arrogation to itself by the mob of a law-making and law-enforcing power violent internal uprising in a counrry with, as a main purpose, the object of
which properly belongs to the sovereign'. It was held to be sufficient to show 'a trying to overthrow or supplant the government of that country, though "insur-
mob in posture of war, acting with a common intent and some degree of rection" denotes a lesser degree of organisation and size than "rebellion".' It was
leadership, in pursuance of aims which properly lie within the prerogative of held that the motive behind the desire to change the government was irrelevant.
8o
the sovereign' as opposed to an outright rebellion or insurrection." Saville J acknowledged that purely foreign intervention did not constitute
There is little judicial consideration of the meaning of 'revolution'. The Oxftrd an insurrection, but held that Renamo, although receiving considerable suppOrt
and direction from external sources, was not'a force from outside exclusively
English Dictionary definition involves the complete overthrow, accompanied by carrying out foreign aims and ambitions'."
actual or threatened force, of an established government by its former subjects and
its successful and complete substitution by another government. 'Rebellion' was
(3) 'Civil Strife Arising Therefrom'
alluded to briefly in Spinney's. Mustill ] referred to the OxfOrd English
Dictionary definition of 'rebellion' as 'organised resistance to the ruler or gov- Civil strife is not an insured peril in its own right. Cover is not granted 13.37
ernment of one's country; insurrection, revolt', adding that 'the purpose of the independently against civil strife as a peril in its own right but parasitically against civil
resistance must be to supplant the existing rulers or at least to deprive them of strife arising from the perils of war, civil war, revolution, rebellion,
authority over part of their territory.'74 'Insurrection' was stated in Spinney's to be and insurrection. There is no temporal limitation on when the civil strife must
similar to rebellion but encompassing also the notion of an incipient, limited or less arise so that civil strife will remain covered even after the main peril has ceased
well-organized rebellion. It still involves action with intent to change the to operate, provided that a causal link can be established. There is, however, no
authoriry on the level of civil disorder required to constitute 'civil strife'. In
particular, the relationship between 'civil strife' and the independenr peril of
'civil commotion' (which is insured as a strikes risk)" is unclear.
66 .As opposedpurposes connected to private grievances:
to Spinney's
(1948) Ltd v Royal
Insurance Co Ltd [1980] 1 Lloyd's Rep 406, 436.
67 (1767) 2 Wils KB 363, 365.
75 ibid 436-7. Given the absence at the relevant time of intention to replace the government, on the
68 (1780) 1 Bennett's Fire Insurance Cases 16; (1780) 2 Park on Imurance965.
69 The example given by Lord Mansfield was of the 1745 Jacobite rebellion. Charles Stuart's J found neither rebellion nor insurrection. In Pan American World
facts of Spinney's Mustill
forces reached Derby 'and if they had ordered any part of the town, or a single house, to be set on Airways Inc v Aetna Casualty & Surety Co [1975] 1 Lloyd's Rep 77, 97, a United States Circuit
fire, that would have been by authority of a rebellion'. Court of Appeals adopted the following definition: '[1] a violent uprising by a group or move-ment [2]
70 Rogers v Whittaker [1917] 1 KB 942.
acting for the specific purpose of overthrowing the constituted government and seizing its powers'.
71 Curtis & Sons v Mathews[1919] 1 KB 425, 429. 72 [1980J 1 Lloyd's Rep 406. 76 [1917] 1 KB 942, 944 per Sankey J.
73 ibid 435. Usurped power was held to be present on the facts of Spinney's: 'By side~stepping Pan American World Airways Inc v Aetna Casualty & Surety Co [1975] 1 Lloyd's Rep 77,
77
the government and proceeding to direct action the citizen groups arrogated to themselves the proper 96-7 (US Circuit Court ofAppeals, 2nd Circuit).
functions of the state, and thereby exercised (or constituted). an usu~pedpower': at 436. 78 [1991] 2 Lloyd's Rep 281. 79 ibid 282. 80 ibid 285.
74 ibid 436. With respect to organization, see also the association by Lord Mansfield of a source of 81 ibid 287. 82 See 14.15-14.17 below.
authority with the concept of a rebellion at 13.33 above.
417
416
'Any Hostile Act By or Against a Belligerent Power' Clearly the ramming by a merchantman ofan enemy vessel would be a 'hosrility'. 13.41
It suffices also if the master of the ramming vessel has an honest belief thar he is engaging
Together with the peril of 'war', this replaces the old coverage of 'hostilities or warlike
the enemy." Whar is not known is the effect of the phrase 'by or against a belligerent
operations'. There being no modern authority on the phrase 'any hostile act by
power'. After 1943, the FC&S clause, not dissimilarly worded, defined 'power' as including
or against a belligerent power', there follows a discussion of 'hostilities', which 'any authority maintaining naval, military
may ultimately be held to be synonymous with, or at least analogous to, the or air forces in association with a power'. Given the existence today of a peril of
modern terminology. 'war', the obvious question is what the 'hostile act' peril adds ro the coverage.
13.39 On 18 February 1916, an explosion occurred in the hold of the Tennyson while The phrase 'belligerent power' in inrernationallaw generally denotes a party to
in port in Brazil. This was caused by a bomb planted on the vessel by Herr an armed conRier." If the same meaning is applied in the insurance conrext,
Niewerth, a German citizen resident in the port. In the subsequent litigation, 'war' might appear to swallow the 'hostile act' peril. However, were any power
Atlantic Mutual Insurance Co v King,83 the defendant reinsurer successfully conrributing to hostile acrs to be viewed as 'belligerent', then this peril might
invoked a clause excluding 'all consequences of hostilities or warlike operations'. extend to isolated acts of hostility, or a series of such acrs, either not amounting
On the meaning of 'hostility', Bailhache J observed as follows: 84 to a war as such or associated with but not forming part of a war. Six types of
hostile act may be suggested.
In one sense, it is plainly true that the fire was due to a hostile act, but the plaintiffs say
rightly, as I think, that the word 'hostilities' as used in the Clause, means hostile First, the peril may embrace hostilities, as defined above, before there can be said
acts by persons acting as the agents of sovereign powers, or such organised and 13.42 to be an outbreak of war, perpetrated by or againsr a party to the war that
considerable forces as are entitled to the dignified name of rebels as contrasted with
subsequently breaks out.'o Secondly, in so far as 'war' in an insurance policy
mobs or rioters, and does not convey the act of a merely private individual acting
entirely on his own initiative, however hostile his actions may be. might be construed as denoting an armed confliet between powers recognized as
states in international law, 'hosrile acts by or against a belligerent power' could
The term 'agenr' was not, however, to be read in a rechnical sense and encompass hostilities perpetrared by or against an entity constituting a power but
embraced all individuals who soughr to further the policy of the German nor recognized as a state at the time of the hostility. Thirdly, were the peril of 'war'
government to destroy enemy life and property." The court had before it a to be inrerpreted in a technical sense as requiring a formal declaration of war, rhis
circular to all German naval atraches instrucring rhe immediate mobilization of peril would extend cover ro war in a material sense. Fourthly, by definition a
'destruction agents', and Niewerth was duly held to be such an agent. neutral is not a belligerent, but the peril may embrace hostile acts by a belligerent
The leading case of The Petersham" arose out of a loss by collision between two ships in party against a neutral and, conceivably, belligerent reprisals by that neutral.
convoy when both vessels, in compliance with Admiralty regulations, were being Fifthly, a war might result in a belligerent occupation, the peril covering hostile acrs
navigated without lights as a precaution against enemy action. The lost ship had commitred in the course thereof. Sixtbly, while terrorist organisa-tions would not be
been requisitioned under the terms of a charrerparty rendering the Admiralty liable regarded as powers for the purposes of this peril, an act of state-sponsored rerrorism
for the 'consequences ofhosrilities or warlike operations'. The House of Lords held could qualifY as a belligerent act by the hosrile spon-soring power. 91 Terrorism,
thar merchanr ships sailing in convoy in time of war could not be regarded as a however, constitutes an independent strikes risk.
'hostility'. Lotd Wrenbury observed" rhat:
... the word 'hostilities' does not mean 'the existence of a state of war' but means Henry & MacGregor v Marten (1918) 34 TLR 504. A steamer sank after ramming what the
'acts of hostility' or ... 'operations of hostility.' The sentence may be read 'all captain thought was a German submarine. The war risks underwiters were held Hable.
consequences of operations of hostility (or war) or operations warlike (similar to In cases relating to capture, the word 'belligerent' is used to indicate a participant in a war:
operations of war) whether before or after declaration of war.' To attribute to the 13.45-13.46 below.
Once an armistice has been signed at the end of a conflict, by definition hostilities cease:
word the longer meaning-namely, 'all consequences of the existence of a state of Board o[Trade v Hain Steamship Co Ltd[I929J AC 534, 538, 540 (but tbete may still be a 'warlike
war'-would give the expression a scope far beyond anything which one can operation') ,
conceive as intended. 91 Fot differing thoughts on whether the use of hijacked airliners by adherents of the Al-Qaeda terrorist
movement to destroy the twin towers of the World Ttade Center, damage the Pentagon, and
unsuccessfully attempt to destroy a fourth unknown target might be regarded as an 'act of war' or 'armed
conflict' for the purposes of a commercial insurance policy, see IF P&C Insurance Ltd (PUBL) v
83 [1919J I KB 309. 84 ibid 310. as ibid 313. Silversea Cruises Ltd [2004j EWCA Civ 769, [2004J Lloyd's Rep 1R696, pataS 143, 147-149.
86 Britain Steamship Co v R (The Petersham) [1921] 1 AC 99. " ibid 133.
418 419
war Risks Perils ofDeprivation and Inhibition on Use
seizing or taking by an enemy C?r belligerent. 'Seizure' seems to be a larger term than
Consequently, in the context of cargo insurance where war and strikes risks are
'capture' and goes beyond it, and may reasonably be interpreted to embrace every
subject to separate Institute clauses, if they are insured by separate insurers,
act of taking forcible possession either by a lawful authority or byoverpower-
state-sponsored terrorism will give rise to double insurance. 92
ing force.
In The Minden," Hilbery J observed that 'capture is a talting by the enemy as 13.46
Perils of Deprivation and Inhibition on Use prize in time of open war with intent to deprive the owners of their property in
the goods. It is a belligerent act'.97 It seems clear, therefore, thar capture is but a
As indicated above, war risks clauses, whether for hulls, freight or cargo, include the particular aspect of the wider peril of 'war'. It is not, however, necessary for the
following perils involving deprivation or inhibition on use: capture, seizure, captured vessel to have been condemned in a Court of Prize for the war risks
arrest restraint or detainment, the consequences of such perils, and any attempt at insurer to be liable, even though, in rhe absence of such condemnation, a
such an intervention. In addition, the war and strikes clauses for hulls and freight purchaser or recaptor of the vessel does not have good title as against the
specifically cover the perils of confiscation and expropriation. These are not assured." Indeed, an act of talting possession is not an indispensable prerequisite
covered eo nomine by either rhe war or the strikes clauses for cargo. Given the to a completed capture. Obedience to a hostile force is sufficient. 99 The peril of
structure of the hulls and freight war and strikes clauses, the perils of confiscation 'capture' also extends to the taking of neutral vessels. lOa
and expropriation may perhaps be regarded as strikes risks rather than war risks."
However, nothing turns on such a distinction in the context of hull or freight 'Seizure' is a peril of wider ambit than capture. It is characterized by forcible 13.47
insurance and it is convenient to address confiscation and expropriation in this dispossession,lOl is not confined at common law to belligerent acts,102 need not
section as they also involve a seizure of property. be lawful, '03 and, receiving its ordinary meaning, does not require the intention,
initial or sustained, permanently to deprive the assured of its property.'04 A vessel
A particular feature of this group of perils in the war and strikes clause.s for hulls and can be seized by those on board,105 but not by the master or crew to whom it has
freight is that their scope is affected considerably by certain exclusions. While been entrusted.'06 Such conduct constitutes the peril of barratry, which may,
exclusions are generally the subject of a later chapter, a realistic picture of the however, lead to seizure by, for example, customs authorities.'07 Similatly,
extent of cover afforded in respect of deprivations of possession cannot be
conveyed without full discussion of the relevant exclusions, which is accordingly
included in this section after consideration of the nominate perils. Some of the
exclusions are found also in the war clauses for cargo. Moreover, in the~war
" Forestal Land, Timber & lIdilways Co v Ricka"ts (The Minden) [1940] 4 All ER 96, 109.
clauses for cargo, but not the war and strikes clauses for hulls and €reight, the perils 97 Part of a passage cited with approval by Kerr L] in Shell International Petroleum Co Ltd v
involving deprivation or inhibition on use must arise from the perils of Gibbs (The Salem) [1982] 1 QB 946, 992.
war, uprising and hostility.94 sa Goss v Withers (1758) 2 Burr 683. Although note that, in the event of recovery by the
assured before commencement of proceedings against the insurer, the absence of
condemnation will affect the measure of indemnity, see 21.98ffbelow.
Capture and Seizure 99 La J::'speranza (1822) I Hagg 85, 91.
100 Powell v Hyde (1855) El & B1607; Anderson v Marten [1907] 2 KB 248.
In Cory & Sons v Burr," a case turning on an FC&S clause, Lord Fitzgerald 101 Cory & Sons v Burr (1883) 8 App Cas 393, 405; Kuwait Airways Corp v Kuwait Insurance
stated that: . Co 5AK[1999] 1 Lloyd's Rep 803, 814; Bayview Motors Ltd v Mitsui Marine & Fire Insurance Co
Ltd [2002] EWCA Civ 1605, [2003J 1 Lloyd's Rep 131 (simple theft not a seizure). A latent or
In the construction of this warranty it is observable that 'capture' and 'seizure' do implicit threat afforce suffices, see 13.50 below.
not mean the same thing. 'Capture' would seem properly to include every act of 102 Cory & Sons v Burr (1883) 8 App Cas 393. However, under the Institute War Clauses
(Cargo), it must arise from risks covered under d 1.1. See also the restrictions on cover in
the war and strikes clauses for hulls and freight discussed at 13.67ff below.
"3 Powell v Hyde (1855) EI & BI 607; Lozano vJamon (1859) 2 EI & EI 160; Robimon Gold
Mining Co v Alliance Assurance CO [1902J 2 KB 489.
Double insurance is discussed in Ch 26 below. '" Johmon & Co v Hogg (1883) 10 QBD 432.
The first three groups of perils under the war and strikes clauses for hull and freight Kleinwortv Shepard (I 859) 1 EI & E1447.
correspond to the perils covered under ,the war clauses for cargo, while the next two groups Greene v Pacific Mutual Life Insurance Co (1864) 91 Mass (9 Allen) 217 (M Miller, Marine \.%r
correspond to the perils covered under the strikes clauses for cargo. The pe.J:ils Risks (3rd edn, 2005) paras 12.50-12.52); Republic of China et at v National Union Fire
ofconfiscation and expropriation are then added as a sixth group. Imuranee Co o/Pittsburgh (The Hai Hsuan) [1958] I Lloyd's Rep 351.
94 Institute War Clauses (Cargo), cl 1.2. 9S (1883) 8 App Cas 393, 405. ", Cory & Sons v Burr (1883) 8 App Cas 393.
420 421
WUr R,sks
Perils ofDeprivation and Inhibition on Use
the misappropriation of cargo by those in possession of it, thus altering the authority. 'For the purposes of the law of insurance, in the absence of an express
character of the possession, does not amount to a seizure for the purposes of
agreement to the contrary, a policy should not be construed as covering the
marine insurance. t08
ord~nary co~sequences of voluntary conduct of the assured arising out of the
ordmary mCIdents of trading; it is not a risk. 1113 There is, however, no require-
Arrest, Restraint, and Detainment ment of proof of either actual use of force or resistance. It suffices that the assured
These perils replace the SG policy phrase 'arrests, restraints, and detainments of all kings, has no realistic alternative but to leave the insured property idle.'14 Accordmgly,
where the seizing or restraining force is a government, its latent power provides the
princes, and people', which is srated by Schedule 1, rule 10 of the Marine Insurance
Act 1906 to refer to political or executive acts and not to include losses caused by necessary compulsion." 5 Moreover, as stated by Lord Wright
. Th M' de '16' h .
riot, which constirutes a separate peril, or ordinary judicial process. Under the m e In n, t ere may be a restraInt, though the physical force of the state
modern Insritute clauses, the insuring clause refers to concerned is not immediately present. It is enough, I think, that there is an
'arrests, restraint and detainment' with no qualification, while a number of order of the state: ~ddressed to a subject of that state, acting with compelling
restrictions on the cover prima ftcie granted are imposed by a series of express for~e on h,u:, deCISIvely exacting his obedience and requiring him to do the act
exclusions.'o, It would, therefore, appear that no additional restriction on cover whIch effectively restrains the [subject-matter insured].
is to be implied into the covered perils, although the precise analytical relation- The Case itselfarose out of the order of the German government on the outbreak 13.51
ship between this group of covered perils and the relevant express exclusions of the Second World War to all German ships to take refuge in neutral pOrts,
has elicited conflicting views in the case law."o return to Germany if possible, or, as a last resort, to scuttle. The master of the
Undeniably, the three perils overlap. In so far as any distinction can be dis-cerned, Minden abandoned her planned voyage, but failed in his attempt to run the Alhed
'restraint' may embrace an interdiction preventing free use of property without blockade and scuttled his ship. In an action by the British cargo owners, the House
deprivation ofpossession, while the terms 'arrest' and ~detainment' may carry of Lotds held there was a restraint of princes (namely, the German government) as
connotations of physical inhibition, either immediate or potential, should an soon as the master seized the goods 'in the sense that he ceased to hold the~ as
instruction not be obeyed.'" The courts, however, have not been faced with a policy carrier and changed the character of his possession by taking and controllmg them
separating the three, with the result that the cases portray one combined peril. as agent for the German government with the intention and effect of holding them
Moreover, there is considerable overlap between the combined peril and, in adversely to the assured and applying them to the hostile purposes of his
parricular, seizure. In Miller v Law Accident Insurance CO,'12 a prohibition on government'.117
the landing of a cargo of bulls was held to be a restraint and, therefore, prima ficie The restraint may equally be imposed by the government of the assured.'" 13.52 The
covered. However, the underwriters successfully invoked a 'capture, seizure possibility of an indemnity from the restraining power does not negate the
or detenrion' exclusion, which was held to remove the cover otherwise
provided by the phrase 'arrests, restraints, and detainments'.
A requirement common to the perils of capture, seizure, arrest, restraint and detainment is
that the peril should not be voluntarily incurred. Consequently, there is no insured '" Ikerigi Compania Naviera SA v Palmer (The Wondrous) [1991] 1 Lloyd's Rep 400, 416 per
Hobhouse J.
detainment where a vessel is confined to a port for failure by an assured shipowner 114. In Becker, Gray o-Co v London Assurance Corp [1918J AC 101, 115, Lord Sumner expressed
to pay porr dues for which the assured is liable to the port the v:ew that no. r~le could .be formulated 'to fix the distance from which an encircling force may
be saId to restram Its enemIes'. But note the distinction between an operative restraint and
mere apprehension thereof,
115 Robir;son Gold Mining Co v Alliance Assurance CO [1902J 2 KB 489; Miller v Law Accident
Insurance Co [1903) 1 KB 712; Sanday v British & Foreign Marine Insurance Co [1915] 2 KB 781;
'08 ShellInterna,ional Petroleum Co L,d v Gibbs (The Salem) [19831 2 AC 375; Bayview Mo'ors Becker, Gray & Co v London Assurance Corp [19181 AC 101; The Bamburi [19821 1 Lloyd's Rep
Ltd v Mitsui Marine &Pire Imurance Co Ltd (2003] 1 Lloyd's Rep 131. ?12,315. Proof ofan actual threat of force or use of force is, however, required where the restraint IS
The relevant exclusions are discussed at 13.62-13.79 below. unlawful because disobedience is not illegal: Russian Bankjor Foreign Trade v Excess
See 13.80-13,83 below:' Insurance Co
'" Ikerigi Compania Naviera SA v Palmer (The Wondrous) [1992] 2 Lloyd's Rep 566, 571, 577 L,d[1918J 2 KB 123, 130-1.
(vessel detained for infringement of customs regulations in that any attempt to leave would have '" Rickards v ForestalLand, Timber & Railwa!ys Co (The Minden) [19421 AC 50 81-2
been stopped by force). .' 117 'b'd ' .
l'79-80 per Lord Wright.
112 [1903J 1 KB 712.
118 Rotch vE~ie(1795) 6 TR413; Sanday o-Co v British 0- Foreign Marine Insurance Co [1915]
2 KB 781; Ruman Bank for Foreign Jrade v Excess Insurance CO [1918J 2 KB 123, 130.
422
423
'19 emphasizes exceeding that which can be preparatory only, rather than concen-
existence of the peril. A requirement that vessels follow a particular route in
time of war is not a restrainr. 120 trating upon any degree of proximity to the act that should complete the full
offence. An attempt is committed 'when the merely preparatory acts come to an
end and the defendant embarks upon the crime proper',12' or, in more col-
The Consequences Thereof
loquial terms, when the defendant is 'on the job'.'" There is sufficient evidence
Obsolete forms of war tisks insurance covered, inter alia, 'the risks of capture, seizure, of attempted murder to go to the jury where the defendant gets into a person's
arrest, restraint or detainment by the King's enemies ang the con-sequences car and points a loaded sawn-off shot gun at him even though, to complete the
crime of murder, it might be necessaty still to remove the safety catch and pull
thereof and the 'consequences of hostilities and warlike operations'. High authority
established that the term 'consequences' encapsulated the effects of the enumerated 128
the trigger. However, it is not an attempted theft to try unsuccessfully to
perils and represented a loss, not an independent petil. Cover
render void a greyhound race in order to recover a bet laid on a losing dog.
waS confined to losses consequential upon the specified perils and did not extend
121 Doing X (jumping on to the race track) to try to produce effect Y (annulation of
to loss or damage caused by such consequences. There is no reason to believe the race by the stewards) in order to produce opportunity Z (to reclaim the
that the modern Institute clauses should be understood differenrly. wagered money from a bookmaker) did not cross the frontier from mere
12
A likely consequence of one of the perils of deprivation is detention so as to retard the preparation to attempted theft from the bookmaker. '
vessel in the pursuance of its voyage or to prevent accomplishment of the An analogy may be drawn with the distinction between loss caused by an 13.57 operative
voyage altogether. Such frustration ofvoyage is discussed elsewhere.'"
peril as opposed to mere apprehension of such a peril. 130 'Is it a fear of
a peril that will happen in the future 01' has the peril already happened and is so
Any Attempt Thereat imminent that it is immediately necessary to avert the danger by action?"31
There is no authority on the meaning of an attempt in the context of an insured peril Similarly, an attempt seems to imply that the main peril is under way.'" For
ofdeprivation or inhibition. Assistance may be found in the criminal law on example, the jettison of money to avoid its seizure, when under pursuit by an
attempts,123 although it should be remembered that the same considetations enemy vessel, where rhe pursued vessel subsequenrly escapes, should provide
do not necessarily underpin the imposition of criminal liability and an example of loss caused by an attempted capture.'" Likewise, the proximate
determination of the extent of insurance coverage. cause of the Joss would be attempted capture where the master, in seeking to
escape, ran his vessel ashore or put into a bay where there was neither harbour
13.56 Section 1 of the Criminal Attempts Act 1981 provides, inter alia, that a person is nor anchorage and the vessel, unable to get out, was then driven ashore by the
guilty of an attempt if that petson 'does an act which is more than merely
wind and waves. 134
prepatatoty to the commission of the offence'. It is, however, difficult to draw the
distinction between an act 'metely preparatory' and an attempt, which will
encompass acts of preparation which are not 'merely' preparatory. In R v
Gulleftr,'24 it was held to be unnecessary for the offender to 'have crossed the
Rubicon and burnt his boats'.'" Moteovet, the statutory formulation
cumulative effect is not yet fatal and the accused could still change his mind: R v White [1910] 2
KB 124. See also R v jones [1990J 1 WLR 1057; Attorney-GeneralS Reftrence (No 1 of 1992)
[1993] 1 WLR 274; Rv Dagnall [2003] EWCA Crim 2441, (2003) 147 SJLB 995.
"9 Rotch v Edie (1795) 6 TR 413. '" R v Gulleftr [1990] 1 WLR 1063n, 1066 pa Lord Lane C].
Bulchow Vaughan & Co v Campania Minera (1916) 32 TLR 404. m R v Osborn (1919) 84 JP 63, 64 per Rowlatt J. A decision to burgle a particular address,
Ionides v Universal Marine Insurance Co (1863) 14 CB (NS) 259; Liverpool & London war equipping oneself with a jemmy, dressing for burglary and setting off for the address would
Risks Insurance Association Ltd v Ocean Shipping Co (The Priam) [1948] AC 243, 256-7, 263-5; be insufficient to constitute attempted burglary.
Costain-Blankevoort (UK) Dredging Co Ltd v Davenport (The Nassau Bay) [1979] 1 Lloyd's Rep 128 Rvjonedl990] 1 WLR 1057. 129 Rv Gulleftr[1990] 1 WLR 10630.
395,403. See 9.46-9.54 above.

See 21.97 below. Symington & Co v Union Insurance Society ofCanton Ltd (1928) 31 LlLRep 179, 182 per
As to which, see Smith arid Hogan, Criminal Law (10th edn, 2002) 328ff; Simester and Scrutton LJ.
Sullivan, Criminal Law: Theory and Doctrine (2nd edn, 2003) 295ff. 132 Nickels v London & Provincial Marine & General Insurance Co (1900) 6 Com Cas 15, 17,
[1990] 1 WLR 1063n. 133 M Miller, Marine War Risks (3rd edn, 2005) paras 14.25-14.26. The suggestion is derived
As suggested in DPP v Stonehouse [1970] AC55, 68 per Lord Diplatk. Thus, attempted from Butler v Wildman (1820) 3 B & AId 398, although in that case the vessel was captured.
murder by poisoning is committed by the administering of successive doses of poison even if the 134 Ionides v Universal Marine Insurance Co (1863) 14 CB (NS) 259, 286.
424 425
Confiscation or Expropriation The events constituted the broader peril of seizure, but confiscation could not
extend to the renunciation by Prussia of all rights in the property.
'The essence of [expropriation] is the deprivation by state organs of a right of
property either as such, or by permanent transfer of the power of management As previously noted, there is no reference to confiscation or expropriation in the 13.61 war or
'135 strikes clauses for cargo. It is most unlikely that insured property can be
and control. It is a manifestation of the sovereign power of a state over its
territory and property found in that territory. The deprivation may be termed lost by expropriation or confiscation without the occurrence of one of the other
'confiscation' where it is unlawful, without compensation, or by way of lawful '4
perils of deprivation or inhibition on use. ' However, the requirement under the
penalty. Theft by state officials for their own benefit is not, however, an exercise
Institute War Clauses (Cargo) that a peril ofdeprivation or inhibition on use must
of sovereign power and does not amount to confiscation. ' " In Re Barnett's arise from a peril of war, uprising, or hostility'43 means that any expropri-ation or
Trusts,137 Kekewich J stated that 'in the ordinary sense [confiscation] applies where confiscation of cargo that does not so arise is irrecoverable under the
the Crown intervenes, not to take property because it is vacant, but to take by way of cargo war clauses. Moreover, it is also irrecoverable under the marine cargo
penalty in exercise of sovereign rights'. The two terms, however, clearly overlap. Thus, clauses. The Institute Cargo Clauses (A) have an insuring clause broad enough
it would not be an abuse of language to speak of unlawful expropriation, although the to cover expropriation or confiscation, but in those clauses the exclusion of
taking of property by way of genuine judicial penalty would naturally be termed perils of deprivation and inhibition on use is unqualified by any reference to war
confiscation and not naturally termed expropriation. perils. '44
(6) Restrictions on Scope of Cover

The deprivation may be indirect and gradual, giving rise to 'consttuctive' or
'creeping' expropriation or con£scation. 138 In such a case, an issue could arise as While the true extent of any aspect of cover under any policy depends on the 13.62
to when the loss occurred for the purposes of determining whether the insurer was combination of insured risks and exclusions, this is especially true in respect of various
on risk at the relevant moment. A contractual right, such as freight, is property forms of deprivation and inhibition on use. The war and strikes clauses
'39
susceptible of expropriation or confiscation. for hulls and freight contain four provisions labelled 'exclusions' that limit the
cover prima ficie granted in respect of the perils discussed in the previous
13.60 In Levin v Allnutt, 140 cargo insurance was 'warranted free from confiscation by
paragraphs. Thus, clause 5 of the Institute War and Strikes Clauses (Hulls-Time) (l
the Government in the ship's port or ports of discharge'. The vessel anchored in a
1I 1/95) provides as follows: 145
Prussian port where possession was disputed by Prussian and French boarders.
The Prussian government having referred the matter to the French authorities, the This insurance excludes
Imperial Court of Prizes at Paris condemned the ship and carg9 as prizes to the loss damage liability or expense arising from
French, to whom they were handed over. The result clearly enured to the benefit
of the French government, but had it been effected 'by' the Prussian government? requisition, either for title or use, or pre-emption
capture seizure arresr restraint detainmenr confiscation or expropriation by or
Lord Ellenborough CJ stated in the course ofargument that con-fiscation 'must be
under the order of the government or any public or local author-ity of the
an act done in some way on the part of the Government of the country where it country in which the Vessel is owned or registered
takes place, and in some way beneficial to that Government; though the proceeds arrest restraint derainment confiscation or expropriation under quaran-tine
may not, strictly speaking, be brought into its Treasury' .'4' regulations or by reason of infringement of any customs or trading
regulations
5,1,5 the operation of ordinary judicial process, failure to provide security or to
pay any fine or penalty or any financial cause,
I Brownlie, Principles ofPublic International Law (6th edn, 2003) 508-9,
13S
Bayview Motors Ltd v Mitsui Marine 6- Fire Insurance Co Ltd (2002) EWHC 21 (Comm),
136
[20021 1 Lloyd's Rep 652, para
32. m [1902J 1 eh 847, 858.
138 eg deprivation of effective use, control, and benefits, but not title, as in Starrett Housing
Corp v Iran (1984) 4 Iran-USCTR 122, or confiscatory taxation such as a Burmese See Panamanian Oriental Steamship Corp v Wright (The Anita) [1971] 1 WLR 882, 886-7,
99% See 13.02-13.04, 13.44 above.
Institute Cargo Clauses (A), d 6.2.
profits tax. See generally D Harris, Cases and Materials on Public International Law (6th edn,
Likewise the almost identically worded Institute War & Strikes Clauses (Hulls~Time)
2004) 577-611.
(1/10/83), clI4.1.3-4.1.6.
139 Amoco International Financial Corp v Iran (1987) 15 Iran~USCTR 189, para 108.
,,, (1812) 15 East 267. ,,, ibid 269.
427
426
Wir Risks Perils ofDeprivation and Inhibition on Use
These exclusions are not found in the Institute War Clauses (Cargo). However, as noted 'The mobilisation of the industrial and financial resources of the country could not
above,146 the scope of rhe cover prima ficie provided in respect of deprivation be done without statutory emergency powers. The prerogative is really a relic of a
and inhibition on use is narrower than in rhe context of hull and freight insurance. past age, not lost by disuse, but only available for a case not covered by statute."54
Moreover, clause 3 of the Wat Clauses (Cargo) provides as follows: Subject to a contrary statutory provision, any exercise of a right
of requisition attracts a right to compensation: 155 requisition 'is a right to take
and pay' .156
In no case shall this insurance cover
Two other forms of requisition may be considered. The right of angary permits a 13.66
loss damage or expense ar.ising from insolvency or financial default of the owners belligerent state to requisition the property of neutrals found within territory of
managers charterers or operators of the vessel which it is sovereign or in military occupation. 157 The right is restricted to cases of
any claim based upon loss of or frustration of the voyage or adventure. real and extreme need for the property in question'58 and compensation must be
15
This section will now consider the exclusions set out above in the war and strikes paid to the owner. ' Requisition may also occur 'in prize', as considered by the
clauses for hulls and freight. It may be noted that the causal phrase 'arising from' Privy Council in The Zamora: 160
imports the traditional test of proximate cause.'47
A belligerent Power has by international law the right to requisition vessels or goods in
the custody of its Prize Court pending a decision of the question whether they should
(aJ Clause 5.1.2: requisition andpre-emption
be condemned or released, but such right is subject to certain limitations. First, the
In time of national emergency,'48 the Crown has a prerogative right to requisi-tion the vessel or goods in question must be urgently required for use in connection with the
property of British subjects on land or seas over which the Crown defence of the realm, the prosecution of the war, or other matters involving national
exercises sovereignty.'" Although a requisition requires the taking of possession security. Secondly there must be a real question to be tried, so that it would be
. f h .h f d' al 150 h' f'51 improper to order an immediate release. And, thirdly, the right must be enforced by
or assumptIOn 0 t e ng t 0 use or lSpOS, t e term IS not one 0 art. application to the Prize Court, which must determine judicially whether, under the
According to Lord Merriman P in The Steaua Romana: 152 particular circumstances of the case, the right is exercisable.
Requisitioning may be, and usually is, nothing more than a hiring of the ship Does the requisition exclusion in the Institute war and strikes clauses for hulls 13.67 and
which does not take the property in the ship out of the owner, though the owner has no freight cover angary and requisition in prize? Since they are forms of requisi-
alternative whether he will accept the proposition of hiring or not, or it may involve a
taking over of the absolute dominion of the vessel, though this may nor
tion and defined as such, it is suggested that they do fall within the exclusion,
be ascertained in any given case until the terms are finally settled. . . . ,.
although the contrary has been asserted at least with respect to angary.'61 All
requisitions fall, however, within the peril 'restraim'.'62 Consequently, any
The royal prerogative is 'the residue of the power of sovereignty that has not been
superseded or abridged or supplanted temporarily by the power of the King in
Parliament'.153 In reality, requisition is nearly always regulated by statute:
154 ibid 101 per Lord Reid. Moreover, where a statutory scheme for requisition exists, the Crown may
not exercise the common law prerogative unless the statute so provides: Attorney~ General v De
Keyser's Royal Hotel [1920] AC 508. The most important statute is the Compensation
See 13.04 above. (Defence) Acr 1939.
Handelsbanken Norwegian Branch ofSvenska Handelsbanken AB (PUBL) v Dandridge (The Surmah Oil Co L,d v LordAdvoca,e(l965] AC 75.
Nissan vAttorney~General [1970] AC 179,227 per Lord Pearce.
Aliza Glacial) (2002] EWCA Civ 577, (2002] 2 Lloyd's Rep 421. para 60.
157 The Zamora [1916J 2 AC 77, 101; Commercial 6- Estates Co of Egypt v Board of Trade
148 On the meaning of 'emergency', see Crown of Leon (Owners) v Admiralty Commissioners (1925] 1 KB 271, 285.
[I 92 I) 1 KB 595. 603-4. '58 The Zamora (1916] 2AC77, 101-2.
149 It has been argued that the right extends to British ships anywhere in the world: ibid 101. See also Commercial 6- Estates Co ofEgypt v Ball(1920) 36 TLR 526; Commercial
W Holdsworth, 'The Power of the Crown to Requisition British Ships in a National Emergency' Estates Co ofEgyp, v Board ofTrade (1925J 1 KB 271. 285, 295-6; Surmah Oil Co L,d v Lord
(1919) 35 LQR 12. However, the prerogative has also been stated obiter to be confined to the Advoca'dl965] AC 75,102.
Crown's sovereign territory: Nissan v Attorney-General [1970] AC 179, 213, 236. (1916] 2AC77, 106.
150 Bombay & Persia Steam Navigation Co v Shipping Controller (1921) 7 LlLRep 226 (directing
M Miller, Marine war Risks (3rd edn, 2005) para 21.42. Miller draws no distinction
of ship to a different port of destination not requisition); France Fenwick 6- Co Ltd v The King [1927] between angary and requisition in prize.
I KB 458 (refusal to allow discharge of cargo without permission not requisition). Tamplin (FA) SS Co L,d vAnglo-Mexican Petroleum Produc~ Co L,d(1916] 2 AC 397 (intra
'" The Sroadmayne(l916] P 64, 73; The Suaua Romana (1944] P 43, 48. vires requisition). The position is probably the same where the requisition is ultra vires: Russian
'" ibid 48, following The Saryen (19161 P 306, 317. Bankflr Foreign Trade v Excess Insurance Co [1919] 1 KB 39.
m Surmah Oil Co L,d v LordAdvoca,e(l965] AC 75, 148 per Lord Pearce.
429
428
lVtlr Risks Perils ofDeprivation and Inhibition on Use
requisition of cargo that arises from a peril of war, uprising, or hostility will be A similar approach is adopted with respect to rhe concept of 'trading regula- 13.72
covered under the Instirute War Clauses (Cargo). 60ns'. Whether a regulation should be so characterized 'depends upon its own
nature and purpose' and not upon whether it happens to impact upon the
It may be noted that not only do the Instirute war and strikes clauses for hulls and freight
trading operation of a particular vessel.'·' In The Aliza Glacial, '.8 a fishing vessel
not cover requisition of a vessel, whether for title or use, but such
was seized and detained for illegal fishing contrary to the Australian Fisheries
requisition also automatically terminates cover, subject to certain deferrals,
Management Act 1991. Although this Act clearly restricted the commercial
under all Instirute and International marine clauses for hulls and freight and,
operation of the insured vessel, the Court of Appeal held that it was not a
without any deferrals, under all Institute war and strikes clauses for hulls and
trading tegulation within the meaning of the Institute clauses but an ecological
freight.!63
and environmental measure, designed to' conserve fishing stocks. In contrast,
Also excluded alongside requisition is 'pre-emption'. This is the purchase from irs where international trading sanctions are imposed on a country, restrictions on
neutral owner of property that, in the English view of international law, is the commercial operation of vessels imposed by or pursuant to such sanctions
susceptible to condemnation as prize. It has always been viewed as confined ro would be regarded as generated by trading regulations.'·'
naval stores. Pre-emption excludes any litigation between the Crown and the
The exclusion covers deprivations 'under' quarantine regulations and 'by reason 13.73
neutral party.164
of infringement' of customs or trading regulations. No significance is, however,
(b) Clause 5.1.3: order ofgovernment or public or local authority to be read into this difference of expression. In particular, the reference to
'infringement' does not require an actual infringement to have been committed.
13.70 This exclusion is confined to deprivation of the insured vessel o'r an inhibition on its
In The lVtlndrous,170 the insured vessel did not have clearance to leave under
use by order of the government or public or local authority where the vessel is
customs regulations because the shipowner had failed to pay port dues and a
owned or registered. It would include, but is not confined to, detention by the flag
local tax on freight, and the exporter had failed to provide a foreign currency
state for non-compliance with rules of international law regarding the safety of
guarantee as required by exchange control legislation. Alrhough the vessel was
shipping that the flag state is charged with enfotcing.
not arrested or restrained in any immediate way, it would have been forcibly
(c) Clause 5.1.4: arrest restraint detainment confiscation or expropriation under detained had it attempted to leave without clearance. In those circumstances, a
quarantine regulations or by reason ofinfi'ingement ofany customs or trading majority of the Court of Appeal upheld the decision of Hobhouse J at first
regulations instance171 that the exclusion applied. There was no commercial sense in
confining the exclusion to circumstances where the vessel attempted to sail in
The phrase 'customs tegulations' embtaces all rules relating to the importing Ot exporting
breach of the customs regulations. Those regulations were equally operative
of goods, irrespective of the nature Ot extent ofrestriction irnposed. In particular, it
in immobilizing the vessel whether or not broken.
includes not only regulations that impose conditions such as the
payment of duties or the obtaining of a licence but also teglllations that impose a For the exclusion to apply, the deprivation must be genuinely attributable to the 13.74
16
total ptohibition. ' Metely because a regulation is enforced by customs operation of regulations. In The Anita, 172 Vietnamese customs officials found a
authotities does not necessarily make it a customs regulation within the meaning of large quantity of goods not recorded on rhe cargo manifest concealed on board
16
the Institute clauses: the test is one of the nature of the regulation. • the insured vessel. A Special Court, established under emergency legislation,
subsequently acquitted the mastet of smuggling, convicted five crew members,
and ordered the confiscation of the smuggled goods and the insured vessel. The
,,, eg Institute Time Clauses Hulls (/10/83), cl 4.2; (1111/95), cl 5.2: International Hull
assured argued that the loss of the vessel did nOt arise from an infringement of
Clauses (01111/03), cl14,1: Institute War and Strikes Clauses (Hulls-Tirne) (/10/83), cl5.2.3:
(l/11195), cl 6.2.2. The contrary can, of course, always be agreed, as expressly
contemplated by the International Hull Clauses.
'" The Zamora [19161 2 AC 77, 105-6, 167 Hande/sbanken Norwegian Branch ofSvenska HandelsbankenAB (PUBL) v Dandridge (The
165 Panamanian Oriental Steamship Corp v Wright (The Anita) [1971] 1 WLR 882; Sunport
Aliza G/aciaO [20021 EWCA Civ 577, [2002J 2 Lloyd's Rep 421, para 30 per Potter LJ.
Shipping Ltd v Tryg-Baltica International (UK) Ltd (The K/eovoulos ofRhodes) [20031 EWCA Civ "" [20021 EWCA Civ 577, [20021 2 Lloyd's Rep 421, para 31. '" ibid para 30.
12, [200311 Lloyd's Rep 138, paras 41-42. 170 Ikerigi Compania Naviera SA v Palmer (The Wondrous) (1992] 2 Lloyd's Rep 566.
,,, Sunport Shipping Ltd v Tryg-Baltica International (UK) Ltd (The'Kleovoulos of Rhodes) '" [1991] I Lloyd's Rep 400.
[20031 EWCA Civ 12, [20031 1 Lloyd's Rep 138, para 43. Panamanian Oriental Steamship Corp v Wright (The Anita) [1971] 1 WLR 882.
172
430 431
W0r Risks Perils ofDeprivation and Inhibition on Use
customs regulations because the court, in ordering the confiscation ofthe vessel, '79
Aliza Glacia4 the exclusion in principle applied where Australian authorities
had acted without jurisdiction and under the political direction of the govern-ment that had seized the insured vessel in connection with illegal fishing and detained it
and not in an independent and bona fide exercise of a judicial function. The Court in contemplation of fotfeiture in the event of a conviction of the master or crew,
ofAppeal accepted that, were this indeed the case, the assured would be entitled to then offered its release in return fot the provision of security. On the facts, however,
recover, but held that the evidence did not sustain the assured's argument. the amount of the security demanded was at least equal to the value of the vessel
and its forfeiture was appatently inevitable. It was, consequently, reasonable for the
assured to decline to provide the security and the exclusion did not apply. Similarly,
(d) Clause 5.1.5: ordinary judicialprocess, ftilure to provide security or to the exclusion would not apply where the assured declined to pay a ransom
pay any fine orpenalty or any financial cause demanded by pir'''es or terrorists for the release of a hijacked vessel."o
Insurers are not liable for the consequences of normal judicial proceedings. The origin of
the exception lies in the exclusion under the SG policy of ordinary
Once the Australian authorities offered to release the insured vessel in return for 13.77
173
judicial process from the petil of restraints of princes. In The Anita,174 security, a question of causation arose. If the proximate cause of the resulting
Mocatta J confined 'ordinary judicial process' to civil proceedings since 'in such loss was the failure to provide security, there would be no loss caused by a
cases the State is merely providing a service to litigants, rather than exercising its covered peril, so that the exclusion would be irrelevant. The Courr of Appeal
own power through the Courts for its own purposes'.175 There would, therefore, held, however, that the failure ro provide security was 'an effective cause operat-
be a covered peril of deprivation if a vessel were detained afrei either a murder on ing concurrently wirh [the] original seizure and detention so as to deptive the
board or the discovery of illegal immigrants on board,176 or, as in The Anita owners of their use of the vessel'. This put the exclusion into play, although, as
itself, the insured vessel was seized after customs officials found smuggled goods
JUSt seen, it did not operate on the facts.
on board and subsequently confiscated by judicial order.
In contrast, in the South Aftican case of The Morning Star,'81 it was held that 13.78
Nevertheless, the reference ro 'failure ... to pay any fine or penalry or any financial cause'
where a vessel was confiscated because of the failure, through impecuniosity, to
clearly extends the exclusion beyond civil proceedings. In particular, the phrase
pay a fine within the permitted time, the sole proximate cause of the confisca-
'any financial cause' is extremely broad and includes a failure to pay money even
tion was the failure to pay, to the exclusion of the otiginal arrest and detention
on the part of someone orher than the assured
of the vessel for the offence in respect of which the fine had subsequently been
shipowner.177 This extension is, however, not without limits. Notwithstanding the
levied. If one transposes this causation analysis to the facts of The Aliza Glacia4
references to 'any' fine, penalty or 'any' financial cause, the exclusion ha's to be
the proximate cause of the loss would have been the failure to provide security,
understood as subject to an implied limitation that the financial issue must be
triggered by a reasonable and legitimate claim against the vessel."8 In The regardless ofwhether that was reasonable. Since that was not a covered peril, the
assured could not have recovered. It is, however, suggested that the approach of the
English Court ofAppeal to causation is to be preferred."2
MIA 1906, Sch 1, rIO; Finlay v Liverpool & Great Western 55 Co Ltd (1873) 23 LTNS
251; Crew, Wtdge/)' & Co v Great Western 55 Co Ltd[18871 WN 161.
Panamanian Oriental Steamship Corp v Wright (The Anita) [1970J 2 Lloyd's Rep 365
(the proceedings of an extraordinary Vietnamese military tribunal held not to constitute [20021 EWCA Clv 577, [2002J 2 Lloyd's Rep 421. See also 21.82-21.83 below,
'ordinary judicial process'), rvsd on different grounds [1971] 1 WLR 882. ibid para 52.
[1970J 2 Lloyd's Rep 365, 377. See also Handelsbanken Norwegian Branch of Svenska Incorporated General Insurances Ltd v AR Shooter (The Morning Star) [1987] 1 Lloyd's Rep
Handelsbanken AB (PUBL) v Dandridge (The Aliza Glacial) [2002J EWCA Clv 577, [20021 2 401, 406-7 (Supreme Court ofSouth Africa, Appellate Division). The policy was an old~style SG
Lloyd's Rep 421, para 44. policy that covered total loss caused by arrest and contained no express exclusion of losses
176 Sunport Shipping Ltd v Tryg-Baltica International (UK) Ltd (The Kleovoulos of Rhodes) caused by failure to pay any fine.
[2003J EWCA Clv 12, [200311 Lloyd's Rep 138, para 16, 182 It is ironic thar a claim under an insurance policy is formally classified as an acrion for
Ikerigi Compania Naviera SA v Palmer (The Wondrous) [19921 2 Lloyd's Rep 566, 573. breach by rhe insurer ofan obligation to preserve the subject-matter insured free from harm
Handelsbanken Norwegian Branch ofSvenska Handelsbanken AB (PUEL) v Dandridge (The by the covered perils: see 22.65 below. The South African Court of Appeal held in effect that
Aliza Glacial) [20021 EWCA Clv 577, [20021 2 Lloyd's Rep 421, paras 59, 66, 72, lr had been the assured,'s impecuniosity broke the chain of causation between the insurer's breach of
suggested at first instance that a loss flowing from a failure to respond to an illegitimate or unreasonable contract and the confiscation of the vessel, although in the general law of both contract and
financial demand in respect of a: seized vessel should be regarded as not arising f!'Om the failure to tort impecuniosity is disregarded as a ground for denying recovery: A Burrows, Remedies
respond but from the seizure: para 52 (quoting from the firstinstance judgment of for TOrts and Breach of Contract (3rd edn, 2004) 144-7. However, extrapolation from the
Toulson] (Comm Ct, 11 May 2001)). formal classification of the assured's claim should perhaps be avoided.
432 433
Wtzr Risks Derelict Weapons
13.79 Financial default as excluded under rhe Institute clauses can qualify as the 187
indeed of Mocana J at first instance, in The Anita. It is, rherefore, contrary
proximate cause of a loss irrespective of whether the default leads to a covered
183 ro precedent. Secondly, where new clauses are inttoduced thar carefully
peril of deprivation or inhibition on use or whether such a peril in turn leads to
184
delineate the precise scope of cover by means of a professionally drafted set of
an excluded financial default. insuted perils and excluded perils, that narural inference is that provisions
drafted as exclusions are intended to be treated as such. Thar inference musr be
Characterization and burden ofproof
further strengthened in respect of further revisions inttoduced afrer the decision
Some divergence of view has emerged as to the correct characterization of rhe limitations in The Anita, in rhe light of which the wording could have been modified had the
on cover imposed under certain of the clauses termed 'exclusions'. If market been dissatisfied with the incidence of the burden of proof. Thirdly, in the
genuine exclusions, it is clear that the burden of ptoofwould fallon the insurer. view of Lloyd LJ, only those exclusions whose provenance so dictates fall to be
If, however, they are properly chatacterized as part of the definition of the treated as part of the definition ofthe peril.'" Such a variable incidence of the
covered perils, the assured will carry the burden of disproving their operation. burden of proof dependent on technical legal history is, ir is suggested, an unlikely
interpretation of a commercial document designed for use in an inter-national
Marine insurance policies have never offered cover against all arrests, restraints, and market. This is supported by the fact that, in more recent litigarion, it has been
detainments. Under the old SG policy, cover was limired by providing that the common ground between tbe parties thar the burden of proof in respect of all
insured perils were 'arrests, restraints and detainments of all kings, ptinces and 18
clauses drafted as exclusions falls on the insurer. '
peoples'. This was then construed as referring to political or executive acrs and not
including loss caused by riot or by ordinary judicial process.'as The introduction of
new Instirute clauses in the twentierh century saw the reference to 'kings, princes C. Derelict Weapons
and peoples' disappear. Instead, an equivalent, and indeed progressively more
extensive, curtailing of the range of covered arrests, restraints, and The peril of 'derelict mines torpedoes bombs or other derelict weapons of war' 13.84
detainments was effected through a number of express exclusions. In terms of was inserted into the Institute clauses to reverse the decision in The Nassau
apparent contractual structure, therefore, that which was formerly part of the Bay."o A dredger off Mauritius sucked up a number of 20mm Oerlikon shells
definition of the insuted perils had been telocared to the express exclusions. The dumped in the sea by British atmed forces at the end of the Second World War.
question was whether this relocation was purely presentational or was They exploded, resulting ultimately in the sinking of the vessel. On collecting the
accompanied by a change in legal characterization and accompanying burde!) insurance money, the owners were assessed to tax under the
of proof. - Capital Allowances Act 1968. They appealed on rhe basis of an exemption
covering war risks, which were construed in accordance with normal marine
In the detainment case of The Wondrous,186 Lloyd LJ clearly adopted the view that the insurance coverage at the rime. The quesrion, therefore, was whether the explo-
exclusions now found in clauses 5.1.4 to 5.1.5 of the Institute War and Strikes sion could be said to be a consequence of hostilities or warlike operations.
Clauses Hulls-Time (1/11/95) should, given their provenance as patt of the Holding that it could not, Walton J stated that the dumping of ammunition was
definition of the perils of arrest, restraint, and detainment, be tegarded as an act of pacification not hostility. The 'derelict mines etc' peril was
'part of the definition of the petil [of detainment] itself and that 'it would ... subsequently introduced into the war clauses and excluded from the marine
be a mistake ro tegard [the insuring clause] as defining the perils and [clauses
and 5.1.5] as providing exceptions to liability in specified citcumstances'.
With respect, howevet, it is suggested that this approach cannot be supported.
187 Panamanian Oriental Steamship Corp v Wright (The Anita) [1970] 2 Lloyd's Rep 365,
First, it is inconsistent with the conttary opinion of the Court of Appeal, and [1971] 1 WLR 882, although the Court ofAppeal reversed Mocatta] on whether the insurers
had discharged that burden, see 13.74 above.
'88 Ikerigi Campania Naviera SA v Palmer (The Wondrous) [1992J 2 Lloyd's Rep 566 at 572.
189 Handelsbanken Norwegian Branch ofSvenska Handelsbanken AS (PUBL) v Dandridge (The
183 As, eg, in Ikerigi CompaniaNaviera SA v Palmer (The Wondrous) (1992] 2 Lloyd's Rep 566. Aliza Glacial) [2002] EWCA Civ 577, [2002] 2 Lloyd's Rep 421, para 24; Sunport Shipping Ltd v
~84 Han,delsbanken Norwegia~ Branch ofSvenska H~ndelsbanken AB (PUBL) v Dandridge (The Tryg-Baltica International (UK) Ltd (The Kleovoulos ofRhodes) [2003J EWCA Civ 12, [2003J 1
Al,za GlaCIal) [2002] EWCA CIV 577, [2002J 2 Lloyd s Rep 421, paras 57-60, the facts of which Lloyd's Rep 138, para 40.
constitute an example of the second situation', 190 Costttin-Blankevoort (UK) Dredging Co Ltd v Davenport (The Nassau Bay) [1979] 1 Lloyd's
MIA 1906, Sch 1, rIO.
Rep 395.
Ikerigi Campania Naviera SA v Palmer (The Wondrous) [1992J 2 Lloyd's Rep 566, 572.
435
434
mtr Risks
clauses in order to place insurance liability for such occurrences upon the war
risks underwriters. 191
13.85 The equivalent provision of the rules of the mutual war risks associations refers to
'mines, torpedoes, bombs or other weapons of war, including derelict mines,
torpedoes, bombs or other derelict weapons of war'. This prompts the question of
14
which underwriters, if any, are liable under the Institute clauses for loss or damage
caused by weapons that are not derelict. In so far as the loss or damage
arises in the context of a named war or strikes peril, such as war, insurrection, or STRIKES RISKS
terrorism, '92 they will be subsumed within such a peril. However, it would be
wrong ro assume that loss can be occasioned by a weapon of war only if either
derelict or discharged in the context of particular war or strikes risks. Accidental
and test firing in peacetime, and discharge of weapons such as mines laid delib- A. Perils of Industrial Disturbance or (5) Persons taking part in riOtS 14.12
erately but legitimately as part of national defences are but three examples that fall Civil Unrest 14.03 (6) Persons taking part in civil
(l) Loss or damage caused by commotions 14.15
into neither categoty.
participants 14.04 B. Terrorism and Associated Perils 14.18
(2) Strikers 14.06 (l) Any terrorist 14.19
War or strikes risks underwriters clearly would not be liable under the heading of derelict
(3) Locked-out workmen 14.10 (2) Persons acting maliciously 14.20
weapons, although the circumsrances might reveal a political motive. The liability (4) Persons taking part in l~bour (3) Politically motivated persons 14.28
of marine underwriters would depend upon whether the weapon's impact upon the disturbances 14.11
insured property gave rise ro an insured peril, such as fire,
explosion, or a peril of the sea, with any ingress ofwater qualifying as fortuitous
at least relative to the assured. 193 14.01
The strikes coverage under the various war and strikes clauses for hulls and freight
is cast in essentially uniform fashion. Clause 1 of the Institute War and Strikes Clauses
Hulls-Time (1/10/83 and 1/11/95) provides as follows:
For further instances of peacetime loss and damage occasioned by weapons of war, see
KGoodacre, GoodbyetotheMemoraudumCl988) 198-9;M Miller, Mariu, Subject always to the exclusions hereinafter referred to, this insurance covers loss
w"rRisksC3rdedn.2005), paras 15.08, 15.11.
Loss caused by terrorists or by persons acting maliciously or from a political motive is part
of or damage to the Vessel caused by ...
of the strikes tisks coverage. / strikers, locked-out workmen, or persons taking part in labour disturbances, riots
193 See 10.15 above. or civil commotions
any terrorist or any person acting maliciously or from a political motive
confiscation or expropriation.
However, while the freight clauses cover the same perils, they are restricted to loss
of freight 'arising from loss of or damage to the Vessel' caused by the specified
perils, with the result that no indemnity is payable where freight is lost by reason of
damage to cargo.
The cargo clauses separate strikes risks from war perils. Although cover under 14.02 the
Institute Strikes Clauses (Cargo) is not dependent upon damage to the
vessel, the range of perils insured is more restricted, not embracing the peril of
persons acting maliciously or the perils of confiscation and expropriation.'
1 For cover of cargo against confiscation or expropriation, see 13.58-13.61 above.
436 437
Strikes Risks Perils ofIndustrial Disturbance or Civil Unrest
A. Perils ofIndustrial Disturbance or Civil Unrest damage by the direct action ofparticipants in, for example, a strike, or the
active detention of insured property by strikers.
14.03 The scope of cover provided in respect of industrial disturbances or civil unrest is
With respect to hulls and freight insurance, although the marine clauses exclude 14.05
subject to the general restriction that there must be loss of or damage to the insured
only participants in industrial disturbances at civil unrest with no mention of
property caused by a participant' in the disturbance or unresr. It does not suffice
the disturbances or unrest, the list of perils covered by the corresponding war
that some prejudice to the insured property can be traced to the fact of some
and strikes clauses is confined to participanrs. There is no 'absence shortage or
industrial disturbance or civil unresr. This general restriction on cover will be
withholding of labour' exclusion. The fact remains, however, that there is no
considered before turning to the specific perils.
covered peril that addresses the simple unavailability of an insured vessel by
reason of its passive ignoring by participants in an industrial disturbance or as a
Loss or Damage Caused by Participants result of civil unresr. Thus, damage caused by, for example, simply neglecting
The strikes risks exclusions found in the Institute Cargo Clauses (A), (B), and to maintain a vessel over the period of an extended strike by reason of that
all extend to loss of or damage to the insured property both caused by strike will not qualifY as damage 'caused by ... strikers'. It is, however, unclear
participants in industrial disturbance or civil unrest and also resulting from the whether rhe refusal to operate a vessel by reason of a strike with the result rhat
disturbance or unrest itself. In contrast, the perils of industrial distutbance or the vessel remains languishing in POrt could be viewed as a detention or
civil unrest insured under Institute Strikes Clauses (Cargo) are confined to loss whether a more active intervention is required for that peril. In principle, there
of or damage to the insured property caused by participants in the disturbance or seems no reason to exclude from the concept of detenrion the withholding of
unrest. The strikes clauses are intended to provide property insurance, not business services where it is known that this will result in the vessel being incapacirated
inrettuption cover. Moreover, clause 3.7 of the Institute Strikes Clauses (Cargo) just as effectively as by an active interdiction on movement.
specifically excludes 'loss damage or expense arising from the absence shortage or
withholding of labour of any description whatsoever resulting from any strike, (2) Strikers
lockout, labour disturbance, riot or civil commotion'. This exclusion emphasizes The concept of a 'strike',' and therefore of a person on strike, is not one 14.06
that cover does not extend to the passive neglect of insured property atising from, susceptible of precise definition. It has changed to reflect developments in industrial
for example, the absence of workers by reason of a strike, nor to the incidental relations.' The most succinct statement remains that of Sankey J, that
immobilization of cargo. Thus, if perishable cargo deteriora!es because a strike a strike involves 'a general concerted refusal by workmen to work in con-
results in a delay in cargo handling, there is no cover. In the carrier's liability case sequence of an alleged grievance'.' This was amplified by Lord Denning MR in
of The Arawa,' a cargo of frozen meat spent considerably longer in lighters and Tramp Shipping Corp v Greenwich Maritime Inc in rhe following terms: 'a
refrigerated barges because the dock workers responsible for unloading were taking strike is a concerted stoppage of work by men done with a view to improving rheir
industrial action in the form of a deliberate go-slow and a refusal to work overtime. wages or conditions, or giving vent to a grievance or making a protest about
It was held that the resulting damage to the cargo arose or resulted from a partial something or other, or supporting or sympathising with other workmen in such
stoppage of labour within the meaning of article IV rule 2(j) of the Hague-Visby endeavour'.8
Rules. Similarly, where a vessel puts into a port of distress to effect repairs and is
subsequently unable to depart by reason ofindustrial action and the cargo
deteriorates because of this extended delay, the industrial action would break the
chain of causation between the reason for the repairs and the deterioration: which s As to which, see M Summerskill, Laytime (4th edn, 1989) paras 8-31-8-33; ] Schofield,
Laytime and Demurrage (5th edn, 2005) 254-8.
would not be covered. Under the Insritute Strikes Clauses (Cargo), cover is
6 l.i-rmaas' U) ScheepvaartbedrijfNVv Association Technique de !'Importation Charbonniere (The
restricted to the active infliction of loss or Laga) [1966J 1 Lloyd's Rep 582, 590; Tramp Shipping Corp v Greenwich Maritimelnc[19751 ICR
261,266.
Williams Bros (Hull) Ltd v Naamlooze Vennootschap WH Berghuys Kolenhaandel (1916)
21 Com Cas 253, 257.
2 It is hoped that convenient shorthand excuses describing a locked-out workman as [1975J ICR 261, 266. In similar terms is the definition of 'strike' in the Employment
'participating' in a lock-out. Protection (Consolidation) Act 1978, 5ch 13, para 24(1). Although not a definition of general
3 [1977) 2 Lloyd's Rep 416, rvsd on orher grounds [1980J 2 Lloyd's Rep 135. application, it contains useful guidance as to necessary ingredients: Express & StllY Ltd v Bunday
, Shelbourne & Co v Law Investment & Insurance Corp [189812 QB'626. [1988J ICR 379.
438 439
There is no requirement that the strikers have ceased all work: selective bl~cking can (3) Locked-out Workmen
consrirute a strike.' The relevant question is whether there IS a strike as
regards a particular vessel or cargo." There need be no grievance berween the The meaning of 'lock-out' was considered in the context of employment ]egisla- 14.10 tion
striking workers and their employer. In Williams Bros (Hull) Ltd v Naamlooze by the Court of Appeal in Express & Star Ltd v Bunday.'o May LJ cited the following
Vennootschap WH Berghuys Kolenhaande~ 11 the crew of a Dutch ship refused to definition from the Shorter Oxford English Dictionary:" 'Anact of locking out a body of
sail it from Hull to Rouen because the German government had announced operatives; ie a refusal on the part of an employer, or employers acting in concert, to
its intention to sink neutral ships in the North Sea. This action was held to fi.lrnish work to their operatives except on condi-
tions to be accepted by the latter collectively.' This provided 'at least a reliable
constitute a strike.
indication' although the question was ultimately one to be decided on the facts of
14.08 A sympathetic strike in support of a grievance of other workers
13
is still a strike." each individual case. 'What are the necessary elements of a lock-out, or for that
Likewise, a strike can be an expression of political protest. Th~ stoppage need matter of a bicycle or an elephant, is not in my opinion a question oflaw.'" In
be neither continuous nor permanent. 14 It will not necessanly const~tute a particular, there was no requirement of a breach of contract by the employer,
breach of contract, but it has been stated that a stoppage of work wIth the although the existence or otherwise of such a breach was usually a 'material
'k15
consent of the employer cannot amount to a stn e. consideration'. On the facts, rhe employer had excluded from work employees who
refused to implement a working practice as required by their contracts of
14.09 As discussed above,16 the search under the strikes perils is for a participant in a strike employment. The union declared for industrial action and picketed the work-place.
rather than for the industrial action itself. The question may arise whether a particular The Court ofAppeal declined to distutb the finding by the Employment Appeal
person or group of people is participating in what undoubtedly amounrs to a strike. In Tribunal that the circumstances constituted a strike and not a lock-out. Glidewell
Coates v Modern Methods & Materials,17 the Court of Appeal held rhat the LJ, while concurring in the result, dissented in one material respect. In his opinion,
reasons or motives for the absence from work of an employee during a strike were
insistence by an employer upon agreed contractual obligations could not, as a
irrelevant. Stephenson LJ stated as follows: 18
matter of law, constitute a lock-out. 23
Participation in a strike must be judged by what the em~loyee does and not by
what he thinks or why he does it. If he stopS work when hiS workrnates come ~ut
(4) Persons Taking Part in Labour Disturbances
on strike and does not say or do anything to make plain his disagreement, or wh:ch could
amount to a refusal to join them, he takes part in their strike. The Ime between In the absence of authoriry, it is suggested that this peril encompasses rwo 14.11 categories
unwilling participation and not taking part may be difficult to draw, hut those who stay of person. First, a strike or lock-out may attract people outside the category of striker or
away from work with the strikers without pr.otest for. whatever reason are to be
locked-out workman, such as political activists, who may participate in some manifestation
regarded as having crossed that line to take part ill the stnke. In t?e field of industrial
action those who are not openly against it are presumably for It. of the dispute. Secondly, workers may be involved in a form of industrial action other than
24
a strike or lock-out, for example a refusal to work overtime or a deliberate go-slow.
Of course the position is different if the employee's absence is wholly uncon-
Again, however, it
nected with the strike, for example because the employee is ill or on holiday."
is important to note the restrictions imposed by the requirement of 'loss of or
damage to the subject-matter insured' and, in the Institute Strikes Clauses (Cargo),
by the 'absence shortage or withholding oflabour' exclusion.
~though in Tramp Shipping Corp v Greenwich Maritime1nc [1975] lCR 261, 266 Lord (5) Persons Taking Part in Riots
Denning MR stated of a strike: 'It is distinct from a stoppage whIch brought about by an external
event such as a bomb scare or by apprehension of danger.' ..
'Riot' is a legal term of art. Its technical meaning is found in section I of the 14.12 Public
10 Seehurg v Russian Wood Agency Ltd (1934) 50 LlLRep 146; Vermaas' OJ Schccf"aarthedrljf
NV v Association Jechnique de l1mportation Charbonniere (The Laga) [1966] 1 Lloyd s Rep 582. Order Act 1986:
11 (1916) 21 Com Cas 253. " ibid.
13 Tramp Shipping Corp v Greenwich Maritime Inc [1975J ICR 261,266.
14 ibid. 15 ibid. " See 14.04-14.05 above. 17 [1982J ICR 763. ..
\8 ibid 777, Kerr LJ concurring (esp at 783). Eveleigh LJ dissented on the grou~dt~at p~rtlCI-
20[1988] ICR 379, 387. " ibid 387, Croom-Johnson LJ concurring.
pation in a strike should require a withdrawal. of labour in support o~)he st,nkers , claim, as opposed,
" ibid 388. 23 ibid 391.
on the facts, to a refusal to incur the abuse attendant upon crossmg a pIcket lme, 24 The Arawa [1977] 2 Lloyd's 416 (discussed at 14.04 above); Power Packing Casemakers Ltd
" ibid 783. v Faust [1983] ICR292.
440 441
Where twelve or more persons who are present together use or threaten (6) Persons Taking Part In Civil Commotions
unlawful violence for a common purpose and the conduct of them (taken
together) is such as would cause a person of reasonable fir~ness.presentat the In the old case of Langdale v Mason, 29 Lord Mansfield directed the jury that civil 14.15
scene to fear for his personal safety, each of the persons usmg v101ence for the commotion was'an insurrection of the people for general purposes, though it
common purpose is guilty of riot. , may not amount to a rebellion, where there is usurped power'. In Levy v
It is immaterial whether or not the twelve or more use or threaten VIOlence Assicurazioni Generali,30 the Privy Council approved the following statement
simultaneously.
from Welford & Otter Barry's Fire Insurance: 31
The common purpose may be inferred from conduct.
(4) No person of teasonable firmness need actually be, or be likely ro be, present Civil commotion. This phrase is used to indicate a stage between a riot and civil
at the scene. war.32 It has been defined to mean an insurrection of the people for general pur-
Riot may be committed in private as well as in public places. poses, though not amounting to rebellion; but it is probably not capable of any
very precise definition. The element of turbulence or tumult is essential; an organ-
In contrast with the approach of the courts ro perils such as 'war', it is cleat that the term
ised conspiracy to commit criminal acts, where there is no tumult or turbulence
'riot' in insurance contracts attracts the above technical meaning. It umil after the acts, does not amount to civil commotion. It is not, however,
may be not irrelevant that 'riot' is defined in law with far greater precision than necessary to show the existence of any outside organisation at whose instigation
'war'. In London 6- Lancashire Fire Insurance Co Ltd v Bolantls Ltd,25 four the acts were done.33
armed men robbed the respondents' Dublin bakery. Although the employees were These two statements were espoused by the Court of Appeal in London 6- 14.16
held at gun point, there was no public disturbance. The insurers relied successfully
Manchester Plate Glass Co v Heath. 34 Suffragettes broke windows with hammers
on an exemption clause covering 'riots'." The House of Lords adopted a technical
simultaneously in different parts of London. When arrested, each woman went quietly to
approach, Lord Sumner stating as follows:"
the police station. There was no tumult, no public sympathy. The women were charged
It is true that the uninstructed layman probably does not think, in connection with the with malicious injury rather than any public order offence, The Court of Appeal held rhat
word 'riot" of such a scene as is described in the case stated. How he would describe it I these events did not justifY a claim on reinsurance covering 'damage to plate glass caused
know not, but he probably thinks of something, if not more pictur-esque at any rate directly or indirectly by or
more noisy. There is, however, no warrant here for saying that, when the proviso uses a
word which is emphatically a term of legal art, it is to be confined, in me interpretation arising from civil commotion or rioting'. The judgments suppOrt three proposi-
of the policy, to circumstances which are only within popular notions on the subject, tions. First, an organized conspiracy to commit crimes does not of itself amount ro
but are not within the technical meaning ?f the word. ~ civil commotion. Secondly, Vaughan Williams LJ viewed the above statement of
Lord Mansfield as providing a fixed definition of the peril despite the evolu-tion
since 1780 of methods of asserting rights by violence. There was 'no insurrection
In The Andreas Lemos," Sraughton J followed Bolantls in applying a technical definition,
of the people for the purpose of general mischief, though not amounting to a
albeit reluctantly, with the result that a theft accomplished in a clandestine manner
rebellion'. 35 It is difficulr to reconcile such an approach with the evolving concept
with any threat of force confined to securing the thieves' escape could not give rise
of a srrike. Thirdly, Buckley and Hamilton LJJ confirmed the need for public
to a loss caused by a rior. The matter is, however, put beyond quesrion by section
disturbance. 'Commorion connotes turbulence or tumult and, I think, violence or
10(2) of the Public Order Act 1986, which directs that the references ro 'rioters'
intention to commit violence.'36 Similarly, in the American case of HartfOrd Fire
and 'riot' in Schedule 1 to the Marine Insurance Act 1906 are to be construed in
Insurance Co v war Eagle CO,37 a violent struggle for union
accordance wi.th section 1 of the 1986 Acr, confirming the technical approach.
" (1780) 2 Park on Insurance 965. 30 [1940) AC 791,800. 31 3rd edn, 64.
32 Although note that Mustill J has warned against hierarchical thinking: Spinney's (1948) Ltd
v Royallnsurance[1980] 1 Lloyd's Rep 406, 428.
[1924J AC 836. 33 In Hartford Fire Insurance Co v "\-%r Eagle Co 295 F 663 (1924) (US Circuit Court of
It should be noted that, prior to 1986, the legal concept of a riot required only three Appeals, 4th Circuit) the following definition was adopted: 'Anuprising among a mass of people
participants. which occasions a serious and prolonged disturbance and an infraction of civil order not attaining
[1924] AC 836, 847. See also Viscount Finlay at 843 and Lord Atkinson at 845. the statuS of war or an armed insurrection. A civil commotion requires the wild or irregular action
Athem Maritime Enterprises Corp v Hellenic Mumal U7ctr Risk AssdCiation (Bermuda) Ltd of many persons assembled together.'
(The Andreas Lemos) [1983J 1All ER 590, 600-1. "[1913]3KB411. 35 ibid 416. 36 ibid 417. See also at 421.
31 295 F 663 (1924) (US Circuit Court ofAppeals. 4th Circuit).
442
443
Strikes Risks Terrorism and Associated Perils
recognition in mines resulted in a declaration of a state of war, insurrection, and (I) Any Terrorist
riot and the imposition of martial law. When, however, five conspirators secretly
Terrorism traditionally connotes the striving for political or ideological aims by 14.19
entered and destroyed a mine with explosives, the absence of any attendant
violence. Thus, United Kingdom anti-terrorism legislation provides that terror-
tumult, disturbance or even demonstration led to a finding that the damage was ism means the use or threat of certain action prejudicial to people, properry, or
not'caused either directly or indirectly by riot or civil commotion'.
electronic systems, that is 'designed to influence the government or to intimi-
The causal link between the civil commotion and the casualty required by the policy is date the public or a section of the public', and is 'for the pnrpose of advancing a
crucial. The cases of Cooper v General Accident Fire & Life Assurance Cory" and political, religious or ideological cause'.43 Terrorism is defined by the Oxftrd
Boggan v Motor Union Insurance Co Ltd'9 each arose out of an armed appropriation English Dictionary as 'a policy intended to strike with terror those against whom it
of a motor car in Ireland without public disturbance. In Cooper the owner's insnrance is adopted; the employment of methods of intimidation'. Clearly a distinction needs
excluded loss or damage 'occasioned through ... civil commotion occurring within the to be drawn between frightening and violent 'ordinary' crimes, such as robbery, and
land limits ofIreland'. The relevant exclusion-ary words in Boggan were 'loss or acts of 'genuine' terrorism. However, adopting a definition includ-ing a reference to
damage arising during ... or in consequence of ... civil commotion'. In each case the the intent and purpose behind the act risks placing upon the assured an unrealistic
insnrance company was held protected by the exclusion, the House of Lords rejecting bnrden of establishing the motives behind acts any rea-sonable person would view
arguments that the policies required the accident to constitute civil commotion of itself as terrorist ourrages.44 Such a bnrden can be relieved by a preparedness to infer
or be accompanied by tumult. An undisputed state of civil commotion in the area motive from the natnre of the act. Miller" cites the attack in 1988 on the City of
sufficed, 'those who were engaged in this abstraction must have been acting with some Poros by persons armed with and using hand grenades and machine guns. Many
fotce behind them which made them feel that they were masters of the situation'. 40 passengers were killed or injured and the vessel was badly damaged. The identity of
The issue, of course, was the construction of the policies in question and, in the perpetrators of rhe outrage or their motive was never established, but the insurer
parricular, of the words of causation. As Lord Dunedin observed in Cooper, 'when accepted that the events constituted the peril of 'terrorists'. Such a common sense
you have the expression "occasioned through" it means that there must be civil approach has much to
commotion somewhere, and that the act must be an act which is attributable to that commend it.
commotion, but nothing more' 41
(2) Persons Acting Maliciously
In 1964, while in Miami, the Granwoodwas seriously damaged and some of her 14.20
Terrorism and Associated Perils crew injnred by a limpet mine attached by persons never identified although believed
possibly to be Cuban exiles. Although the marine underwriters were persuaded to pay,
As with other strikes risks, cover against terrorists and malicious or politically
a 'malicious acts exclusion' was inserred into the hulls and
motivated persons requires loss of or damage to the insured property. Con-
freight marine clauses in order to avoid any liability on similar occurrences in
sequently, the financial consequences of, for example, a downturn in the cruise
market resulting from terrorism is not covered under the property insurance the futnre. 46 Accordingly, clause 30 of the International Hull Clauses
(01/11/03) reads as follows:
offered by the Institute strikes risks clauses but is the province of business
interruption insurance.42 In no case shall this insurance cover loss damage liability or expense arising from
38 (1923) 128 LT 481. 39 (1923) 16 LlLRep 64. Terrorism Act 2000, S 1.

40 Cooper v General Accident, Fire 6'Life Assurance Corp (1923) 128 LT 481, 484 per Lord On the difficulty of establishing motives, see Pan American World Airways Inc v Aetna
Finlay, cited by Lord Birkenhead in Boggan v Motor Union Insurance Co Ltd(1923) 16 LlLRep 64, Casualry &Surery Co [197511 Lloyd's Rep 77, 97 (US Court of Appeals, 2nd Circuir).
65-6. M Miller, Marine \.%r Risks (3rd edn, 2005) para 18.16.
(1923) 128 LT 481, 485. ibid paras 1.20, 18.1. Given the origin of the exclusion and the structure of the strikes clauses,
See, eg IF P&C Imura"ce (PUBL) v Silversea Cruises Ltd [2004] EWCA Civ 769, [20041 the malicious acts cover is not confined to damage effected in the course of the other named perils
Lloyd's Rep IR 696. such as civil commotion, despite the contrary suggestion of Phillimore L] in Nishina Trading Co
Ltd v Chiyoda Fire & Marine Insurance Co Ltd (The Mandarin Star) [19691 2 QB 449, 467.
444
445
30.3 the use of any weapon or the detonation of an explosive by any person acting In any sta:utory de~nition of a crime, malice must be taken not in the old vague sense of
wKkedness 10 general but as requiring either (1) An actual intention to do
maliciously ...
the particular kind of harm that in fact was done; or (2) Recklessness as to whether
The purpose of this exclusion in the hulls and freight marine clauses is not to deny such harm ~hould occur or not (ie, the accused has foreseen that the particular kind
insurance coverage for such acts, but instead to shift such cover to the war and of harm mIght be done and yet has gone on to take the risk of it). It is neither limited
strikes risks underwriters. It may be noted that the malicious actS exclusion is to nor does it indeed require any ill will towards the person injured.
confined to acts involving weapons or explosives. Consequently, a barratrous Thus, section 58 of the Malicious Damage Act 1861 provides that it is
sinking mayor may not fall wirhin the exclusion depending on the means used irrelevant for the purposes of crimes involving malice under that Act 'whether
to sink the insured vessel.47 the offence shall be committed from malice conceived against the owner of the
property in respect of which it shall be committed, or otherwise'.
In cargo insurance, rhe absence of any malicious acts exclusion from the Insti-tute
Cargo Clauses (A) results in 'malicious acts' falling within the all risks In the cargo insurance case of The Mandarin Star,51 a time-chartered vessel was 14.25
coverage provided by those clauses. This is, of course, subject to the express carrying a cargo of beans from Bangkok to Kobe. By the time the vessel arrived
exclusions of war and strikes risks, bur it should be remembered that, in cargo off Kobe, the charterer had fallen into arrears of hire. Consequently, tbe owner
insurance, 'malicious acts' is not a nominate war or strikes risk. The Cargo of the vessel ordered the master not to enter port or discharge the goods until
Clauses (B) and (C) also contain no malicious acts exclusion. However, the arrears had been paid and, subsequently, when the charterers closed their
although their coverage extends to fire and explosion, not only are there the office, ordered the vessel to proceed to Hong Kong, where the cargo was dis-
same war and strikes risks exclusions, but also clause 4.7 excludes 'deliberate charged and mortgaged to a tbird party. The cargo owners incurred considerable
damage to or deliberate destruction of the subject-matter insured or any part expense in recovering the cargo and claimed reimbursement under a sue and
'
thereof by the wrongful act 0 f any person or persons .48 labour clause. This raised the question of whether the expenses had averted a
With respect to interpretation of the term 'maliciously', the problem is again to know how loss covered by the policy. Although the Court of Appeal beld in favour of the
technical an approach to adopt and to what extent analogies may be drawn with cargo owners on the basis that the facts constituted the insured peril of'taking at
the concept of malice as understood in other areas of the law. In particular, the sea',52 the Court also cursorily rejected an argument that the loss had been
questions arise of the degree of foresight of harm required for an act to be caused by 'persons acting maliciously'. Malice required personal spite or
malicious and whether the act need be motivated by personal spite. ill will. 53
Many crimes under the Offences Against the Person Act 1861 require an act to be done In consequence, it was subsequently held in The Salem" that fraudsters who 14.26
maliciously. In R v Cunningham," in holding that 'the word "maliciously" in a scuttle a vessel by way of 'a by-product of an operation carried our for the
statutory crime postulates foresight of consequence', the Court of Appeal purposes of gain' rather tban out of spite are not acting maliciously within the
approved the following statement from Kenny's Outlines of Criminal Law: 50 meaning of the strikes clauses. Similarly, tbere is no malice where persons
dam-age property in the genuine, if mistaken, belief that they have the right so
to act.55
47 On the relationship between marine clauses and war and strikes clauses in the context of $1 Nishina n-ading Co Ltd v Chiyoda Fire 6- Marine Insurance Co Ltd (The Mandarin Star)
barratry, see 15.79 below. [196912 QB 449.
48 For an additional premium, the Institute Malicious Damage Clause may be On which point, the decision was subsequently overruled by the House of Lords in Shell
incorporated into the cover. This clause deems the deliberate damage exclusion to be deleted International Petroleum Co Ltd v Gibbs (The Salem) [19831 2 AC 375.
and provides cover against 'malicious acts vandalism or sabotage, subject always to the [196912 QB 449, 462 (Lord Denning MR, Edmund Davies LJ agreeing, and Phillimore
other exclusions contained in this insurance'. LJ silent on the point).
" (1957) 41 Cr App Rep 155, 159; approved by rhe House of Lords in R v Savage[19921 1 AC S4 Shell International Petroleum Co Ltd v Gibbs (The Salem) [19821 QB 946, 966 per Mustill J
699. See also R v G [2004] 1AC 1034, holding that subjective foresight ofa risk was also (the point was not argued on appeal).
essential for the crime of criminal damage and overruling Metropolitan Police 55 Reliable Distributors Ltd v Royal Insurance Co ofCanada [1984] 6 WWR 83.
Commissioner v Caldwell [1982] AC 341, where it had been held that an objectively obvious Occasioning damage to the interior ofa building in response to a misunderstood
risk ,of destruction of or damage to property sufficed. advertisement was held not to be a malicious act as (86 per Wood J) 'those who were
50 (l6rh edn, 1952). responsible held a belief in a state of facts which, if true, would have constituted a legal
justification or excuse for what they did. They acted, in short, with a colour of right'.
446
447
In The Salem,56 however, Mustill J raised the possibility that spite might be direcred at polirical acts is not itself regarded as polirical." Moreover, violence dis-
the insured property rather than the assured, so that vandals who proportionate to rhe purpose allegedly furthered will deny the act a political
64
randomly destroy or damage property could be said to act maliciously for the nature. The perpetrator of gratuitous violence receives no sanctuary: a
purposes of an insurance policy. This possibility was accepted by Colman J in political crime must promote the political purpose <in some coherent sense'.65
The Grecia Express,57 in which the insured car ferry was sunk at night by
There is, however, no reason to suppose that many of rhe distinctions drawn by 14.29
unknown persons cutting the mooring ropes. Drawing an analogy with the
exrradition law correspond ro the limits of cover intended by the parries to a commercial
Malicious Damage Act 1861, Colman J held that spite directed rowards the
insurance contracr. While the reference to political motivation
owner of the property, or even knowledge of rhar person's identity, was nor clearly serves to exclude 'ordinary' ctimes, ir is difficult to see any justificarion for
required. Moreover, for Colman Jthis exrension of malice ro wanron vandalism denying cover because the act causing the loss of or damage to the insured properry
carried with it an extension to reckless, as opposed to intentional, acts that formed part of a conventional political campaign or was committed against a state
result in loss of or damage to insured property. Ar the conceptual level, this does other than the srate where rhe act was committed. In either case, a political morive
not necessarily follow. In the insurance context, however, it has the considerable is present and rhat is all the wording of rhe Insriture and International clauses
practical benefit of obviating any need for the assured ro undertake the highly requires. Likewise, while the absence of a particular gov-ernment as a rarget may
problematic, if not impossible, task of proving the precise state of mind of a
deprive the acts of an anarchisr of political character for the purposes of exrradirion
conceivably unidentified perpetrator. law,66 such acts have a political agenda and would, it is suggested, be regarded as
polirically morivared for the purposes of the Insrirure and International clauses.
Politically Motivated Persons However, the remoteness concept may have some resonance in the insurance
In the phrase 'persons acting from a political motive' within the International and Institute context. Wholly disproportionate violence will not deny the existence of the
clauses, it is unlikely that the term 'political' is employed in any technical sense. political motive, even if it denies political charac-terization for exrradirion
In the law of extradition, a distinction is drawn between the ordinaty criminal and purposes. However, it is possible that where the act is not itself designed to advance
the political refugee. 58 A fugitive is safe from extradition a political agenda bur is intended to enable political acts to be committed in the
and may invoke habeas corpus if 'the offence of which that person is accused or future, it may be too remore from any polirical morive to be irself classified as
was convicted is an offence of a political character'. 59 In this context, it is polirically morivared. For example, it is unclear whether the hijacking of a vessel
insufficient that the act was committed in the furtherance of a political c~m paign; for ransom in order to finance political acriviries would itself be regarded as
rather the individual must be in a confrontation with the requesting state over polirically morivared.
fundamental polirical ideology,60 although open revolt againsr the govern-
ment of that state is not required. 51 Moreover, theac! must have been commitred
against rhe requesring srate62 and be not roo conceptually remote from the
cause it seeks to further. The commission of a bank robbery in order to finance
ShellInterna,ional Petroleum Co Ltd v Gibbs (The Salem) [1982) QB 946, 966.

Strive Shipping Corp v Hellenic Mutual "War Risks Association (Bermuda) Ltd (The Grecia
Express) [20021 EWHC 203 (Comm), [2002) Lloyd's Rep 88, paras 26-33. ibid 945.
58 R v GovernorofWimon Green Prison, Birmingham, ex p Littlejohn [1975] 1 WLR 893, 897; T v Secretary ofState for the Home Department [1996] AC 742, 787. Political asylum was refused
Cheng v Governor ofPentonville Prison [1973) AC 931. to a person involved in the bombing ofan Algerian airport resulting in the loss of ten lives.
Allegedly parr of the efforts of a revolutionary movement to overthrow the government by
59Extradition Act 1989, s 6(l)(a). A similarly worded immunity was granted under the
destabilizing the national economy, the airpore bombing was 'an atrocious act, grossly out of
Extra-dition Act 1870, s 3. Provisions derived therefrom and remaining in force may be
proportion to any genuine political objective. There was simply no sufficiently dose or direct causal
found in Sch 1 to the 1989 Act.
Schtraks v Governmentoffsrae! [19641 AC 556, 591-2. link between it and [the) alleged political purpose' ([1995] 1 WLR 545,559 per Glidewell
ibid 583. Generally, see C Amerasinghe, 'The Schtraks Case, Defining Political Offences and LJ), In contrast, sabotaging an aircraft carrying the president of a country will be classified
Extradition' (1965) 28 MLR27. as political despite the deaths thereby caused of innocent passengers: 'the atrocity is
62 Cheng v Governor ofPentonville Prison [1973] ,AC 931 (the attemptedmurder in New York
designed to produce a direct, immediate and fundamental political result': at 558.
of the vice-premier of Taiwan by an opponent of the Taiwanese gov~rnmerit was held not to be a [1995) 1 WLR 545,559-60 per Glidewell LJ.
political offence against the United States of America, the requesting state). Re Meunier(1894) 2 QB 415.
448 449
15
EXCLUDED LOSSES
VolWltary Conduct of the Assured (2) Inherent vice or nature of the
The general voluntary conduct subject~matter insured 15.50
limitation (3) Rats or vermin 15.61
Wilful misconduct D. Inevitable Losses
Co~insurance 15.27 15.64
E. War and Strikes Risks 15.70
Delay 15.29 (1) Effecting the distinction between
Losses 'consequent on' delay
15.30 marine and non-marine risks 15.72
Delay and the proximate cause rule (2) The war and strikes risks exclusions
15.74
Perils of deprivation and inhibition F. The Marine Risks Exclusion in
15.38
on use War and Strikes Clauses for Hulls
Losses that Occur in the Natural or Freight
G. Radioactivity and 15.78
Course of Events
Ordinary wear and tear, ordinary Non-Conventional Weapons
15.46
breakage, and ordinary leakage 15.80
Section 55(1) of the Marine Insurance Act 1906 states the ptesumptive caus- 15.01
adon rule of the proximate cause. The three patagraphs of secdon 55(2) then
provide that the insurer is not liable for certain losses. Technically, these pata-
graphs do not imply exclusion clauses into marine policies. Rather, they create
rules of interpretation as to the scope of cover gtanted in the first place. This
could have led to the assured cattying the burden of disproving the applicability
of the losses listed in section 55(2) as part ofproving a loss covered by the policy.
It is, however, cleat that the burden of proofin respect of the section 55(2) losses
lies on the insurer, as if they were indeed contractual exclusions. 1
The limitations on cover articulated by section 55(2) embrace losses attributable 15.02
to the wilful misconduct of the assured, losses proximately caused by delay,
1 Sassoon (ED) & Co Ltd v YorkshireInsurance Co Ltd (1923) 14 LlLRep 167, 173. (1923) 16
LlLRep 129, 132; Soya GmbH Mainz KG v White [198011 Lloyd's Rep 491,503.
451
Excluded Losses Voluntary Conduct ofthe Assured
ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of contracts and public policy. The defence of wilful misconduct constitutes the most
the subject-matter insured, and loss proximately caused by rats or vermin. Apart significant manifestation of public policy in this context.
from wilful misconduct, from which the parties are not permitted to derogate, the
limitations represent presumptive rules of interpretation as to the scope of cover (1) The General Voluntary Conduct Limitation
ptovided. In hull and freight insurance, the inherent vice limitation is replaced by In BeresfOrd v Royal Insurance Co Ltd, 5 Lord Atkin stated as follows: 15.05
the more limited rules on unseaworthiness of the relevant vessel, from which the
Institute and International hulls and freight clauses in turn dero-gate through the On ordinary principles of insurance law an assured cannot by his own deliberate
act cause the event upon which the insurance money is payable. The insurers have
latent defect cover in the Inchmaree clause. In contrast, the Institute cargo clauses
not agreed to pay on that happening. The fire assured cannot fe'cover if he inten-
incorporate most of the statutory limitations of section 55(2) as express exclusions. tionally burns down his house, nor a marine assured ifhe scuttles his ship, nor the
In all cases, a range of further exclusions are included. life assured if he deliberately ends his own life. This is not the result of public
policy, bur of the correct construction of the contract.
15.03 An exclusion of a peril generally serves to restrict coverage otherwise conferred by Where the cover granted is described in terms of 'risks', this principle of inter- 15.06
rhe policy. Given that the primary cover depends upon the relevant peril preration is reinforced by the fact that occasioning damage through an inten-
constituting the proximate cause of the loss, either the exclusion must operate tional or reckless act does not involve exposing insured property to a chance of
through a less stringent causation test Of, alternatively, it must constitute a sub- damage.' Outside the 'all risks' cover of the Institute Cargo Clauses (A), the
species of the primary peril and amount to a concurrent cause of the loss. In this insured perils provisions in the Institute and International clauses do not refer to
latter case, both primary peril and exclusion will rank as the proximate cause with 'risks', and the inclusion of fortuity as an essential element in the definition
the exclusion being accorded priority.' Thus, where the master of an insured vessel of perils of the sea is an exception. The peril of fire, for example, includes
unsuccessfully attempts to smuggle contraband resulting in the vessel being seized third parry arson. Nevertheless, the same limitation, a more limited concept of
and detained by customs authorities, the better view is that the barratry of the fortuity, is still implicit. 7
master and the seizure of the vessel are concurrent causes of the loss.' As a result,
marine underwriters are protected by the standard war risks exclusion that includes While the formulation in BeresfOrd is confined to deliberately induced losses, it 15.07
rhe peril of seizure, for which war and srrikes risks underwrirers will be liable. An has been held that the voluntary conduct exclusion extends to losses that follow
alrernative function of an exclusion is clari/i.ca-rory, putting beyond doubt the in the ordinary course of events from the assured's voluntary acts and as con-
underwriter's lack of liability for a los; nor intended to be covered anyway. In the sequences foreseen and accepted by the assured. In The Wondrous, 8 a vessel was
context of the Institute clauses, rhe possibility of such insertion ex abundanti insured against 'the risks enumerated in the Institute War and Strikes Clauses
cautela is logical outside the all risks cover of the Institute Cargo Clauses (A). An Hulls-Time 1.10.83', which included the peril of detainment. The vessel was
4 detained by Iranian customs authorities in part because of non-payment of
example is furnished by the exclusions attached to the collision liability clauses.
certain dues and taxes for which the assureds were responsible under Iranian law.
The assureds, however, were not prepared to make payment pending resolution
of a dispute with charterers. Hobhouse J held that the insurers were not liable
for the detainment of the vessel during this period. Establishing the insured
Voluntary Conduct of the Assured
peril of detainment was not sufficient:
The prospects of an assured being able to base a successful claim on its own voluntary .. . it was still necessary for the [claimants] to show that the detention was fortuit-
conduct, that is deliberate acts with intended or at leasr subjectively ous. How to characterize the element of fortuity in this context is not easy. If the
appreciated consequences, are restricted by both the interpretation of insurance owners had asked themselves at the time of placing the cover or at the time of
, (1938] AC 586, 595. See also Charlton v Fi;/Jer (20011 EWCA Ciy 112, (20021 QB 578,
para 51.
See 9.29 above. 6 British & Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41, 57,
See the discussion of Cory 6- Sons v Burr(1883)·SApp Cas 393 at 11:·58-11.59 above. 7 Charlton v Fisherl200lj EWCA Civ 112, (20021 QB 578, pata 52.
eg International HuH Clauses (01111103), d 6.4, see 12.21 above. , Ikerigi Compania Naviera SA v Palmtr (The Wondrous) (1991] 1 Lloyd's Rep 400.
452 453
making the charter-party whether detention for any substantial period after load-ing Uniquely among the restrictions on cover stated in section 55(2), this limitation IS
a cargo at Bandar Abbas was to be anticipated or likely to occur in the ordinary
nOt expressed to be subject to contrary intention. This is probably because the
course, they would have correctly answered that it was not. But, on the other hand,
where a situation comes about as a result of the voluntary conduct ofthe assured, it
publIc policy limitation of cover in respect of voluntary conduct of the assured
would not normally be described as fortuitous. It did not happen by chance but by extends to all instances of wilful misconduct. Indeed, the term 'misconduct' may
the choice of the assured. Put another way, it would be in the ordinary course merely be convenient shorthand for acts of a sufficiently anti-social nature as to
that, if the owners of the vessel do not pay the port dues for which they are liable invoke the public policy limitation. No express reiteration of the defence is,
to the port authority in respect of the stay ofthe vessel in that porr (or provide thetefore, needed in individual policies, although express wilful misconduct
acceptable security), the vessel will not be cleared. For the purposes of the law of exclusions extending ro any and all loss, damage, and expense so atttibutable are
insurance, in the absence of an express agreement to the contrary, a policy should 12
not be con-strued as covering the ordinary consequences of voluntary conduct of included in all the Institute cargo clauses.
the assured arising out of the ordinary incidents of trading; it is not a risk.
(a) Wilfitl
By this criterion, I _consider that, on any view, it is not correct to characterize the
period of detention [during the relevant period] as fortuitous. The dominant and, The term 'wilful' clearly 'imports that the misconduct was deliberate, not 15.11 merely a
in my judgment, only proximate cause was the fact that to that date the owners thoughrless act on the spur of the moment'.13 It extends, however, not
9
had neither discharged nor acceptably secured their liabilities. only to intentional acts but also to recklessness, although the insurer takes the risk
The final sentence of the first patagraph suggests that this restriction on cover arises as a of the assured's negligence: 'wilful misconduct is something entirely differ-ent from
matter of interpretation of a commercial insurance contract in the form of an negligence, and far beyond it, whether the negligence be culpable, or gross, or
implied term. The final sentence of the second paragraph invokes the doctrine of howsoever denominated'.'4 The essential elements of wilful mis-conduct 'are that
causation. Loss caused by a detainment that was in turn caused by the assured's the assured intended to achieve a loss or the damage or that he was recklessly
voluntary conduct is regarded as proximately caused by the assured's conduct, indifferent whether such loss or damage was caused and that his immediate purpose
which is not of itself a covered peril. On the facts, cover was expressed in terms of was to claim on his insurers or that he subsequently
'risks', but it does not appear that this affected the reasoning. advanced such a claim'. 15
In Morley v United Friendly Insurance pic," the deceased, who had drul1k a few 15.12
In addition to issues of interpretation, a flexible rule of public policy denies the assured pints of beer, stepped on to the bumper of a car driven by his sober fiancee. She
the right to enforce the policy where the assuted's voluntary act is drove off, accelerated to a speed of approximately fifteen miles per hour, and steered
sufficiently anti-social and enforcement would encourage such acts.
1O
Thus, in in a zig-zag fashion, causing the deceased to falloff and sustain the injuries from
Beresftrd v Royal Insurance Co Ltd,11 public policy prohibited recovery under a which he died. The Court ofAppeal held the insurers liable under an accident
life policy in respect of suicide, although the policy as a matter of interpretarion insurance policy which excluded 'wilful exposure to needless peril'. Beldam LJ
covered such a demise. Similarly, public policy bats an assured from tecovering in stated that negligent exposure to a needless peril was not within the exclusion.
respect of the deliberate sinking of a vessel by Ot on the instructions of the assured 'Deliberate risk taking or recklessness of injury' was required." 'It
itself for fear of jeopardizing human life, the property of cargo ownets, and the
environment in the particular case, as well as for fear of encouraging others to act
in a like manner. 12 eg Institute Cargo Clauses (A), (B), (C), c1 4.1; Institute War Clauses (Cargo), Strikes
Clauses (Cargo), cl 3.1.
13 johmon v Marshall, Sons &Co Ltd [1906j AC 409, 411 per Lord Loreburn.
Wilful Misconduct 14 Lewis v Great Western Railway Co (1877) 3 QB 195,213 per Cotton LJ. See also ar 206-7;
Graham v Belfast &Northern Counties Railway Co [1901] 2 IR 13; Forderv Great U:!estern Railway
Section 55(2)(a) of the Matine Insurance Act 1906 provides that: 'The insurer is CO [1905J 2 KB 532: Wood v Associated National 1murance Co Ltd [1984J 1 QdR 507,
not liable for any loss attributable to the wilful misconduct of the assured.' [1985J 1 QdR 297; National Oilwell (UK) Ltd v Davy Offihore Ltd [1993J 2 Lloyd's Rep 582.
• 15 National Oilwell (UfO Lt~ v Davy Offihore Ltdl1993J 2 Lloyd's Rep 582, 622 perColmanJ.
See also Thnder; Anderson & Co v Thames & Mersey Marine lmurance Co (1897) 8 Asp MLC 30G,
311, aJfd 11898J 2 QB 114: Wood v Associated Nationallmuranee Co Ltdl1985J 1 QdR 297.
[1993J 1 WLR 996.
, ibid 415-16. " Hardy v Motor Insurers Bureau [1964J 2 QB 745, 767-8. ibid 1004. Neill L], at 1000, contrasted Candler v London & Lancashire Guarantee &
[1938J AC 586, 595. See also Gray v Barr [l971J 2 QB 554; Charlton v Fisher [2001J
11
Accident Co ofCanada (1963) 40 DLR (2d) 408 (Ontario High Court). The deceased deliberarely
EWCA Ciy 1I2, [2002J QB 578, para 51. balanced on the coping of a pano on the thmeenth floor of a hotel in order to demonstrate to a
454 455
must be shown that at the time of his actions the insuted was mindful of a real vessel. The actual act of scutding is not performed by the assured, who is
tisk of the kind of injury for which benefit was provided by the policy and that geographically remote from the scene even if still the moving spirit. Applying
he intended to run that risk or exposed himself to it not caring whether he the proximate cause doctrine in such a case is less self-evident.
sustained such injury or not.'
It is clear that the planning of a scuttling cannot be tegarded as the sole proxim- 15.16
In the matine context, failure to interrupt a voyage so as to avoid a risk of capture does ate cause to the exclusion of the carrying out of the plan. In The Salem,23 a vessel
not constitute wilful misconduct on the part of the ownet unless the vessel was was scutded in the coutse of a cargo ftaud, which resulted in the loss of the cargo
'obviously running into danger'.18 Where, however, the owner delibetately sends remaining on boatd. It was atgued that the proximate cause of the loss was the
the vessel to run a blockade or fails to avoid a hostile vessel with knowledge of the fraudulent conspiracy itself, as distinct ftom (and to the exclusion of) a peril of
latter's location, an inference may be drawn that rhe the sea in theJorm of scutding. 24 This was rejected. Lord Roskill observed that
owner is endeavouring, not to carry out the voyage, but to procure the capture of 'the concept offraud or fraudulent conspiracy as distinct from overt acrs done in
'9 furtherance of that fraud Ot conspiracy as the proximate cause of a loss is one
the vessel, which would amount to wilful misconduct. Likewise, in Wood v
Associated National Insurance Co Ltd," the assured left his vessel exposed to a which I find difficult to accept'. 25 It does not, however, necessatily follow that
known danger of severe weather manned by a crew that he knew was not the proximate cause of the loss in such cases is the execution of the fraudulent
competent to tespond to such conditions in order to go shopping with his wife. conspiracy to the exclusion of the conspiracy itself." Indeed, it is suggested that
This 'reckless exposure of the vessel to the perils of navigation knowing that she distinguishing between the conspiracy and its execution involves the sort of
was not in a condition to encountet them' clearly amounted to wilful splitting of complex causes against which Lotd Atkinson warned in Leyland
misconducr.21 Shipping v Norwich Union." Overt acts done in furtherance of a fraudulent
conspiracy are not separate from that conspiracy; they are a manifestation of the
Causation conspiracy. It is accordingly suggested that the modern approach to proximiry of
Section 55(2)(a) abandons the usual test of proximiry of causation: it suffices that loss causation is capable of accommodating the conspiracy as part of the proximate
is 'attributable to' the assured's wilful misconduct. This has the advan- cause of the loss. Be that as it may, the adoption of the causal phrase 'attributable
tage that the implementation of public policy is not hostage to the vagaries of to' avoids the difficulry.
the doctrine of proximate cause.
Moreover, the involvement of the assured may be even further removed. The 15.17
There is no doubt that wilful misconduct can be the proximate cause of ,,"loss. The assured may do litde more than let the master know that it would be in the
reckless abandonment of the vessel with an inadequate crew in Wood v master's financial interests for the vessel to be lost and then leave it entirely to
Associated National Insurance Co Ltd' was held to be the 'opetative cause' of the the master to procure that resulL" The assured may have no involvement at all
vessel's subsequent loss. However, many cases of wilful misconduct lack such a in the choice of method, the planning of the loss and the execution of the plan.
direct involvement of the assured with the casualry. Commonly, rhe assured To the extent that even the modern doctrine of proximate cause might hesitate
shipowner induces the master Ot other crew member to scuttle the insured before regarding rhe assured's original setting in motion of the chain of events
that led to the loss of the vessel as patt of the proximate cause, again the phrase
friend that he had not lost his nerve. He fell and lost his life. The deliberate nature of the
deceased's acts coupled with the foreseeability of the consequences prevented recovery under a
policy covering death 'caused solely by accidental means'. Aliter had the coping unexpectedly
given way.
23 SheilInternational Petroleum Co Ltd v Gibbs (The Salem) [1983) 2 AC 375.
18 Papademitriou v Henderson (1939) 64 LlLRep 345, 348 per Goddard LJ. Ho,:",ever, 24 Fortuity was addressed by a Seaworthiness Admitted Clause, see 10.78 above.
where the vessel is neutral, prosecution ofa voyage involving a risk of capture is not wilful 2S [1983J 2 AC 375,392-3.
misconduct, as war risks insurance is designed to cover such risks. 26 Although it is doubtless the case that the last-in-time approach to proximity of causation
19 ibid 349. 20 [19851 1 QdR 297.
would produce that result, leading to the pre~Act comment that the proximate cause doctrine does
21 ibid 305 per McPherson J(Supreme Court of Queensland, Full Court). At first instance,
the assured was also denied recovery for loss by perils of the seas because of a lack of not apply to wilful misconduct: Irinder, Anderson
fortuity, recovery under the Inchmaree clause was denied for failure to comply with the due [18981 2 QB 114, 124. This may explain the dtafting of s 55(2)(a) but does not require wilful
diligence proviso, and the insurers also had an unseaworthiness defence: [1984] 1 QdR 507. misconduct to remain isolated from subsequent developments in the doctrine of proximate cause.
" [198511 QdR 297,307. [19181 AC 350, 365. See 9.14 above.
See the discussion of complicity in the context of barratry at 11.64 above.
456
457
'attributable to' permits the law to link the assured to the loss so as to deny and still Jess participation in rhe act of scuttling itself." Where the assured daims
recovery.
for a loss by periJs of the sea and the insurers suspect a fraudulent sinking, rwo
courses of action are open, 'rhey can simply traverse the allegarions in rhe points of
Standard ofproof daim or they can make an affirmative allegation of scuttling. If they adopt the
Where the insurer raises the defence of complicity of the assured, it introduces a criminal former course they can cross-examine and call evidence to show that rhe vessel was
matter intO civil litigation. The required standard of proof thar musr be sarisfied nor lost by a fortuitous accident, but cannot set up an affirmative case that she was
remains that of the civil law but reflects the gravity of the allegation." A finding of cast away with the privity of the owner', 35
connivance 'blasts a man's character and may involve financial ruin'. 30 On one An assured cannor recover on a policy withour discharging rhe burden of prov- 15.20
interpreration, the civil srandard of proof is flexible and requires rhe insurer to ing, to the civil law standard of a balance of probabilities, thar rhe casualty was
prove complicity on 'a balance of probabiliries appropriate to rhe seriousness of the caused by a covered peril. Since, by definition, a Joss by perils of the sea musr be
charge, a standard falling not far shorr ofthe rigorous criminal standard',31 The accidental, ir is incumbent upon an assured daiming under this head to adduce
prevalenr approach, however, is to affirm the applicability of a uniform civil some evidence of rhe fortuity,36 The sinking ofa seaworthy vessel in unexplained
standard of a balance of probabilities. However, in determining wherher the circumstances may provide circumstantial proof of loss by perils of the sea,
evidence adduced satisfies rhis standard, account is to be raken of the likelihood of albeit rarely in rhe modern wotld," but the insurer may counter with evidence
people, such as those involved, conspiring to perpetrate a fraud of the type alleged." suggesting a deliberate throwing away by the masrer or crew. Even if successful
There may be lirde practical difference berween the rwo in so establishing, however, the insurer will temain liable if rhe assured is covered
approaches,33 against barratry unless the insurer can demonstrare rhat the assured connived in
the sinking.38
Scuttling
The paradigm example of wilful misconducr is connivance on the part of the owner in the Where the insurer alleges wilful misconducr but fails to adduce the convincing 15.21
scutding of an insured vessel wirh a view to making a claim on rhe insurance evidence required, the evidence adduced may, nevertheless, prevent the assured
policy. Connivance, or complicity, connotes authorization or assent but does nor from establishing a loss by perils of the sea on a balance of probabilities. 39
require involvement in planning how rhe scurding is to be effecred, Where, however, fortuity is no parr of the definition of the peril on which the
assured relies, rhe insurer must succeed in proving wilful misconducr. If, there-
fore, the assured daims for a loss by fire and rhe evidence is equally consisrent
with arson by the assured or a fire orherwise originaring, the assured must
~
recover. The peril of fire calls for no proof of fortuity and rhe insurer has failed
29 Michelos (M) & Sons Maritime SA v Prudential Assurance Co Ltd (The Zinovia) [1984] 2
Lloyd's Rep 264, 272; Continental/flinois National Bank 6- Trust Co of Chicago, v Allian,ce to establish its defence.40
Assurance Co L,d (The Cap,ain Panagos DP (No 2)) [1989) 1 Lloyd's Rep 33, 41; Nauonaljusuce
Compania Naviera SA v Prudential Assurance Co Ltd (The lkarian Reefir) [1995] 1 Lloyd's Rep Direct evidence ofdeliberate sinking and complicity cannot be expected and the 15.22
455,459. Generally, see Hornal v Neuberger Products L,d[1957) 1 QB 247; Re H[1996) AC 563,
586. Marine insurance cases decided before Hornal v Neuberger favoured the strict criminal standard:
Campania Naviera Vascongada v British & Foreign Marine Insurance Co Ltd (The Gloria)
(1936) 54 LlLRep 35, 50; Issaias (Elfie A) v Marine Insurance Co (1922) 13 LlLRep 381, 386, affd Continental Illinois National Bank & Trust Co ofChicago v Alliance Assurance Co Ltd (The
(1923) 15 LlLRep 186, 187. Captain Panagos DP) (No 2) [1986] 2 Lloyd's Rep 470, 501. See 11.64 ahove.
30 Issaias (Elfie A) v Marine Insurance Co (1922) 13 LlLRep 381, 386.
Palamisto General Enterprises SA v Ocean Marine Insurance Co Ltd [1972] 2 QB 625, 647 per
3\ Michelos (M) & Sons Maritime SA v Prudential Assurance Co Ltd (The Zinovia) (1984] Cairns L].
2 Lloyd's Rep 264, 272 per Bingham J. Likewise Houghton (RA) & Mancon Ltd v Sunderland 36 Compania Naviera Santi SA v Indemnity MutualAssurance Co Ltd (The Tropaioforos) [1960]
Marine Mutuallnsurance Co Ltd (The Ny-Eeasteyr) [1988] 1 Lloyd's Rep 60, 62. 2 Lloyd's Rep 469, 473; Aitrovlanis Compania Naviera SA v Linard (The Gold Sky) [1972]
32 Anonima Petroli Italiana SpA v Marlueidez Armadora SA (The Filiatra Legacy) [1991] 2 2 Lloyd's Rep 187.
Lloyd's Rep 337, 365-6; National justice Campania Naviera SA v Prudential Assurance Co 37See 10.28-10.30 above.
Ltd 38On the burden of proof in cases of barratry, see 11.60-11.63 above.
(The Ikarian Reeftr) [1995) Lpoyd's Rep 455, 459, nored N Legh-Jones [1995] LMCLQ 305; " Pateras v Royal Exchange Assurance (The Sappho) (1934) 49 LlLRep 400, 407; Compania
Trans,hene Packaging Co Ltd v Royal Insurance (UK) Ltd [1996] LRLR 32, 37; James v CGU Naviera Vascongada v British & Foreign Marine Insurlmce Co Ltd (The Gloria) (1936) 54 LlLRep
Insurance plc(2002) Lloyd's Rep IR 206,.211. 35,50-1; Palamisto General Enterprises SA v Ocean Marine Insurance Ltd [1972] 2 QB 625, 647;
33 Brownsville Holdings Ltd v Adamjee Insurance Ca Ltd [2000] 2 Lloy~'s Rep 458, para 28; Aitrovlanis Compania Naviera SA v Linard (The Gold Sky) [1972] 2 Lloyd's Rep 187.
Strive Shipping Corp v Hellenic Mutual 'W'ttr Risks Association (Bermuda) Ltd (The Grecia Express) 40 Slattery v Mance [1962] 1 QB 676.
[2002) EWHC 203 (Comm), [2002] 2 Lloyd's Rep 88, para 45.
459
458
Excluded Losses VOluntary Conduct ofthe Assured
courts will draw conclusions from appropriate facts and circumstances." In and maintain his character, 50 as well as an investigation by the owner to attempt
Lemos v British & Foreign Marine Insurance Co Ltd, 42 MacKinnon J identified to discover what happened. 51
three material enquiries: the nature of the casualty involving the loss of the ship,
the nature and extent of opportunities for communication between the owner With respect to motive, one starts with the proposition that: 'Ships are not cast 15.24
and the master together with the nature of any such communications, and the away out of Jighrness of heart or sheer animal spirits. There must be some strong
presence of any motive to induce either the owner or the master to scuttle motive at work; and this is usually the hope of gain. '52 The master and crew
the vessel. Motive, however, need not be proved if 'the facts are sufficiently may scuttle the vessel out of spite, but such conduct endangers their livelihoods
· . h '43 and is therefore unlikely. 53 In contrast, the owner may stand to reap
unamb19UOUS agamst t e owners. considerable financial gain. The First World War produced a boom in the
A number of circumstances typical of a fraudulent sinking may be identified. These freight market, an influx of inexperienced people and capital into the
include calm weather, a sinking in deep water impeding investigation by diver, shipowning business, and inflation in ship prices. The subsequent slump in
and a minimum of risk to the crew through sinking conveniently close to demand saw a number of shipowners with older, depreciated assets trading at a
shore or main shipping lanes. 44 Naturally considerable attention is given to the loss and facing financial ruin. However, the measure of indemnity on a marine
credibility of the account of the masrer and crew. 45 An alleged collision with what insurance policy is the insured value of the subject-matter, or its value at the
musr have been a substanrial hazard but ofwhich nothing else is ever heard inception of the risk, not its actual value when lost. The vessels having been insured
elicits suspicion," as does premature abandonment of the vessel without genu- at the height of the market, not infrequently the mathematics proved irresistable. 54
ine attempts to assess the damage or save the vessel 47 Credibility is of course Nevertheless, the mere existence of a choice between financial ruin and a sunken
weakened by inconsistencies between the stories of different members of the ship proves nothing by itself. 55 'Anovet-insured ship owned by a scoundrel may yet
crew or between the offered explanation of the casualty and physical or expert meet her end by perils of the sea'," but suspicious circumstances surrounding the
evidence as to the vessel's demise.48 It is also expected that the master will sinking coupled with the owner's financial predicament and the absence of any
endeavour to preserve the ship's papers as evidence of his good faith and to motive on the part of the master to scuttle voluntarily may combine to justify a
maintain his professional reputation. Their loss may indicate misconduct. 4' judicial inference of wilful misconduct on the part of the assured shipowner.
Moreover, where a vessel is lost innocently, one would expecr the master to
fotward a rapid, apologetic explanation to attempt to vindicate his seamanship
Anghelatos v Northern Assurttnce Co Ltd (The Olympia) (1924) 19 LlLRep 255, 259-60: Bank
ofAthens v Royal Exchange Assurance (The Eftychia) (1937) 57 L1LRep 37, affd (1937) 59
LlLRep 67. Contrast Maim v London Assurance (1935) 52 LlLRep 211.
Coulouras v British Genera/Insurance Co Ltd (The Katina) (No 2) (1922) 12 LlLRep 220 and
41 Issaias (Elfie A) v Marine Imurance Co (923) 15 L1LRep 186, 187; Campania Naviera 266 at 280-1.
Martiartu v Royal Exchange Assurance Corp (The Arnus) (1924) 19 LlLRep 95. 96: Angheuuos v 52 Compania Naviera Martiartu v Royal Exchange Assurance Corp (The Arnus)
Northern Assurance Co Ltd (The Olympia) (1924) 19 LlLRep 255, 257-8: NationalJustice Compa- (1924)
nia Naviera SA v Prudential Assurance Co Ltd (The lkarian Reef'r) [1995J 1 Lloyd's Rep 455, 484. 19 LlLRep 95, 99 per Lord Sumner.
41 (1931) 39 LlLRep 275, 283. Visscherij Maatschappij Nieuw Onderneming v Scottish Metropolitan Assurance Co (1922) 10
43 Browmville Holdings Ltd v Adamjee Imurance Co Ltd (The Milasan) [2000] 2 Lloyd's Rep LlLRep 579; Compania Naviera Martiartu v Royal Exchange Assurance Corp (The Arnus) (1924)
458, para 28(10) per Aikens J. 19 LlLRep 95, 99.
44 Ansoleaga Y Cia v Indemnity Mutual Marine lmurance Co Ltd (The Leanita) (1922) For particularly acute examples, see Ansoleaga Y Cia v Indemnity Mutua! Marine Insurance
13 LlLRep 231, 246-7. Co Ltd (The Leonita) (1922) 13 LlLRep 231 (vessel worth £55,000, assured still owed £200,000 of
For an extraordinary tale, see Domingo Murnbru SA v Laurie (1924) 20 LlLRep 122 and the purchase price of £250,000 and facing premiums of £16,000 on renewal of insurance,
189. insurance worth £270,000); Anghelatos v Northern Assurance Co Ltd (The Olympia) (924) 19
Couinuras v British Generallmurance Co L,d (The Katina) (No 2) (1922) 12 LlLRep 220 and LlLRep 255 (vessel worth £17,500, assured's debts rotalled £203,000, insurance worth
266 at 278; Comunidad Naviera Baracaldo v Norwich Union Fire Insurance Society (The Bam Bi) £223,000).
(1923) 16 LlLRep 45,93 and 156 at 159. " Bank ofAthem v Roya! Exchange Assurance (The Eftychia) (1937) 57 LlLRep 37, 62. For
47 Ansoleaga Y Cia v Indemnity Mutual Marine Insurance Co Ltd (The Leonita) instances of the insurer failing ro prove that a profitable sinking constituted wilful misconduct on the
(1922) part of the assured, see Doriga Y Sanudo v Roya! Exchange Assurance Corp (The Marianela)
13 LlLRep 231. (1922) 13 LlLRep 126 and 166: Issaias (Elfie A) v Marine Insurance Co (1923) 15 LlLRep 186:
48 eg Aquarius Financial Enterprises Inc v Certain Underwriters at Lloyd's (The Delphine) [2001] Comumdad Navzera Baracaldo v Norwich Union Fire Insurance Society (The Bara Bi) (1923)
2 Lloyd's Rep 542 (spread of fire inconsistent with assured's version of events). 16 LlLRep 45, 93 and 156: Lemos v British & Foreign Marine Insurance Co Ltd (1931) 39
" Anghelatos v Northern Assurance Co Ltd (The Olympia) (1924) 19 LlLRep 255, 259: Societe LlLRep 275.
d'Avances Commerciales (SA Egyptierme) v Merchants'Marine Insurance Co (The Palitana) (924) 56 Compania Naviera Vascongada v British 6- Foreign Marine Insurance Co Ltd (The Gloria)
20 LlLRep 74, 140, 161. (1936) 54 LlLRep 35, 51 per Branson J.
460 461
Excluded Losses
Pleading the matters relied on (other than those given under (a) and (b) above) to
suppott the allegation that the casting away of the Dias was wilfully procured or
It was formerly the practice that an insurer who pleaded the defence of wilful misconduct
connived at by the [claimants].
was not required to furnish particulars of the conduct upon which the insurer
relied. The practice was, however, disapproved in 1972. In Astrovlanis
(3) Co-insurance
Compania Naviera SA v Linard,57 the assured's application for particulars was
denied by reason of his inexcusable delay in applying, but a majoriry of the Court It is clear that a defence based on the voluntary conduct of one co-assured under 15.27
ofAppeal expressed the view that, in principle, such particulars should be pleaded. a composite policy cannot be opposed against other co-assureds who ate not
According to Edmund Davies LJ:S8 parry to that conduct. In the case of joint insurance, in contrast, the uniry of
In marine insurance cases such as the present the [insurer] already has the almost (if interest necessarily denies the several application of the defence.
not wholly) unique advantage of not being obliged to plead until after discovery,59 The leading case of Samuel (P) & Co Ltd v Duma!" concerned a composite 15.28
and that has been completed in the present case. If the ship's documents thereby
obtained afC his only source of information and they afford no substantiation of
policy on a ship covering the interests of mortgagor and mortgagee. The ship
complicity in scuttling, such a grave allegation should not have been advanced. was deliberately sunk by the malter at the behest of the mortgagor. This denied
recovery even to the mortgagee because the only covered peril available under
Authoritative resolution of the issue was promptly sought. In The Dias,60 a claim in the policy was 'perils of sea', and the House of Lords ruled that a deliberate
respect of the loss of the insured vessel by petils of the sea was met by a defence sinking by those in charge of the lost vessel could not be regarded as fortuitous.
that put the assured to strict proof of the claim and included, in para-graph 4, an
However, the House of Lotds was clear that otherwise the mortgagee could have
unembroidered allegation that 'the loss of the vessel was caused by the wilful recovered.
misconduct ofthe [claimants] in procuring or conniving at the casting away of the
vessel'. A differently constituted Court ofAppeal acknowledged that the insurer
should not be tequired to provide advance notice of its entire case but,
B. Delay
nevertheless, held that particulars of acts or omissions alleged to have resulted in
the deliberate sinking ot the ship should be pleaded. The assured was entitled to By virtue of section 55(2)(b) of the Marine Insurance Act 1906, 'the insurer on 15.29
know 'not why his opponent will say that the ship should be found to have been ship or goods is not liable for any loss proximately caused by delay, although the
scuttled, but how his opponent will say that the ship was scuttled, if the delay be caused by a peril insured against'. Although section 55 is silent as to
circumstances are such that it is realistic to suppose that his opponents can furnish freight, the Institute freight clauses exclude 'any claim consequent on loss of
such particulars'. 61 The court made the following order:" time whethet arising from a petil ofthe sea or otherwise'.64 A particular difficulry
That without (i) limiting the right of the defendants to investigate matters not is presented by perils that necessarily involve a delay.
specifically pleaded by cross-examination or otherwise on the issue raised by their
general traverse, and (ii) requiring the defendants to give pard'culars under (a) and (1) Losses 'Consequent On' Delay
(b) below of circumstantial matters from which they will invite the court to infer
that Dias was not lost fortuitously, the defendants do give within 10 days the best The Institute freight clauses do not invoke the proximate cause rule. Instead 15.30
particulars they can of paragraph 4 of the points of defence herein as follows: (a) they exclude claims for losses 'consequent on loss of time'. Such phraseology, or
of the manner in which it is alleged (if it be so alleged) the fire on board Dias was similat, has been the subject of judicial consideration. It enables the insurer to
started deliberately or was deliberately not brought under control, or otherwise avoid liabiliry even where delay is not itself the ptoximate cause of the loss.
stating the nature of rhe case; (b) of the manner in which it is alleged (if it be so
alleged) that the entry of water into Dias was procured deliberately or was delib- In Bensaude v Thames & Mersey Marine Insurance Co Ltd,6s a steamer's main 15.31
erately not brought under control, or otherwise stating the nature ofthe case; (c) of shaft broke because of a peril of the sea, necessitating a return to the port
of loading for repairs. The resulting delay to the ptosecution of the voyage
57 [1972]2QB611. 56 ibid621.
S9 A reference to the order for ship's papers, discussed at 1.59 above.
[19241 AC 431.
60 Palamisto Genera/Enterprises SA v Ocean Marinelnsurance Ltd (TheDias) [1972] 2 QB 625.
Institute Time Clauses Freight (1/11/95), cl14; Voyage Clause Freight (1/11/95), cl12.
61 ibid 644 per Buckley LJ. 62 ibid 650. . [18971 AC 609.
462 463
Excluded Losses Delay
frustrated the adventure aud the charterers terminated the contract as permitted by (2) Delay and the Proximate Cause Rule
the governing law. A claim for loss of freight was successfully resisted on the basis
Both the default rule of section 55(2)(b) of the Marine Insurance Act 1906 and 15.33
of a clause in the policy excluding 'any claim consequent upon loss of time,
the delay exclusions found in the Institute cargo clauses70 are drafted to exclude
whether arising from a peril of the sea or otherwise'. Lord Herschel! construed this
only losses proximately caused by delay. These reflect case law that is questionable
phrase as follows: 'Itmust mean that although the subject-matter has been lost, and
today.
although it has been lost by a peril insured against, if the claim depends on loss of
time in the prosecution of the voyage so that the adventure cannot be completed Pink v Fleming' concerned collision insurance. A collision occurred necessitat- 15.34
within the time contemplated, then the underwriter is to be exempt from liability.''' ing the discharge of parr of the insured cargo of fruit into lighters in otder to
effect repaits to the vessel. Nter completion of the repairs, the goods were re-
shipped and the vessel continued to the port of destinatiou. There it was dis-
In The Playa de las Nieves,67 a time chatter provided that hire would cease during time
covered that some of the fruit had gone bad by reason of the handling necessaty
lost from specified reasons. The shipowners insured the freight under a policy
for dischatge and re-shipment and because of the delay. The Court of Appeal
which excluded 'any claim consequent on loss of time whether arising from a peril
held that the collision was not the proximate cause of this loss. Lord Esher MR,
of the sea or otherwise'. The vessel went off-hire under the terms of the charter and
from whose comments the other judges in no way dissented, accepted that the
the shipowners sought to recover the lost freight from the insurers. Lord Diplock,
collision was an effective cause bur stated that proximate meant last in time.
delivering the judgment of the House of Lords, accepted the shipowners'
Losses caused by repaits or delay necessitated by collision could not be viewed as
contention that the proximate cause of the lost freight was the occurrence that
proximately caused by the collision. 'According to the English law of marine
triggered the off-hire clause (a breakdown of machinery and stranding necessitating
insurance only the last cause can be regarded ... To connect the loss with
repairs). This was stated to be unexceptionable as a
any mentioned in the policy, the plaintiffs must go back two steps, aud that,
proposition of marine insurance law and would have been relevant to any question
accotding to English law, they are not entitled to do.'''
of whether the proximate cause of the loss was a peril insured against, 'as it must
have been if there were to be any loss upon which the time charter clause as au According to this reasoning, whete a peril necessitates delay which causes loss, it 15.35
exceptions clause could bite'. 68 However, the next and vital stage of the is the delay, not the peril, which is envisaged as the proximate cause. This is the
shipowners' argument, that the phrase 'consequent on' in the exclusion meant approach to delay and causation reflected in both section 55(2)(b) of the Marine
proximately caused by, was rejected. As impeccably analysed by Lord Diplock," Insurance Act 1906 and the Instirute cargo clauses. However, in LeylandShipping
the exclusiou: - Co v Norwich Union Fire Insurance Sodet!' the House of Lotds expressly
tejected the last-in-time approach to proximity of causation. In Jackson v Union
.. . contemplates a chain of events expressed to be either 'consequent oO'-'or'aris-
ing from' one another. It expressly makes the operation of the clause dependent Marine Imurance Co Ltd,74 moreover, it was held that where a vessel tan aground
upon the presence in the chain of an intermediate event (viz 'loss of time') between necessitating repairs of such a duration that the adventure was frustrated, the
the loss fot which the claim is made (viz loss of freight) and the event which in proximate cause of the lost freight was perils of the sea. In the light of these
insurance law is the 'proximate cause' of that loss (viz a peril insured against), decisions and the House of Lotds' judgment in The Playa de las Nieves, and
The intermediate event, 'loss oftime/ is not itselfa peril though it may be the given Lord Esher's concession in Pink v Fleming that the collision was an effect-
result ofa peril. That is why the words 'whether arising from a peril of the sea
or otherwise' are not mere surplusage ... They are there to make it plain that ive cause, the causation analysis in Pink v Fleming appeats unsustainable. 75
the clause is concerned with an intermediate event between the occurrence of The only delay in prosecution of the voyage was the necessary and direct
a peril insured against and the loss of freight of which the peril was, in
insurance law, the proximate cause.
70 Institute Cargo Clauses (A), (B), (C), cl4.5; War Clauses (Catgo), Strikes Clauses (Cargo),
cl3.5.
71 (1890) 25 QBD 396. n ibid 398. 73 [19181 AC 350.
74 (1874) LR 10 CP 125. See also Owners of the Steamship Gracie v Owners of the Steamship
ibid 614. See also Lord Watson at 613: 'but for the delay occasioned by the breaking of Argentino (The Argentino) (1889) 14 App Cas 519 (in collision law, loss of earnings while a vessel
the shaft there would have been no loss to claim'. is undergoing necessary repairs are the direct and natural consequence and the proximate result of
Naviera de Canarias SA v Nacional HispanicaAseguradora SA (The Playa de las Nieves) [1978] the collision).
AC853. 75 Similar doubts must attach in the modern law of causation to remarks of Collins LJ in Field
" ibid 881. 69 ibid 882. Steamship Co Ltd v Burr [1899J 1 QB 579, 591.
464 465
Excluded Losses Delay
consequence of the collision, and this, it is suggested, cannOt break the chain of underwriters wishing to avoid such liability is to dilute the required causal link
causation. Put another way, the absence of any possibility of repair without delay between the delay and the loss.
and cargo handling no more broke the chain of causation than the absence of an
appropriate available place of refuge in Leyland Shipping v Norwich Union. In (3) Perils of Deprivation and Inhibition on Use
contrast, had the vessel been further delayed beyond the time ordinarily required
The causal relevance of a delay must respond to the conttactual context. In the 15.38
for the repairs in question, for example by industrial action of dock workers, the
context of insured perils involving a deprivation or inhibition on use, a loss of
additional delay could fairly be viewed as the sole proximate cause of any loss
time is required for the peril to operate. There cannot be a caprure, seizure,
attributable thereto.
arrest, restraint, or detainment without the insured vessel or cargo suffering a
15.36 All members of the Court of Appeal in Pink v Fleming viewed themselves as delay or a delay being incurred in pursuing the adventure that is to earn insured
76 freight. A failure carefully to delineate any exclusion based on delay or loss of time
simply applying the earlier case of Taylor v Dunbar. A wholesale butcher
insured cargoes of pig and cattle carcasses. Adverse weather did not damage the will lead to the commercially bizarre result that the exclusion will entirely negate
cargo but caused considerable and repeated delays, as a result of which the meat the cover prima facie granted in respect of such perils.
became putrid and had ro be thrown overboard. According ro 'rhe common
understanding both of assured and assurers',77 such a delay in the voyage was no This point was initially overlooked. In Russian Bank fOr Foreign Trade v Excess 15.39
peril of the sea. Alrhough there can be no quarrel with such a contractual Insurance Co Ltd," cargo was ICladed on a vessel for carriage from a Black Sea
allocation of risk, the language of causation again creates difficulty. Given the port to Falmouth. The vClyage was frustrated by closure of the Dardanelles upon
modern approach to causation, it is clearly arguable that the loss in Taylor v declaration ofwar against Turkey by the United Kingdom. Although the loss fell
within the covered peril of restraint of princes, the insurer successfully invoked a
Dunbarwas proximately caused by the inability to pursue the voyage by reason
of the conditions at sea, which should qualifY as a peril of the sea. clause excluding 'all claims due to delay'. Bailhache J held the exclusion to be
indistinguishable from that in Bensaude and the case to be covered by that
It is, therefore, suggested that the collision in Pink v Fleming and the adverse weather in decision. 'In both cases it was a delay due to a peril insured against, which caused
Taylor v Dunbar should properly be regarded as proximate causes of in one case the total loss of the freight, and in the other the constructive total loss of
the respective 10sses.78 However, insurers will still be protected in such circum- the cargo.'·3
stances if the delay can also be correctly characterized as a proximate cause of the
loss. The statutory and contractual delay exclusions depend on the causal status of Doubt was, however, cast upon this reasoning in Atlantic Maritime Co Inc v 15.40
the delay, regardless of that of any insured peril that causes the delay." If both such Gibbon.84 During the Chinese civil war, a vessel was prevented from entering the
a peril and delay constitute proximate causes, the exclusions will prevail. 80 In both port ofTaku Bar by a Chinese government warship, resulting in loss of freight. The
Pink v Fleming and Taylor v Dunbar, delay was clearly the immediate cause of insurer successfully invoked a clause excluding 'loss of, or frustration of, any
voyage or adventure caused by' restraints of princes. Some consideration was,
the loss and it may be that the loss could correctly be regarded as proximately
however, also given to a second exclusion invoked by the insurer, worded as in
caused by delay.81 To the extent that the proximate cause status of delay in such
circumstances is doubtful in the modern law, the solution for Bensaude. Withour expressing a final view, Lord Evershed MR suggested a dis-
tinction between twO categories of case. In the first, the peril is complete and
distinct from the loss of time which ensues, as in Bensaude: 'The shaft is broken:
-------- ---'-'-'- that of itself does not give rise to any claim, since it may be capable of being
76 (1869) LR 4 CP 206. ibid 211 per Montague Smith].
77 repaired the next morning; bur it is then followed by a definite, ascertained loss of
78 This is the view of the US Supreme Court: Lanasa Fruit Steamship & Importing Co Inc v time, and it is that loss of time, distinct from though consequent upon the accident
Universal Insurance Co 302 US 556 (1938). Note also that the causation analysis in Jackson v itself, which gives rise to the loss of the bargain.'·' In contrast, accord-ing to Lord
Union Manne Insurance Co Ltd explains why s 55(2)(b) does not refer to freight.
Compare the causation approach to design defects and latent defects, sec 11.08-11.09 Evershed the correct analysis of cases such as Russian Bank and
above. Atlantic Maritime was different:
The contractual exclusions"benefit from the priority accorded to exclusion over concurrent
insured causes (see 9.29 above) and s 55(2)(b) is worded to override any priority otherwise accorded to
express insured perils over concurrent causes not mentioned in the policy.
Although that was not the analysis adopted by Lord Diplock in The Playa de las Nieves
(n 67 above), 15.32 above, 82 [191812 KB 123. 83 ibid 128. M [195411 QB 88. 85 ibid 127.
466 467
Excluded Losses Losses that Occur in the Natural Course ofEvents
.. . the time element is relevant, not as a consequence of the mishap, but to In the context of marine insurance, section 55(2)(c) of the 1906 Act articulates 15.43
ascertain correctly the nature and quality of the accident. If because of the length of
the presumption of non-insurance with respect to natural losses in the form of
time which is likely to subsist during which the peril lasts, it is justifiable to say
ordinary wear and tear, ordinary breakage and ordinary leakage, inherent vice,
'This finally disposes of the bargain,' then the freight is lost then and there
immediately upon the happening of the insured peril and is attributable solely to and loss proximately caused by rats Ot vetmin. The presumption does not have
that peril. The time element has only been essential in order to estimate correctly the status of an express exclusion, so that the assured will recover in the event of
the extent of the peril; and if, in point of fact, the peril ceased a week or two a loss being concurrently caused by a covered peril and falling within section
afterwards, that fact would be quite immaterial, provided that the original decision 55(2)(c).91
was held, in the circumstances to have been reasonably justified.86
Natural losses should not be equated with inevitable losses. That which 15.44
The perils covered by the policy in Atlantic Maritime included arrests, restraints, and 9
ordinarily occurs does not have ro occur. ' The concept of 'ordinary' leal<age
detainments. As noted above, loss of freight by reason of such perils neces-sarily
relates to that which might naturally be expected to occur, not that which
involves a loss of time. Without the distinction postulated by Lord Evershed, the
will necessarily occur. A voyage might be accomplished without such a level
cover thereby granted would have been totally withdrawn by the
of leakage. In that sense, even ordinary leakage is fortuitous, but the likeli-
loss of time exclusion. 87 It is noteworthy that the modern Institute clauses that give
hood of the risk materializing is such as ro be assumed unacceptable to
cover against losses caused by capture, seizure, arrest, restraint, and detain-ment
insurers. Losses that are inevitable, in that they are factually certain ro occur
do not contain general delay or loss of time exclusions. However, 'expenses arising
in the course of the policy, present a further dimension, which is considered
from delay' are excluded except for those recoverable in general average. 88 93
below. .
In the context of hull cover, losses arising from the condition of the insured 15.45
Losses that Occur in the Natural Course of Events vessel are addressed through the doctrine of seaworthiness. This doctrine and its
relationship with natural loss defences are discussed elsewhere."'
Sensible underwriting accommodates with difficulry losses that occur in the natural course
of events ('natural losses) withour the intervention of any for-tuitous circumstance.
(I) Ordinary Wear and Tear, Ordinary Breakage, and Ordinary Leakage
If a loss will naturally occur while the insurer is on risk and the insurer is asked to
assume liabiliry for that loss, the logical response is to adjust the premium to The Institute cargo clauses routinely exclude 'ordinary leakage, ordinary loss in 15.46
include an element corresponding to the measure. of indemnity for that loss89 weight or volume, or ordinary wear and tear of the subject-matter insured'."'
Moreover, unless the insurer can assume a level of Loss caused by the ordinary wear and tear, leakage, or breakage of anything other
fitness for the insured adventure of the property to be covered, there is .no logical than the subject-matter insured is, thus, covered under the Institute Cargo Clauses
basis for the setting of a premium or the agreeing of terms generally. As a mattet (A)." 'Leakage' has been defined as 'any stealthy escape either through a small hole
of commercial reality, it is, therefore, unlikely that an insurer will agree ro cover which might be discernible, or through the pores of the material of which the cask
natural losses or inherently unfit property. There is, however, no rule of public is composed'."' It may be distinguished from loss by evaporation
policy that prohibits an insurer from accepting such risks. Whether such losses are
covered by a policy is, therefore, a matter of interpretation, albeit thar the
commercial reality supports a strong presumption against such cover. 90
91 HfH Casualty & Generalfnsurance Ltd v Waterwell Shipping fnc (1998) 146 FLR 76 (New
ibid. South Wales Court of Appeal). See 9.30 above. Otherwise, where the losses mentioned in
Obiter suppOrt for thus restricting the protection given by the exclusion may be found in
Robertson v Petros M Homikos Ltd[19391 AC 371,377. s 55(2)(c) are made the subject of express contractual exclusions: see 9.31 above.
8B eg Institute War and Strikes Clauses (Hulls-Time) (1/10/83). c14.4; (1/11/95). c15. 1.5. The " Soya GmbH Mainz KG v White [1982] 1 Lloyd's Rep 136, 150.
93 See 15.64-15.69 below. 94 See Ch 19 below, esp 19.60.
phrase 'arising from' imports the proximate cause test: Handelsbanken Norwegian Branch of
Svemka Handelsbanken AB (PUBL) v Dandridge (The A/iza Glacial) [2002] EWCA Ciy 577. 95 Institute Cargo Clauses (A), (B), (C), d 4.2; War Clauses (Cargo) and Strikes Clauses
[200212 Lloyd's Rep 421, para 60. (Cargo), cl3.2.
96 The condition of the carrying vessel is addressed through the law on seaworthiness and
89 For an example of premium adjustment to reflect different excess levels of leakage, see De
Monchy v Phoenix Imurance Co ofHartfOrd (1929) 34 L1LRep 201, 204. ~ cargworthiness: see Ch 19 below.
97 De Monch) v Phoenix Insurance Co ofHartford (1929) 34 LlLRep 201, 204 per Viscount
" Shell UK Ltd v CLM Engineering Ltd [2000] 1 Lloyd's Rep 612,617.
Dunedin.
468
469
Excluded Losses Losses that Occur in the Natura! Course ofEvents
or natural wastage,98 but such losses would be caught by the reference in the the cause of the loss will not be a covered peril.'02 Section 55(2)(c) of the 1906
Institute cargo clauses to 'loss in weight or volume'. Act articulates this causation extrapolation from section 55(1).'03 If ordinary
15.47 Even where insurance is tal<en out to cover leakage, the clearest wording will be wear and tear and the further event are concurrent causes, the insurer will
required before a court will accept that ordinary leakage is insured. not be liable if the policy contains an express ordinary wear and tear exclusion.'o,
Dodwe!! & Co Ltd v British Dominions & Genera! Insurance Co Ltt/' In the absence of such an exclusion, however, the insurer will be liable. Once an
insured peril has proximate cause status, the insurer is liable under section 55(1)
concerned twO policies that expressly embraced leakage. The first covered leakage
and section 55(2)(c) does not detract from that.
with-out any particular wording. Insurers were held liable only to the extent that
the leakage that occurred exceeded the normal level of leakage to be expected. The
(2) Inherent Vice or Natnre of the Snbject-matter Insured
second, however, was drafted by the insurer as 'including risk of leakage ftom any
source whatever'. This was held to mean exactly what it said, rendering the insurers The presumptive non-insurance of 'inherent vice or nature of the subject-matter 15.50
liable for the entirety of the leakage thar had occurred. Similarly, where a policy insured' articulated by section 55(2)(c) of the Marine Insurance Act 1906 is
covers leal<age, breakage, or evaporation in excess of a specified amount, the reiterated as an express exclusion by the Institute cargo clauses.'os In the context
policy will be construed as covering any and all such loss subject only to the of hull and freight insurance, however, the circumstances in which the sub-
specified deduction.'oo Insurers will nor be allowed to argue rhar in reality the standard condition of the relevant vessel affords the insurer a defence to a claim
ordinary loss is higher and that an additional deduc-rion should be made under are addressed by the law on unseaworthiness of ships. '06
secrion 55(2)(c) of the 1906 Act. In effect, the deductible operates as an agreed
contractual quantification of the measure of ordinary loss. (a) The meaning ofinherent vice
In Soya GmbH Mainz KG v White,'07 Lord Diplock stated that inherent vice 15.51
'is not desctiptive of the loss itself. It means the risk of deterioration of the
Modern cargo policies may contain an exrension of cover in the form of a 'full outturn
goods shipped as a result of their natural behaviour in the ordinary course of
guarantee' or (guaranteed outturn extension'. Prima facie, such an extension
indemnifies against any loss in transit by covering any shortfall between rhe the contemplated voyage without the intervention of any fortuitous external
accident or casualty'.
quantity dispatched and the quantity received. In pracrice, how-ever, such
extensions are usually qualified by a deductible equivalent to the loss, whether by An alternative approach allows insurers to invoke inherent vice whenever the 15.52
leakage, breakage, or evaporation, to be normally expected in~the course of the goods prove unfit to withstand the normal incidents of the insured adventure.'os
transit in question. Whether the two formulations are substantively different depends on the mean-
Where ordinary wear and tear induces a futther insured peril that conttibutes to loss or ing attached to the concept of fortuity in the Diplock formula. In the context of hull
damage, a causation issue may arise. Where the ordinary wear and tear insurance against perils of the sea, the inclusion of fortuity in the definition of the
sufficiently jeopardizes the insured property, the further event may aggravate the peril serves largely to reverse the burden of proof relating to otdinary wear and tear.
problem and precipitate the casualty but will not break the chain of causation It excludes losses caused by the debilitated condition of the insured
between the ordinary wear and rear and the loss.'o, If the ordinary wear and tear is
then the sole proximate cause of the loss, the insurer will not be liable because
'02 ff Lloyd Imtruments Ltd v Northern Star Insumnce Co Ltd (The Miss fay }tty) (1985J 1
Lloyd's Rep 264, 272. see 10.06 above.
Glowrange Ltd v CGU insurance pic (Comm Ct, 29]une 2001) para 15.
Wilyne Tank & Pump Co Ltd v Employers Liability Assurtmce Cory Ltd (1974J 1 QB 57, 68,
74; Midland Mainline Ltd v Eagle Sw Insurance Co Ltd (20041 EWCA Civ 1042, (2004J 2
" ibid 206. See also in rbe Courr of Appeal: (1928) 30 LlLRep 194, 198. Whether such a
distinction should be drawn is a matter of interpretation of the policy, as in De Monchy v
105 Institute Cargo Clauses (A), (B), (C), d 4.4; War Clauses (Cargo) and Strikes Clauses
Phoenix itself.
(Cargo), cl 3.4.
" (1918) (1955J 2 Lloyd's Rep 391n.
106 Unseaworthiness is considered in Ch 19 below. On the usurping of inherent vice by
Traders 6- GeneralInsurance Association v Bankers & General Insurance Co (1921) 9 LlLRep
unseaworthiness in the context of hull insurance, see 19.60 below.
223; De Monchy v Phoenix Insurance Co ofHartftrd(1929) 34 LlLRep 201.
107 [198311 Lloyd's Rep 122, 126. See also Sassoon (ED) & Co Ltd v Yorkshire Imurance Co
Wilyne Tank & Pump Co Ltd v Employers Liability Assurance Cory Ltd (19741 1 QB 57, 66,
(l923) 16 LlLRep 129, 132. No difference is to be drawn between marine insurance and con-
74; Midland Mainline Ltd v Eagle Star Insurance Co Ltd (20041 EWCA Ciy 1042, [2004J
rracts of affreighrment: Soya v White (1982J 1 Lloyd's Rep 136, 149.
2 Lloyd's Rep 604, para 12. 108 See below.
470 471
shorter periods of such heavy seas were more common and clearly to be expected.
vessel but does not address the fitness of the vessel to encounter the ordinaty
On the facts, the damage could have been occasioned by the sustained period alone
perils of the insured marine adventute.'o, That is left to the law on seaworth,-
or by two or three of the shorter periods. Consequently, even if exposute to the
ness. The question is whether inherent Vice aligns wlth otdmary wear and tear ~r
sustained period of heavy seas fell outside the scope of inherent vice, the evidence
with unseaworthiness in the architecture of marine insurance law. If a parallel IS
demonstrated an inabiliry to withstand the ordinary incidents of the voyage.
to be drawn with ordinary wear and teat, fortuiry in the context of mherent VIce
should be construed in a narrow fashion. The second fotmulation, in contrast,
would see inherent vice perform for cargo insurance the tole played by The Mayban case clearly applies a broad concept of fortuiry to the Diplock 15.54
unseaworthiness in the context of hull insurance. This would exclude, for formulation of inherent vice. The controvetsial result is that cover under the Institute Cargo
example, damage to cargo sustained by reason of the pitching ~ndrolhng of the Clauses (A), the most generous standard cargo cover, is confined
carrying vessel in sea conditions that are not mevltable bur wlthm the normal in respect of bad weather damage to wholly exceptional adverse conditions.
range for the relevant seas at the relevant time of year.
Despite criticism by Arnould,"4 it is clear that at common law inherent vice 15.55
In Mayban General Assurance Bhd v Alstom Power Plants Ltd, 110 a large electrical transformer encompasses both packaging and the cargo packaged. 11S The Institute cargo
insured under a policy incorporating the InstItute Cargo Clauses
for a voyage from Liverpool to Malaysia with transhipment in Amsterdam clauses expressly exclude, separately from inherent vice, 'loss damage or expense
caused by insufficiency or unsuitabiliry ofpacking or preparation of the subject-
was seriously damaged by the straining of joints caused by the motion of the
matter insured'. The term 'pa:dcing'includes 'stowage in a container or liftvan
carrying vessels in heavy seas."' The vessels had encountered winds of gale force
but only when such stowage is carried our prior to attachment of rhis insurance or
eight or more and waves of six metres or higher on a number of occaSlOllS,
including one instance off the west coast of England between Milford Haven and by the Assured or their servants'.'16 Subjecr to this proviso, 'packing' does not
Land's End when such conditions continued wlthout respIte for over twenry-four include loading or stowing. The exclusion is directed 'to those steps which are
hours. Such an extended period of such conditions in those waters occurs on necessary to prepare the cargo for the loading process, not to the very acts which
average one year in every two-and-a-half years. A vessel plymg such seas on a result in the cargo being stowed on board' .'17 This careful and distinct treatment
random basis might expect to be caught m such prolonged adverse conditions in of packaging requires, as a matter of interpretation of the Institute cargo clauses,
those waters abour once in evelY eight-and-a-half years. Moore-Bick J cited the that either packaging be understood as outside inherent vice or at least that inherent
Diplock formulation of inherent vice and accepted )hat the advetse weather was, vice be confined so fat as packaging is concerned to the parameters laid down by
in a sense, fortuitous and external to the goods. He considered, however, that the the express packaging exclusion.
inherent vice exclusion required cargo ,0

be fit to withstand the full range of Where a number of consignments are made in similar conditions and goods are 15.56
conditions that a commercial person with experience of the relevant waters would occasionally damaged, it may be possible to infer that a fortuitous event caused
regard as reasonably to be expected for the relevant time of year. 'Conditions or the damage. 'But it will only be safe to draw that inference if the conditions
events which are well known to occur from time to affecting each consignment are established to be comparable save in respect of the
rime but which are nonetheless relatively uncommon may well be properly allegedly fortuitous event."18
regarded as ordinary incidents of the voyage.'112 'Goods tendered for ~hip:nent
must therefore be capable of withstanding the forces that they can ordmanly be
expected to encounter in the course of the voyage and these may vary greatly
'113 A d' I .
depending on the route and the time 0 f year. ccor mg y, I~ ,,:as, surpns- 114 Law ofMarine Insurance 6'Average Sir Michael Mustill and J Gilman (eds) (l6th edn,
ingly, held that even the rare, sustained petiod of heavy seas was wlthm the range 1981) para 782 ('an unnecessary extension of meaning of the phrase' inherent vice).
of conditions to be expecred and that cargo had to be fit to encounter. Other n, Berk (FW! 6- Co Ltd v Style [1956J 1 QB 180; Gee 6- Garnham Ltd v Whitta!! [1955J 2
Lloyd', Rep 562; Soya GmbH Mainz KG v White [1982J 1 L1oyd's Rep 136, 149 (rejeering
Arnauld's criticisms),
116 Institute Cargo Clauses (A), (B), (C), d 4.3; War Clauses (Cargo), Strikes Clauses (Cargo),
----------------- c13.3.
109 See 10.07-10.10 above. 117 Per Ormiston Jin Helicopter Resources Pty Ltd v Sun Alliance Australia Ltd (The Icebird)
'" [2004J EWHC 1038 (Comm), [2004] 2 Lloyd's Rep 609;" ... (1991) 312 LMLN (Supreme Court ofVictotia) as noted by S Hetherington [19921 LMCLQ21,
111 There was no problem With stowage: Ibid para 10. IbId para 30. 24.
113 ibid para 21. '18 Noten (TM) BV v Harding [1990J 2 Lloyd's Rep 283, 289.
472 473
Causation aggrieved as there was no appeal. However, it is worth noting that later authority
The operation of the modern doctrine of proximate callse, as established by the HOllse of underlines the need, in cases where loss is caused in part by covered perils and in part
Lords in Leyland Shipping OJ Ltd v Norwich Union Fire Insurance by perils not covered, for the assured to establish the proportion of the loss that can
Society Ltd,119 is well illustrated in the context of inherent vice by Noten (TM) BV properly be attributed to perils covered under the policy. According to such authoriry, if
no
v Harding. The case concerned insurance on leather gloves manufactured the evidence does not permit an apportionment to be made, the assured has failed to
in India and shipped in containers. The leather was exposed to and absorbed moisture discharge its burden of proof and recovers nothing.'2.
before packaging. Cooling of the outside of the container in the course of transit caused
warm air carrying moisture from the gloves to rise. This mois-ture condensed on the
(c) Insuring against inherent vice
inside of the top of the containers and fell back in droplets on the gloves, rendering Whether inherent vice is covered inevitably depends on the precise language of 15.59 the policy
them a tOtal loss. Phillips J held that the insurers' defence of inherent vice failed in question. 127 However, two propositions emerge from the decided
because the cause of the loss was the dropping of water from a source external to the cases. First, insuring perils that could encompass both externally induced dam-age and
insured goods on to those goods. In the Court of Appeal, Bingham LJ121 sought 'the inherent vice are likely to be construed as confined to the former.
real or dominant cause' of the damage. 'Unchallenged and unchallengeable authority Sassoon (ED) & Co Ltd v Yorkshire Insurance CO'28 concerned insurance
shows that this is a question to be answered applying the common sense of a business or against 'the risk of theft and/or pilferage, and/or damage by fresh water, mould, mildew
seafaring man.'''' On the facts, the gloves were the sole source of the water and the ... irrespective of percentage'. This wording was considered at first instance'29 and on
business or seafaring man would 'regard the suggested distinction based on the appeal by Scrutton LJ130 to cover only such mould or mildew as was caused by SOme
intermediate migration of moisture on the roofs of the containers as owing more to the external fortuity, although Atkin LJ considered, without decid-
subtlety of the legal mind than to the common sense of the mercan-tile'.123 Although ing, that the wording might be apt to cover mould or mildew irrespective of the cause.
131
the gloves were not defective, the cause of the loss was inherent vice or nature of the
goods in the sense defined above by Lord Diplock. Secondly, where a peril that could encompass externally or internally caused 15.60 damage is
insured alongside one or more other perils that can only be manifest-
ations of inherent vice, it will be construed as covering internally caused dam-age. In
A plea of inherent vice may be only partly successful. Birds Cigarette Manu-ftcturing v
Soya GmbH Mainz KG v White, '32 insurance of soya beans against 'the risks of Heat,
Rouse'24 concerned insurance on cigarettes shipped from London ro Cologne and
Sweat and Spontaneous Combustion only' was held to cover heating occasioned by
found on arrival to be mildewed. Bailhache J found thar SOn;te of the cigarettes
microbiological activity caused in turn by a level of moisture content within the beans.
contained considerably more moisture than the maximum per-centage for safe keeping
Since both sweating and spontaneous com-bustion necessarily refer to an internal
in rransit with the result that they 'were foredoomed to mildew and were practically
process, the peril ofheat was to be read in context as covering heating by virtue of an
rendered useless by the excess of moisture that was in them."25 However, other
cigarettes were lost by some combinarion of salt water damage and initial, lower level, internal process. It is unclear whether such a context would confine the ambiguous peril
moisture content. In respect of these cigarettes, Bailhache J allowed recovery of 80 per to inherent vice, so as to confine, on the facts of Soya v White, the peril of heat to
cent of the loss, the figute internal heating only and not the heating of the soya beans by reason of some external
representing a wish to be fair between the parties given impossibility of scientific occurrence.'"
accuracy in apportionment of loss. Evidently the insurer was not unduly
See 7.53 above.

'" [1918] AC 350. 120 [1989] 2 Lloyd's Rep 527, rvsd [1990] 2 Lloyd's Rep 283. . 127 Soya C,mbH Mai~z KG v White (1983] 1 Lloyd's Rep 122, 126. For an example of express
With whose judgment Glidewell L] and Sir David Crooro~Johnson agreed. Insurance of mherent Vice, see Overseas Commodities Ltd v Style [1958] 1 Lloyd's Rep 546.
[199012 Lloyd's Rep 283, 286-7. 12. (1923) 16 LlLRep 129. 129 (1923) 14 LlLRep 135 and 167 at 172.
ibid 287. Phillips Jrelied on Bowring (eT) & Co Ltd v Amsterdam London Insurance Co 130 (1923) 16 LlLRep 129, 132.
(1930) 36 LlLRep 309, 327, v.:here Wright Jheld that, if moisture that condensed and fell on the . 131 ibid 133. The thitd member of the Court ofAppeal, Bankes L], refrained from expressing a
goods originated from the goods, such sweat water would have 'set up a life of its own and ... View,
achieved an identity of its own' so as to constitute an 'external cause' of rheloss. This holding 132 [1983] I Lloyd's Rep 122.
elicited puzzled doubt from Bingham L] in'Noten v Harding (at 288). It was not to be viewed '" In tbe Court of Appeal in Soya GmbH Mainz KG v White [1982] 1 Lloyd's Rep 136, 140,
as establishing any proposition of law. Waller LJ stated that the HSSC clause covered inherent vice 'and may well also cover heat
'" (1924) 19 LlLRep 301. '" ibid 303. or sweat damage from extraneous causes'.
474 475
Excluded Losses Inevitable Losses
with risks and not certainties,138 the factual inevitabiliry of a loss does not render
Rats Ot Vermin
it uninsurable. Thus, a marine policy may be concluded on a 'lost or not losr' basis,
Section 55(2)(c) of the Marine Insurance Act 1906 provides that, subject to contrary in which case the insurer is liable even if rhe insured property has already been
intention, 'the insurer is not liable ... fo: any loss proximately caused by rats or lost, which constitutes the ultimate example of inevitable 10ss. 139
vermin'. This exclusion is not repeared 111 any of rhe Inrernanonal or Instirute
clauses.
In Hamilton, Fraser & Co v Pandor[ & CO,'34 Lord Halsbury stated that 'the destruction Secondly, however, at the level of interpretation, inevitability of loss does oper- 15.66
of the ship's bottom by vermin is assumed to be one of the ~arura~ and certain ate ar a more fundamental level in rhat, just as insurers are less likely to intend ro
effects of an unprotected wooden vessel saili~g through certam seas
cover natural losses than losses caused by an external fortuity, so they are even
and not a peril of the sea. Such normal vermin damage IS regarded, m effect, as
less likely to intend to cover inevirable losses rhan natural losses that mayor may
ordinary wear and tear and would not, therefore, be covered by the modern
not occur. As a result, language that is amenable to cover borh natural and
hulls and freight clauses. inevitable losses but does not clearly cover the latter may be construed as confined
Hamilton v Pandorfitself concerned a perils of the sea exclusion in a conrract of affreightment. to the former.
It was held that the carrier was not liable where r~ts gnawed a
hole in a pipe through which sea water entered the vessel. As dlscussd else-where Thirdly, a distinction may be drawn according to whether the assured is aware at 15.67
v the time of conclusion of rhe coimact of insurance that loss is inevitable. Such a
135 the rats at least conrributed to the peril of the sea by pro ldmg the neces:ary
forruitous character to the entry of water. 136 The specific inclusion of perils of the circumsrance is clearly mateiial and, where it is known to rhe assured or ought
sea as a covered peril under the hulls and f:e1ght clauses would to be known to the assured in the ordinary course of its business, requires
permit recovelY for damage falling within that penl contrlbuted to by verm111, disclosure to the insurer under the pre-formation doctrine of utmost good faith.
albeit not for direct vermin predarion not involving sea damage. 137 M.oreover, the Provided, however, disclosure is made, there is no reason of public policy to
Instirute Cargo Clauses (A) are unequivocal in embracmg. all nsks not expressly prohibit insurance of such a risk,'40 although, at the level of interpretation, clear
mendoned in the exclusion clauses, which are s11enr wlth respect to wording will again be required given the improbability of an insurer agreeing to
vermIn. cover such risks. 141 Thus, where property is insured 'lost or not losr', the assured
may not recover if aware at the time the contract was concluded that the
'42
property had already been lost and the insurer was unaware.
Inevitable Losses
Where the assured has neither actual nor construcdve knowledge of the inevit- 15.68
As already noted, losses that occur in the narural course of events without the intervendon ability of loss, no quesdon of disclosure can arise and, indeed, the loss may be
of any external fortuity do not necessanly have to occut. A f~r:her issue adses in considered fortuitous as againsr the assured. 'In practical terms there is as much
cases where the loss is in fact inevirable. A number of proposltlons
a risk if the inevitability of a loss is not known as if the loss itself mayor may not
may be advanced. occur.'143 Thus, a latent defect, as covered in hull policies under the Inchmaree
15.65 First, despite dicta rhat associate insurance at a fundamental conceprual level
138 eg Patterson v Harris (1861) 1 B & S 336, 353 per Cockburn C]: 'the purpose of insurance
is to afford protection against contingencies and dangers which mayor may nOt occur: it cannot
134 (1887) 12App Cas 518, 524. ns See 10.57-10.59 above.. . properly apply to a case where the loss or injmy must inevitably take place in the ordinary course
136 In Hunter v Potts (1815) 4 Camp 203, a ship waS det~1Ued at ~ntlguaby reason of sickness of things'. The context was a claim for loss by perils of the sea (see 10.03ff above), confined by
amon the crew. During this enforced stay, the rats multiplIed and did,such damage to the ves~el definition to fortuitous casualties.
that itgwas rendered a rotalloss,)md the cargo sold. An action on cargo Insurance for loss by penIs '" Soya GmbH Mainz KG v White [1982J 1 Lloyd's Rep 136, 149.
of the sea failed. The report, however, contains no reasoning. It ~~y be that the vessel was laId up Sphere Drake Insurance Ltd v Euro International Underwriting Ltd [2003J EWHC 1636
so as to sever any connection with the sea. Alternatively, the deCiSiOn may rest on a now obsolete (Comm), [2003J Lloyd's Rep IR 525, paras 7-9,174,329,331.336,1862.
approach to delay and causation. , 1 L!4 d Soya GmbH Mainz KG v White [1982J 1 Lloyd's Rep 136, 149. For the possibility of a
137 .As the operative peril would lack a maritim~ nature, see 19.24 above. See a so try n contrary view that known inevitable losses may be uninsurable, see Sassoon (ED) & Co Ltd v
Shipping Co Ltd v Norwich Union Fire Insurance SOCiety Ltd[1918J AC 350, 364. Yorkshire Insurance Co (1923) 16 LlLRep 129, 133; Soya GmbH Mainz KG v White [1980J
I Lloyd's Rep 491,504.
'" MIA 1906, s 6(1), Sch 1, r I.
476 14' Soya GmbH Mainz KG v White [1982J 1 Lloyd's Rep 136, 149 pa Donaldson LJ.
477
Excluded Losses It'lJr and Strikes Risks
clause and the Additional Perils clause,'44 may render damage during the insured designed to ensure that marine policies respond only to marine risks. A recipro-cal
period factually inevitable, but its existence 'is, by definition, unknown to the exclusion is contained in the Institute war and strikes clauses for hulls and freight,
assured and whether or not there is such a defect and whether or not it will during a but the Institute cargo clauses for wat and strikes risks delineate the scope of their
given period of time or maritime adventure have an impact or cause any damage is cover without any corresponding exclusion of marine risks.
fortuitous from the point ofview of the assured' .'45 It is, however, unclear whether In the various Institute marine clauses, separate exclusions address war risks and 15.71
fortuity that exists only in the context of the assured's ignor-ance of the factual
strikes risks. The International hulls clauses distinguish between, on the one
inevitability of loss is sufficient to amount to a risk for the
hand, war and strikes risks and, on the other, terrorists, persons acting from a
· d ft d . f'. k ' 146
purposes 0 f insurance cover ra e In terms 0 flS s. political motive, and malicious acts. In the Institute clauses, this second group
Fourthly, while known inevitability oftoss poses no barrier to insurability, the nature of the of perils is included within the category of strikes risks. In this section, the
subject-matter insured may raise public policy objections to enforceability of a exptession 'strikes risks' will be employed in the extended sense of the Insritute
policy covering known inevitable loss. Where the circum-stances are such that clauses.
consigning doomed insured property to their certain fate in order to obtain payment
under the policy involves jeopardizing lives or other propetty, public policy (1) Effecting the Distinction between Marine and Non-marine Risks
requites that recovery be denied. Thus, an assured should not be able to recover Traditionally, the exclusion of war risks from marine policies was effected by 15.72
under a floating policy or open cover in respect of goods shipped in the knowledge the FC&S clause. This generated twO difficulties. In terms of property cover, the
not only that their condition renders deterioration during transit inevitable but that scope of the excluded peril of 'warlike operations' in conjunction with the
the goods in their inevitable detetiorated con-dition will be dangerous to the crew operation of the doctrine of proximate cause151 was regarded as characterizing
of the vessel or liable to contaminate other cargo. The tesult of no liability could be too many losses as war risks.'52 Conversely, in the context of collision liability
achieved either by recognizing an implied restriction in the policy'47 or, perhaps, cover, the FC&S clause as originally drafted left marine insurers liable even
by considering the proximate where the collision was proximately caused by a war risk. First, the FC&S clause
cause of the loss in such cases to be the wilful exposure ofthe goods to certain loss by operated by reference to the comprehensive marine and war cover prima ftcie
the assured rather than the peril that inflicts the coup de grace. '4. In the context granted under the traditional marine policy, removing the war cover. However,
of time policies on hulls, this result is achieved by the law on unseaworthiness.'" the cover granted did not include collision liability cover, which was introduced
Conversely, known inevitable loss in the form of evaporation may be entirely as an independent limb of cover and was not subject to the FC&S clause.
harmless and an appropriately worded policy should be fully enforceable. - Secondly, the FC&S was confined to losses proximately caused by wat risks
whereas liability under the collision liability clause arose purely by virtue of the
153
insured vessel's negligence, irrespective of the war or non-war context.
War and Strikes Risks
In conttast, three features of the modern Institute and International hulls and 15.73
The strict distinction between insurance of marine risks and insurance of war freight marine clauses ensure a reliable and appropriate division between marine
and strikes risks150 is given effect by a series of exclusions in marine policies risks and both war and strikes risks. First, the war perils that occasioned such
difficulty have been replaced. Secondly, the exclusions are free-standing and
drafted to cover any and all 'loss, damage, liability or expense' but only where
144See 11.03-11.28 above. a war or strikes risk is at least a proximate cause. Thirdly, it is stated that the war
'" Promet Engineering (Singapore) Pte Ltd v Sturge (The Nukila) [19971 2 Lloyd's Rep 146, 151
per Hobhouse LJ.
and strikes risks exclusions 'shall be paramount and shall override anything
In Soya GmbH Mainz KG v White [19821 1 Lloyd's Rep 136, 140, Waller LJ appears to contained in this insurance inconsistent therewith'. The war and strikes
consider that factually inevitable loss cannot constitute a risk, although he does not address
the distinction between known and unknown inevitability.
See Bonner v Cox Dedicated Corporate Member Ltd [2004J EWHC 2963, [2005] Lloyd's
Rep IR 569, paras 255(5)-(6). ..
151 Once the last-in-time approach to proximity of causation had been abolished by the House
148This would not be covered because (a). it would constitute wilful misconduct, and (b) in the of Lords in Leyland Shipping Co Ltd v Norwich Union Fire lmurance Society Ltd [1918] AC 350,
context ofapolicy insuring against 'risks' it would lack the fortuity inherent in ~he concept ofa risk. discussed at 9.08-9.11 above.
MIA 1906, s 39(5), discussed ar 19.30-19.50 below. . 150 See 7.03-
14'
152 The complex case law is discussed at 13.06-13.17 above.
7.06, 7.14, 7.22 above. 153 Adelaide Steamship Co Ltd v Attorney-General (No 2) [1926J AC 172.
478 479
Excluded Losses The Marine Risks Exclusion in war and Strikes Clauses ftr Hulls or Freight
exclusions, consequently, override any contrary provision incorporated in the Thirdly, the war and sttikes exclusions extend to not only loss and damage to the 15.77
insurance contract in any way whatsoever. In particular, the paramount clause insured property, but also liability and expense. The Institute war and strikes clauses,
displaces the normal priority afforded to bespoke terms over standard clauses. 154 however, provide property insurance, not .liability insurance or cover against consequential
expenditure. Moreover, expenditure incurred by reason of
(2) The War and Strikes Risks Exclusions an excluded war or strikes risk cannot be claimed under a sue and labour clause
since such clauses are confined to expenditure incurred to avert or minimize a loss
15.74 The meaning of the various war and strikes perils enumerated in the exclusions is
otherwise recoverable under the policy.
discussed elsewhere.'" It suffices to make rhe following comments about the scope
of the exclusions, in particular in contrast with the scope of the cover provided
under the war and strikes clauses.
F. The Marine Risks Exclusion in War and Srrikes Clauses
First, the exclusion of 'capture, seizure, arrest, restraint and detainment' itself excepts for Hulls or Freight
barratry and piracy. A barratrous or piratical seizure remains a marine peril.
Moreover, the war and strikes clauses for hulls and freight expressly exclude 'loss While the marine clauses adopt the approach ofexcluding a list of nominate war 15.78
damage liability or expense arising from ... piracy', but without and strikes risks, the Institute war and strikes clauses for hulls or freight simply
prejudice to cover in respect of loss or damage caused by persons taking part in exclude all loss within the corresponding marine clauses, assuming full collision
riots or civil commotion.
156
This is because the concepts of riot and civil com- liability cover and no deductible or franchise. Accordingly, for example, clause
motion encompass certain acts of piracy. 157 Consequently, an act of piracy that 4.2 of the Institute War and Strikes Clauses (Hulls-Time) (1110/83) provides
also constitutes a riot will not be covered under marine clauses because of the for the exclusion of 'loss damage liability or expense covered by the Instirute
exclusion of the strikes peril of riot. Conversely, it will be covered under strikes Time Clauses-Hulls 1/10/83 (including 4/4ths Collision Clause) or which
clauses as an insured peril of riot, with the piracy exclusion in the hulls and freight would be recoverable thereunder but for Clause 12 thereoL 15'
clauses inapplicable by reason of the riot exception in that exclusion.
The resulting interplay between the marine clauses and the war and strikes 15.79
Secondly, the strikes risks exclusion in the Institute Cargo Clauses (A), (B), and clauses is perhaps best illustrated by a barratrous sinking. Barratry is, of course, a
extends to loss, damage, or expense not only 'caused by' participants in perils covered peril under the marine cover provided by the Inchmaree clause. It is also a
of industrial disturbance and civil unrest, but also 'resulting from' the industrial malicious act. As such, depending on rhe means used to sink the vessel, it is
disturbance or civil unrest itself. The third sub-clause in the exclusion th~n reverts capable of falling within the paramount exclusion of loss arising from the use of
to the link of'caused by' in the context ofterrorists or persons acting from a political any weapon or the detonation of any explosive by a person acting maliciously. This
motive. It is clear that adoption of the causal phrase 'resulting from' is designed to exclusion, it should be noted, is not, unlike the exclusion of capture, seizure, arrest,
overcome any difficulty in applying the traditional test of proximate cause to restraint, and detainment, itself subject to an exception for piracy and barratry.
damage that may be passively sustained by cargo as a consequence of a Conversely, malicious acts, without qualification as to the means used to inflict loss
.strike rather than being actively inflicted by a striker. 158 or damage, constitute an insured peril under war and strikes cover. The effect of the
marine risks exclusion in war and strikes clauses is, therefore, that any barratrous
sinking that does not fall foul of the paramount exclusion of malicious act in the
It must be possible by specific agreement to override even a paramount standard marine clauses falls to the account of the marine underwriters. 16o Conversely, any
exclusion, but only by specific reference and in the dearest terms.
War risks are discussed in Ch 13 above and strikes risks in Ch 14 above.
barratrous sinking within the malicious acts exclusion falls to the account of the war
eg Institute War and Strikes Clauses (Hulls-Time) (1I10/83), cl4.1.7; (l/11l95), cl5.1.6. and strikes insurers. 161
The exception from the exclusion in fact extends to loss or damage caused by strikers,
locked-out workmen, persons taking part in labour disturbances, riots, or civil commotion.
This is dear from Athens Maritime Enterprises Corp v Hellenic Mutual "War Risks Associatiorl
(Bermuda) Ltd (The Andreas Lemos) [1983J 1 All ER 590, although neither piracy nor riot were cl12 provides for the deductible.
operative on the facts. Strive Shipping Corp v Hellenic Mutual Witr Risks Association (Bermuda) Ltd (The Grecia
158 Although such a departure from the phrase '(proximately) caused by'is insufficient in and Express) [20021 EWHC 203 (Corom), [2002] 2 Lloyd's Rep 88, para 39; North Star Shipping Ltd v
ofitself to displace the traditional test of proximity of causation. However, the change of wording Sphere Drake lmurance pic [2005J EWHC 665 (Comm), [2005J 2 Lloyd's Rep 76, para 82.
is here supplemented by the juxtaposition of the.'resulting from' sub-clause between two 161 This appears to have been overlooked in North Star Shipping Ltd v Sphere Drake Insurance
sub~dauses that retain the traditional causation test. pic [2005J EWHC 665 (Comm), [20051 2 Lloyd's Rep 76, paras 82-83, in which rhe insuted
480 481
Excluded Losses
Radioactivity and Non-Conventional Weapons
The Institute clauses introduced in the 1980s contained provisions relating to nuclear
16
weapons, but do not addtess radioactive pollurion generally.'62 In 1990, however,
the Institute introduced the Radioactive Contamination Exclusion Clause which
might be incorporated into any marine policy and was included in
the 1995 Institute hulls and freight clauses, for both marine cover and war and
strikes cover. An extended version of that clause is now incorporated as clause 31
in the International Hull Clauses (01111103).163 This clause, which also has
COVER PROVIDED BY MUTUAL
paramount status, provides as follows: INSURANCE ASSOCIATIONS
In no case shall this insurance cover loss damage liability or expense directly or
indirectly caused by or contributed to by or arising from
ionising radiations from or contamination by radioactivity from any nuclear fuel or
from any nuclear waste or from the combustion of nuclear fuel A. Protection and Indemnity Cover 16.03 (3) Further cover available under the
the radioactive, toxic, explosive or other hazardous or contaminating proper-ties of British War Risks Rules 16.19
B. War Risks 16.14
any nuclear installation, reactor or other nuclear assembly or nuclear component (1) Government reinsurance 16.14 C. Defence Cover 16.20
thereof (2) Queen's enemy risks 16.15
any weapon of war employing atomic or nuclear fission and/or fusion or other like
reaction or radioactive force or matter
the radioactive, toxic, explosive or other hazardous or contaminating proper-ties of
any radioactive matter. The exclusion in this Clause 31.4 does not extend to The principal cover provided by the mutual insurance associations, or clubs, 16.01 falls into
radioactive isotopes, other than nuclear fuel, when such isotopes are being three broad categories: protection and indemnity, war risks, and defence costs. A club may
prepared, carried, stored, or used for commercial, agricultural, medical, cover all three classes of risk, albeit clearly distinguish-
scientific or other similar purposes ing between the different classes,' or restrict its cover to just one class. An example
any chemical, biological, bio-chemical or electromagnetic weapon.
of the former is provided by the Britannia Steam Ship Insurance Association Ltd.'
This exclusion is designed to cover all forms of radioacrive .contamination what-ever the while the three United Kingdom clubs3 provide an example of the latter structure.
source and whether originating from land, such as the explosion of the Chernobyl
nudear reacror, sea, as with leakage from a cargo of nuclear.waste, or air and.
space, as with the falling to earth of nuclear powered satellites. It encompasses not The precise scope of the cover provided by any given club depends ultimately 16.02 upon
only traditional nuclear weapons but also so-called 'dirty bombs', which combine the true interpretation of the rules of that club, which in effect constitute
radioactive material with conventional explosives. The language of causation the policy of insurance between the dub and the club member. These can be
(especially the reference to 'indirectly caused by') displaces the need for proximity complex documents of some length. The following discussion, outlining the cover
of cause. provided, is based upon the rules of the Britannia club.4
vessel was rendered a total loss by a maliciously caused explosion. Colman J considered that war risks
A vessel being entered separately under each class.
insurers were not liable if the perpetrator was a member of the crew since barratly is not a covered peril
P&I, war, and defence cover constitute classes 3, 4, and 6 respectively. Class 1 (sailing ship hull and
under war risks insurance. With respect, however, this both reads a restriction into the scope of the machinery) and 2 (freighr) ceased underwriting in 1897. Class 5 (strikes) ceased under~
strikes petil of'person acting maliciously' (discussed at 14.20-14.27 above) that is not there, and also
writing in 1988.
ignores the paramount nature of the malicious acts exclusion in the marine risks policies.
The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Ltd, the United Kingdom
Mutual War Risks Association Ltd, and the United Kingdom Freight Demurrage and Defence
eg Institute War Clauses (Cargo), cl3.8; Strikes Clauses (Cargo), cl3.9: Association Ltd.
The extension is the addition of c1131.4 and 31.5. Appendix 18 below reproduces extracts from the P&I rules.
482 483
Cover Provided by Mutual Insurance Associations Protection and Indemnity Cover
Protection and Indemnity Covers Institute clauses is confined to collisions and a collision can occur only between
two vessels. While the club rules adopr rhe same approach to collisions, P&I cover
While the essence of protection and indemnity (P&I) cover is insurance against third exrends under a separate caregory to liabiliries arising from loss of or damage to
party liability, it is axiomaric that P&I cover operares as indemnity not liability any property on land or warer and wherher fixed or moveable. Finally, rhe Institute
insurance. Whereas rhe risks covered comprise a wide range of third party clauses indemnifY only in respect of payments in the nature of or akin ro rort
liabilities, all P&I club rules contain a 'pay first', or 'pay to be paid', clause damages, while P&I cover has no such resrriction.
by virtue of which the club's liability is restricted to reimbursing the member in
Apart from collision liability, P&I cover provides shipowners and other club 16.06
respecr of sums paid to third parties in respect of covered liabilities. 6 Thus, members with insurance against a wide range of liabilities, costs, and expenses
clause 5(1) of the Brirannia P&I rules provides that 'unless the Committee in irs
arising from or incurred in respecr of the operation of their vessels. Again, it
discretion otherwise determines, it shall be a condition precedent of a Member's
should be emphasized that the precise scope of cover depends upon the
right to recovet from the funds of the Association in respect of any liability,
wording of the club rules in question. The following are some ofthe liabilities
costs or expenses rhat the Member shall first have discharged or paid them'.
covered. In respect of people, they range from liabilities and expenses in
P&I cover is designed to complement hull insurance available from the market. For respect of death, personal injury, or illness of passengers or crew to liabilities
example, Rule 24 of the Britannia P&I rules provides that, unless orherwise incurred in connec-tion with stowaways, refugees, ·and other persons who may
agreed in writing and subject to certain limited exceptions, liability is excluded come on board an entered vessel, such as pilots and customs officials. As
to rhe exrent thar cover is available under a hull policy on the Uoyd's Marine regards goods, clnb mem-bers are covered against, inter alia, a range of
Policy MAR form incorporating rhe Instirure Time Clauses Hulls (1110/83). carriers' liabiliries and loss of or damage to the effects of passengers or crew.
This complementary aspect ofP&I insurance is exemplified by the comparative
Of increasing importance in the modern world is the cover provided against 16.07
cover for collision liability.'
pollution risks. This embraces liabiliries, losses, costs, and expenses incurred
First, the Institute clauses provide only a three-fourths indemnificarion in respect of rhe in connection with the discharge or escape or rhreatened discharge or escape
collision liabilities covered, rhe clubs covering rhe remaining one fourth. Secondly, from an entered ship of oil or any orher substance. A further head of cover is
whereas the hull clauses expressly exclude a number of liabil-iries arising out of a liability for fines imposed by any court, tribunal, or authority in respect of an
collision, suth as liability for wreck removal and loss of life or personal injury, such entered ship for, inter alia, infringements of customs or immigration law, or in
liabiliries are expressly covered under club rules. Thirdly, the measure of indemnity respect of an actual or threatened discharge or escape of oil or other sub-stance.
under a valued policy incorporating the Institute clauses will be limited to a sum Cover extends also to liability to compensate seamen for unemployment resuIting
equal to the agreed value. To the extent thar the assured is nor fully indemnified by from the total loss of the entered vessel, liability arising out of towage of or by an
reason of the liabilities exceeding the proper market value of the vessel at the time entered ship, and costs and expenses relating to the member's legal liability for the
of rhe casualty, the clubs insure rhe excess. Fourrhly, the Institute clauses insure raising, removal, destruction, lighting, or marking of the wreck of an entered ship
against the covered vessel 'coming into collision wirh' another vessel, but P&I cover or property carried on board and liabilities incidental thereto.
extends ro liabilities arising out of non-contact damage to another vessel, for
example where negligent navi-
Cover may be unqualified and unconditional or subject to exceptions, the 16.08
gation of the insured vessel forces another vessel to take evasive acrion in the approval of the managers, or the discretion of the committee. Thus, where a member
course ?f which it runs aground. Fifrhly, third party liability cover under rhe
enters into a contract for the supply of services to the entered ship, the member is
covered against liability for death, personal injury, or illness arising
under such contract, provided that the contract has been approved by the
managers and any additional call in respect thereof has been paid, or the
5 Outlined by T Coghlin, 'Protecrion & Indemnity Clubs' [19841 LMCLQ 403. See furrher S
Hazelwood, P6'1 Clubs: Law 6' Practice (3rd edn, 2000) Chs 8-9. committee in its discretion decides the member should be reimbursed.
<> Although in practice the dub may waive this pre-condition: see Firma C- Trade SA v Newcastle
Protection 6- Indemnity Association (The Faf1:ti) [1991J 2 AC 1,39. On the pay first clause P&I insurance is designed to provide comprehensive mutual cover of liabilities 16.09
and the Third Parties (Rights against Insurers) Act 1930, see 20.62-20.63 below. incidental to the ownership and operation of ships. Since it is possible that
7 For discussion of collision liability cover underthe Institute and International hull
clauses, see 12.10-12.22 above.
such a liability may not be expressly covered, club rules contain an 'omnibus'
484 485
Cover Provided by Mutual Insurance Associations Wilr Risks
provlslOn affording rhe directors a discretion to grant cover in whole or in part percentage contribution successfully collected from its members by the claiming
in respect of liabilities, costs, and expenses 'within the scope of the club. There has never as yet been an overspill claim."
Association l . 8
In respecr of oil pollution, the clubs restrict the cover they offer to U5$1 billion 16.12
A maritime casualty is capable of generating vast liabilities. A nightmare scen-ario each accident or occurrence in respect of each ship entered by an owner.'4 Cover
might involve a chemical tanker colliding with a large cruise liner in under the General Excess Loss Reinsurance in respect of oil pollution is limited
circumstances denying any right to limit liability and resulting in a dreadful to U5$1 billion in excess ofU5$50 million.
explosion that destroys both vessels, kills or seriously injures the majority of
The pooling of liabilities between member clubs of the International Group 16.13
the passengers and crew, and occasions significant onshore damage and
requires confidence rhat all the clubs are managed in a prudent manner. While the
pollution. In order to accommodate casualties generating substantial liabilities,
clubs compete against one anorher for tonnage, competition based on rate cutting is
the leading P&I clubs form the International Groupin order to pool claims in a
liable to undermine financial prudence. Consequently, the Inter-national Group
mutual excess of loss insurance and reinsurance scheme! Collectively, the
Agreemenr is designed to ensure that competition is based more on factors such as
thirteen International Group members insure in excess of 90 per cent of the
quality of service. It provides, therefote, that, where a vessel is moved to a new
world's ocean-going tonnage. The International Group is underpinned by two
club, that club cannot charge less than the previous club for one year beyond the
legal documents, namely the International Group Agreement 1999 and the
existing policY year, unless either the shipowner concluded a binding agreement
Pooling Agreement, which is revised each year.
with the new club no later than 30 5eptember or the rate of the previous club is
Under the Pooling Agreement relating to 2005-06, the individual clubs retain liability adjudged to be unreasonably high. This restriction on rates is prima ficie contrary to
for the first U5$6 million in respect of anyone casualty'O while the next U5$44 European competition law, but exemptions can be granted where the overall benefir
million (in excess of the individual clubs' retention) is murually reinsured by the of the restriction outweighs the anti-competitive effect. Given the extent of
members of the International Group." Moreover, to accom-modate casualties maritime liability cover it permits, the International Group Agreement was granted
generating even greater liabilities, the International Group collectively a ten-year exemption to run from 20 February 1999 to 20 February 2009.
purchases the General Excess Loss Reinsurance Contract. This provides the Accordingly, the International Group
International Group with U5$2 billion reinsurance in excess of U5$50 million will need to secure a new exemption in due course.
anyone occurrence, anyone vessel. This reinsurance is placed in layers, with the
Internarional Group retaining 25 per cent of the first layer of U5$500 million in
excess of U5$50 million." There are three further layers, each of U5$500 B. War Risks
million, with limited reinstatements in respect of the two top layers. 5hould the
losses in respect of one casualty exceed U5$2,050,000,000, the overspill reverts (1) Government Reinsurance
to the pool up to a limit of 2.5 per cent of the limit of liability under the 1976 Towards the end of the nineteenth century, the incidence of revolutions in 50uth 16.14
Limitation of Liability for Maritime Claims Conven-tion in respect of property American republics resulted in market underwriters requiring enhanced pre-
claims of all vessels entered with International Group member clubs. This miums for war risks cover for vessels operating in their waters. As a result, mutual
works our at abour another U5$2.2 billion. However, the war risks associations were formed to provide cover at more competitive rates
liability in respect of such overspill of each contributing club is limired to the than those offered by the London market. Today, the war risks cover provided
by the associations is backed in part by government reinsurance. It should be
noted that, whereas each club drafts its own rules with respect to P&I and
defence cover, British mutual war risks associations operate almost identically
For an example, see 24.28 below. worded rules. It is, therefore, appropriate to refer to the 'British war risks rules'.
The International Group was first formed in 1899 by six dubs based in London.
In excess of the assured's deductible.
This mutually reinsured pool is in turn divided into a lower pool of US$24m excess of
US$6m and an upper pool of US$20m excess of US$30m. The upper pool is reinsured by a captive 13 Club rules provide for an additional 'catastrophe' or 'overspill' call to meet the dub's
reinsurance vehicle, named Hydra, established by the International Group lllembers. contribution to the pooled excess. However, an International Group member dub may individu-
This additional exposure of the International Group is again prorecredby separate reinsur-ance ally obtain reinsurance cover for some or all of its projected share of the Group's overspillliability.
through Hydra, which purchases reinsurance protection in the market for this exposure. 14 Members can purchase further cover on an individual basis.
486 487
Cover Provided by Mutual Insurance Associations war Risks
Queen's Enemy Risks 2.A.2.3 mines, torpedoes, bombs, or other weapons of war, including derelict mines, torpedoes,
bombs, or other derelict weapons of war.
Pursuant to section 1 of the Marine and Aviation (War Risks) Act 1952,15 since 1954
there have been standing reinsurance agreements between the government and The assured is covered also in respect of collision and wreck liability where the
mutual insurance associations. The current agreements, officially between the collision of the entered ship with another ship or the wrecking of the entered
Secretary of State for Transport16 and ten British mutual war risks associ- ship results from one or more of the risks stated in rule 2.A.2. 28
arions, date from 18 February 1988. 17 Their principle provisions are as follows. By virtue of rule 2.A.3, where an entered ship is captured, seized, arrested, 16.17
They provide 95 per cent reinsurance" on British ships" and other vessels the restrained, or detained, the owner is entitled to recover the daily running
Secrerary of State is prepared to accept for reinsurance (known as 'reinsured expenses of the ship during the ensuing detainment, subject to a deductible of
ships')'O against 'Queen's enemy risks'. 21 If the Secretary of State considers that the first seven days' expenses, and other consequential expenditure. Moreover, if
reinsured ships are or may be exposed to Queen's enemy risks, he may serve a the detention lasts longer than ninery days, the assured is entitled to an add-
premium notice on the Association. 22 In the event of service of a premium itional ten per cent per annum of the ship's insured value calculated on a pro
notice, the Secretary of State will determine the level of (additional) premium rata basis over the entire period of the detention. Naturally, no indemniry is
the Association will charge the owners of reinsured ships." Only if such a notice recoverable in respect of any period of detention after the vessel has become an
is served is any premium payable by the Association, in which case it will be 95 actual or constructive total loss. ~9
per cent of the premium the Secretary of State determines shall be charged to
the shipowners. 24 The Association has to obtain the written consent of the Where a vessel is requisitioned or chattered on behalf of the United Kingdom 16.18
Secretary of State before accepting or paying any claim, but block authorizations government, cover is provided against an enhanced range of perils including, in
may be given. In any event, however, the Secretary of State is bound by any final addition to the above, civil war, revolution, rebellion, civil strife arising there-
judgment obtained by a shipowner against the Association. 25 from, and piracy.30 Cover is provided also for requisitioned and chartered ships
and suing and labouring expenses. Two overriding provisos generally restrict
The definition of 'Queen's enemy risks' is left to the British war risks rules,'6
Queen's enemy risks to risks arising out of hostilities involving the United
and is found in rule 2A. The ship's hull and machinery is insured against loss or Kingdom and to the definition of 'war risks' in section 10(1) of the Marine and
damage caused by the following perils listed in rule 2.A.2: 27 Aviation (War Risks) Act 1952.
2.A.2.1 war or any hostile act by or against a belligerent power
2.A.2.2 capture, seizure, arrest, restraint or detainment and the consequences (3) Further Cover Available under the British War Risks Rules
thereof or any attempt thereat;
Apart from cover against Queen's enemy risks, rule 2 of the British mutual war 16.19
risks associations embraces three other categories of insurance. First, 'non-
Queen's enemy' cover provides insurance outside the scope of the government
The Act is discussed at 1.31-1.33 above.
Empowered to exercise the functions of the Board of Trade, but whose functions have since
reinsurance scheme, embracing loss of or damage to hull and machinery caused
passed to the Secretary of State for the Environment, Transport and the Regions. by any of the perils covered by the Institute War and Strikes Clauses Hulls-Time
17 The text is contained in the Department ofTransport Press Notice No 88, dated 18 February 1988. (1/10/83), or, in addition, by non-derelict mines, torpedoes, bombs, or other
18 d 2. weapons of war, or by piracy or violent theft by persons coming from outside
19 Which is agreed between the Secretary of State and the Association to mean ships registered in the the entered ship. Secondly, the member is insured against a range of protection
UK, the Isle of Man, any of the Channel Islands or any British Colony. Note, however, thar an and indemnity losses, liabilities, costs and expenses arising or incurred in respect
improperly registered vessel is liable to be struck off the register: The Polzeath [1916] P 117.
of loss or damage, injury, illness or death, or accident caused by the same
20 d 4. 21 d 1.
22 d 13. The notice will be 'general' if the danger is not confined to any particular geographical
extended range of war and strikes risks. Thirdly, cover is provided against loss
area, or 'special' if it is so confined, in which case the notice will specify the relevant area or areas: sustained through the detention or diversion of an entered ship caused by a
ibid. A general premium notice has never been issued since 1954. Special premium notices were issued
war peril or conditions brought about thereby or in various other specified
at the time of the Korean War, theAnglo~French invasion of Egypt, and the Falklands War.
23 d115, 16. In the exercise of the powers conferred under dl15 and 16, the Secretary of State
and the Associations are to consult each with the other and seek the other's guidance: cl 17.
" ell 12, 14. 25 ell 18, 19. 26 ell.
27 For discussion of the meaning of these perils, see Ch 13 above. 28 rr 2.A.5, 2.A.6. 29 r 2.A.4.3. 30 r2.A.7.
488 489
Cover Provided by Mutual Insurance Associations Defince Cover
circumstances. An omnibus provision endows the directors with a discretion to example by contracting with a party renowned for failing to keep its bargains.
extend cover to losses not specifically included in the rules hut within the Should the managers entertain doubt as to the advisability of commencing or
general scope of rule 2. By virtue of rule 3, an owner may enter his vessel for continuing any proceedings, the matter will be referred to the committee, to
cover against loss of freight and other financial interests caused by a war or whom the member can always appeal an adverse decision of the managers. The
strikes risk not including war or hostilities, actual or threatened, involving the committee has the sole discretion to decide whether to pursue or defend a claim
United Kingdom. and as to the conduct, discontinuance, and settlement of any claim. Should the
committee decline to pursue or defend a claim solely because the sum in issue
does not justifY the costs likely to be incurred, the committee may nevertheless
Defence Cover pay the member the whole or part of the sum in issue. Its discretion further
extends to indemnifYing in whole or in parr certain ofthe costs expressly
Formally 'freight, demurrage and defence cover', this category of club cover offers
excluded under the rules.
insurance against legal costs, ptovision of legal advice, and a claims handling
service. A 'pay first' provision is standatd.
Under the defence rules of the Britannia club, the cover extends generally to cOSts of or
incidental to legal or other proceedings taken or defended by a member with the
support of the committee or rhe managers and which arise in connection with
claims specified in the rules. The cover includes liability for the
COSts of other parties, and the costs incurred, with the approval of the
managers, in the obtaining of legal or other advice in connection with such
claims. To accommodate the advent of new heads of legal liability being
imposed upon shipowners, the list of specified claims concludes with an
omnibus provision affording the club committee a discretion to extend cover in
whole or in part to claims not specified but that fall within the scope of the
cover afforded by the club.
In return for indemnification, the club has rhe right to control rhe handli~g of the
claim. When a claim occurs which is likely to give rise to costs r.ecoverable
from the club, the member must notifY the club promptly. The club managers
have the right to control or direct the conduct of the claim and to require the
member to settle, compromise, or otherwise dispose of the claim as and upon
such terms as the managers think fit. Costs are recoverable from rhe club only if
incurred in action approved by the managers, except for costs incurred in cir-
cumstances of urgency rendering consultation with the managers impracticable.
The managers have the power to appoint and discontinue the appointment of
any legal or other experts they think fit.
When advised of a claim, the managers must determine the appropriate course of
conduct. This involves a consideration of: the legal merits of the claim; where
the member is the claimant, the prospecrs of recovery of any judgment in the
light of the defendant's solvency and its amenability to enfotcement of judg-
ment; whether the remedy sought is worth the expenditure required; and the
extent to which the member has itself to blame for needing reCOurse to law.
Mutual insurance is no licence fot the careless conduct of one's affairs, for
490 491
17
DURATION OF COVER
Time and Contracts of Marine F. TIme Policies on Hulls
Insurance 17.02 and Freight 17.46
Cargo Insurance
17.11 G. War Risks Hull Insurance 17.49
War and Strikes Risks Cargo
Insurance H. Continuation Clauses 17.51
17.22
Voyage Policies on Hulls
17.28
1. Mutual Insurance 17.55
Voyage Policies on Freight 17.38
A marine adventure, the subject-matter of a marine insurance contract, consists 17.01 in
principle of rhe exposure of a ship, goods, or freighr to marine perils.' The relevant
adventure is, however, further defined by reference to duration and nature.
A. Time and Contracts of Marine Insurance
Seerion 25(1) of the Marine Insurance Act 1906 provides as follows: 17.02
Where the contract is to insure the subject-matter at and from, or from one place
to another or others, the policy is called a 'voyage policy,' and where the contract is to
insure the subject-matter for a definite period of time the policy is called a 'time
policy.' A contract for both voyage and time may be included in the same policy.
The classification adopted by section 25(1) is exhaustive; marine insurance 17.03 always
operates on a voyage or time basis, although a so-called 'mixed' policy
may include both. 2 An example of a mixed policy is provided by Gambles v
MlA 1906, ss 1, 3.
Compania Maritima San Basilio SA v Oceanus Mutual Underwriting Association
(Bermuda) Ltd (The Eurysthenes) [197612 !.loyd's Rep 171, 182.
493
Duration ofCover Time and Contracts ofMarine Insurance
Ocean Marine Insurance Co ofBombay,' in which the vessel was insured 'at and Insurance Co Ltd,10 asparagus and mushrooms were canned at plants in two
from the port of Pomaron to Newcastle-on-Tyne and for fifteen days whilst there provinces of China and then -transported to Shenzhen, where the cans were
after arrival'. The vessel arrived and unloaded cargo safely, bur was then lost in the packed into containers for transportation to Europe via Hong Kong. Insurance
POtt in a storm within the fifteen-day period. Ar first instance, it was held rhat the was generally taken out the day before loading on board the ocean-going vessel
policy was a voyage policy covering a voyage that had been com-pleted before the at Hong Kong. The goods were insured 'ex factoty in People's Republic of
casualty occurred. The reference to a furrher fifteen-day period could be invoked China to warehouse Hamburg'. It was held that once a consignment of goods
only wirh respect to risks referable to the voyage. The assured, however, appealed was insured, risk attached retrospectively as from the moment the goods left the
successfully to the Court of Appeal. In the absence of argu-ment that the relevant canning plants for transportation to Shenzhen. The only resrriction was that the
words had acquired a particular customary meaning, goods had to exist at the time the insurance was taken out." Consequently,
once the voyage was over there arose (an addition to, an excrescence upon, the retrospective artachment did not work with respect to goods stolen en roure
voyage policy' in the form of a fifteen-day time policy. 'There is therefore a between the canning plants and Shenzhen, since the assured no longer had them
stipularion for a voyage, and engrafted upon that a further petiod of fifteen days to insure. The same reasoning would appear to apply in any instance of total
during which the loss of the ship is insured against.'4 loss, however caused.
17.04 According ro section 25(1), a time policy provides cover for a 'definite' period. The Retrospective attachment of risk is also expressly contemplated by the Insritute 17.07
Eurysthene? concerned mutual insurance under which cover was provided initially cargo clauses, although it is conditional on the assured not being aware of
for one year, bur continuing from year to year unless notice to terminate was given' pre-formation losses of which the insurer was unaware. Such retrospective
The Court of Appeal held thar the cover constituted a time policy. The word attachment does not, however, dispense with the need for the assured to have an
'definite' was first used by Sit Mackenzie Chalmers in drafting the 1906 Act. insurable interest at the time of loss. 12
According to Lord Denning MR, it required the period to be speci-fied: 'But ir is, I
In voyage policies, duration is frequently defined by reference to a 'port', a tetm 17.08
think, sufficiently specified if it specifies a stated period, even though that period is
to be construed in accordance with commercial common sense. 13 In essence, a
determinable on notice, and even though the assurance will be renewed or continued
port is simply a place where cargo is habitually loaded and unloaded. In Cockey v
auromatically at the end of the period unless
Atkinson,14 a vessel insured for four months at and from a particular place 'to
determined; or will continue under a continuation clause.'7
any port or ports' whatsoever, visited an island and was lost at an open roadstead
Of course, all marine policies provide cover for a period of time. Under a voyage policy, that that served as the island's usual place ofloading. The insurer's attempt to deny
time is determined by reference ro rhe commencement and termin- liability on the basis that the roadstead did not qualifY as a 'porr' within the
ation of a marine adventure, whereas a time policy refers to hours and dates. In the meaning of the policy was unsuccessful. A port is frequently characterized as a
words of Erie J, 'the durarion of the insurance ... in voyage policies, is measured by place of safety for vessels by reason of either the natural configuration of land Ot
the motion ofthe ship: in time policies, by rhe. motion ofthe earth'. 8 artificial construction. The term 'port', in the singular, will not be construed as
extending to more than one port."
The period to be covered is for the parties to determine. A rime policy may be taken out
on freight for only part of rhe time required for the freight to be Anywhere clearly within the jurisdiction of the authorities of a particular port 17.09
earned. Provided the freight is lost by an insured peril during rhe time covered, will be viewed as within that port for marine insurance purposes, bur fiscal and
the insurer is liable. 9 Again, a policy may be drafted so as to artach retro-
spectively. In Wunsche Handelsgesellschaft International MBH v Tai Ping
2 Lloyd's Rep 8. See also Hucks v Thornton (1815) Holt 30, 33.
'lost or not lost' wording: 3.13 above.
3 (1876) I ExD 141. 4 ibid 144 per Lord Cairns LC. above. In Wumche v Tai Ping, the claimants were assignees of the original assured,
Compania Maritima San. Basilio SA v Oceanus Mutual Underwriting Association (Bermuda) had an insurable interest at the time of loss.
;,altmg·;'h.ip Garston Co v Hickie & Co (1885) 15 QBD 580.
Ltd (The Eurysthenes) [1976J:!. Lloyd's Rep 171. AId 460. See also Brown v Tayleur(1835) 4 A & E 241.
See further 17.55 below.
[1976] 2 Lloyd's Rep 171, 177. Continuation clauses are discussed a~ 17.51-17;54 below. Tay!eur (1835) 4 A & E 241. For policies expressly contemplating more than one
S Gibson v Small (1853) 4 HLC 353,384. - Pi~d~;~it~::tsee Bragg v Anderson (1812) 4 Taunt 229: Lambert v Liddard(1814) 5 Taunt 480
9 Taylor v Wihon (1812) 15 East 324: Michael v Gillespy (1857)2 CB(NS) 627. (i: for vessels lost in transit between loading POrtS within the policies).
494 495
Duration ofCover Cargo Insurance
pilotage boundaries are disregarded." In Constable v Noble,17 the insurance This insurance attaches from the time the goods leave the warehouse or place of
covered a voyage at and from Lyme to London. The cargo was loaded at Bridport, a storage23 at the place named herein for the commencement of the transit,
continues during the ordinary course of transit and terminates either
different port but within rhe legal limits of the town of Lyme. In the absence of
on delively to the ~onsignees' or other final war~house or place of storage at
evidence of usage that ships insured at and from Lyme cusromarily loaded at
the destination named herein,
Bridport, it was held that the policy never attached to the cargo. In Moxon v Atkins on delivery to any other warehouse or place of storage, whether prior to or at the
in contrast,18 insurance at and from Amelia Island was held to attach to cargo destination named herein, which the Assured elect to use either
loaded nearby at Tiger Island. Amelia Island had no port and, by usage, cargo for storage other than in the ordinary course of transit or
therefrom was loaded at Tiger Island." for allocation or distribution,24
or
The manner in which the scope of cover is defined has frequently given rise to fine points 8.1.3 on the expiry of 60 days after completion of discharge overside of the goods
of interpretation. Although the remainder of this chapter seeks to hereby insured from the oversea vessel at the final port of
state principles of general applicability, ultimately rhe duration of a policy is discharge, whichever shall first occur.25
always a matter of interpretation ofthe particular contract in question. Maritime
Clause 8 contemplates risk attaching as soon as the goods embark upon the 17.12
Insurance Co v Allianza Insurance Co ofSantande?O concerned hull reinsurance
commencement of the transit. Where, however, cargo is insured from Port A to
'at port or ports, place or places in New Caledonia'. The vessel hit a reef taken to be
Port B, risk does not attach until and unless the carrying vessel sails from Port A
in New Caledonia. According to Walton], the reference to 'places' had been added
bound for Port B with the insured cargo (or at least some of ir) on board, even if
to avoid the more restricted cover associated with the word 'port'. How-ever, the use
the policy contains an extension of cover to inland transit incidental to the sea
of the two terms in conjuncrion affected rhe meaning to be attached to 'place'. The
voyage." Provided the insured cargo does embark upon the insured sea voyage,
policy was confined to places which the vessel visited for a particular purpose, as
clause 8 then backdates rhe attachment of risk ro the commencement of the
opposed to providing cover anywhere wirhin the geo-graphical limits of New
transit. It would appear to follow that, surprisingly, rhe Instirute cargo clauses do
Caledonia. The suggestion by Walton] rhat reinsurance
not afford cover againsr total losses prior to commencement of the sea voyage.
simply 'at New Caledonia' mighr have provided such extensive cover is sup-ported
by Cruikshank vJanson, 21 where insurance 'at and from Jamaica' was held to cover A key concept determining the duration of the cover is the 'ordinary course 17.13
a vessel lost in transit between two Jamaican POfts. of transit'." Thus, coverage of loading risks" is confined to usual methods of
loading ar the port in question." Once the customary method of loading is
departed from, the cargo is no longer embarked upon the adventure accepted
Cargo Insurance by the insurer. The Institute cargo clauses expressly permit reshipment and
The durarion of cover under rhe Institure clauses is governed by the 'ttansit clause', rhe
successor to the 'warehouse to warehouse clause'. Clause 8.1 of the Insritute Cargo
23 The phraseology avoids any problems with the definition of 'warehouse', an issue raised in
Clauses (A)" provides as follows: John Martin ofLondon L,d v Russell [1960] 1 Lloyd's Rep 554 (see 17.16 below). For use ofa barge
as a floating depot for storage of bunker coal, see Lindsay Elee Depots v Motor Union Insurance Co
(1930) 46 TLR 572.
24 There is no obligation on the assured to decide the role of the place of storage before placement of
the cargo therein: Westminster Fire Office v Reliance Marine Insurance Co (1903) 19
16 Sailing Ship Carston Co v Hickie & Co (1885) 15 QED 580; Hunter v Northern Marine TLR668.
Insurance Co L,d(1888) 13 App Cas 717. Where, however, the goods are forwarded to a new destination, in no case can the
" (1810) 2 Taunr403. 18 (1812) 3 Camp 200. insurance extend beyond the commencement of transit thereto: cl 8.2.
19 See also Uhde v Walters (1811) 3 Camp 16 (GulfofFinland considered by commercial usage Simon, Israel 6' Co v Sedgwick [1893] 1 QB 303; Nima SAIIL v Deves Insurance pic (The
to be part of the Baltic Sea although viewed as distinct by geographers); Lang v Pmtrioka) [20021 EWCA Ciy 1132; [2002] Lloyd's Rep IR 752. For discussion, see
Anderden (1824) 3 B & Cr 495 (by mercantile usage, compliance with a warranty to 'sail 18.11-18.18 below.
from' Demerara depended upon draught of vessel). 27 Helicopter Resources Pty Ltd v Sun Alliance Australia Ltd (The Icebt'rd) (1991) 312 LMLN,
(1907) 13 Com Cas 46. noted S Hetberington [1992] LMCLQ21.
(1810) 2 Taunr 301; I%rrevMil!<r(1825)4B&Cr538. 28 Loading risks are covered by Institute Cargo Clauses (A) as not excluded, and by (B) by
n Likewise Institute Cargo Clauses (B), (C), cI 8, but the transit clauses in the specialized virtue of c11.3.
Institute commodity clauses often prescribe different limits of cover. Fo{the extent of cover 29 Hurry v Royal Exchange Assurance Co (1801) 2 Bos & Pu1430; Matthie v Potts (1802) 3 Bos
'in transit', see Crows Transport Ltd v Phoenix Assurance Co Ltd [196Sl 1 WLR 383. & Pu123.
496 497
Duration ofCover Cargo Insurance
transhipment,30 but it has been held rhat a conrractuallicence ro rranship will clause 8.1.1.37 Delivery of goods to a non-qualifYing place would, neverrheless,
be construed as limired to methods of transhipmenr usual in the relevanr port." lead to termination of cover under clause 8.1.2 if and when accompanied by rhe
According to Lord Mansfield:" apptopriate intention of the assured.
The insurer, in estimating the price at which he is willing to indemnify the trader Clause 8.1.2 develops rhe theme of ordinary course of transir. An example, 17.17
against all risques, must have under his consideration the nature ofthe voyage to be albeit on older and different wording, may be provided by Deutsch-Australische
performed, and the usual course and manner of doing it. Every thing done in the Dampfichiffigesellschaft v Sturge.38 A replacement stern frame arrived at Hamburg
usual course must have been foreseen and in contemplation, at the time he
before borh the vessel for which it was intended and the conclusion of any
engaged. He rook the risque upon a supposition that what was usual or necessary
would be done. contract with a shipbuilding yard for its fitting. It was discharged on to a quay.
Once a contract for the fitting work had been concluded, the frame was moved
17.14 The relationship berween rhe differenr circumsrances identified in clause 8.1 for to that company's quay, but was rendered a total loss in the ptocess. It was held
terminarion of risk was discussed by the Court ofAppeal in Bayview Motors Ltd that, once discharged on to the original quay for an indefinite period pending
v Mitsui Marine & Fire Insurance Co Ltd33 Clause 8.1.1 applied where the the outcome of contractual negotiations, the frame could no longer be regarded
destination named in the policy was the final desrination of the goods. It did not as in transit under the policy.
apply where the desrinarion named in the policy was a place of rranshipmenr.
Cover would cease at thar place only under clause 8.1.2 or 8.1.3. This inrerpret- Clause 8.1.3 may be regarded as a longstop provision. If no orher provision 17.18
arion was supported by the commercial inconvenience rhar would otherwise within clause 8 operates, cover will terminare 60 days after discharge from rhe
flow from the need to procure separate insurance conrracts for the different legs carrying vessel at the final port of discharge. Where the insured goods are the
of any transit involving rranshipmenr. This was regardless of wherher the insur- subject of a contract of sale, are rejected after inspecrion at the porr of discharge,
ance conrracr conremplated transhipmenr: the ttansit clause was a srandard and are to be returned to their place of origin or sent to another destinarion,
provision designed ro carer for a variety of possible cargo advenrures and clause 8.1.3 may prevenr the ourward cover from bridging the full duration of
insurers were taken ro accept whichever type of adventure ensued. storage before the goods embark on their next journey and cover for that journey
can attach. 39
17.15 Whar constitures a 'final' warehouse or place of storage under clause 8.1.1 is a
question of fact ro be determined according ro the circumsrances of each case. 34 Clause 8,1.3 has no direct application where goods remain at a place of tran- 17.19
It may coincide with a warehouse or place of srorage falling within clause 8.1.2. In shipment for an undue length of time. Just as a place of transhipment cannot
Overseas Commodities Ltd v Style,35 McNair J considered on the facrs ;har the constitute a 'final' warehouse or place of storage, similarly it cannot constitute a
4o
final warehouse was that at which the goods were made available to the claimants 'final' port of discharge. While a policy on goods in transit does not extend to
for distribution as part of their srock as importers. unlimited storage, the limiting mechanism is supplied by the'ordinary course of
transit'.41 It is conceivable that clause 8.1.3 might provide some indication of
A rransit shed inro which goods are placed immediately on discharge for temporary when storage in connection with transhipment exceeds that which is ordinary.
storage pending movement elsewhere does nor qualifY as a 'final' warehouse,
regardless of whether rhe assured inrends at any time to send the Where cargo is discharged at the final porr of discharge but then forwarded to a 17.20
goods on for srorage in a srructure that can qualifY as a final warehouse. 36 further destination before the termination of the insurance in accordance with
Similarly, a cusroms compound is an area for temporary holding of goods for
cusroms purposes and cannot qualifY as a final place of storage within
Bayview Motors Ltd v Mitsui Marine & Fire Insurance Co Ltd [2002] EWCA Civ 1605,
[200311 Lloyd's Rep 131, para 20.
(1913) 30 TLR 137.
eg Institute Cargo Clauses (A), c! 8.3. Hibernia Foods pIc v McAuslin General Accident Fire & Life Assurance Corp pic (The Joint
Tierney v Etherington (1743), cited 1 Burr 348. Frost) [1998] 1 Lloyd's Rep 310 (Institute Frozen Meat Clauses (A), under which the
32 Pelly v Royal Exchange Assuranc, Co (1757) 1 Burr 341, 348. See also Stew"rt v Bell (1821) primary trigger for termination of cover is the expiry of a specified number of days after
5 B &Ald238. final discharge from the oversea vessel at the port of discharge).
33 [2002] EWCA Clv 1605, [20031 1 Lloyd's Rep 131, paras 12-16. 40 Pace the apparent contrary indication in Bayview Motors Ltd v Mitsui Marine & Fire
34 Renton (GH) 6- Co Ltd v Black Sea 6- Baltic Generallmurance Co Ltd[194l] I KB 206. Insurance Co Ltd [2002] EWCA Civ 1605, [200311 Lloyd's Rep 131, para 13.
[1958j I Lloyd's Rep 546, 561. 41 See the suggestion by counsel in Eurodale Manufacturing Ltd v Ecclesiastical Insurance Office
John Martin ofLondon Ltd v Russell [196011 Lloyd's Rep 554. pic [2003] EWCA Civ 203, [20031 Lloyd's Rep IR 444, para II.
498 499
Duration ofCover war and Strikes Risks Cargo Insurance
clause 8.1, the adventure upon which the cargo is embarked has changed and, attaches only as the subject-matter insured and as to any part as that part is
accordingly, the insurance terminates upon the commencement of transit to the loaded on an, oversea vessel (being a vessel on which the goods are to be
carried on a voyage involving a sea passage]45
new destination.42
and
Different insurance policies may cover outward and homeward cargoes. The insurance terminates, subject to 5.2 and 5.3 below, either as the subject-matter insured
relating to the former will continue to apply thereto until its discharge and as to any part as that part is discharged from an oversea vessel at
the final porr or place of discharge,
in full. The homeward catgo will be subject to its own insurance even if loaded or
before full discharge of me outward cargo.43
on expiry of 15 days counting from midnight of the day of the
arrival" of the vessel at the final port or place of discharge,
whichever shall first occur;
War and Strikes Risks Cargo Insurance
nevertheless,
By virtue of the War and Civil War Risk Exclusion Agreement; cargo may only subject to prompt notice to the Underwriters and to an additional premium,
be insured against war risks and strikes risks in accordance with the War Risk such insurance
Waterborne Agreement.44 The main effect of this agreement is threefold. First, all reattaches when, without having discharged the subject-matter insured at the
final porr or place of discharge, the vessel sails thetefrom,
marine cargo policies will incorporate specified war and strikes exclusion clauses.
and
The specified wording corresponds to the war and strikes exclusion clauses in the
standard Institute catgo clauses. Secondly, all war risks catgo insurance will be terminates, subject to 5.2 and 5.3 below} either as the subject-matter insured
and as to any part as that part is thereafter discharged from the vessel at
written under the revision of the Institute War Clauses (Cargo), or other clauses
the final (or substituted) porr or place of discharge,
apptoved by the Joint War Committee, current as at the date of attachment of risk. or
Thirdly, all open covers that include either war or strikes risks will contain a right to
on expiry of 15 days counting from midnight of the day of re-arrival
give notice of cancellation for war or strikes as appropriate. Unless otherwise of the vessel at the -final port or place of discharge or arrival of the vessel
decided by the Joint War Committee, the period of notice is not to exceed seven at a substituted porr or place of discharge,
days, except for strikes in the context of ship-ments to or from the United States, in whichever shall first occur.
which case the maximum is 48 hours.
Under clause 5, therefore, attachment of risk depends on loading on board a 17.25
The significance ofwriting war risks cargo insurance subject to the Institute War vessel that will undertake sea carriage. If, therefore, goods are loaded on an inland
Clauses (Cargo) lies in the ttansit clause (clause 5). This is more restricted than vessel for carriage to a sea port for transhipment to another vessel for the sea
the transit clause found in the Institute Cargo Clauses (A), (B), and (C). In carriage, risk will not attach until transhipment. If, however, the same vessel is to
essence, clause 5 of the War Clauses (Cargo) does not extend cover to the full undertake the inland waterborne carriage as well as the sea carriage, the goods
duration of the ttansit bur restricts cover to the period when the goods are will, primaficie, be covered against war risks for the inland waterborne carriage. 47
waterborne. The Institute Strikes Clauses (Cargo) adopt the same transit clause
Further provisions cater for discharge of the cargo at an intermediate port for 17.26
as the general cargo clauses and, indeed, lack any distinctive restriction. Con-
on-carriage by vessel or aircraft or for discharge at a port of tefuge (clause 5.2)
sequently, the Waterborne Agteement does nOt require catgo strikes cover to be
and tetmination of the voyage other than at the contractual destination
written undet the Institute Strikes Clauses (Cargo).
together, if appropriate, with subsequent re-shipment in the same or another
As just indicated, the distinctive patameters of cover under me Institute War Clauses vessel to the original or a substituted destination (clause 5.3).
(Catgo) are contained in the transit clause. Clause 5.1 provides as follows:
This insurance
Supplementary definitions to cl 5. Inland river transit is thereby excluded from cover.
'Arrival' is deemed to mean (supplementary definitions to cl 5): 'that the vessel is anchored,
moored or otherwise secured at a berth or place within the Harbour Authority area. If such berth
or place is not available, arrival is deemed to have occurred when the vessel first anchors, moors
" clS.l. 43 Rickman v Carstairs(lS33) 5 B & Ad 651.
or otherwise secures either at or off the intended port or place ofdischarge'.
44 The current agreement is dated 19 December·1997. For discussiowofthe War and Civil 'Where, however, goods are rendered a total loss during the inland voyage so that they
War Risk Exclusion Agreement, see 7.04 above.
never embark upon the sea carriage, it appears that risk cannot attach: 18.16 below.
500 501
Duration ofCover Voyage Policies on Hulls
Cover againsr mines and derelicr torpedoes, floating or submerged, is extended by held that insurance on a return voyage at and from the outward pan did not
clause 5.4 while the insured cargo 'is on craft whilst in transit to or from the attach to a vessel that arrived severely damaged and was lost shortly thereafter.
oversea vessel, but in no case beyond the expiry of 60 days after discharge According to Lord Ellenborough: 53
from the oversea vessel unless otherwise specially agreed by the Underwtiters'.
. . . while the ship remains at the place, a state of repair and equipment may be
Despite the initial impression, however, cover against mines remains sufficient, which would constitute unseaworthiness after the commencement of the
confined to derelict mines, as stated in clause 1.3,48 since clause 5.4 is purely a voyage.. But while in port, she must be in such a condition as to enable her to lie in
temporal extensIon. reasonable security till she is properly repaired and equipped for the voyage. She must
have once been at the place in good safety. If she arrives at the outward porr so
shattered as to be a mere wreck, a policy on the homeward voyage never attaches.
Voyage Policies on Hulls
Where a vessel unseaworthy for a sea voyage but seaworthy for harbour sank in 17.32
A number of the rules for construction contained in Schedule 1 to the Marine Insurance the harbour, the assured was unable to recover premium money paid to the insurer as
Act 1906 relate to the attachment and duration of risk under voyage policies. the risk had attached. 54 In contrast, underwriters were held liable, the
Although they relate specifically to phrases used in the now obsolete SG risk not having terminated, where a vessel arrived at her port of discharge 'a
policy, their embodiment of accepted commercial meaning preserves their perfect wreck, having received her death's wound at sea', was kept afloat during
authority as regards modern use of the phrases. unloading of passengers only by being lashed to a hulk, and then sank. 55
Where insurance is expressed to be 'from' a particular place, the risk attaches The leading case, however, on the meaning of 'in good safety' is Lidgett v 17.33
when the ship starrs on the voyage insured. 49 Where cover ro hull insurance is Seeretan." The insurance covered a voyage to Calcutta 'and for thirty days after arrival'
expressed to be 'at and from', rule 3 provides as follows: and also until the vessel 'had moored at anchor twenty-four hours in
Where a ship is insured 'at and from' a particular place, and she is at that place in good safety'. Serious damage was sustained by collision with a reef or bank,
good safety when the contract is concluded, the risk attaches immediately. necessitating considerable repairs. Extraordinary pumping was required to keep the
(b) If she be not at that place when the comract is concluded, the risk attaches vessel afloat, first by troops on board and, after arrival at Calcutta, by a fire engine
as soon as she arrives there in good safety, and, unless the policy otherwise while the cargo was unloaded. This lightened the vessel, enabling its own pumps to
provides, it is immaterial that she is covered by another policy for a specified time
cope. It was then taken to dry dock for repairs, where it was destroyed by fire
after arrival.
thirty-eight days after arrival. The assured argued unsuccessfully that the vessel
The 1906 Act is silent with respect to the termination of a voyage. Traditionally, was still on risk because it had never been moored in good safery. The Court held
vessels are insured 'until moored at anchor twenty-foul' hours in good safety', that 'in good safety' clearly could not mean in perfect condition, otherwise the loss
insurance pracrice viewing the twenty-four hours after arrival in the pan of of a rope would preserve the underwriters' liability. On the other hand, cover would
discharge as part of rhe voyage. 50 In the absence of any such clause, the risk continue in respect of a vessel 'moored in a sinking state or as a mere wreck'.
terminates upon the vessel anchoring safely at the port of destination in the According to Bovill C]:57
usual place and manner."
In the present case, the vessel, though considerably damaged and leaky, and with one
The phrase 'in good safery' is relevant to both inception and termination of risk. In each compartment full of water, existed as a ship at the time of her arrival, and she
instance, the vessel must be in a cenain physical condition. Insurance'at was able to keep afloat and did keep afloat as a ship for more than twenty-four
hours after being moored, by ex~rting the means within the power of the captain.
and from' will attach even though the vessel is not seaworthy to put to sea, but not
She arrived and moored at the ordinary place for unloading, and was so moored as a
if it is little more than a floating wreck. Thus, in Parmeter v Cousins,S2 it was
ship in the possession or control of her owners for more than twenty-four hours ...
48 For discussion of the peril, see 13.84-13.86 above.

MIA 1906, Sch 1, r 2. For the meaning of 'starts on', see the cases on sailing warranties,
discussed at 18.87-18.88 below. ibid 237.
Mercantile Marine Insurance Co v Titherington (1864) 5 B & S 765. Annen v Woodman (1810) 3 Taunt 299. See also Haughten v Empire Marine lmurance Co Ltd
51 Stone v Marine Insurance Co, Ocean Ltd, ofGothenburg (1876) 1 ExD 81. (1866) LR 1 Ex 206.
52 (1809) 2 Camp 235. 55 Shawe v Felton (1801) 2 East 109. 56 (1870) LR 5 CP 190. 53 ibid 200.
502 503
Duration ofCover voyage Policies on Freight
Where the issue relates to termination of the risk, 'in good safety' embraces not just the the words used. In CornfOot v Royal Exchange Assurance COrp,67 it was not
physical but also the political safety of the vessel. When, by reason of an dispured that insurance 'for thirty days in POrt after arrival' commences at the
embargo imposed by French authorities, an English vessel was detained as a precise hour the insured vessel moors in good safety. Where, however, the
prize upon arrival, the insurer was liable and the absence of any guard upon the policy contains a twenty-four hours in good safety clause and also covers the
vessel until some days later was irrelevant. 'She could not be said to be twenty- vessel 'during thirty days' sray in her port of discharge', rhe rhirty days do not
four hours, or a minute moored in safety ... for immediately she entered the port 6s
commence unril rhe twenty-four hours have expired.
she was to all intents and purposes captured by the French.'58 The element of
As a general rule, a voyage policy is unlikely to be construed as extending 17.37
political safety does not apply, however, to the initial attachment of risk. 59
beyond the termination of the described voyage to a further voyage preparatory
Insurance 'at and ftom Havana' has been held to attach to a vessel upon first to the next trading venture. Thus insurance 'to any port or ports ... in France and/or
arrival at the outward port of Havana. 60 Consequently, underwriters on the the United Kingdom (final pOrt)' does not cover a voyage to bunkers after
return voyage were liable in respect of damage occurring within the port of discharge of cargo at two French ports. 69 The matter is, however, one of
Havana but before the vessel moored at the place where the outward cargo was interpretation of the words used. Crocker v SturglO concerned insurance 'to any
ultimately discharged. Arrival was not to be equated with dropping anchor, nor port or ports ... in any order on the West Coast of South America and for thirty days
was it relevant that insurance on the outward voyage had not terminated. In after arrival in final port, however employed'. After discharging the our-ward cargo,
contrast, it was held in Waples v Eame!' that the phrase 'in good safery' in the vessel was lost while sailing to another port for loading of a rerum cargo. The
connection with the termination of risk includes 'the opportunity of unloading underwriters were held liable as othelwise the clear distinction drawn between 'port
and discharge'. Having arrived and moored on 8 July, within twenty-four hours and ports' and the 'final port' would have been defeated.
the vessel was ordered elsewhere into quarantine. The underwriters were held
liable for damage caused by fire on 23 August, while the vessel was still in
quarantine.
62
Moreover) where a vessel is instructed to discharge its cargo at a E. Voyage Policies on Freight
particular place within a port, the twenty-four hours will not commence before
mooring at that place,63 unless the dimensions of the vessel dictate at least Chartered freight is freight to be earned by a shipowner nnder rhe terms of a 17.38
partial unloading elsewhere, even if merely to reduce the draft of the vessel so charterparty for the use of the chartered ship in accordance with the charter-
as to enable it to proceed to the instructed place of discharge. 64 Insurance to party. According to rule 3(c) of rhe rules for construction in Schedule 1 to the
'port or ports of discharge' in principle covers the vessel until its final port of Marine Insurance Act 1906: 'Where chartered freight is insured "at and from" a
dis-charge. Where, however, it has become illegal" for the vessel to pr,?ceed to particular place, and the ship is at that place in good safety when the contract is
one port prima jacie within the cover, the insurance is read as if that port were concluded, the risk attaches immediately. If she be not there when the contract
expressly excluded. 66 is concluded, the risk attaches as soon as she arrives there in good safety.'
Twenty-four hours generally being inadequate for discharge of the cargo, voyage policies It is important to distinguish the subject-matter insured, namely freight to be 17.39
are frequently extended for a longer period after arrival, although ascertainment of earned according to the terms of the charterparty, from the duration of the
the precise petiod covered may require careful consideration of insurance, which depends upon the terms of the insurance contract. Thus,
chartered freight under a voyage from C to D may be insured against risks in the
course of a prior voyage from A to B. 71 The cases encapsulated by rule 3(c) may
Minett v Anderson (1794) Peake 277, 278 per Lord Kenyon. be divided into twO categories. First, a charterparty for a voyage from A to B to C
Bell v Bell (1810) 2 Camp 475.
60 Haughten v Empire Marine Insurance Co Ltd (1866) LR 1 Ex 206.
may be matched by insurance on freight at and from A for the full voyage.
" (1746) 2 Str 1243.
62 It has been suggested that Waples v Eames should be viewed simply as illustrating an aspect of
political safety: Arnauld, Law ofMarine Insurance and Average Sir Michael Mustill and JGilman [19041 I KB 40.
(eds) (16th edu, 1981) pata 554. n 26. Mercantile Marine Insurance Co v Titherington (1864) 5 B & S 765, (1864) 34 L]QB II.
63 Samuel v Royal Exchange Assurance Co (1828) 8 B & Cr 119. Marren v vestry [19201 AC 307.
60 Whitwell v Harrison (1848) 2 Ex 127. [1897J I QB 330. See also Crocker v GeneratInsurance Co LtdofTrieste (1897) 3 Com Cas 22.
As opposed to merely dangerous and inadvisable: Oliverson v Brightman (1846) 8 QB 781. Rankin v Potter(1873) LR 6 HL 83; Scottish Shire Line Ltd v London & ProvincialMarirte &
Brown v Vigne (1810) 12 East 283. Generallnsurance Co Ltd[19121 3 KB 51.
504 505
Duration ofCover J.0yage Policies on Freight
The insurer will be liable even though the vessel is lost on the voyage from A ro B ao
Aspinall. In this case, a ship sailed to Haiti with an ourward cargo for barrer.
and the cargo generating the freight was to be carried from B to C. 72 Secondly, the
Afrer exchanging a quantity thereof for part of a return cargo, the vessel was lost
same result is produced where the above charterparty is accompanied by insurance
while seeking further return cargo. In an action on a valued policy on the return
at and from B to C and the vessel is lost afrer arrival at B even if cargo being carried
freight, the assured was held entitled to recover only such proportion of the agreed
from A to B has not been fully discharged. 73 In addition, freight under a indemnity for a total loss as was referable to the return cargo on board.
charterparty from B ro C is recoverable under a policy on freight from A to B to C Montgomery v Eggington was distinguished on the grounds that there a full cargo
where the casualty occurs on the voyage from A to B. 74 was ready to be loaded, the ship was ready to receive it, and nothing but the perils
insured against could have prevented the freight from being earned. On the facts of
Classic freight is earned through the simple carriage of anorher's goods. Such freight
Forbes v Aspinall, in contrast, there was no legal entitlement to earn full freight
can be lost only once there is a legal entitlement to demand its payment subject since the balance of the return cargo had not been procured by the time the vessel
only to carriage ro the agreed destination. With respect to the attach-ment of was lost, and the ourward cargo needed to be discharged before the homeward
risk, rule 3(d) of the rules for construction treats classic freight identi- cargo, once procured, could have been loaded.
cally to the third categoty of freight, consisting of profits the shipowner expects
to make through cartying his own goods." Insurance upon freight 'at and from' a In principle, it is difficult to see why the readiness of the vessel to load the cargo 17.43
particular place is stated to attach pro rata as the goods are loaded, 'provided that if should affect the attachment of risk. Provided there is a legal entitlement to
there be cargo in readiness which belongs to the shipowner, or which some other earn classic freight, which was absent in Forbes v Aspinall rendering Lord
person has contracted with him to ship, the risk attaches as soon as the ship is ready Ellenborough's remarks concerning readiness to load obiter dicta, risk should
to receive such cargo'. attach. If the assured is then prevented from earning that freight by an insured
peril, the assured should recover in fulL 81 Whether, as an issue of fact, the cause
Although, in the absence of conttary intention, rule 3(d) muSt represent the meaning to be of the lost freight is indeed a covered peril may be affected by whether rhe cargo
attributed today to insurance so phrased, some difficulty arises in reconciling its was ready to be loaded. With respect to insurance of freight derived from
provisions with older case law. In Montgomery v Eggington,76 the assured was held carrying one's own goods, such readiness should ttigger the attachment of risk.
entitled to recover the whole freight insured where only part of the goods had been
loaded when the ship was lost, the remainder of the cargo lying on the quay waiting In Devaux v j'Anson,82 Tindal C] held that readiness to load does not require 17.44
to be loaded. Under rule 3(d), however, the insurer's risk would attach only pro rata presence at the POrt ofloading, only that the cargo be held'actually in a state of
with respect to the loaded goods. With respect to the readiness of the vessel to readiness, reference being had to the nature and description of the voyage
receive the cargo, eatly decisions either proceed upon the basis that readiness to insured, to be put on board, when the ship arrives at the place of deposit'."
receive is nor a prerequisite to the attachment of risk or provide a broad Recovery was accordingly allowed in respect of freight on cargo stored seven
understanding of the concept. Thus, an assured has been held entitled to recover miles from the port ofloading.
despire the need for further work on rhe vessel before loading could be complered" All the rules of construction contained in Schedule 1 to the Marine Insurance 17.45
and even though the vessel was lost berween ports Act 1906 are subject to contrary intention. Thus, in a policy on chartered
ofdischarge of rhe ourward cargo. 78 It has also been held thar lack of readiness freight 'at and from Lagos' a statement that the insurance 'shall commence ...
to load does nor include disability of the vessel caused by an insured periL 79 ftom the loading' of cargo prevented liabiliry from attaching where the vessel
17.42 The basis of rule 3(d) is rhe judgment of Lord Ellenborough in Forbes v arrived safely but was lost before loading any return cargo.84 Where freight is
insured at and from the port of origin to a port of discharge with a liberry to
Thompson v Taylor(1795) 6 TR 478; Mackenzie v Shedden (1810) 2 Camp 431. See alsoAtty
Lindo (1805) I Bos & Pul (NR) 236. 80(1811) 13 East 323, 331.
Horncastle v Stuart (1806) 7 East 400; Davidson v Willasey (1813) I M & S 313; Foley v " Truscott v Christie (1820) 2 Brad & B 320; Flint v Flemyng (1830) I B & Ad 45.
82 (1839) 5 Bing NC 519. 83 ibid 539.
United Fire & Marine Insurance Co ofSydney (1870) LR 5 CP 155.
" Beckett v West ofEngland Insurance Co Ltd (1872) 25 LTNS 739 (queried in Hydarnes SS
14 Barber v Fleming (1869) LR 5 QB 59. " See 1.53-1.54 above.
Co v Indemnity Mutual Marine Assuranl'e Co [1895] 1 QB 500, 509). See also jones v
76 (1789) 3 TR362. 77 Truscott v Christie (1820) 2 Brod & B 320.
Neptune Marine Insurance Co (1872) LR 7 QB 702 ('from' overridden by 'beginning from the
78 ~rre v Miller (1825) 4 B & C 538 (althoughattachmenr of the policy was not in dispute).
loading of the vessel') but contrast The Copernicus [1896] P 237.
79 Devaux vjAnson (1839) 5 Bing NC 519.
506 507
Duration ofCover IVtzr Risks Hull Insurance
touch and stay at intermediate ports, the insurance, once attached, covers any on Hulls Agreement. The main features of the current hull agreement94 are
freight which would, but for the covered perils, have been earned in the course .twofold. First, hull insurance ofwar risks will incorporate the Institute Notice
of any part of the voyage. 85 of Cancellation, Automatic Termination of Cover and War and Nuclear Exclu-
sions Clause-Hulls (1/11/95) or corresponding clauses approved by the Joint
War Committee. Such incqrporation is optional only in the case of insurance on
Time Policies on Hulls and Freight a voyage basis for a period of no more than three months. Secondly, the maxi-
mum duration of a policy of war risks insurance is in principle twelve months.
Most modern hull and freight insurance is written on a time basis. Under English law, Extensions of cover up to a cumulative maximum of six months may be agreed
references to a particular time are presumed to refer to Greenwich mean time,86 but only once risk has attached for at least six months. Moreover, an initial
subject to the provisions of the Summer Time Act 1972. grant of cover for longer than twelve months is permitted provided cover for
Where insurance is effected 'from' a particular date, it seems beyond argument the period in excess of twelve months is subject to a right to cancel at any time
that the cover commences the day after. 8 ' Thus, where cover was issued 'for on giving thirty days' notice.
twelve calendar months from November 24, 1887' the assured recovered in
The Institute NotiCe of Cancellation, Automatic Termination of Cover and War 17.50
respect of a casualty on 24 November 1888.88 The rule may be avoided by
. h . "89 ' df '90 'fi d d and Nuclear Exclusions Clause-Hulls (1/11/95) ascribes to itself paramount
expressIng t e cover as commencmg at or at an rom a spec! e ate, or status, overriding any contrary provision in the contract into which it is
by stipulating that a date is to be inclusive. Insurance 'until' a specified date incorporated, and contains fouf operative provisions. First, cover is subject to
expires at midnight at the end of that day.91 cancellation by either party on giving seven days' notice, although underwriters
The cover extended under a time policy may be confined not just by time limits but agree to reinstate cover subject to agreement, priof to the expiry of such notice, on
also by constraints upon the form ofadventure insured or by geography." In additional premium and any alteration of terms." Secondly, an automatic
Wilson v Boag," a motot launch was insured for four months on the waters of Port termination clause is ttiggered either by outbreak of war between any of five named
Stephens and within a radius of fifty miles. A claim arose in respect of a casualty powers, namely the United Kingdom, United States ofAmerica, France, the
incurred within that radius but on a voyage to Sydney, some ninety miles away. The Russian Federation, and the People's Republic of China, or requisition for title or
Supreme Court of New South Wales held that the insurance took the form of a time use of the relevant vessel. Thirdly, any loss, damage liability, or expense caused by
policy further delimited by reference to a geographical area, rejecting the insurers' either war between any of the five powers or requisition is excluded. The fourth
argument that cover was limited to voyages to destinations within the specified element of the Institute Notice of Cancellation etc Clause is a
radius undertaken during the relevant time. radioactive contamination exclusion clause. 96 These fouf provisions are all
included within the 1995 Institute war and sttikes clauses for hulls and freight,"
so that policies incorporating such clauses are automatically compliant with
War Risks Hull Insurance that aspect of the War Risks on Hulls Agreement.
With respect to hull insurance, the War and Civil War Risk Exclusion Agree-ment
provides that war risks may be covered in accordance with the War Risks
85 Barclay v Stirling (1816) 5 M & S 6. 86 Interpretarion Act 1978, ss 9, 23(3). 94 Dated 24 October 1997. Its full name is the War Risks on Hulls (Including Rigs and
Although the contrary was held, in persuasive terms, by Rowlatt J in Scottish Metropolitan Marine Structures), Shipowners' Other Interest, Charterers' Interest (Other than Cargo),
Assurance Co Ltd v Stewart (1923) 39 TLR 407. Builders' Risks, or Second Seamen's Insurances for Time or Voyage Agreement.
South Staffirdshire Tramways Co Ltd v Sickness & Accideht Assurance Association Ltd [1891] 1 95 On the limitation of such variations to that which is reasonable, see 18.115-18.118 below.
QB 402; Cartwright v MacConnack [196212 Lloyd's Rep 328. Incorporated in the International Hull Clauses (01111103) as cl 31.1-3, see 15.80-15.81
so BalfOur v Beaumont [198411 Lloyd's Rep 272. above.
so As in Heinrich Hirdes GmbH v Edmund [19911 2 Lloyd's Rep 546. See, eg Institute War and Strikes Clauses (Hulls-Time) (lill/95), ell 5.1.1-5.1.2 (five powers
91 Isaacs v Royal Insurance Co (1870) LR5 Ex 296; Heinrich Hirdes GmbH v Edmund [19911 2 war and requisition exclusion), 5.2 (radioactive contamination exclusion), 6.1 (seven days'
Lloyd's Rep 546. notice of cancellation clause), 6.2 (five powers war and requisition automatic termination
92 Cock")' v Atkimon (1819) 2 B & AId 460. 93 [1956j2Lloyd's Rep 564. clause).
508 509
Duration ofCover Mutual Insurance
Continuation Clauses Underwriters as soon as possible.' The difference between the continuation
clauses in the 1995 and 2003 clauses lies in the notice requirement. In the 2003
Clauses continuing cover beyond the expiry date of a time policy are standard clauses it applies whether the vessel is at sea or in port. However, there is no
provisions of the Institute marine clauses for hulls and freight and the Inter- longer any requirement that notice be given before expiry of risk. Instead,
national hull clauses. Such provisions do not feature in voyage clauses or war notice must be given 'as soon as possible'. Consequently, where the relevant
and strikes clauses whether for time or voyage." The wording of the continu- circum-stances arise shortly before expiry of risk and the assured gains
ation clause has, however, been altered through successive revisions. knowledge of them only after risk has expired, notice can still be given and
Clause 2 of the Institute Time Clauses Hulls (1/10/83) reads as follows: 'Should the cover can be continued. Conversely, where the citcumstances arise well before
Vessel at the expiration of this insurance be at sea or in distress or at a port of expiry of risk, the assured must notify underwriters without delay and cannot
refuge or of call, she shall, provided previous notice be given to the Under- wait until JUSt before risk is due to expire.
wtiters, be held covered at a pro rata monthly premium to her port of destin-
ation.' Cover is, therefore, extended at a pro rata monthly premium where the
insured vessel is in anyone of four situations at expiry of risk, namely at sea, in I. Mutual Insurance
distress, at a port of refuge, or at a port of call. In such circumsrances, cover is
The period of cover provided by the mutual insurance associations runs from 17.55
continued until arrival at the port of desrination provided underwriters are
noon Greenwich mean time on 20 February until noon on the same date the following
notified prior to expiry of risk.
year, and continues from year to year unless terminated in accordance
In rhe Institute Time Clauses Hulls (1/11/95), clause 2 provides as follows: 'Should the with the association rules. Such termination, whether by the association or the
Vessel at the expiration of this insurance be at sea and in distress or missing, member, is normally required to be by written notice no later than noon on 20
she shall, provided norice be given to rhe Underwriters prior to rhe expiration of January in any policy year, the cover terminating on the expiry of that policy
this insurance, be held covered until arrival at the next port in good safery, or if year. Power may, however, be reserved to the Committee or the Managers to
in port and in distress until the Vessel is made safe, at a pro rata monthly terminate the entry of a ship on thirty days' notice.
premium.' In contrast wirh the 1983 hull clauses, the 1995 continuation clause
is narrower in two respects. Cover is extended in only two situations: fitst, where
the insured vessel is both at sea and also eithet in distress or missing; secondly,
where the vessel is both in port and in distress. The extension of cover is then not
until arrival at the port of destination but only until, in the first case, arrival at the
next port in good safery, or, in the second case, until made safe. The requirement of
prior notice to underwriters is confined to the first situation, where the vessel is at
sea. The phrase 'in good safety' has trad-itionally been employed in voyage policies
on hulls and is discussed above in that context. 99
The continuation clause in the International Hull Clauses (01111103) (clause

is wotded as follows: 'Should the vessel at the expiration of this insurance be at
sea and in distress or missing, she shall be held covered until arrival at the
next port in good safety, or if in port and in distress until the vessel is made
safe, at a pro rata monthly premium of call, ptovided that notice be given to the
98 With respect to war and strikes cover, the list of clauses excluded under the incorporation
clause includes the continuation clause: see,-egthe reference to cl 2 of the 1983 or 1995 marine
hulls clauses in el2 of the InstitUte War and Strikes Clauses (Hulls-Time) (1/10/83 and 1/11/95).
99 See 17.31-17.34 above.
510 511
18
ATTACHMENT AND ALTERATION
OF RISK
A. Failure of Risk to Attach in Voyage (2) Identifying promissory warranties 18.61
Policies 18.02 (3) Interpretation and breach 18.66
(1) Failure to embark upon the route of (4) Causation 18.89
the designated voyage 18.03 (5) Materiality 18.90
(2) Delayed commencement of the (6) Cure 18.92
designated voyage 18.20 (7) Breach excused 18.93
B. The General Doctrine of Alteration (8) Waiver 18.94
of Risk 18.27 (9) Mitigating the law of promissory
warranties 18.97
C. Alteration of Risk in Voyage
E. Held Covered Clauses lS.ll0
Policies 18.30 18.1ll
(1) Change of voyage 18.31 (1) Examples ofhe1d covered clauses
lS.114
(2) Deviation 18.34 (2) Scop' 18.115
(3) Delay 18.38 (3) Additional premium 18.117
(4) Amendment of terms 18.119
(4) Excuses for deviation or delay 18.41
(5) Notice 18.123
D. Promissory Warranties 18.54 18.125
(6) Option or obligation?
(1) The legal characterization of
(7) Utmost good [";lith
promissory warranties 18.55
The docttine of urmost good faith requires a full and accurate presentation of 18.01 the
risk, the marine adventure, to be insured. A resulting contract of insurance
covers that adventure and none other on the agreed terms.' Should the insured
adventure not ensue, liability on the policy will nevet attach. Should the insured
adventure commence bur subsequently be departed from, the insuter's liability
on the policy is automatically prospectively dischatged. The all-embracing
ques-tion traditionally asked was whether the adventure embarked upon or
pursued constituted a deviation from that insured.
1 One of the reasons why a bill oflading contains a contract for a specific voyage is to facilitate
the obtainiog of insuranc" Leduc & Co v Witrd (1888) 20 QBD 475, 481.
513
Attachment and Alteration ofRisk Failure ofRisk to Attach in v"yage Policies
A. Failure of Risk to Attach in Voyage Policies cargo from Demerara to Berbice, the vessel could not be said to be engaged
upon the insured adventure.
18.02 Risk will fail to attach under voyage policies if the insured properry fails to
embatk upon the voyage designated in the policy in terms of either the route to Similarly, Wly v Modiglianf' concerned insurance from any port in Newfound- 18.05
be followed or the time at which the voyage is to take place. land to Falmouth or ports of discharge in England at and from 20 October. The
vessel left port in Newfoundland on 1 October, spent a week fishing, sailed for
Failure to Embark upon the Route of the Designated Voyage England on 7 October and was lost on 30 November in the course of the
voyage. The underwriters were not liable, despite the fact that from 20 October
The tisk subscribed by an insuret under a voyage policy is a particular marine the ship was engaged solely upon a voyage to England from Newfoundland
adventure consisting of a voyage from a named point of departure (the terminus waters, since the vessel left Newfoundland on a fishing voyage instead of sailing
a quo) to a specified destination (the terminus ad quem). There is no right to directly to England. 4
substitute another voyage, no mattet how similar in geography, nature of peril, and
level of risk. It follows thar if the insured cargo or hull commences its journey from
The normal route to the destination named in the policy and thar in fact taken 18.06
a different point of departure, risk cannot attach since it is never embarked upon the by the relevant vessel when sailing for a different destination may coincide for a
insured adventure. Likewise, if the insured subject-matter commences its journey certain distance and then divide. In such a case, the insurer cannor be liable even
from the named point of departure but that journey is to a destination other than that with respect to a casualry occurring before rhe dividing point because the vessel
named in the policy, again risk cannot attach for the same reason that the journey will already have departed from the insured adventure. In Wloldridge v Boydell,s
upon which it is embarked is not that which the insurer agreed to cover. These two a vessel insured at and from Maryland to Cadiz apparently sailed for Falmouth
simple propositions are addressed by sections 43 and 44 of the Marine Insurance and was lost on the initial common route. The assured argued thar the facts
Act 1906 in the following terms: disclosed a loss before an intended deviation from the insured voyage, which,
not having occurred, furnished the insurers with no defence. The argument,
Where the place of departure is specified by the policy, and the ship instead of a1rhough correct in principle,' failed for irrelevance. Strong evidence showed
sailing from that place sails from any other place, the risk does not attach.
Where the destination is specified in the policy and the ship, instead of sailing for that Cadiz had never been contemplated as the vessel's port of destination.
that destination, sails for any other destination, the risk does not attach. Consequently, the vessel never having been engaged on the insured voyage, the
question of deviation from rhat voyage could not arise. 'There cannot be a
It is noteworthy that these provisions do not speak of the subject-matter insured
embarking upon its journey but of the ship sailing. A significant problem, discussed deviation from what never existed.'7
below, is how these sections, especially section 44, apply ifrthe context of Similarly, Simon, Israel & Co v Sedgwicll' concerned open cover cargo insurance 18.07
multimodal transport of cargo. on the adventure 'at and from the Mersey ... to any port or ports in Portugal
The case law contains a number of illustrations of vessels embarking upon a different and/or Spain, this side Gibraltar, and/or ar or from thence by any inland con-
voyage. In Sellar v M'Vicar,' freight was insured 'at and from Demerara, Berbice, veyance, to any place or places in the interior', any deviarion or change ofvoyage
and the Windward and Leeward Islands to London'. The vessel having discharged being covered on payment of an additional premium. Certain cargo, being
its outward cargo at Demerara, the master agreed to take a cargo from Demerara to transported from Bradford to Madrid and intended by the assured to be shipped
Berbice and there load a different cargo for London. Mter loading the cargo for from Liverpool to Seville, as had been the case with similar cargo previously, was
Berbke, the vessel was lost by a covered peril while still ar Demerara. The
underwriters were held not liable because the vessel was not engaged upon the
(1787) 2 TR 30.
voyage insured, namely at and from anyone of Demerara, Berbice, or the Windward Alternatively, it was held that the policy did attach but the underwriters were discharged
or Leeward Islands to London, not a voyage between them prior to sailing for because of a deviation from the insured adventure, In Vallance v Dewar (I808) 1 Camp 503, in
London. Given that Berbice did not lie on rhe narural contrast, evidence was adduced ofa trade usage that ships arriving at Newfoundland would either
be employed for some time in fishing or making an intermediate voyage and that only upon the
course of a voyage from Demerara to London, as soon as rhe master agreed a expiry thereof would risk attach on homeward voyage policies 'at and from' Newfo.undl~d.
Consequently, the duty of utmost good faith did not require the assured to
disclose an mtentlon to use the insured vessel for fishing while at Newfoundland.
2 (1804) 1 Bos & Pul (NR) 23. , (1778) 1 Dougll7. 6 See 18.37 below. 7 (1778) 1 Dougll7, 18 per Buller J.
8 [18931 1 QB 303.
514
515
Attachment and Alteration ofRisk
516
in fact shipped by error to Cartagena, a porr beyond Gibralrar. When rhe vessel
was lost before reaching rhe wesr coast of Spain, rhe assured discovered rhe
misrake and rendered rhe appropriate extra premium for Cartagena. The Court
ofAppeal upheld rhe insurers' right ro refuse this additional premium. The bills
of lading in respect of the cargo were made out for Cartagena with the result
that the goods could never be said ro have been appropriated ro rhe advenrure at
and from the Mersey to a port this side of Gibraltar. The goods were never on
the insured voyage, the policy never attached ro the lost cargo, and the deviation
clause could not be invoked.'
In such cases where risk never attaches, it follows rhat, if the insurer has received the
premium, the assured becomes entitled to restitution by reason of a rotal failure
of consideration." A distinction is ro be drawn with cases where the subject-
matter insured embarks upon rhe insured adventure but then departs
from that advenrure." Such departure from the insured adventure produces an
automatic prospective discharge of the insurer's liabiliry on the policy, but it
does not deny rhe initial artachmenr of risk, the insurer's liability for casualties
before the departure from the insured risk, and the insurer's consequent
entitlement to premium.
18.09 Where a policy is drafted to attach 'from' a named port and does not contem-plate
cover unril the momenr of departure, the principle articulated in section 44
presents no difficulty. Many policies, however, provide for the subject-matter
insured ro be covered from an earlier time. In that context, section 44 codifies
reasoning that may surprise unwary assureds, especially under cargo policies.
Since the nineteenth centuty, it has been cusromaty ro insure cargo not t~r an isolated
sea voyage but for the entirety of a rransir, for example fr<Jm a seller's inland
factory by road, rail, or canal ro the port ofloading, from there by sea to an
overseas port, and inland from that POrt ro a buyer's place of business. Cargo
policies initially expressed their coverage of the full journey through 'warehouse
to warehouse' clauses, replaced in the modern Institute cargo clauses by 'transit'
clauses." The perhaps natural impression created by such clauses is that risk
attaches once the goods embark upon their journey as defined by the warehouse
ro warehouse or transit clause. Ar that poinr, the insurer becomes liable for
any losses caused by insured perils at any poinr during the insured journey.
9 In Maritime Insurance Co v Stearns [1901) 2 KB 912 the insurer was held not entitled to
claim on reinsurance effected on 2 August in respect of a voyage which did not commence until
25 September. The risk was altered (see below) and postponement of the insured
voyage was not within the terms ofa clause holding the assured covered in respect
of a 'change of voyage'.
10 MIA 1906,,84(1).
11 Classically, by reason of a change of voyage, deviation, or delay. These are discussed below.
12 The transit clauses are discussed at 17 .IIff above.
Failure ofRisk to Attach in Voyage Policies
Should the goods at some stage depart from that journey in favour of a differenr
advehture the insurer remains liable for losses until rhat poinr, but is prospect-ively
discharged from liability as from that poinr. Such is not, however, the law.
The facts of Simon, Israel <& Co v Sedgwick13 are set Out above. 14 The cargo was
18.11 insured not only 'at and from the Mersey ... to any port or pons in Portugal and/or
Spain, this side Gibralrar' and inland to any place, but also 'including all
risks by any conveyance whatever, from the rime of leaving the warehouse in
the United Kingdom until on board'. It was argued that risk attached as soon as
the goods left the claimants' warehouse in Bradford, so that the subsequenr
erroneous loading on a vessel bound for a POrt beyond Gibraltar constituted a
deviarion within the purview of a clause permitting deviation on payment of
additional premium. The argument was rejected both at first instance and on
appeal. The reasoning, translated into the terms of the 1906 Act, is as follows.
The subject-matter of a marine policy is a marine adventure, which, with respect
to cargo, consists of the t;X-posure of the insured cargo to maritime perils,
namely the perils consequent on or incidental to the navigation of the seas. A
contract ofmarine insurance may be extended to cover incidental land or inland
water transit, but the core subject-matter of the policy remains the designated
sea voyage.!S If the insured cargo never embarks upon thar voyage, it never
embarks upon rhe insured adventure."
This reasoning again defeated the assureds in the phantom vessel" case of The 18.12
Prestrioka.!8 A cargo of rice was insured for a voyage 'from Kohsichang, Thai-
land to Dakar port, Senegal' under a policy incorporating the Insritute Cargo Clauses
(A). A contract for carriage was duly concluded and the goods were rransported to
Kohsichang and there loaded on board the Prestrioka. Bills of lading were issued
and the Prestrioka sailed, osrensibly for Dakar. It never arrived and was never
found. The evidence suggested rhat the Prestrioka was a 'a phantom vessel
destined before departure for disappearance and/or destrucrion having carried irs
cargo to a port far from rhar anticipated by rhe cargo owners'." The claimant CIF
purchasers of the rice claimed under the insurance and sought leave to serve the
claim form outside rhe jurisdiction on the defend-
ant Thai insurers. The Court of Appeal refused leave. There was no real
13 (I892) 67 LTNS 352, affd [1893J 1 QB 303. " See 18.07 above.
" MIA 1906, ss 1-3.
16 See also Kallis (George) Manuftcturers Ltd v Success Insurance Ltd [1985] 2 Lloyd's
Rep 8 (PC).
A phantom vessel is a ship with no traceable registration. controlled by frauclsters, and
used to steal cargoes.
Hima SARL v Dwes Insurance pic (The Prestrioka) [2002] EWCA Civ 1132; [2003J 2 Lloyd',
Rep 327.
19 ibid para 59 per Potter LJ.
517
Attachment and Alteration ofRisk Failure ofRisk to Attach in v"yage Policies
prospect of the claimants' succeeding at trial because ir was clear from section ... it is the plain import. of the judgment in the Simon Israel case that, despite
44 of rhe Marine Insurance Act 1906 that risk had never attached. The the effective extension of the voyage insured from the moment of sailing back to the
moment of leaving the warehouse for the purposes of attachment of risk, the overall
claimants argued that section 44 was displaced by the transir clause in the
voyage or adventure assured is still properly characterized as a voyage from A to B
Institute cargo clauses, which srates that risk 'attaches from the time the goods and, if that adventure is never in fact embarked upon, the insurer w.ill not be liable ...
leave the ware-house or place of srorage ... for rhe commencement of the Where an insurer invokes s 44, the court will conduct an ex post facto exercise to
transir'. Following Simon, Israel v Sedgwick, however, the Court held that under a determine not simply the contractual, but the actual, destination of the ship at the time
voyage policy on cargo from a named port, the insured marine adventure did not of sailing, which exercise depends upon the acts and intentions of the owners andlor
commence until the carrying vessellefi: the named port of departure and embarked Master at the time of its departure.
upon the insured voyage. Although section 2(1) of the Marine Insurance Act 1906 If the court determines that, at the time of sailing, vessel and cargo were in truth
bound for a terminus ad quem other than that identified in the policy as definitive
permitted the contract to be extended to incidental land risks and the transit clause
of the voyage insured, then s 44 will apply and the risk which prima ficie attached
took advantage of that permission, that clause could nOt change the fundamental when the goods left t?e warehouse will in the event be held not to have attached.
nature of the policy. Instead, it 'operates on the assumption that the insured
adventure takes place and on that basis addresses the question of the Where, in contrast, the goods are totally lost and never arrive at the port of 18.16
commencement and termination of the risk'. 20 loading, Potter LJ was prepared to contemplate that the assured might recover,
'since the vessel has not sailed fot another destination at the time of the loss or
In the light of the decisions in Simon, Israel v Sedgwick and The Prestrioka, the theft, s 44 has no application and the risk which prima facie attaches to the
question arises of whether the assured can recover in respect of losses incurred goods on leaving the warehouse should not be subject to ex post facto invalida-
during the journey in the event that the contemplated sea voyage never occurs. tion as a result of an event (ie commencement of the voyage) which has not
The goods might be totally lost so that there are none to embark on the insured occurred at the time of the 10ss'.23 With respect, however, the reasoning codified
voyage. The intended carrying vessel might duly sail on that insured voyage or in section 44 and the wording of that provision consider embarking on the
might not. Alternatively, some goods might be lost in transit between the ware- designated sea voyage to be a condition precedent to the attachment of risk, not
house of origin and the port of loading, where the remainder are loaded on 24
to the continuation of liability under a policy where risk has already attached.
board a phantom vessel. Again, the assured might incur expenses in principle
If the goods never arrive at the port of loading, it is hard to see how that
recoverable under a sue and labour clause, but the goods are subsequently
condition precedent can be fulfilled.
loaded on a phantom vessel.
The solution to the reasoning in Simon, Israel v Sedgwick may lie in the drafting 18.17
Where the goods, or some of them, are loaded on a vessel that sails for a destination of the policy. The assureds' argument that the insured adventure was a journey
other than that contemplated by the policy, as in the second and third suggested from Bradford to Madrid foundered on the wording of the policy, which dearly
hypotheses, it seems clear, although it has not been decided, that the assured insured a voyage from Liverpool to a port this side of Gibraltar to which was
cannot escape from section 44. Thus, at first instance in Simon, Israel v superadded inland transit to Liverpool. Consequently, the voyage in fact under-
Sedgwick,21 Wright J considered that: 'If the substance of the policy is the taken by the goods would colour the initial transit to Liverpool. Had the policy
maritime risk, I think that the character of the preliminary conveyance before the clearly insured a through journey from Bradford to Madrid to be undertaken in
ship is reached must be determined by that of the voyage on which the goods were a multimodal fashion, the insurers would seemingly not have contested liabil-
actually shipped, and that the goods must, until shipment, be taken to have started
ity.25 On its wording, section 44 denies the attachment of risk whenever the ship
for the voyage for which they were afterwards in fact shipped.'
sails for a destination other than that specified in the policy. If, however, the
Similarly, in The Prestrioka,22 Potter LJ stated as follows: 'destination' in the policy is clearly identified as the final inland terminus of the
23 ibid para 56.

24 Although see the discussion of 'at and from policies' at 18.19 b~low.. .
20 ibid para 48 per Potter L]. See also Nam Kwong Medicines & Health Products Co Ltd v China 25 [18931 1 QB 303, 306. It might be questioned whether a pohcy that demed the defining
Insurance Co Ltd [20021 2 Lloyd's Rep 591 (Hong Kong High Court). nature of the sea leg of the journey was still, technically, a policy of ~arineinsuran~e.Although such
" (1892) 67 Lf(NS) 352, 353-4. a question could have practical relevance (eg whether the docmne of constructive tOtal loss
22 [2002J EWCA Civ 1132, [20031 2 Lloyd's Rep 327, paras 53~54. applied), it would be clear that the assured was covered against the loss.
518 519
Attachment and Alteration ofRisk Failure ofRisk to Attach in Voyage Policies
entire journey, it would not marter for which interim port on the journey the and from' a named place, the marine adventure insured is still in substance a
vessel sailed as long as it was still on a route ro the final inland terminus. voyage to a destination. Thus, although the policy will attach at the place of
departure, the vessel will not be covered there indefinitely. According to Lord
This would still leave assureds exposed to the phantom ship problem. There appears to
Hardwicke in Chitty v Selwyn," 'if all thoughts of the voyage are laid aside, and the
be no intrinsic merit in the decision in The Prestrioka. The insured cargo
ship lies there five, six or seven years, with the owner's privity, it shall never be
embarked upon the contemplated journey, albeit not technically upon rhe
said that the insurer is liable; for it would be absurd to make him suffer for the
insured adventure. It was lost by the insured peril of theft. Had ir been stolen in
whim or caprice of the owner, who chases to let the ship lie and rot there'.
any other way, even by being driven away in a 'phantom lorry' at the port of
destination, the insurers would have been liable. Instead, they escaped liability This approach, requiring an abandonment of the adventure, was adopted also 18.21
on what must be considered a technicality. The only solution appears to be a 30
by Lord Ellenborough in Grant v King. 'To discharge the policy, there musr be
clause drafted specifically to disapply section 44 and make ir clear thar insurers a clear imputation of waste of time. Mere length of time elapsing between the
accept liability for rhefts involving phantom vessels. sailing of the vessel and the underwriring of rhe policy, is not of itself sufficient
to avoid the policy; ir is capable of explanation.' The question would be posed
It is also possible, although in pracrice much less likely, for section 44 to spring a surprise
whether the delay was 'for the purpose of the voyage'." An alternative analysis,
in hull insurance. A policy 'at and from' a named port is designed to offer cover not
however, focused increasingly not on whether the assured could satisfactorily
only once the contemplated voyage commences but also while rhe vessel is at the
explain the delay but on whethet the delayed voyage was compatible with or a
named port of departure prior to commencing rhe contem-plated voyage.'6 Suppose
deviation ftom the policy.
the vessel lies at the named port of departure and takes on cargo for the
contemplated voyage. Once loading has been completed, the owners resolve to send Hull v Cooper' concerned insurance effected on 13 August on a return voyage, 18.22
the vessel to a different port and so instruct the master. The vessel duly sails for a the vessel not commencing its outward voyage to the terminus a quo of the
different port. According to section 44, risk does not attach, with the result that policy until 27 August. The underwriters argued a change of risk by protracting
insurers are not entitled to any premium and are not liable for any damage sustained the insured voyage further into the winter and that the inevitable lapse of time
while at the port of departure prior to sailing. Apparently, exposure to port risks before commencement of the insured voyage should have been disclosed by the
while the vessel is 'at' the port of departure does not constitute part of the core assured. The jury found, however, that this delayed attachment of cover did not
marine adventure thar the policy insures." Suppose, however, that a vessel insured marerially vary the risk. The Court of King's Bench refused to order a new trial
under an 'at and from' policy is reason-ably fit for the stay in port but unseaworthy as insurance 'at and from' a particular place had never required rhat the insured
for the voyage from thar port. The vessel be at the terminus a quo at the time of effecting rhe policy, provided it
unseaworthiness will prevent the insurer from being on risk once the vessel sails. arrived there shortly thereafter.
Consequently, there should be no artachment of risk. It has, however, been held
thar risk does artach and the insurer is liable for casualties while the vessel is in Hull v Cooper was followed in the leading case of Mount v Larkins." On 28 18.23
port so that the premium is earned. 28 This cannot be reconciled with section 44 February 1824, insurance was effecred at and from Singapore for a vessel's
as a condition precedent to attachment of risk and, it is suggested, exposes the homeward voyage. At the time, the vessel was in Australia, not arriving in
flaw in that section. Singapore until March 1825. The jury held this delay to be unreasonable and
unjustifiable, although attributable in part to adverse wearher. Initially, the
Delayed Commencement of the Designated Voyage vessel had remained at Hobart Town, Australia, while the master built himself a
house and purchased a schooner, which, manned by crew from the insured
A philosophy of different risk also underpins the law's approach to delayed
commencements of the insured voyage. Where a vessel is insured for a voyage 'at
29 (1742) 2 Ark 359. 30 (1802) 4 Esp 175, 176-7.
" Palmer v Fenning(1833) 9 Bing 460.
32 (1811) 14 East 479. See also Palmer v Marshall (1832) 8 Bing 317 (insurer discharged by
See 17.29 above. delay in sailing in excess of three months 'during which, in addition, to the risk of the voyage, the
27 Compare the distinction between seaworthiness and portworthiness in MIA 1906, S underwriter is exposed to the risk of every accident which may happen in port': per Tindal C] at
39(1), 319).
(2), discussed at 19.23-19.24 below. 33 (1831) 8 Bing 108.
28 Annen v Woodman (1810) 3 Taunt 299.
520 521
Attachment and Alteration ofRisk Failure ofRisk to Attach in Voyage Policies
vessel, he used for seal-hunting voyages. 34 Holding that the risk never attached, vessel being delayed so long as to vary the risks by perils of the sea or
otherwise on its passage to the POrt where the risk is to attach'," and,
Tindal CJ stated that'a delay in the arrival of the vessel at the place where the
risk is to attach, alters the risk of the insurer'." The underlying principles were consequently, that 'in a policy "at and from a port" it is an implied
elaborated in the following terms: understanding that the vessel shall be there within such a time that the risk shall
not be materially vatied, otherwise the risk does not attach'." On the facts, a
The reason upon which a deviation discharges the insurer} is not that the risk is
vessel insured on 13 July at and from Montreal to Monte Video did nor arrive
thereby increased, but because the insured has, without necessity, substituted
another voyage for that which was insured, and thereby varied the risk which the at Montreal until 30 August. Evidence was adduced and accepted that this
underwriter rook upon himself. It must be admitted that, if the policy had been delay, assumed to be occasioned by matters beyond the assured's control,
effected upon this ship at and from Sincapore, the ship then being at Sincapore, materially affected the risk and rate of premium by changing a summer voyage
unreasonable and unjustifiable delay at Sincapore would have avoided the policy. to a winrer voyage. The assured unsuc-cessfully argued for a new trial on the
Why, but because the voyage, commenced after an unreasonable interval of time, ground that the jury had been misdirected to consider only whether rhe delay
would have become a voyage at a different period of the year, at a more advanced
altered the risk and not whether the delay had been justified by necessity.
age of the ship, and, in short, a different voyage than if it had been prosecuted
with proper and ordinary diligence; that is the risk would have been altered The judgment of Blackburn J in De Wolfsupplies the basis for section 42 of the 18.25
from that which was intended by all parties when the policy was effected. Marine Insurance Act 1906, which provides as follows:
But what is the difference with respect to the alteration of the voyage, whether the
unreasonable and unjustifiable delay takes place in the course of the ship's voyage (I) Where the subject-matter is insured by a voyage policy 'at and from' or 'from'
to Sincapore, or after the ship is at Sincapore? The underwriter has as much right to a particular place, it is not necessary that the ship should be at that place
calculate upon the outward voyage ... being performed in a reasonable time and without when the contract is concluded, but there is an implied condition that the
unnecessary delay, in order that the risk may attach, as he has that the voyage insured adventure shall be commenced within a reasonable time, and that if the
shall be commenced within a reasonable time, after the risk has attached. In either case adventure be not so commenced the insurer may avoid the contract.
the effect is the same, as to the underwriter, who has another risk substituted instead of (2) The implied condition may be negatived by showing that the delay was caused
that which he has insured against; and in both cases, the alteration is occasioned by the by circumstances known to the insurer before the contract was concluded, or
wrongful act of the assured himself. by showing that he waived the condition.
Despite the implication from this laSf statement, in De Wolf v Archangel Maritime The remedy conferred upon the insurer by section 42(1), namely the right to 18.26
Bank & Insurance Co Ltd,'6 Blackburn J held rhar it is 'not material whether the avoid rhe contract, is a curiosiry. It is unclear why the draftsman of the Act ignored the
delay which varies rhe risk was occasioned by the fault or the misfortune of the non-attachment of risk approach of the common law, clearly based
assured. In either case the risk is equally varied;. Once the voyage has commenced, upon deviation from the insured adventure. The Act alters the pre-existing law
certain delays and deviations are excused." A vessel may be forced to run before a by imposing an implied condition, breach ofwhich permits retrospective avoid-
storm in deviation from the direct course of the voyage, or be damaged and incur a ance of the contract. Remedially, tberefore, failure to commence the adventure
lengthy delay in order to effect necessary repairs. The risk is not varied because rhe within a reasonable time is assimilated to a breach of the duty of utmost good
underwriter assumes the risk of the ordinary course of the agreed voyage and in faith. The assured must seek to prove waiver of the breach by the insurer. In
such circumstances the ordinary and proper course is not the direct and Bah Lias Tobacco & Rubber Estates v Vo~a Insurance CO,40 acceptance by the
uninterrrupted course. Moreover, if the risk does not attach until the vessel arrives at insurer of an additional premium in respect of the delay compromised any defence
the terminus a quo, its locarion ar the time of conclusion of the policy is immaterial to liability of the insurer based upon deferred commencement of the adventure.
to the insurer and no term pertaining thereto need be implied into the insurance
contract. However, given
the possible impact of passage of time upon the nature of a voyage, Blackburn J
held that 'the underwriter does not take upon himself any part of the risk of the
34 In fact, the (1874) LR 9 QB 451, 456.

schooner returned from. its second voyage to find the insured vessel had lett ibid 457, following Hull v Cooper(1811) 14 East 479, above. See also Maritime Insurance Co
Australia. There was no reunion. Stearns [190112 KB 912.
35 (1831)8 Bing 108, 123. 36 (1874) LR 9 QB 451, 456. 37 MIA (1920) 3 LlLRep 155.
1906, s 49(1), discussed at 18.41ffbelow.
522 523
Attachment and Alteration ofRisk The General Doctrine ofAlteration ofRisk
The General Doctrine of Alteration of Risk that the change of terms would have been material for the purposes of the pre-
contractual duty of urmOSt good faith, but argued that as a post-formation matter it
Deviation from the insured adventure auromatically discharges the insurer's
had no relevance. Rejecting this argument,· Lloyd J held that what was material to
liability on the policy. 'The underwriter insures a parricular risk, and the assured has
the risk before formation remained material thereafter, that the concession had
no right ro change it. Whether he increases or diminishes it is immaterial; if he been properly made, and that there had been a material variation of risk, with the
varies it the underwriter is discharged.'41 In Denison v Modigliani,42 a vessel result that 'just as in a marine policy the insurer is discharged in the eVent of a
on its outward voyage was captured by a French privateer. The vessel was carry-ing change of voyage, unless there is a held covered clause, so the insurers were
a letter of marque despite the insurers' refusal of permission. 43 The assured argued discharged here. Non haec in foedera veni'.47
that the letter of marque was intended for the homeward voyage only, although it
was not so confined on its wording. However, according ro Lotd Kenyon, rejecting Alteration of risk should not, however, be confused with mere increase in risk. 18.29 The
this argument, it sufficed that 'the captain had a strong temptation to deviate; and insurer remains on risk where the identity of the risk is unaltered bur the probability of a
that this is such an essential alteration of circumstances from the condition of the loss occurring is increased by a change of circumstances. 48 'If a
vessel at the time of the insurance, as ought to person who insures his life goes up in a balloon, that does not vitiate the policy.'49
dischatge the underwriters, unless it were done with their consent'.44 Grose Raine v BeitO concerned hull and freight insurance from the port of loading in
J held that the presence of the letter of marque was 'a direct deparrure from the Spain to London with liberty to touch and stay at any POft. 51 Having loaded a full
nature of the contract as undersrood between the parries'. Although avowedly cargo at various Spanish ports, the ship incurred a necessary stop at Gibraltar to
intended for use exclusively on the homeward voyage, 'being a general letter of take on board sufficient provisions for the London voyage. In the course of this
marque, the captain had the power to make use of it if he pleased; and it cerrainly stop, the ship loaded additional cargo in the form of chests of dollars. The vessel
held our a temptation which was altogether repugnant to the nature of the contract subsequently being lost by perils of the sea, the insurers sought, unsuccessfully, to
entered into and contrary to the professed understanding of the contracting argue alteration of risk. Lord Ellenborough stated as follows:"
parties).45
In Hadenftyre Ltd v British National Insurance Society Ltd,46 contingency insur-ance If the taking in the dollars at Gibtaltar matetially varied the risk of the under-
covered the risk of default on a contract for the purchase of a site under writers, they would be discharged by it; bur that it did not vary the risk by
which the purchaser was ro pay £6,000 per week, concluding the paymet>ts in just occasioning any delay of the voyage was exptessly found by the jury ... I
have turned it in my mind whether the risk might not have been increased by the
over one year. The sale contract ultimately concluded provided fOf 154 weeldy
particular kind of cargo, namely, treasure, taken in there: if it were known at the time to an
instalments of £3,000. In an action on the policy, the assured conceded
enemy, it might hold Out an additional temptation for him to seek for and attack the ship.
But I do not know that a mere temptation of this SOrt has ever been held a sufficient ground
to avoid a policy if the original act itself were
Company ofAftican Merchants Ltd v British & Foreign Marine Insurance Co Ltd (1873) LR 8 lawful.
Ex 154, 157 per Blackburn J. Also Hartley v Buggin (1781) 3 Dougl39, discussed at
18.40 below; Shaw v Robberds (1837) 6 A & E 75,83.
(1794) 5 TR 580.
A letter of marque is a special authorization of hostile acts against a designated state or
person, effectively a licence to carry out acts of privateering. It thus transforms the nature of the
risk from exclusively peaceful trading to including involvement in hostilities.
(1794) 5 TR 580.581.
ibid 582. It is, however, a fine question of construction whether the presence of a letter of " ibid 398. See also Kausar v Eagle Star Insurance Co Ltd (1996) [2000] Lloyd's Rep 1R 154,
marque transforms the voyage into one properly regarded as immediately different or merely 156. Change of voyage is discussed at 18.31ffbe1ow.
promises a departure from the covered voyage at some future stage: see Oswell v Vigne (1812) 15 " Pim v Reid (I 843) 6 Man & G 1; Thompson v Hopper (1858) EI BI & El1038.
East 70 (and see 18.37 below for discussion of intended deviations). Denison v Modigliani was " Baxendale v Harvey (1859) 4 H & N 445. 449 per Pollock CB arguendo. See also Hussain v
distinguished in Moss v Byro",! (1795) 6 TR 379 where the assured had no intention to use the Brown [199611 Lloyd's Rep 627, 631; K4usarv Eagle Star Insurance Co Ltd(l996)
letter of marque, obtained it only to encourage seamen to sign on for the voyage and, con- [2000] Lloyd's Rep lR 154, 156-7.
sequently, did not obtain a certificate necessary to its validity. It was held the policy remained valid (1808) 9 East 195.
and that any use by the master of the invalid letter of marque against the wishes of the owner A 'liberty to touch and stay' clause constitutes contractual permission to deviate to some
would constitute barratry. ' extent from the ordinary and proper course of the voyage, enlarging the risk covered. The extent
" [1984] 2 Lloyd's Rep 393. of the permission is a matter of construction of the clause and policy in question.
52 (1808) 9 East 195, 199-200. See also Laroche v Oswin (1810) 12 East 133.
524
525
Attachment and Alteration ofRisk Alteration ofRisk in v"yage Policies
Alteration of Risk in Voyage Policies As already seen, where a ship sails for a different destination, the risk never 18.32 attaches,
regardless ofwhether the route of the insured voyage coincides to some
This section is concerned with the three docrrines of change of voyage, extent with that of the new voyage. Similarly, where it is resolved to change a
deviation, and delay. In rhis context, the term 'deviation' is employed in the most voyage after inception of the risk, the insurer's discharge is not postponed to the
restrictive of its three meanings. In a very general sense, it indicates any departure point of physical departure from the route of the insured voyage, By virtue of
from the insured adventure sufficient to constitute a variation of tisk. 53 Its narrow secrion 45(2) of the Marine Insurance Act 1906: 'Unless the policy orhetwise
meaning, adopted by the Marine Insurance Act 1906, is confined to a temporary provides, where there is a change of voyage, the insurer is discharged from liability
departure from the contractual route for the insured voyage. An intermediate meaning as from the time of change, thar is to say, as from the time when the determination
includes delays in the prosecution of the insured voyage.'4 Pre-Act case law adopted to change it is manifested; and it is immaterial that the ship may not in fact have left
either the first or third of these meanings. The drafting of the Institute clauses the course of voyage contemplated by the policy when the loss occurs.'
unfortunately creates confusion. 'Held covered' clauses maintain the policy, subject to
certain conditions, not-withstanding specified alterations of risk. 55 However, whereas
clause 8.3 of rhe Institute Cargo Clauses (A), (B), and (C) refers expressly to both delay This provision codifies the decision of the House of Lords in Tasker v 18.33
and devi-ation, clause 2 ofthe 1983 and 1995 Institute Voyage Clauses Hulls and Cunninghame. 60 In response to a suggestion of their agents at Cadiz that the destination of the
clause 3 of the 1989 and 1995 Institute Voyage Clauses Freight expressly menrion vessel on the homeward voyage be altered, the assured took
deviation alone while remaining confusingly silenr with respect to delay. out insurance incorporating this variation. Subsequently, rhe agents determined
upon a second change of destination. A letter notifYing the assured of this further
change arrived on the same day the vessel was lost while still at Cadiz. Having
Change of Voyage initially indemnified the assured in ignorance of rhese facts, the insurers then
successfully sought restitution on the basis of a change ofvoyage before the loss,
The Marine Insurance Act 1906 defines a change of voyage as a voluntary change of the The circumstances surrounding the first change of destination evidenced a
destination of the ship from that contemplated by rhe policy after the conferment of authoriry upon the agents to alter the destination of rhe vessel.
commencemenr of the risk. 56 Consequently, determining whether there is a change Moreover, the second change had taken effect although the vessel had not sailed
ofvoyage requires precise identification of the voyage insured, including the proper before the loss or even completed loading of cargo. 'Undoubtedly a mere medi-
limits of any liberty to touch and stay clause. 57 The requiremenr of volunrariness tated change does not affect a policy. But circumstances are to be taken as evidence
requires differenriation between the volunrary apprehension of a peril and rhe of a determination, and what better evidence can we have, than that those who were
insured war peril of restraint." Accordingly, orders ofthe German government on the authorised had derermined to change the voyage.'61
outbreak of the Second World War, obedience to which involved abandonment of
the voyage, constituted a restraint of princes. There was no change of voyage since (2) Deviation
the master 'was not acting on his own initiative,
but on orders which . .. morally as a good subjecr he ought not to have resisted) .59 A marine adventure insured by reference to a voyage conremplates not merely 18.34
specified termini a quo and ad quem but also a particular route rhe vessel will
follow between them. Any departure, withour lawful excuse, of rhe vessel from this
insured route, without a change of the terminus ad quem,62 constitutes a deviation
in the sense in which this term is employed by the Marine Insurance Act 1906,
53 See, eg Oswell v Vigne (1812) 15 East 70; Birrell v Dryer (1884) 9 App Cas 345.
automatically discharging the insurer prospectively from liability
" See, eg Mount v Larkins (1831) 8 Bing 108.
For discussion of held covered clauses, see 18.110ffbelow.
MIA 1906, s 45(1).
57 Bottomley v Bovill 082,6) 5 B & C 210 (widely drafted liberty to touch and stay clause held (1819) 1 Bligh 87.
confined to intermediate voyages 'subordinate to or connected with either of the voyages ibid 102-3 per Lord Eldon LC.
contemplated by the parties as the principal objects of the contracts': per Abbott CJ at 219,) Thames & MerseyMarine Insurance Co Ltd v HTVtm Laun &Co (1905) (1917) 23 Com Cas
See 9.46ff and 13.50-13.52 above. 104, 110-11 per Lord Davey: 'Itis otten a nice question on the facts whether an interruption
Rickards v Forestal Land, Timber & Railway Co Ltd (The Mindin) [1942l AC 50, 109 of the voyage amounts to a deviation only or is a change of voyage, The usual test is whether
per Lord Porter. See also Viscount Maugham at 73 and Lord Wright at 82. the ultimate terminus ad quem remains the same.'
526 527
Attachment and Alteration ofRisk
528
under the contract without prejudice to liability for previous 10sses. 63 Such a
discharge is irreversible; risk does not attach once more if the vessel regains the
insured route. 64 This discharge stemming from the simple fact of a change of
risk, it is unaffected by any lack of a causal link between rhe deviation and a
subsequent loss:5
18.35 In the absence of specific designation by the policy, the insured route the vessel is
bound to follow is the usual and customary route. 66 According to Lord Porter
in Reardon Smith Line Ltd v Black Sea
It is the duty of a ship, at any rate when sailing upon an ocean voyage from one
port to another, to take the usual route between those two ports. If no evidence be
given, that route is presumed to be the direct geographical route, but it may be
modified in many cases for navigation or other reasons, and evidence may always be
given to show what the usual route is, unless a specific route be prescribed by the
[contracr].
Some leeway may be introduced by a clause giving 'liberty to touch and stay' at
specified ports. Such express freedom, however, in turn constitutes a specific
route to which the vessel must adhere, refraining from calling at any port not
comprehended by the contract, including a port at which usage would sanction
a call in the absence of any express contractual term. 68 Moreover, the courts will
construe such a clause as confined to permitting the visiting of ports only for
purposes connected with the voyage:' Liberty to touch and stay clauses are no
longer used in the standatd market clauses.'o Where the policy specifies several
ports of discharge, the vessel must proceed to such of them as are visited 71 in
the order designated in the policy" or, if the policy stipulates merely 'ports of
discharge' within a given area, in their geographical order. 73
Ai; already seen, where a vessel sails for a destination other than the insured terminus ad
quem, the insurer is on risk for no part of the passage even to the
extent the actual and insured routes coincide. A change of voyage is ttiggered
6l MIA 1906, s 46(1); Green v Young (1702) 2 Salk 444. Deviation may arise also through
infringement of geographica1limits imposed by the insurance contract: Tait v Levi (1811) 14
East 481.
64 MIA 1906, s 46(1); Elliott v Wi&on (1776) 4 Bra PC 470.
65 Elliott v Wi&on (1776) 4 Bra PC 470; Davis v Garrett (1830) 6 Bing 716.
" MIA 1906, s 46(2).
[1939] AC 562, 584 (evidence of usual commercial practice to bunker at a particular port
denied deviation in bill of lading case).
Elliott v Wi&on (1776) 4 Bra PC 470.
69 Hammond v Reid (1820) 4 B & AId 72. See also MIA 1906, Sch 1, r 6.
70 Bur cf held covered clauses, discussed at 18.110 below.
71 There is no obligation to visit them all.
n MIA 1906, s 47(1); Beatson v Haworth (1796) 6 TR 531; Marsden v Reid(1803) 3 East 572.
73 MIA 1906, s 47(2); The Dunbeth [1897J P 133.
Alteration ofRisk in Voyage Policies
merely by a manifestation of the determination to change the terminus ad quem. In

such cases, viewed as a whole, the actual voyage is never or immediately ceases to
be that which was presented to the insurer and which the insurer agreed to cover.
Firm evidence of a present determination to depart temporarily from the insured
route would seem to present a parallel situarion, discharging the insurer without
any need for an actual departute. Viewed as a whole, the actual voyage again
would no longer seem to correspond with the insured voyage. Such, however, is
not English law. Where a vessel sails on the insured voyage having already
resolved to deviate and sustains a loss prior to the dividing point between the
insured voyage and the deviation, the insurer is liable. Provided the termini ad
quem of the insured and actual voyages coincide, the vessel will be regarded as
having embarked upon rhe insured voyage and the risk will anach. Only as and
when the intended deviation materializes will the insurer be discharged. 74 'The
intention to deviate is immaterial; there must be a deviation in fact to discharge the
insurer from his liability under the contract.'''
(3) Delay
By virtue of section 48 of the Marine Insurance Act 1906, the adventure insured 18.38
under a voyage policy 'must be prosecuted throughout its course with reason-
able dispatch, and, ifwithout lawful excuse it is not so prosecuted, the insurer is
discharged from liability as from the time when the delay became unreasonable'.76
Although the issue may be settled by the contract," what constitutes a reason- 18.39
able delay is in principle a question offact." In Phillips v Irving," a ship insured
as seeking a cargo was held to act reasonably in posrponing sailing by reason
of a locally depressed freight market caused by empty troop ships all seeking
return cargoes. Reasonableness was to be determined 'not by any positive and
arbitrary rule, but by the state of things existing at the time at the port where
the ship happens to be'. 80 A delay is reasonable if occasioned by the need to
obtain a permit from consular authorities" or by shortage of tonnage in
74 Hare v Travis (1827) 7 B & Cr 14, esp 17-18. See also Foster v Wilmer (1746) 2 Str 1249;
Thellusson v Ferguson (1780) 1 DougI 231; Kewley v Ryan (1794) 2 HBI 343; Kingston v
Phelps cited (1795) 7 TR 165; Heselton v Allnutt (1813) 1 M & S 46. cf Thames 6- Masey
Marine Insurance Co Ltd v HT Van Laun 6-Co (1905) (1917) 23 Com Cas 104 (obiter).
MIA 1906, s 46(3).
Even if the delay is reasonable or excused under MIA 1906, s 49, discussed below, the
insurer may not be liable for losses caused by delay, see 15.29ffabove.
Doyle v Powell (1832) 4 B & Ad 267.
MIA 1906, s 88; Bain v Cove (1829) 3 Car & P 496.
79 (1844) 7 Man & G 325. 80 ihid 328 per Tindal q.
" British-American Tobacco Co Ltd v HG Poland (1921) 7 LlLRep 108.
529
Attachment and Alteration ofRisk Alteration ofRisk in VOyage Policies
wartime. 82 Again, underwriters are not discharged where a vessel, delayed excusing, there must be no lawful excuse and, in the context of delay, the
eight-een months by an embargo, could have departed in ballast but in breach of . enquiry as to a lawful excuse does not arise unless the voyage has not been
the terms of the chartetparty that required a return cargo of timber." The delay prosecuted with reasonable dispatch. Since, in the. circumsrances laid down by
must, however, promote the insured adventure. A delay enabling one vessel's section 49, there would almost certainly be no discharging deviation or delay in
crew to assist in salving the cargo of another of the assured's vessels is the first place, section 49 would appear merely to provide clarification of what
unreasonable under a policy with a liberty only to stay and trade.84 constitutes lawful excuse and reasonableness.
Similarly, in Hartley v Buggin,85 a vessel sent to Mrica with liberty to exchange goods The nature of section 49 is illustrated by the first excuse, namely authorization 18,43 by
for slaves remained for several months acting as a receiving ship for slaves a special term in the policy. Yet for a deviation to discharge the insurer, it
subsequently transferred to other vessels. Lord Mansfield, articulating also the must constitute a departure from the voyage contemplated by the policy.
change of risk rationale behind discharge for all forms of deviation, had no Express authority to visit a port outside the usual route serves to define the
hesitation in holding the underwriters discharged for a deviation in the form of voyage insured and exercising that authority cannot amount to a deviation
this delay: requiring excuse. Again, deviation or delay is excused under section 49(1)(g)
It is not material, to constitute a deviation, that the risk should be increased. The where caused by barratrous conduct of the master or crew if barratry is an
voyage is to the coast of Mrica, and thence to the West Indies, which includes an insured peril. However, barratrous conduct frequently involves deviation and,
insurance on the ship while she stays and trades at Mrica, and it is w.ith liberty to as a matter of contractual interpretation, specific inclusion of barratry as a named
exchange goods and slaves; but that exchange is for the benefit of the ship, one peril in the policy must limit any g~neral deviation defence." And where the policy
slave for another. If a ship insured for a trade is turned into a factory ship, or positively requires a deviation or delay as reasonably necessary for compliance
a floating warehouse, the risk is different; it vades the stay, for while she is used as
with an express or implied warranty,90 specific excusing by section 49(1)(c) seems
a warehouse no cargo is bought for her.86
superfluous.
Excuses for Deviation or Delay The remaining excuses constitute examples of involuntary deviations and 18.44 delays.
Thus, the insurer is not discharged where the deviation or delay is caused
Section 49 of the Marine Insurance Act 1906 states that certain deviations or delays are
by circumstances beyond the control of the master and his employer,91 such as
excused provided the vessel resumes the insured route,87 and pros-ecutes the
compulsion by the crew" or force of weather," or, according to section 49(I)(d),
voyage, with reasonable dispatch once the exculpatory circumstances
where reasonably necessaty for the safety of the ship or subject-marter insured:
cease to operate. 88 In essence, the insurer is not discharged where such "';ould
appear to be the intention of the parties or where necessity prompted a
departure from the contemplated route or schedule. Nothing is more clear than the general principle that a deviation never puts an end to
the insurance, unless it be the voluntalY act of those who have the management of the
The preelse role of section 49 is, however, not entirely clear. For eirher a devi- ship ... Deviation occasioned by force, and deviation occasioned by neces-sity are the
ation or delay prima ficie to discharge an insurer, and, therefore, to require same, for necessity is force. It is no matter whether it be the want of repair, or any
other immediate danger, which renders the deviation necessary. When the deviation is
94
necessary and unavoidable, it has no effect on the obligation of the insurer.
Niger Co Ltd v Guardian Assurance Co (1922) 13 LlLRep 75 (the policy evidenced contem~
plation by the parries of some delay).
Schroder v Thompson (1817) 7 Taunt 462.
Company ofAftican Merchants Ltd v British & Foreign Marine Insurance Co Ltd (1873) LR 8 89As it did before the Act: Ross v Hunter (1790) 4 TR 33.
Ex 154. so As in Bouillon v Lupton (1863) 15 CB(NS) 113, discussed at 19.25 below.
as (1781) 3 Dougl39. 86 ibid 40. MIA 1906, s 49(1)(b).
87 Although not necessarily at the point where the vessel left the insured route: Delany v Elton v Brogden (1747) 2 Str 1264 (insistence by crew of vessel with letter of marque on
Stoddart (1785) 1 TR 22. returning to POrt with captured prize); Driscol v Bovi! (1798) 1 B & P 313 (refusal to proceed on
88 Although, where the dev'iation or delay is occasioned by necessary repairs to the vessel, a insured voyage for fear of Moorish cruisers).
court should adopt a reasonable approach to calculating the rime necessary for the repairs viewed Delany v Stoddart (1785) 1 TR22.
as a whole rather than descending to an enquiry at the level of each individual item of repair: Scott v Thompson (1805) 1 B & P (NR) 181, 186 per Sir James Mansfield C). Tbe emphasis
Almojil (M) Establishment v Malayan Motor & Gimera! Underwriters (Private) Ltd (The AI-Jubail being upon freedom, a deviation occasioned by a master's incompetence is voluntary: Phyn v
IV) [1982] 2 Lloyd's Rep 637, 641 (Court of Appeal of Singapore). Royal Exchange Assurance Co (1798) 7 TR 505.
530 531
Attachment andAlteration ofRisk Alteration ofRisk in v"yage Policies
In Hyderabad (Deccan) Co v Willoughby," a station-master wrongly insisted that a reported, is authority for the proposition that compulsion must be oven, it
quantity of gold, in transit from a mine in India to London, be consigned for cannot stand with a number of more recent authotities, of which The Minden is
transport to the port of loading at rbe owner's risk. The gold was, therefore, one, regatding the perils of restraint and detainment.,03 Alternatively, evidence
taken to the assured company's head office where one bar was stolen before the may have been adduced rhat the master of the merchantman was actuated by
mistake could be rectified. According to Bigham J, in the circumstances rhis the opportunity to capture a prize, so thar any latent compulsion, physical or
detour was 'a jusrifiable deviation, if, indeed, it was a deviation at all; ir was a moral, was consequently inoperative on the facts.
necessary act done in the prosecution of the insured journey':"
Involuntary deviations and delays reasonably necessary for rhe safety of the ship 18.48
.. . it is as if a master had steered his ship out of her course in order to escape the or subject-matter insured, as excused by section 49(1)(d) of the 1906 Act,
dangers of a storm; such things have to be done as occasion arises, and though in a
sense they may be called deviations, they really are merely incidents in the prosecu-
typically include the repairing of damage to the vessel to enable it to proceed
tion of the voyage. [The detour] was in the circumstances within the scope of safely,'04 reasonable necessity being judged by reference to the standard of the
the adventure. It was done in the prosecution of the adventure, and properly reasonably competent and skilful master. lOS Where, however, the cargo in peril is
done in order to secure its safe accomplishment.S? not 'the subject-matter insured' under the policy at issue, a deviation to save it is
Deviation occasioned by submission to authority is likewise involuntary." The Minden" not excused by section 49(1)(d). This raises rwo issues. The first is whether
arose in consequence of the instructions given by rhe German gov-ernment to
section 49(1) is exhaustive or merely illustrative of the reasons that may excuse
German ships upon the outbreak of war in 1939 to take refuge in neutral ports and a deviation or delay. It is suggested rbat section 49 need not and, in the light of
return to Germany if possible or scuttle as a last resort. The lirigation concerned the above scenario, should not be read .as exhaustive. The governing provisions
rbree German vessels that abandoned their insured voyages and attempted to return are sections 46 and 48, and section 49 may be read merely as illustrative of their
to Germany, one successfully, the remaining rwo scur-t1ing in the presence of concepts of lawful excuse and reasonableness. It is scarcely credible that either
Allied warships. The House of Lords held thar the government instructions Sir Mackenzie Chalmers or Parliament intended to exclude the possibility that
constituted the insured peril of restraint of princes and the vessels' obedience not an instance of lawful excuse might not have been litigated or contemplated by
only negated the underwriters' defence of change of the time the Act was drafted. The second issue is compatibility berween matine
voyage, as already noted, but also that of deviarion. The deviarion 'was clearly insurance law and the law of the carriage of goods by sea. It is unclear whether
in furtherance of German war policy and under German government control. the master's duty to take reasonable care of the cargo entrusted to him extends
Thus, it was not the voluntary act of the masrer ... Ir was rhe direct effect of the to an obligation to deviate in the intetests of its preservation in the absence
restraint' .100 of any danger to rhe vessel,'06 although such a deviation would probably be
justified.,o'To the extent that such a duty or liberty does exist under a contract
In Phelps v Auldjo,'01 in contrast, the master of an armed merchantman was ordered by of affreightment, the law should avoid placing the master in the position of
the captain of an English warship ro put to sea to examine a srrange sail bearing choosing berween such a duty and the insurance of all parties interested in the
enemies' colours. Without remonstraring and in the absence of any overt force voyage.
or threars, the master obeyed. The strange sail proved to be neurral and the
merchantman returned safely to POrt but was subsequently lost by fire. Lord A further problem of compatibility, however, remains intractable. Where a mas- 18.49
Ellenborough held the deviation to be unjustified: 'If a degree of force was ter reasonably apprehends that an existing peril'o, not currently threatening the
exercised towards [the master] which either physically he could not resisr, or
morally as a good subject he ought not to have resisted, the deviation was
103 See 13.50 above.
justified. But if he chose to go out in the hope of making a prize, he could not 104 Motteux v London A<surance Co (1739) 1 Atk 545; Smith v Surridge (1801) 4 Esp 25.
rhereby extend rbe risk of the underwriters."o, If the decision, only briefly lOS Phelps, james & Co v Hill(1891) 1 QB 605. . .
106 At common law, contrast dicta in Notara v Henderson In the Court of Exchequer Chamber
(1872) LR 7 QB 225, favouring a broadly interpreted duty to cargo owners possibly including
deviation or delay, with a firm view to the contrary at first instance: (1870) LR 5 QB 346. .
107 Nobels Explosives Co v Jenkins & Co [1896]2 QB 326 (where the relevance of the uncertam
" [1899] 2 QB 530. ibid 534. " ibid.
" Scott v Thompson (1805) I B & P (NR) 181 (detention by naval vessel). threat to the vessel, as opposed to the goods, to the holding of justification at common law is
unclear); Stag Line Ltd v Foseoto, Mango & Co Ltd [1932] AC 328 .. .
99 Rickards v Forestal Land Timber & Railways Co Ltd (The Minden) [1942] AC 50.
108 \f!atts, \.Wttts & Co v Mitsui & Co Ltd [1917) AC 227 (apprehenSion of future penl
100 ibid 82 per Lord Wright. '0' (1809) 2 Camp 350. '" ibid 351.
cannot justify a deviation).
532 533
Attachment and Alteration ofRisk Alteration ofRisk in Voyage Policies
vessel will do so if the voyage is continued, a deviation to avoid the peril will be and shocking to the sentiments ofmankind, that the shipowner should be deterred
excused in carriage law and rhe carrier will incur no liability for any resulting 10SS.'09 from endeavouring to save life by the fear, lest any disaster to ship or cargo,
Moreover, where the apprehended peril constitutes a restraint, the devi-ation will consequent on so doing, should fallon himself Yet it would be unjust to expect
further be excused under the traditional war risks exclusion in con-tracts of that he should be caHed upon to satisfy the call of humanity at his own entire risk.
affreightment."o This excusing by rhe law of carriage of goods of deviations caused Moreover, the uniform practice of the mariners of every nation ... of succouring
others who are in danger, is so universal and well known, that there is neither
by reasonable apprehension of perils provides a stark contrast to the harsh refusal of
injustice nor hardship in treating both the merchant and the insurer as making
the proximate cause doctrine of marine insurance law to attribute losses caused by
their contracts with the shipowner as subject to this exception to the general rule
of not deviating from the appointed course.
such a deviation to the apprehended peril. '" Should a vessel deviate reasonably in
order to avoid hosrile warships but losses be incurred through the ensuing The preservation ofproperty as distinct from human life may be in the common 18.52
retardation of the voyage, rhe carrier will incur no liability for such losses and the interest of merchants, shipowners, and insurers, but it does not attract the same
deviation will not discharge any insurance policies. However, the proximate cause moral imperative and is legally catered for through the law of salvage, which
doctrine operated by marine insurance law denies any recovery for the losses caused rewards successful.salvors generously. 'Itwould obviously be most unjust if the
by the master's reasonable and prudent response to avoid the apprehended peril. shipowner could thus take rhe chance of highly remunerative gain ar the risk and
possible loss of the merchanr or the insurer, neither of whom would derive any
A final question wirh respect ro section 49(I)(d) is wherher an uninsured peril may excuse a benefit from the preservation of rhe property saved."14 This disrinction is,
deviation. In the absence of aurhority,112 ir is suggested rhat the insurers should not nevertheless, subject to contrary intention. Thus, clause 1.1 of the Institure Voyage
be discharged since whether a peril is insured is irrelevanr to wherher it generates a Clauses Hulls (1110/83) and (1111195) expressly confers liberty 'to assist and
necessiry denying volunrariness. toW vessels or craft in distress', although rhe provision should not be inter-preted
as permitting unrestricted towage and salvage services. First, the clause includes a
Involunrariness may be generated by a moral imperative. Secrion 49(1)(e) pro- warranty prohibiting rhe performance of such services pursuanr to a contract
vides that deviations are excused for the purpose of saving human life, or aiding a previously agreed between the assured and those in control of the vessel assisted.
ship in disrress where human life may be in danger. Deviarion ro preserve cargo in Secondly, in John Potter & Co v Burrell & Son,'15 a liberry to tow and
the absence of rhreat to human life is not exonerated by rhe srarure. This disrincrion assist 'in all situations' was construed as silent on the amount of towing con-
was articulated and explained by Cockburn C] in Scaramanga
templared and confined to towage services consistent with the objects of the
& Co v Stamp: 113 contract. This test was satisfied on rhe facts since the rhree-week delay incurred in
The impulsive desire to save human life when in peril is one of the most beneficial deviating to tow a vessel in distress to a porr of safety was no longer than the delay
instincts of humanity, and is nowhere more salutary in its results than in' bringing that would have resulred from towing the vessel on the insured route to the insured
help to those who, exposed to destruction from the fury of the winds and waves, terminus ad quem. Likewise, Stuart v British & African Steam Navigation
would perish if left without assistance ... It would be against ~he common good, 6
CO" concerned an action on insurance of cargo lost when the carrying vessel
was wrecked while deviaring some three miles and rendering assisrance to a
stranded ship. Despite the absence of any threat to human life, the insurers were
>09 The TeuMnia (1872) LR 4 PC 171, 179: The Wilhelm Schmidt (1871) 25 LT 34: The San
Roman (I 873) LR 5 PC 301,305 per Sir Montague Smith: 'an apprehension of capture founded
held liable under an express liberty 'to tow and assist vessels in all situarions',
on circumstances calculated to affect the mind of a master of ordinary courage, judgment, and although the court conceded thar some limits had to be implied-'you must not
experience, would justifY delay': Nobels Explosives Co v Jenkim & Co [1896] 2 QB 326; Hague! so construe a condition as to make it eat up the contract'.117
Visby Rules, art rv, r 4.
"0 Nobels Explosives Co vJenkins & Co [1896] 2 QB 326. Section 49(l)(f) excuses deviarions reasonably necessary for the purpose of 18.53 obtaining
See 9.46££ above.
medical or surgical aid for any person on board the ship. This clarifies,
Two cases often cited in connection with this issue provide no answer. Both arise out of a
vessel prematurely putting to sea to avoid seizure by approaching hostile forces in a state unfit for
the voyage and deviating to effect repairs and complete its cargo. In O'Reilly v Royal Exchange
Assurance (1815) 4 Camp 246,·'an FC&S clause protected a cargo insurer. In O'Reilly v Gonne
(1815) 4 Camp 249, a freight policy cont~ining no such clause produced the opposite result. The
premature departure and deviation being attributable to a covered peril, the case falls within MIA
1906, s 49(1)(b). and conceivably modifies, the common law position established by
113 (1880) 5 CPD 295, 304-5.
In rhis case, Lord Eldon is reported as denying that sickness of the
534
'" ibid. m [1897) I QB 97. '" (1875) 32 LT 257.
m ibid 262 per Pollock B. 118 (1800) 3 Esp 257.
535
Attachment and Alteration ofRisk Promissory "Warranties
crew would justify a deviation unless two conditions wete satisfied. First, such a policy, the insurer is discharged from liability as from the date of the breach of
propottion of the crew had to be afflicted as to render it impossible to navigate warranty, bur withour prejudice to any liability incurred by him before that
the vessel. Secondly, evidence bad to be adduced that the vessel pur to sea wIth date'. The auromatic nature of the discharge was, nevertheless, challenged in
adequate medical provision for the voyage, including a surgeon where appropri- The Good Luck'24 This challenge raised the question of the technically
ate. On the facts, the insurer was discharged in the absence of such evidence. correct characterization of the promissory warranty.
The relevance of this decision to the modern law is, however, doubtful. Illness The Good Luck was owned by the Good Faith group, mortgaged to the appellant 18.56
afflicting even a single person, whether crew or passenger, clearly excuses a bank, and entered with the respondent murual insurance association. The
deviation under section 49(l)(f). Moreovet, a distinction should be drawn association's rules provided for rhe declaration of prohibited areas and con-
between the circumstances that excuse a deviation and the extent of the war~ tained an express warranty of compliance with such ptohibitions. When the
ranty of seaworthiness implied into all voyage policies. Thus, where a ship is appellant bank advanced money to the owners on the primary security of
inadequately medically provisioned, any resulting deviation is excused although mortgages of a number of vessels including the Good Luck, it obtained an
the insurer may have a defence based upon unseawotthiness. In Kish v Taylor, undertaking from'the association 'to advise you promptly if the association
Sons 6- CO,'19 chatterers failed to load a full cargo as required by a ceases to insure' the vessel. In November 1981, the association discovered that
chatterparty. To minimize the loss, the master procured additional cargo, the Good Luck was being operated in a prohibited area, in breach of the
overloaded the deck, rendered the vessel unseaworthy, and was compelled to warranty, but did not inform the bank. In 1982, while the owners were
deviate for repairs before safely completing the voyage. The deviation was held renegotiating and seeking to inctease the bank loan, the vessel was rendered a
to be justified but without prejudice to the shipowner's right to damages for constructive total loss while inside the prohibited atea. The ownets lodged a
breach of the terms of the charterparty. claim with the association, pretending ignorance of the prohibition. In July
1982, the bank extended Good Faith's credit facilities, with the maximum total
indebtedness being limited to 67 per cent of the value of the security furnished.
Promissory Warranties The valuation of the security included US$4.8 million attribured to the Good
Luck and the insurance claim, the bank talcing an assignment of the insurance
In the general law of contract, the term 'warranty' is associated with minor
proceeds. 125 On 4 August, the association rejected the owners' claim, leaving the
conttactual terms, breach of which sounds in damages alone and may not lead
bank with US$4.8 million of unsecured debt.
to discharge of the contract. In insurance law, however, the phrase 'promi§sory
wattanty' signifies that the term serves to define the risk insured. Breach of such The bank sued the association for breach of the undertalcing, arguing that the 18.57
a warranty renders the risk materially different from that which the insurer association's cover 'ceased' immediately the warranty had been broken, relying
120 on a literal reading of section 33(3). The association contended that it was not
agreed to cover. In this sense,121 a warranty 'is a condition on which the
contract is founded' .122 Where, however, the promissory warranty relates to a until 4 August that the club had ceased to insure the Good Luck. It argued that
claim, it will be considered as defining the circumstances in which the insurer is bteach of an insurance warranty should be assimilated to the general contract
liable for that claim, rather than defining the entirety of the risk under the law concept of a tepudiatory breach, which triggets no automatic discharge but
policy. 123 merely affords the innocent party the right to accept the breach, such acceptance
prospectively discharging the parties from future performance of the primaty
The Legal Characterization of Promissory Warranties contractual obligations.'26 This argument found favour in the Court of
Section 33(3) of the Marine Insurance Act 1906 ptovides that, in the event of
non-compliance with a warranty, 'then, subject to any express provision in the
124 Bank ofNova Scotia v Hellenic Mutual W'tlr Risks Association (Bermuda) Ltd (The Good Luck)
'" [19121 AC 604.
no Newcastle Fire Insurance Co v Macmorran & Co (1815) 3 Dow 255, 265. 1199211 AC 233.
121 For other usages of the term 'warranty', see 18.105ffbelow. For further discussion of a.ssignment in the context of insurance, see 20.07ffbelow.
>22 Bean v Stupart (1778) 1 Douglll, 14 per Lord Mansfield. Heyman v Darwins Ltd [1942] AC 356; Photo Production Ltd v Securicor Iransport Ltd
123 On promissory warranties in the claims context, see 22.13-22.17 below. [1980J AC 827.
536 537
Attachment and Alteration ofRisk Promissory warranties
Appeal'" but was rejected by the House of Lords. Delivering the leading judgment, damages for breach. There is no authority in favour of insurers being able to sue
Lotd Goff declined to depart from the 'plain meaning' of section assureds fot damages for breach of a promissory warranty, for example to
33(3), stating that: reimburse expenses incurred in investigating _a claim that were wasted because
.. . if a promissory warranty is not complied with, the insurer is discharged from the insuret was in any event not liable. The promissory warranty is a
liability as from the date of the breach of warranty, for the simple reason that terminologically disguised contingent condition precedent.
fulfilment of the warranty is a condition precedent to the liability of the insurer.
This moreover reflects the fact that the rationale of warranties in insurance law is (2) IdentifYing Promissory Warranties
that the insurer only accepts the risk provided that the warranty is fulfilled ... In
the case of conditions precedent, the word 'condition' is being used in its classical According to section 33(1) of the Marine Insurance Act 1906, a promissory 18.61 warranty
sense in English law, uncler which the coming into existence of (for example) an is 'a warranty by which the assured undertakes that some particulat
obligation, or the duty or further duty to perform an obligation, is dependent thing shall be done, or that some condition shall be fulfilled, or whereby he affirms
upon the fulfilment of the specified condition.'"
or negatives the existence of a particular state of facts'. A warranty must, however,
From the time of the breach ofwarranty, the Good Luck had thetefore ceased to be relate to the risk. A promise to pay the premium by a particular date might be an
insuted by the club, which had broken its undertaking to the bank. undertalcing to do a patticular thing, but the obligation would be classified as a
normal contractual obligation and not as a promissory insurance
18.58 The decision of the House of Lords in The Good Luck settles definitively the warranty.131
question of the legal chatacterization of the promissory warranty in insurance
contract law. The term 'promissory warranty' is merely a label used in insurance law Whether a term constitutes a promissory warranty depends upon the intention 18.62 of the
for the condition precedent of general contract law. A promissory warranty is a patties as revealed by the contract as a whole.'" No particular form of
condition precedent to the insuter's liability on the conttact. Once btoken, the insutet words is required and, inde,d, the word 'warranty' need not be used. 133 The test for
automatically ceases to be liable. If the breach pre-dates the attach-ment of tisk, the detetmining whether a given term is properly characterized as a promissory
insutet will nevet come on tisk, producing a total failute of consideration fot warranty has been put as follows: 134 'Itis a question of construction, and the
premium putposes. 129 If the breach occurs after inception of risk, the insurer presence or absence of the word "warranty" or "warranted" is not conclusive.
remains liable for any casualties within the scope of the policy, but has no liability One test is whethet it is a term which goes to the root of the transaction; a second,
for any subsequent casualty. There is no total failure of whether it is descriptive of or bears matetially on the risk of loss; and third, whether
consideration for premium purposes. 130 damages would be an unsatisfactory or inadequate remedy.'
18.59 This feature of the operation of promissory warranties derive§ from and teinforces In Yorkshire Insurance Co Ltd v Campbell 135 a proposal form misstated the 18.63
the function of the promissory warranty as defining the risk insured. A breach pedigree of the insured horse. The policy incorporated the proposal form and contained a
ofwarranty constitutes an alteration of risk. The insurer does not come on tisk or is warranty of the truth of all statements rherein. Deliveting the judgment of the Ptivy
automatically discharged from liability because the risk is no longer within the Council, Lotd Sumnet observed: 'Prima facie, words qualifying the subject matter of the
policy. insurance will be words ofwarranty"36-the pedigree so qualifying as it alone indicated what
kind of horse was insured and defining the risk. Similarly, a requirement in a floating
Confusingly, the promissory wattanty is almost certainly not a promissory obli-gation as
policy that a declaration
understood by general contract law, namely an obligation sounding in
131 That is not to say that appropriate wording could not transform the obligation into a
m [1990J 1QB 818. See also CTN Cash 6- Carry Ltd v GenmllAccident Fire 6- Lift Assurance promissory warranty, merely that in the absence of such wording a premium payment obligation
Corp pic [1989J 1 Lloyd's Rep 299, 303. would not be characterized as a promissory warranty.
'" [1992J 1 AC 233, 262-3, approving Hobhouse J at first instance [1988J 1 Lloyd's Rep '" 1»omson v Weems (1884) 9 App Cas 671, 683.
514, 544 and Kerr LJ in State Trading Corp of India Ltd v M GoilJdetz Ltd [I989J 2 Lloyd's '" MIA 1906, s 35(1); Dawsons Ltd v Bonnin [1922J 2 AC 413, 428-9; Kirkaldy UJ
Rep 277, 287. 6- Sons Ltd v walker [1999J Lloyd's Rep lR 410,421.
Where the warranty necessarily relates in time to circumstances at the inception of the 134 HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co [2001] 2 Lloyd's Rep 161,
risk, breach will result in the insurer never coming on risk. Such a warranty may be said to be a para 101 per Rix L]. See also 100mey v Banco Vittzlicio de Espana SA de Seguras y Reasseguros
condition precedent to attachment of the risk: Thomson v \.%ems (1884), 9'App Cas 671, 684. [2004J EWCA Civ 622, [20051 Lloyd's Rep IR 423,
For discussion of attachment of risk and the earning of premium, see 6.02 above. paras 40-42. 135 [1917JAC218. '" ibid 224.
538 539
Attachment and Alteration ofRisk Promissory "Wa'rranties
be made 'as soon as possible' after the sailing of the relevant vessel has been held to only if inconsistent.'" The implied warranty of seaworthiness will not be
be a warranty in the light of evidence that compliance affected the insurer's excluded by an express provision relating to one aspect of seaworthiness.'"
opportunity to obtain reinsurance and, therefore, the risk assumed."'ln Kirkaldy
(]) & Sons Ltd v Walker,138 a policy for the insurance of a floating dock for (3) Interpretation and Breach
towage labelled certain terms as 'conditions' and others as 'warranties'. One of the
terms labelled a condition required the dock to undergo a condition survey. Assuming that a term is a promissory warranty, a question of interpretation 18.66
Notwithstanding the normal contraty inference ro be drawn from the labelling, the arises to determine precisely what it requires and, thereby, what amounts to a
term was accepted to be a warranty. The term made no sense unless it operated as a
breach.
condition precedent to insurers' liability.139
(a) Interpretation generally
In contrast, where the purpose of a requirement that insured property be marked in a Promissoty warranties should in principle be interpreted in the same way as any 18.67
certain way is solely to identifY which property is insured rather than to other contractual term, in accordance with the intention of the parries to the
describe the nature of that property, there is no warranty, and non-compliance contract as revealed by the words chosen in the light of the context in which the
results merely in the non-attachment of the policy to the property conrract was concluded. Accordingly, where cargo that was warranted surveyed
not duly marked.140 A statement that a vessel is an 'American ship' constitutes a 'immediately' prior to shipment was in fact surveyed up to two weeks earlier, it
warranty that the vessel is of that nationality'41 and also that the vessel has on was held that the term 'immediately' could not be read literally. Such a construc-
board all documentation that a vessel of that narionality ought to carry.'42 In tion 'would be unrealistic and would overlook the actual operating conditions
The Tiburon, '43 a warranty thar a vessel was under German flag, ownership or under which goods are surveyed and shipped. Although warranties in marine
management was broken as the flag was Liberian, the owner a Panamanian insurance are to be strictly construed, the word "immediately" must be given a
company, '44 and the management Swiss. However, the language or style of the reasonable interpretation l •
15o
name of a vessel cannot be construed as a warranty of its nationality. "5
Likewise, in Colby v Hunter,'51 a vessel insured at and from Hamburg was 18.68
An express warranty must be stated in the policy or in a document incorporated in the warranted 'in port' on 19 October, on which date the ship was in the port of
policy in accordance with ordinaty contract law principles."6 Warranties may, Cuxhaven, some ninety miles below Hamburg. Lord Tenretden CJ held that
however, be implied,"7 an express warranty excluding an implied warranty
the warranty should be construed as requiring the vessel to be in the port of
Hamburg on 19 October. The phraseology 'safe on the 19th of October' would have
been appropriate for the literal interpretation suggested by the assured. Such
137 Union Insurance Society o/Canton Ltd v George Wills & Co (1916] 1 AC 281. literalism did not, however, represent the true interpretation of the war-ranty.
[1999] Lloyd's Rep IR410. Again, in Overseas Commodities Ltd v Style,152 tins of pork were warranted
See also Zeus Tradition Marine Ltd v Bell (The Zeus) [2000] 2 Lloyd's Rep 587.
Overseas Commodities Ltd v Style[1958] 1 Lloyd's Rep 546. 'marked by manufacturers with a code for verification of date of manufacture'.
Baring v Cklggett (1802) 3 Bos & Pu1201; Lothian v Henderson (1803) 3 Bos & Pu1499; McNair J rejected an argument that the code did not need to be accurate.
Baring v Christie (1804) 5 East 398. No warranty of nationality or that nationality will not
be changed during the currency of the policy will be implied: MIA 1906, s 37; Dent v Smith (1869)
'Verification, in its ordinaty sense, means the establishment of the truth or
LR 4 QB 414. Institute and International hull clauses, however, provide for automatic correctness of a particular facr.'''' The assured was unsuccessful also in arguing that
termination on change of a vessel's flag, see 19.67 below. the warranty should be applied severally, rendering the insurer liable in respect of
Lothian v Henderson (1803) 3 Bas & Pul 499. An express warranty of the neutrality of
a vessel imports a condition that the assured will ensure so far as possible that papers those tins correctly marked. The contract of insurance was not several
establishing neutral status will be carried: MIA 1906, s 36(2).
Seavision Investment SA v Evenett & Clarkson Puckle Ltd (The Tiburon) [1990) 2 Lloyd's
Rep 418.
,., MIA 1906, s 35(3).
It was argued that the corporate veil should be pierced· bur held that, even if it were,
Sleigh v 7jser [1900] 2 QB 333. See also Quebec Marine Insurance Co v Commercial Bank of
the beneficial owner of the vessel was French.
Canada (1870) LR 3 PC 234. Seaworthiness is discussed in Ch 19 below.
Cklpham v Cologan (1813) 3 Camp 382.
MIA 1906, s 35(2); Bensaude v Thames & Mersey Marine Insurance Co Ltd [1897J AC 609. Berm 6'Koppstein Inc v Orion Insurance Co Ltd (1960) 1 Lloyd's Rep 276, 280 per
MIA 1906, s 33(2). However, outside the established implied warranties codified in the 1906 Act, District Judge Herlands (District Court of New York). See also Havelock v HanciLl (1789) 3 TR
implied warranties are conspicuous by'their absence, and it is/difficult to imagine a 277; Australian Agricultural Co v Saunders (1875) LR 10 CP 668; Simmonds v Cockel! [1920]
1 KB 843.
condition precedent satisfying any of the bases for implication of terms ioro contracts.
151 (1827) M & M 81. 152 [1958J 1 Lloyd's Rep 546. 153 ibid 557.
540 541
Attachment and Alteration ofRisk Promissory Warranties
and the broken warranty discharged the liability of the insurer on that contract. broken, Ashurst J remarking that the 'very meaning of a warranty is to preclude all
Similatly, breach of a warranty of 'no contraband of war' discharges the insurer questions whether it has been substantially complied with; it must be literally so'.'62
in respecr of the whole cargo, including such goods as are nor contraband. 154 Strict compliance is, however, a double-edged sword; it is required, bur it suffices.
Laing v Glover163 concerned a statutory requirement to sail in convoy,164 likened
In Pittegrew v Pringle,155 a vessel was warranted not ro sail after I September, the by the court to a warranty. Having initially sailed witb a convoy, the vessel was driven
policy providing that the vessel was deemed ro sail when ir cleared customs back into the port of clearance by adverse weather and then sailed again in isolation. It
provided ir was then 'ready for sea'. The vessel duly cleared customs in time was held that the initial sailing satisfied the warranty and subsequent events were
and sailed down river with sufficiently light ballast ro cross the bar at the river irrelevant. In Hyde v Bruce, 165 a warranty that a ship had twenty guns was held
mouth after which further ballast necessary for the sea would be loaded. It ran satisfied by the presence of the guns despite a crew of
aground in the river and did not load the extra ballast until 4 September, less than half the number required to man them.
ultimately proceeding our ro sea on 8 September. The Court of King's Bench
It is unclear whether the maxim de minimis non curat lex applies to breaches of 18.72
held the sailing warranty broken because the vessel had not been 'ready for sea'
promissory warranties. That its application is at least not unarguable was indi-
in respect of ballast until after I September. It is, however, strongly arguable
cated in Overseas Commodities Ltd v Style.'66 A warranry requiring marking of
that the phrase 'ready for sea' should have been construed by reference ro the
insured tins of pork burts was broken in respect of a substantial number, said to
port in question, the construction adopted rendering the deemed sailing
exceed 'any number which could be disregarded under the de minimis rule'.'67
provision otiose.
The courtS will not, however, extend a warranty beyond the requirements demanded by its A breach of warranry must be actual and not intended. In Simpson SS Co v 18.73
Premier Underwriting Association Ltd.,168 a vessel was warranted lnat to proceed
rerms and any ambiguity in a warranty for which the insurer is responsible will be
resolved in the assured's favour under rhe contra proftrentem east of Singapore except to Java and Australasia'. The vessel embarked upon a
voyage to an unauthorized place east of Singapore and was lost by perils of the
rule. 15' Consequently, a warranty that a vessel will be pur ro a certain use will
sea off the coast of Tunis. Bigham J held that there had been at most an
not be construed as excluding other uses 157 and insurance'on the cargo, being
intention to proceed into prohibited waters 'and an intention to commit a
1031 hogsheads of wine' imports no warranty that the wine is the only
breach of course does not itself constitute a breach'. Construing the warranry
cargo.'58 In Hyde v Bruce,159 the insurer argued in vain rhat a warranty rhat a
tightly, he remarked that 'the only prohibition was that the vessel should not
ship had twenry guns meant the ship was of the force of twenty guns, including
navigate watets east of Singapore, and she never did' .169
a crew sufficient ro work that number. Insread, the court held that the mere
presence of the guns sufficed. Similarly, in Baines v Holland, '70 a warranry that a vessel should sail from 18.74
Quebec upon the second part of a voyage by a certain date was held not to be
Breach infringed by a failure to commence the first part in reasonably sufficient time to
Once the requirements of a promissory warranty have been ascertained, any arrive at Quebec by the stipulated departute date. The court held that the
departure will constitute a breach. A warranty must be strictly complied wirh. 160 In warranry simply had no application to the first part of the voyage during which
De Hahn v Hartley,16' a vessel was warranted to sail with a crew numbering at
least fifty. Having safely completed the first part of the voyage wirh a crew of
only forty-six, six more crew were taken on. The warranty was held to be
162ibid 346. 163 (1813) 5 Taunr 49.
Pursuant to the Convoy Act 1803, 43 G3, C 57.
154 Seymour v London & Provincial Marine Insurance Co (1872) 41 LJCP 193. (1782) 3 Doug1213. The case is queried below.
ISS (1832)3B&Ad514. '" [1958J 1 Lloyd's Rep 546.
167 ibid 557 per McNair]. Application of the rule to a promissory warranty was raised in
156 Provincial Insurance Co v Morgan [1933J AC 240. Ambiguities must, however, be
genuinely present and not manufactured to enable the term to be restricted through the argument but did not require resolution in Bennett v Axa Insurance pic [2003] EWHC 86
contra proferentem rule: see 8.51 ff above. (Camm), [2004J Lloyd's Rep IR 615. For an application of the de minimis rule to a proviso in a
'" [1933J AC 240. See also Shaw v Robberds (1837) 6 A & E 75. consequential loss policy, see Glengate-KG Properties Ltd v Norwich Union Fire
IS' Muller v Thompson (1811) 2 Camp 610. Insurance Society
15' (1782) 3 Doug1213. The case is queried below. 160 MIA 1906,,33(3). Ltd [199611 Lloyd's Rep 614, 620.
'" (1786) 1 TR 343. 16' (1905) 10 Com Cas 198. >6, ibid 201. cfMIA 1906, s 46(3).
"0 (1855) 10 Exch 802.
542
543
Attachment and Alteration 0/Risk 544
the vessel was lost after the date stipulated for leaving Quebec. On such
reasoning, promissOly warranties are not susceptible ro anticipatory breach.
Timing
Whether a warranty has been broken may depend upon the time at which compliance
is required. In Forshaw v Chabert,171 a vessel was insured on a voyage from
Cuba to Liverpool. The insured vessel sailed with a crew of ten, only eight of
whom had signed on for the whole voyage. The other two left the ship at
Jamaica, two replacements for the remainder of the voyage being taken on.
When the vessel was subsequently lost, it was held that an implied warranty of
seaworthiness required the vessel ro commence its voyage with a full comple-
ment for the whole voyage. The warranty had, therefore, been .broken and the
underwriters were not liable.
In Blackhurstv Cockell,172 a vessel was insured lost or not lost, 'warranted well
December 9th'. It transpired that the vessel had been lost at about 8.00 am on 9
December, the insurance being effected that afternoon. Buller J held that a
warranty 'must he literally complied with; and if it be so, that is sufficient'.
Consequently, the vessel having been safe at some time on the day in question,
the warranty was satisfied and the undetwriters were liable. CodifYing this
decision, section 38 of the Marine Insurance Act 1906 now provides that:
''Where the subject-matter insured is warranted "well» or "in good safety" on a
particular day, it is sufficient if it be safe at any time during that day.'
Similatly, an express warranty of neutrality is satisfied if the insured property is

neutral at the time of inception of the risk, even if thereafter it changes status:
173 'The warranty is, that things stand so at the time: not that they shall
continue"74 and no continuing neutrality warranty will be implied, although

there is an implied condition that 'so far as the assured can control the matter,
its neutral character shall be preserved during the risk'. 175
18.78 A warranty may, however, be construed to have a continuing effecr. Sillem v
(1821) 3 Brad & B 158, approved in Quebec Marine Insurance Co v Commercia! Bank of
Canada (1870) LR 3 PC 234.
(I789) 3 TR 360. The nature of the implied condition is open to doubt. Since it gives effect
to a promissory warranty, the neutrality of the vessel may be an implied condition
precedent to the attachment of risk. However, the language of s 36(2), according to which
breach of a second implied condition relating to a promissory warranty of neutrality
affords the insurer the right to avoid the contract, militates against construing a
breach of an implied condition as automatically discharging the insurer's
Habilit}dn principle, automatic discharge is preferable as consistent with the
doctrine of promissory warranties, but the natural reading of the Act favoW's the
alternative analysis.
173 MIA 1906, s 36(1); Eden v Parkison (1781) 2 Dougl 732.
'7' ibid 736 per Lord Mansfield. 175 MIA 1906, s 36(1).
Promissory Warranties
Thornton'76 concerned insurance of a building where the description of the

premises was held to be a warranty. This description was accurate when trans-
mitted to brokers for the purpose of procuring insurance, but an extra srorey was
thereafter added ro the building, the insurance being concluded while such work
was in process. The building was subsequently destroyed by fire. The court held
that rhe warranted description had to be true at the time of conclusion of the
insurance, or at least that any alteration should not have increased the risk.
Moreover, it was further held rhat rhe description constituted a warranty 'that rhe
assured would not, during the time specified in the policy, volunrarily do any thing
to make the condition of the building vary from this description, so as thereby to
increase the risk or liability of the underwriter'.177 Otherwise the assured could
change the nature of the insured property, recovering in the event of loss an
enhanced indemnity, whilst paying a premium calculated on a
different risk.
A continuing warranty, which requires the assured to guarantee a state of facts or 18.79
performance of certain acts throughout the duration of the policy, clearly carries
a greater threat of breach and consequent deprivation of cover. It is regarded as a
draconian term, with the result that a warranty will not be interpreted as of
'78
continuing effect in the absence of the clearest wording.
(d) 'Uninsured' warranties
Insurers may require the assured to retain a proportion of rhe risk in order to 18.80
encourage solicitude over the safe prosecution of the insured adventure. This
purpose would be defeared if the assured were free to cover rhe retained propor-
rion under a separate policy. Consequently, the specified proportion will be
(warranted uninsured'.
A condirion in a hull policy 'that the assured shall keep one-fifth uninsured' 18.81
requires the assured ro remain its own insurer for one-fifth of the value of the
insured vessel, breach affording the insurer a complete defence to a claim arising
out of a subsequent casualty.'79 In derermining whether the assured under a
valued policy has broken a warranty to mainrain uninsured a specified propor-
tion of the value of the property, the court will have regard to the agreed rather
than the real value. '80
In General Insurance Co o/Trieste Ltd v Cory,'" a vessel valued at £12,000 was 18.82
'76 (1854) 3 El & B1868. 177 ibid 882 per Lord Campbell q.
Hussain v Brown [1996] 1 Lloyd's Rep 627 (question on a proposal form in the present tense
interpreted as not having continuing import); Kler Knitwear Ltd v Lombard General
Insurance Co Ltd [20001 Lloyd's Rep IR 47.
Muirhead v Forth & North Sea Steamboat Mutual Insurance Association [1894] AC 72.
'80 ibid. 181 [18971 1 QB 335.
545
insured under time policies for £9,600 with the balance of £2,400 being warranted law. 186 The issue remains to be resolved authoritatively, although a later dictum
uninsured. A syndicate that had subscribed to a policy in the sum of £5,000 then of Lord Alverstone CJ supports the view of Kennedy J. '.7
ceased business and the assured, estimating the value of that policy as no more
than £2,000, took our a further policy for £3,000 to make good the shortfall. The additional insurances warranty under the Institute
Mathew J declined to hold that the resulting nominal possibility of recovety in and International hull clauses
excess of £9,600 broke the warranty. Given the circumsrances, the extra policy in The Institute and International hull clauses stipulate certain permitted additional 18.84
no way contradicred the purpose of the warranty, namely that the assured should insurances,188 These cover: disbursements, managers' commissions, pronts) or
retain for his own account a certain proportion of the risk. Were excess or increased value of hull and machinery; freight, chartered freight, or
the undelwriterS' argument correct, no matter what proportion of the cover anticipated freight, insured for time; freight or hire under voyage contracts;
failed in reality, rhe assured ought to do norhing, although any prudent assured anticipated freight where the vessel sails in ballast and not under charter; time
would maintain the real value of his insurance cover. A literal interpretation of the charter hire or charter hire for a series of voyages; premiums; returns of pre-miums;
warranty might have favoured the underwrirers, 'but it is possible by a strict and insurance of certain excluded risks. In respect of most of these insurances, a
construction to reach the point of absurdity, which would be done if the con- limit is placed on rhe value of the additional insurance permitted. It is a breach of
struction were so strict as to put the owner under a greater liability than that promissory warranty for any insurance on the specified interesrs in excess ofthe
imposed upon him under the original policy'.182 permitted amounts or any other ppi or similar honour insurance that includes the
total loss ofthe vessel'·' to be effected to operate during the currency of the hull
Some doubt surrounds the question of whether a 'warranted uninsured' term is broken by
policy by or for the account of the assured, owners, managers, or mortgagees."o
obtaining a policy binding in honour only. In Roddick v Indemnity Mutual
Thus, where a hull policy contained a warranty that freight insur-ance should not
Marine Insurance Co Ltd,,as the issue arose of whether a warranty of £5,000 exceed a certain value, it was no defence that the transgressing freight insurance
'uninsured' in a £5,000 valued policy on property valued at £10,000 was infringed covered war risks excluded under the hull policy. '"
by a £2,600 honour policy on disbursements. The assured won on the basis that the
cover of the two policies did not overlap, but different views emerged obiter as to For the warranty ro be infringed, the additional insurance must be 'effected'. 18.85 Where a
whether conclusion of an honour policy would in principle break an 'uninsured' second insurance provides that it will not come into force nor liability
warranty. At first instance, Kennedy J persuasively argued that the warranty would attach until payment of the premium, the Privy Council has held that the second
be broken by any insurance treated in practic) as effective: insurance is not 'effected' until the premium is paid. '92 However, once the
additional insurance has been effected, it would appear irrelevant that the insurer
has a defence ro any claim. '93 Even retrospective avoidance of a policy does not
The main, if not the whole, object of the warranty is to give the insurer a pledge of
expunge it from history and deny it has ever been 'effected'.'"
the good faith of the assured and of his diligence in preserving rhe thing assured by
reason of his remaining his own insurer to the extent specified in the warranty. It
was admitted in the course of argument, and could not but· be admitted, that a
claim under an 'honour' policy is regularly recognised and discharged by the 186 ibid 387. Lord Esher MR reserved his opinion.
underwriter as faithfully and as promptly as a claim under a policy which is '" Thames & Mersey Marine Insurance Co Ltd v 'Gunftrd'Ship Co Ltd[191l] AC 529,538.
188 Institute Time Clauses HuUs (1/10/83), d 21.1; International HuH Clauses (01/11/03),
not open to the same legal objection. 184 d 24.1.
An additional ppi or other honour policy that covered only damage to the vessel falling short of
In the Court ofAppeal, however, Eve LJ observed that, even if the assured were
a total loss would not constitute a breach of the warranty. An honour policy that covered damage
certain to be paid, it was 'plain that [honour] policies did not constitute any legal without limitation would, however, break the warranty if, on its true interpretation, it covered
security'.185 AL Smith LJ accepted that the warranty should be construed as such damage as would render the insured vessel a constructive total10s5.
Institute Time Clauses Hulls (l/10/83), cl21.2; International Hull Clauses (01111103),
requiring the assured to remain his own insurer for the stipulated amount, but was
d24.2.
not satisfied that it would be contravened by a policy unenforceable at 19'Samuel (P) & Co Ltd v Dumas [1924) AC 431.
'" Equitable Fire & Accident Office Ltd v Ching W0 Hong [1907) AC 96.
Comrast]enkins v Deane (1934) 47 LlLRep 342 where a 'subsisting' second insurance was stated
to require a policy under which the insurer could be called upon to pay. See also Home
Imurance Co ofNew York v Gavel (I 928) 30 L1LRep 139,
182 ibid 342. 183 [1895] 1 QB 836, [1895] 2 QB 380. Mackender v Feldia AG [1967] 2 QB 590, 603-4; Newtons of Wembley Ltd v Williams
'" [1895] 1 QB 836, 839. 185 [18951 2 QB 380, 384. [1965] 1 QB 560.
546 547
Attachment and Alteration ofRisk Promissory "Warranties
In contrast, potential overlap of a second insurance in a prohibited manner will not movement occasioned by the partial weighing of a second anchor before delay-ing
necessarily be held to break the warranty. In Australian Agricultural Co v departure by reason of adverse weather conditions.'99 Even movement prima facie
Saunders,'95 wool was insured under a fire policy 'in transit to Sydney by land sufficient will not satisfY the warranty unless effected with the intention of
only, or in any shed or store, or any wharf in Sydney, until placed on ship'. The prosecuting the voyage. In Sea Insurance Co v Blogg,2°O the insurance covered
policy provided that no claim was recoverable 'if the property insured be previ- steamers 'sailing on or afterMarch 1'.By 10.00 pm on 29 Februaty, the vessel in
ously or subsequenrly insured elsewhere' unless wrirren notice of the second question was ready to proceed to sea. The master, therefore, moved the vessel some
insurance was given to the insurer. The assured subsequently concluded a mar-ine 500 yards from the wharf into the river and anchored until morning, purring to sea
policy on the wool 'at and from the River Hunter to Sydney per ship and after dark being prohibited by pilotage regulations. Although this manoeuvre saved
steamers and thence per ship or ships to London, including rhe risk of craft from some thirty minutes on 1 March, the sole purpose of the
the time that the wools are first waterborne and of transhipment or land-ing and re- master's actions, according to the evidence, was to prevent his crew from going
shipment at Sydney'. The wool having been damaged by fire while warehoused at ashore and getting drunk. In consequence, it was held that the ship sailed on I
Sydney, the fire insurer sought ro evade liability on the basis that no notice ofthe March, rendering the insurers liable for the subsequent casualty.
marine policy had been given. The Courr ofExchequer Chamber held, however, Where the warranty requires the vessel ro 'deparr', the vessel must actually leave 18.89 port,
that the clause in the fire policy was directed to genuine double insurance and resulting in a breach of warranty even where there is sufficient prosecution
should be construed as limited thereto. A conceivable overlap, for example with of the voyage within the porr to constitute a sailing. The warranty effectively
respect to damage sustained by fire on landing the wool, was insufficient. 2o
excludes port risks. '
Bramwell B stated: 'I doubt whether a mere possibility rhat some portion of the
risk covered by both policies might accidentally coincide consti- (4) Causation
tutes such a double insurance as was meant. >196
There is no requirement of any causal link between a breach of promissoty 18.90 warranty
The warranty is subject to a proviso that protects any mortgagee 'who has accepted this 202
and the loss in respect ofwhich the assured claims. Thus, a failure to provide a twenty-
insurance without knowledge of the breach. The precise meaning of the term four hour watch, as warranted, will afford an underwriter an unassailable defence against a
'acceptance' in this context is unclear. In The Sea Breeze, '97 the warranty was claim for storm damage, regardless of the inability
infringed by a policy for the account of the ship's managers and a mortgagee bank 203
of any watchman, had one been present, to prevent the damage. Although
sought to avail itself of the proviso. However, two letters from described as 'one of the less attractive features of English insurance law',204 the
the bank to the insurer asserring its entitlement to the insurance proceeds ';"ere held absence of any causation requirement merely reflects again the role of the war-
not to constitute 'acceptance' of the policy. Staughton J commented upon the ranty in insurance contracts. Promissory warranties serve to define the risk
'vague' drafting of the proviso: 198 'The notion of the draughtsman may have been covered and breach simply renders the adventure no longer that which the insurer
that it would be unfair if a mortgagee having advanced money to the shipowner, or agreed to cover. The insurer no longer being on risk, no question of a causal link
left it outstanding on the faith of an apparently valid policy, were affected by a between the breach and subsequent casualty can arise.
breach of warranty unconnected with the trading or operation of the vessel. But if
that was the intention the draughtsman has by no means succeeded in saying it.'
Sailing warranties
'" Ne&on v Salvador (1829) M & M 309.
Litigation has also arisen concerning promissoty warranties requiring a voyage 200 [1898] 2 QB 398. Contrast Cockran, v Fisher (1834) 2 Ct & M 581, affd (1835) 1 Cr M &
to commence at a certain time. A requirement that a vessel 'sail' on or before a R809.
cerrain date will not be satisfied by the weighing of one anchor and slight '" Moir v Royal Exchange Assurance Co (1814) 4 Camp 84, affd (1815) 3 M & S 461. Also
another action on the same policy: (1815) 6 Taunt 241. Likewise if the warranty is to 'sail
from' a port: Lang v Anderdm (1824) 3 B & Cr 495.
'" Christin v Ditthell (1797) Peake Add Cas 141; Thomson v Weems (1884) 9 App Cas 671,
'" (1875) LR 10 CP 668. 196 ibid 674.
685; Wedderburn v Bell (1807) 1 Camp 1: Lane v Nixon (1866) LR 1 CP 412, 422-3.
Outhwaite v Commercia! Bank afGreece SA (The Sea Breeze) [1987] l'Lloyd's Rep 372. Forsikringsaktieselskapet lIesta v Butcher [1989) AC 852.
ibid 377. ibid 893 per Lord Griffiths.
548 549
Materiality Hartlej08 that the warranted number of crew had been recruited before rhe vessel
A promissory warranty serves to define the risk insured. Moreover, freedom of contract sailed on the leg of the voyage during which the casualty occurred.
admits of no objective constraint on what the parties can make the
(7) Breach Excused
subject-matter of a promissory warranty. Provided the term, on its true inter-
pretation, is indeed a promissory warranty, it is irrelevant how remote from In principle there is no excuse for breach of a promissoty warranty since, 18.94
risk definition the subjecr-marrer of the rerm would be in the absence of such regardless of the reason for non-compliance, the risk has altered. It was accord-
characterization. In this connection, a strict distinction must be drawn between ingly irrelevant in Hore v Whitmoreo, that the Governor of Jamaica restrained
promissory warranties and rhe doctrine of urmost good faith. The concept of the vessel from sailing by the warranted date. Nevertheless, by virtue of section
materiality, which serves to delineate the scope of duties of utmost good faith by 34(1) of the Marine Insurance Act 1906, non-compliance is excused where
reference to an objective standard of relevance, has no role to play in the context of either a change of circumstances renders a warranty inapplicable to the circum-
warranties: stances of the contract or compliance becomes unlawful.
.. . it is a first principle of the law of insurance, on all occasions, that where a
representation is material it must be complied with-if immaterial, that immateri- (8) Waiver
ality may be inquired into and shown; but that if there is a warranty it is part of the
contract that the matter is such as it is represented to be. Therefore the materiality In The Good Luck,210 rhe Court of Appeal assimilated breach of a promissoty 18.95
or immateriality signifies nothing. The only question is as to the mere fact. 20s warranty with a repudiatory breach in general contract law, holding that breach
gave rise to a righr of election rather than triggering an automatic discharge. As
In Mackay v London General Insurance Co Ltd,20' answers ro questions on a proposal form
already seen, the House of Lords overruled that decision in favour of a literal
constituted warranties in the resulting contract of third party motor liability
reading of section 33(3) of the Marine Insurance Acr 1906. For the Court of
insurance. The assured stated that no other insurer had ever refused the assured such
Appeal, a significant difficulty with a literal reading of section 33(3) was the
insurance or required an increased premium or special conditions. In fact, three
statement in section 34(3) of the Act that the insurer can waive a breach of
years previously, the assured's motor bicycle insurer had required an excess. This
warranty. If the remedy for breach is automatic discharge, there would appear to
qualified as an increased premium or special condi-tion. Swift J held that,
be nothing to waive. According ro Lord Goff, however, the effect of a waiver as
consequently, the insurer had an unimpeachable defence, despite the fact that, had
contemplated by section 34(3) is simply that 'to the exrent of the waiver, the
the information been disclosed prior to conclusi~n of the contract, ir would have been
insurer cannot rely upon the breach as having discharged him from liability'.211
disregarded by the insurer as irrelevant.
In other words, the waiver referred to in section 34(3) is waiver by equitable
(6) Cure estoppel barring the insurer from raising the breach of warranty against the
assured.'" There is no scope for waiver by election.'"
18.93 Consistently with the irrelevance of an absence of any causal link, breach of a
promissory warranty cannot be cured. Section 34(2) of the Marine Insurance Acr
In the context of breach of promissory warranty, waiver by equitable estoppel 18.96
requires the insurer to represent unequivocally that it will not invoke the auto-
1906 states that: 'Where a warranty is broken, the assured cannot avail himself of
the defence that the breach has been remedied, and rhe warranty complied with, matic discharge against the assured. Such a representation requires the insurer to
lmow of the assured's actual breach, or the representation will need to be that
before Ioss.'207 It was, for example, no defence in De Hahn v
the insurer will not rely on any breach whatsoever of the warranty.214 The latter
. ------ _ . _ - _ .
20$ Newcastle Fire Insurance Co. v Macmorran 6- Co (1815) 3 Dow 255, 262 per Lord Eldon
208 (1786) 1 TR 343. 209 (1778) 2 Cowp 784.
LC. See also Kenyon v Berthon (1778) 1 Dougl 12n; Pawson v watson (1778) 2 Cowp 785:
210 Bank of Nova Scotia v Hellenic Mutual W0r Risks Association (Bennuda) Ltd (The Good
Blackhurst v Cockell(1789) 3 TR 360; Anderson v Fitzgerald(1853) 4 HLC 484; Thomson v Weems Luck) [1990J 1 QB 818, rvsd [1992J 1 AC 233.
(1884) 9 App Cas 671, 683-4, 689; Yorkshire Imuranee Co Ltd v Campbell [1917J AC 218; 211 ibid 263.
Cadogianis v Guardian Assurance Co [1921] 2 AC 125; Dawsom Ltd v Bonnin [1922] 2 AC 413,
m Kirkaldy UJ & Sons Ltd v walker [1999J Lloyd's Rep 410, 422; HIH Casualty & General
429; Allen v UniversalAutomobile Imuranee Co Ltd(1933) 45 LlLRep 55.
Insurance Ltd v AXA Corporate Soludom [2002J EWCA Civ 1253, [2003J Lloyd's Rep lR 1.
20' (1935) 51 LlLRep 201.
213 Contrast the doctrine of waiver in the context of the avoidance for breach of a
207 cf MfA 1906, s 46(1) (deviation discharges an insurer regardless ofwhether the ship regains
pre~formation duty of utmost good faith, see 4.113-4.116 above.
the route before occurrence of a casualty).
214 Agapitos LaW Bank (He/las) SA v Agnew (The Aegean) (No 2) [2002J EWHC 1556
(Comm), [2003J Lloyd's Rep lR 54, para 73.
550 551
Attachment andAlteration ofRisk Promissory "Warranties
is unlikely. The insurer need not in fact know that in law its liability under the unforgiving, and disproportionate. A variety of different responses have
policy is discharged, but must appear in the eyes of the assured to know this emerged.
legal consequence of the assured's act. There can be no apparent waiver of a
right that one does not appear to know one enjoys. The assured must then rely (a) Contractual drafting
on the representation so that it would be inequitable to go back on it. 215 This Apart from promissoty warranties implied by statute, terms have the status of 18.99
reliance requires an understanding of the insurer's legal position. The need for promissory warranties only ifsuch is the true interpretation of the contract. The
an apparent appreciation of its legal position on the part of the insurer and parties may, therefore, elect not to make a particular term a warranty, or may
knowledge of the assured was discussed by Tuckey LJ in HIH Casualty & reduce the impact of the common law of warranties.
General Insurance Ltd v AXil Corporate Solution?-" as follows:
Navigation limits Hull policies are subject to limitations on navigation, deny- 18.100 ing
As the Judge put it 'the essence of the plea [of estoppel] must go to the willingness cover in the event rhat the insured vessel should enter specified waters. Such limitations
of the representor to forego its rights'. Unless the representation carries with it
have traditionally been expressed as promissoty warranties. Under
some apparent awareness of rights it goes nowhere: the representee will not under-
stand the representation to mean that the representor is not going to insist upon the International Hull Clauses (01111103), these limitations are set out as part
his rights because he has said or done nothing to suggest that he has any. of the srandard clauses and operate as suspensive conditions. 21 ' Consequently,
What I have said illustrates the difficulty in establishing this type of estoppel when the entry of an insured vessel into prohibited waters without the prior agree-
neither party is aware of the right which is to be foregone. A representor who is ment of insurers suspends cover for the duration of the vessel's sray in such
unaware that he has rights is unlikely to make a representation which carries with it waters but cover resumes once the vessel leaves such waters.
some apparent awareness that he has rights. Conversely a representee who is not
aware that the representor has a particular right is unlikely to understand the A similar approach applies to towage. The International Hull Clauses (011111 18.101
representation to mean that the representor is not going to insist on that right or 03) deny cover in the event of the insured vessel being towed 'except as is customaty
abandon any rights he might have unless he expressly says so. (including customary towage in connection with loading or dis-charging) or to the first
In Kirkaldy OJ & Sons Ltd v Walker,'" a warranty required both a towage survey and a safe port or place when in need of assistance' or under-
condition survey. Only a towage survey was carried out. The towage survey report taking towage (or indeed any salvage) services 'under a contract previously
was tendered to the insurers and acknowledged by the deputy underwriter (the arranged by the Assured andlor Owners andlor Managers andlor Charterers'.220
underwriter being away on holiday) as 'Noted and Agreed'. The insured vessel remains free to offer emergency salvage services either with-
This was held not to be a waiver of the requirement for a condition sUrvey. Out any contract or on the basis of a salvage contract concluded on the spot,
218 normally by the master. The equivalent limitation on cover under the Institute hull
According to Longmore J: 'The clause did not require the surveyor surveys to
be shown to underwriters: no insurer (let alone his deputy) can be~expected to clauses takes the form of a promissoty warranty,22! while under the Inter-national
carry in his mind all the terms of all the insurances currently operative. It will Hull Clauses (01111103) it is again a suspensive condition.222
only be if the insurer (or his deputy) addressed his mind to the question of the Severable cover A policy may be structured on a severable basis, with the 18.102
absence of a condition survey that any unequivocal representation could begin
. , discharge of liability triggered by a breach of promissory warranty confined to
to anse. the severable part of cover to which it relates and leaving cover intact with
respect to the remainder of the policy. Such confined operation of a warranty
Mitigating the Law of Promissory Warranties may arise in three ways.
As the preceding discussion illustrates, a promissory warranty, like any condi- First, under a composite policy, each co-assured has the benefit of a separate 18.103
tion precedent, is capable of operating in a manner that may appear harsh, 223
insurance contract or severable cover under the same contract. The automatic
21S Motor Oil He/las (Corinth) Refineries SA v Shipping Corp of India (The Kanchenjunga) '" International Hull Clauses (OIl! lI03), clIIO.I, 32, Il.
[1990] 1 Lloyd's Rep 391, 399. ibid d 10.2.
'" [2002] EWCA Civ 1253, [2003] Lloyd's Rep IR 1, paras 21-22. Institute Time Clauses Hulls (1/10/83 and lIII/95), cI I. I.
'" [1999] Lloyd's Rep IR 410. '" ibid 423. 222 International Hull Clauses (01111/03), d 11. 223 See 2.78 above.
552 553
discharge of cover triggered by a breach of warranty by one co-assured is con- A suspensive condition stipulates preconditions to cover. Should the precondi- 18.108
fined to the insurance of that co-assured. Secondly, the composite policy approach don cease to be satisfied, cover is suspended until it is satisfied once more, at
may be adopted in respect of several items of property insured under the same which point cover reattaches. Coutts are attracted by this interpretation as
policy. At common law, infringement of a warranty in a fleet policy by one vessel a means of mitigating the harsh, although logical, effecrs of the promissory
will terminate cover for the entire fleet, preventing the assured from recovering in warranty doctrine. Thus, in Dawson v Mercantile Mutual Insurance Co Ltcl,22'
respect of the loss of a different vessel entirely. However, this is negated by clause the Supreme Court ofVictoria declined to view a term as a promissory warranty
26 of the International Hull Clauses (01111/03), which deems each vessel insured in view of:
under the policy to be the subject of a separate contract. . . . the utter unreasonableness of a provision forfeiting the entire policy for an act
18.104 Thirdly, where different categories of cover are offered under the Same policy, which may not in any degree increase the risk of loss or accident and which may
have no relation to the loss in fact claimed for. On the other hand, if the condition
promissoty warranties contained in the policy may, on the true interpretation of the
simply means to exclude liability for accidents not within the risk, it gives an
policy, apply selectively to the different categories of cover. In Printpak v AGF intelligible meaning to the [policy] and is in itself a reasonable and natural
Insurance Ltcl,22' a 'commercial inclusive policy' comprised a number of sections, safeguard.
each offering different cover. Insurers sought to reject a claim under section A of
Likewise, in The Barneell 11,229 it was regarded as 'significant' that non-
the policy, which offered cover on stock and goods against fire and associated
compliance with a 'warranted' requirement had no bearing on the loss.
perils, by reason ofa breach ofa burglar alarm warranty. The Court of Appeal held,
however, in favour of the assured. According to Hirst L], 'it does not follow from It should be noted, however, that the suspensive condition does not respond to 18.109
the fact that the policy is a single contract that it is ro be treated as a seamless the full perceived harshness of the promissory warranty. Cover is indeed sus-
contractual instrument'. 225 The structure of the policy indicated that the burglar pended rather rhan terminated, but causation is irrelevant to both types of term.
alarm warranty applied only to section B, which offered cover against theft. Under a suspensive condition, an insurer is not liable for any loss or damage
incurred during the suspension of cover irrespective of whether rhere is any
causal link between rhe reason for the suspension and the Joss or damage
18.105 Held covered clauses These clauses, which preserve cover (usually subjecr to certain
conditions) notwirhstanding an event that triggers an automatic discharge of incurred. A suspensive condition responds only to the inability to cure a breach
226 of warranty.
liability, are discussed later in this chapter.
A suspensive condition interpretation has been applied to requirements, drafted 18.110
(b) Alternative interpretations as warranties, that a road vehicle be fitted with a specified security system,"O
18.106 The term 'warranty' is ambiguous and its true meaning in context may require careful that a cash kiosk be attended and locked at aU times during business hours,231
consideration. 227 Although a promissory warranty defines the essence of the risk that a night watchman be stationed on board a vessel between certain hours,232
covered, other terms, which may be described ;as warranties, serve different and that fire-fighting equipment is inspected by a specified date. 233 Similarly,
functions. courts have construed restrictions on the use of insured property as prescribing the
circumstances during which the insurer is on risk rather than as a condition
18.107 Exclusion clauses traditionally were drafted as warranties. Thus, the phrase
precedent to all furure liability on the contract. In such a case, whether the
'warranted free from capture and seizure' means simply that the insurer excludes
liability for the perils of capture and seizure, but the occurrence of such a peril does
not discharge the insurer's liability. The assured remains entitled to claim in respect
of losses outside the exclusion whether arising before or after the events which [1932) ViR 380, 388 per Mann J.
Century Insurance Co o/Canada v Case Existological Laboratories Ltd (The BamcellI!) (1984)
constitute the excluded peril. The insurer is never completely off risk, either 150 DLR (3d) 7, 15 (Supreme Court of Canada).
temporarily or permanently. De Maurier Oewels) Ltd v Bastion Insurance Co Ltd [l967] 1 Lloyd's Rep 550.
CTN Cash & Carry Ltd v GeneralAccident Fire 6- Life Assurance Corp pic [1989] 1 Lloyd's
Rep 299.
m Century Insurance Co ofCanada v Case Existological Laboratories Ltd (The Bamcellll) (1982)
'" [1999] Lloyd's Rep lR 542. 225 ibid 546. 226 See 18. 11 Off below. 133 DLR (3d) 727 (Court of Appeal of British Columbia), affd (1984) 150 DLR (3d) 7
227 Roberts v Anglo-Saxon Insurance Association 'Ltd (1926) 26 LlLRep'154,157; Morgan v (Supreme Court of Canada).
Provinciallmurance Co Ltd [1932] 2 KB 70, 79-80. 233 Kler Knitwear Ltd v Lombard General Insurance Co Ltd [lOGO] Lloyd's Rep IR 47.
554 555
Attachment and Alteration ofRisk Held Covered Clauses
insurer is liable depends upon whether the restriction on use is being infringed exercise of a liberty granted to shipowners or charterers under the contract of
at the time of the casualty.234 This approach may be contrasted with the older case affreightment.
of Colledge v Harty,235 in which a restriction on the sailing of a ship ro or Where, by reason of circumstances beyond the control of the Assured either the
contract of carriage is terminated at a port or place other than the destin-
from certain ports was construed as a warranty despite argument that its true
ation named therein or the transit is otherwise terminated before delivery of the
interpretation was as an exception. The vessel having infringed the restriction, the goods as provided for in Clause 8 above, tben this insurance shall also terminate
COUtt was influenced by, as it saw, the impossibility of the policy ever unless prompt notice is given to the Underwriters and continuation of cover is
subsequently attaching, despite the fact that, having sailed for a prohibited POtt, requested when the insurance shall remain in fOrce, subject to an add-
the vessel might thereafter have altered destination in favour of a voyage to which itionalpremium ifrequired by the Underwriters, either
236 until the goods are sold and delivered at such POft or place, or, unless otherwise
the policy might have attached. specially agreed, until the expiry of 60 days after arrival of the
goods hereby insured at such POft or place, whichever shall first occur, or
E. Held Covered Clauses if tbe goods are forwarded within- the said period of 60 days (or any
agreed extension thereof) to the destination named herein or to any other
18.111 Although the doctrine of alteration of risk, as developed by the common law and destination, until termination in accordance with the provisions of
pattially enshrined in the Marine Insurance Act 1906, may be viewed as inflexible Clause 8 above.
and weighted heavily in the insurer's favour, ultimately it serves to provide cleat Where, after attachment of this insurance, the destination is changed by the Assured,
held covered at a premium and on conditions to be arranged subject to
and cettain prima ficie rules and a basis for negotiation of tetms relaxing the prompt notice being given to the Underwriters.
severity of the default position. The 'held covered' clause is such a tetm. Undet a
held covered clause, in the event of a stipulated occurrence, typically one that Clause 10 is a classic held covered clause embtacing changes of voyage by the 18.113
23
constitutes an alteration of tisk, the insurer's liability is not prospectively assured, maintaining covet provided certain conditions are fulfilled. ' Othet
dischatged. Instead, the assured temains ('is held') coveted pro-vided any specified changes of voyage ate the subject of clause 9, which operates in a similar fashion
conditions are fulfilled, usually notification of the event by the assuted to the although differently drafted ('shall also terminate, unless .. .'). Clause 8.3 is
insurer and agreement upon any appropriate additional premium and change of simply a waivet of certain alterations of tisk: the assured is held covered without
24o
terms. any conditions.
The Institute Voyage Clauses Hulls contain the following 'Change of Voyage' 18.114
(1) Examples of Held Covered Clauses 241
clause:
18.112 The modern Institute clauses contain a numbet of clauses that mitigate the a1retation Held covered in case of deviation or change of voyage or any breach of warranty as to
of risk doctrine. With respect to the Institute Cargo Clauses (A), (B), and (C), the tOwage or salvage services, provided notice be given to the Underwriters
following three provisions must be consideted collectively: immediately after receipt of advices and any amended terms of cover and any
additional premium required by them be agreed.
237
This insurance shall remain in force (subject to termination as provided for above
and to the provisions of Clause 9 below) during delay beyond the The Institute Time Clauses Hulls contain the following 'Breach of Warranty'
control of the Assured, any deviation, forced discharge, reshipment or tran- 242
clause:
shipmen-038 and during any variation of the adventure arising from the
3 Held covered in case of any breach of warranty as to cargo, trade, locality,
towage, salvage services or date of sailing, provided notice be given to the
234 Roberts vAnglo-Saxon Insurance Association Ltd (1927) 27 LlLRep 313; Dawson v
Mercantile Mutua/Insurance Co Ltd [1932J VLR 380 (Supreme Court of Victoria, Full Court);
Morgan v Provincial Insurance Co Ltd [1932] 2 KB 70,
m (1851) 6 Ex 205. :239 See also Institute War Clauses (Cargo), d 6; Institute Strikes Clauses (Cargo), d 7.
See also Birrell v Dryer (I 884} 9 App Cas 345 where the term 'warranted no St Lawrence 240 See also Institute Strikes Clauses (Cargo), d 5.3, but contrast Institute War Clauses
between the 1st of October and'the 1st ofApril' was -assumed to be a promissory warranty and not (Cargo), el 5.5.
merely a clause circumscribing the risk. Sed quaere were the point argued today. 24' (1110/83 and 1111195), el2. Likewise Insrirure Voyage Clauses Freight (1/8/89 and
For discussion of c1 8.1, see 17.11ff above. 1111/ 95), el3 .
242 (1/10/83 and 1111195), el 3. Likewise lnsritute Time Clauses Freight (1/8/89 and 11111
.236 The landing and re-shipping or transhipment of goods necessitated by an insured peril does not
terminate cover even in the absence of an express term: MIA 1906, s 59. 95), el 4.
556 557
Underwriters immediately after receipt of advices and any amended terms of prima fiele liable under a clause holding the assured covered in the event of a
cover and any additional premium required by them be agreed. breach of warranty. Bigham J held, however, that, where the breach was not
discovered until after the ensuing loss, 'the parties must assume that the breach was
(2) Scope known to the parties at the time it happened, and must ascertain what premium it
18.115 The departures from rhe agreed adventure against which a held covered clause would then have been reasonable to charge'.250 The unseaworthiness having
offers protection inevitably depend upon the wording of the clause in question. rendered the resulting sacrifice inevitable, it would have been reasonable for the
Thus, a clause covering change of voyage and deviation cannot be invoked underwriter to charge a premium equal to at least the probable value of the sacrifice
and, indeed, a further sum in respect of the increased risk of loss of the vessel itself.
where risk never attaches.243
In the circumstances, therefore, the held covered clause was self-defeating.
(3) Additional Premium
18.116 Since held covered clauses maintain the underwriter's potential liability despite a (4) Amendment ofTerms
departure from the risk agreed to be covered, not unnaturally the assured is
required by such clauses to pay an additional premium. The underwriter may not, Where the held covered clause expressly so provides, continuation of cover may 18.118
however, demand an exrortionate further payment in order to escape from liability be dependent upon amending the terms of the policy other than the rate of premium. In
under the clause. The enritlement is ro a reasonable extra premium, Liberian Insurance Agenry Inc v Mosse,251 the clause did not expressly envisage such
commensurate with any increase in the risk,244 assessed by reference to the an alteration and Donaldson J accordingly held that
an amendment other than to the premium, on the facts an insertion of a free
time of the event triggering the held covered clause. 245 Where no reasonable
commercial rate exists for the altered risk, given full disclosure of all relevant from particular average exception, could not be effected in order to make the
circumstances, the held covered clause cannot operate. 246 What is reasonable on held covered clause work. In the modern Institute cargo clauses, clause 10
247 envisages amendment of the policy terms other than the premium, whereas
the facts may entitle the insurer, at one extreme, to no additional premium Of,
clause 9 does not.
at the other extreme, to a further premium so high as to prevent the held
covered clause from operating. Although there is no authority in point, it seems clear that an insurer may not 18.119
insist upon unreasonable amendments to the terms of the cover or take advan-
18.117 In Hewitt v London Generallnsurance Co Ltd,24' the deviation was less
significant than variations of the voyage permitted under the terms of the policy tage of a held covered clause so as effectively to renegotiate the insurance ab
without any additional premium. Accordingly, the assured was able ro invoke a
initio in the light of developments since the formation of the contract. Just as the
common law recognized that the insurer was confined to a reasonable add-itional
held covered clause without incurring any financial prejudice. In contrast, in
premium commensurate to the alteration in the risk created by the event triggering
Greenock Steamship Co v Maritime Insurance Co Ltd,24' the additional the held covered clause, so amendments of othet terms of the cover should likewise
premium to which the insurer was entitled under the held covered clause exceeded reflect the enhanced risk and be proportionate and appropriate thereto. An
the indemnity the assured sought to recover. The vessel embarked upon a stage of unrestricted right to require amended terms of cover would be contrary to the
the voyage unseaworthy by reason of inadequate fuel. Consequently, to avert a 252
danger of a total loss, the mastet burnt a quantity of the ship's fittings, spars and natural interpretation of held covered clauses.
cargo. This constituted a general average sacrifice for which the insurer was
(5) Notice
Old wordings of held covered clauses contained no mention of any notice 18.120
Wooldridge v Boydell (1778) I Dougll7; Simon, Israel 6- Co v Sedguiek [189311 QB 303; 253
Maritime Insurance Co v Stearns [1901J 2 KB 912. See 18.06-18.07 above. requirement. Given, however, that such clauses can be invoked retrospectively
MIA 1906, S 31(2); Hyderabad (De""an) Co v Willoughby [18991 2 QB 530; Greenock
Steamship Co v Maritimelnsurance Co Ltd [1903] 1 KB 367; Hewitt v London General Insurance
Co Ltd(1925) 23 LlLRep 243: 250 ibid 375. Followed in Mentz, Decker 6'Co v Maritime Insurance Co [1910] 1 KB 132.
Greenock Steamship Co v Maritime Insurance Co Ltd [1903] 1 KB 367, see below. '" [1977J 2 Lloyd's Rep 560.
Liberian Insurance Agency Inc v Mosse' [1977] 2 Lloyd's Rep 560, 568. 252 And also, to the extent there exists any post~formation duty of utmost good faith, contrary
What is a reasonable premium is always a question of fact: MIA 1966, s 88. to the continuing obligation of the insurer to act with the utmost good faith towards the assured.
248 (1925) 23 LlLRep 243. 249 [190311 KB 367. 253 See, eg Hyderabad (Deccan) Co v Willoughby [18991 2 QB 530.
558 559
by the assured even after loss,254 and indeed even after the period covered by rhe nothing practicable could be done by the insurer were the giving of notice
257
policy has expired,255 rhere arises a potential two-fold prejudice to the insurer. .accelerated. In Liberian Insurance Ageney Inc v Mosse,258 Donaldson J
First, the insurer may be deprived of extra premium income in that the assured may stated as follows:
naturally be tempted to refrain from giving notice unless a casualty in fact occurs.
What time is reasonable will depend on all the circumstances. Thus if the assured
Secondly, additional information coming to light or an alteration of circumstances learns the true facts while the risk is still current, a reasonable time will usually be a
in the interval between the assured learning of the alteration of risk and giving shorter period than if this occurs when the adventure has already ended. If the assured
notice may render it either impossible or more expensive for the insurer to obtain learns the true facts when the insured property is in the grip of a peril, which is likely
reinsurance on the altered risk. Consequently, mOst modern held covered clauses to cause loss or damage, a reasonable time will be very short indeed.
not only provide for the giving of notice but also deal expressly with the required The modern Institute hulls and freight clauses, however, override such consider- 18.123
rapidity of such notice. In the absence of such provision, the courts will imply a ations by expressly providing for the assured to give notice 'immediately after
term to the effect that the benefit of a held covered clause is conditional upon the receipt of advices'o Notice under the hull. clauses of a change of voyage one month
giving of notice within a reasonable time. after the change is clearly too lare and ineffective in the absence ofwaiver of
lateness, such waiver being dependent on knowledge by the insurer of the delay in
18.121 Thames & Mersey Marine Insurance Co Ltd v HT van Laun & Cil" concerned
259
two differently worded cargo policies. The 'Liverpool policy' held rhe assured notification. The modern cargo clauses contain a requirement of 'prompt
covered in case of deviation or change of voyage 'provided notice be given and any notice', reinforced by rhe following appended note: 'It is necessaty for the Assured
additional premium required be agreed immediately after receipt of advices'. The when they become aware of an event which is "held covered" under this insurance
'London policy' contained a held covered clause confined to devi-arions but silent to give prompt notice to the Underwriters and the right to such cover is dependent
with respect to notifYing the insurer. The insured adventure involved the upon compliance with this obligation.' Although whether such a note has
contractual effect has been doubted, it has been stated to reflect the law
transportation of a cargo of cattle and sheep to a Chinese port, the bill of lading
accurately."o It may be that the phrase 'prompt notice' introduces a requirement of
specifYing Taku. After the vessel had sailed, the consignees repudi-ated the
quick, although not necessarily immediate, notification that is independent of the
contract of sale and, on 16 December, the master found Taku blocked by ice, a fact
261
known to the assured on 17 December. That same day, and repeatedly during the availability of practicable measures to the insurer.
following week, the assured direcred the master to hold his position. Appalling
conditions on board, however, compelled the master to depart for a different porr on
(6) Option or Obligation?
25 December, the entire cargo ultimately being destroyed at sea for health reasons. In Mentz, Decker & Co v Maritime Insurance CO,262 the clause stated as follows:
Notice of deviation was communicated to the insurers on 30 December. The House 18.124
of Lords held that such delay in communication inftinged both the express 'In the event of the vessel making any deviation or change of voyage it is
immediate notification requirement of the Liverpool policy and a requirement of mutual]y agreed that such deviation or change ofvoyage shall be held covered
norification within a reasonable time to be implied into the London policy. at a premium to be arranged provided due notice be given by rhe assured on
receipt of advice of such deviation or change of voyage.' Obiter, Hamilton J
18.122 What constitutes a reasonable rime in this context reflects the reinsurance
agreed wirh counsel for the insurers that 'it is impossible to construe the clause
as giving an oprion to the assured to be covered or not as he chooses',263 but
opportunities available to the insurer on the facts. Where the loss has already
did not elaborate upon his reasons for adopting this interpretation. Certainly,
occurred before the assured learns of rhe departure from the agreed adventure,
coun-sel for the insurets pointed to the inequity of an assured giving notice and
notice may be considerably delayed and still remain reasonable simply because
paying an additional premium only in the event of a loss, the insurer thus
assuming a different and greater risk without either knowledge permitting the
254 Greenock Steamship Co v Maritime Insurance Co Ltd(1903]·1 KB 367; Mentz,
Decker &Co v Maritime Insurance Co [1910] 1 KB 132.

Overseas Commodities Ltd v Style[1958] 1 Lloyd's Rep 546, 559. Mentz, Decker & Co v Maritime Insurance Co [1910] 1 KB 132 ('due notice'); Hewitt v
(1905) (1917) 23 Com Cas 104; [\917] 2 KB 48n. Followed in Hood v West EndMotor Car Packing Co London C,n"alinsurance Co Ltd(I925) 23 LlLRep 243, 246.
[1977] 2 Lloyd's Rep 560, 566.
[1917] 2 KB 38 and see generally Black King Shipping Corp v Massie (The Litsion Pride)
[1985] 1 Lloyd's Rep 437, 462-71 (no extension to express warranties ohhe implied condition '" has" Shipping Ltd v Colton [1997] 1 Lloyd's Rep 586, 594.
260 Liberian Insurance Agency Inc v Mosse [197712 Lloyd's Rep 560, 566.
precedent of giving notice within a reasonable time).
261 ibid 566-7. 262 [1910] 1 KB 132. 263 ibid 135.
560
561
seeking of reinsurance or rhe certain benefit of an appropriately enhanced pre- An example of non-disclosure in the context of held covered clauses is provided 18.127
265
mium. Such a consideration is clearly relevant to all held covered clauses, but .by Overseas Commodities Ltd v Style. The assured under a cargo policy was held
the law has responded hy rendering the benefit of the clause conditional upon coveted 'at a premium to be arranged in case of change of voyage or of any
the giving of notice at least within a reasonable time of discovery by the omission or error in the description of the interest vessel or voyage'. This clause
assured of the alteration of risk. Moreover, the wording of the clause in Mentz, was held inapplicable in respect of certain misdescriptions of the cargo as the
Decker ('it is mutually agreed that such deviation or change of voyage shall be error could not be rectified. However, when the problem surfaced, enquiries by
held covered') could he read as stating that the assured had already agreed that the assured elicited two conflicting explanations, only that containing the
deviations and changes of voyage were to be covered with the result that, explanation most favourable to the assured being passed on to the underwriters.
simply upon the true interpretation of the clause, while failure to give notice as McNair J stated, obiter, that in order to 'obtain the protection of the "held
required had the result of depriving the assured of cover, there was no covered" clause, the assured must act with the utmost good faith towards the
contractual entitlement conferred upon the assured to elect not to give notice. underwriters, this being an obligation which rests upon them thtoughour the
The assured had the power to exercise an option by his inaction, and thereby currency of the policy'. 266 In the absence of any explanation for the failure to
decline deviation and change of voyage cover, but no right to do so. pass on the other explanation, the held covered clause could not be invoked.
18.125 Thete appears to be no justification for a rule of law that held covered clauses Fraser Shipping Ltd v Coltort" concerned hull insurance on terms incorporating 18.128
impose obligations. The status of the clause must be a matter of interpretation. It is the Institute Voyage Clauses Hulls (Total Loss, General Average and 3/4ths Collision
suggested that a perceived inequity of burden resulting from the option Liability) (1/10/83) ou a voyage to Shanghai under tow for demoli-
interpretation of held covered clauses is relevant, if ar all, as an indication of the tion. Notice of a change ofvoyage to Huang Pu was given to insurers toO late to
intention of the parties, at most giving rise to a rebuttable presumption in favour of be valid. However, the assured also failed to inform the insurers that: (a) the
the obligation interpretation. Thus, clause 9 of the modern Institute cargo clauses, vessel had arrived off Huang Pu twenty-four hours before notice was given,
set out in full at para 18.111 above, provides that, where the during which time it had already been involved in a minor collision; (b) the
contract of carriage or transit terminates in certain circumstances, the insurance porr of Huang Pu was congested so that the vessel was compelled to anchor
'shall also terminate unless prompt notice is given to the Underwriters and precar-iously in an outer anchorage; (c) de-ballasting and work on the anchor
continuation of cover is requested'. Such language, admittedly not that of the were needed before the vessel could proceed to its delivery point; and (d) a
classic held covered clause, is hardly redolent of an obligation to give notice and hurricane was threatening the port. These circumstances were self-evidenrly
should be read as affording the assured the opportunity, in the relevant circum- material and induced the subscribing underwriters into agreeing an extension of
stances, to assess its needs and determine whether or not they are be~t served by cover under the held covered clause.
continuation of the insurance. .

(7) Utmost Good Faith 26S
ibid 559. See also Donaldson], again obiter, in Liberian Insurance Agenry Inc v Mosse [1977]
266
18.126 The operation of the doctrine of utmost good faith once the contract has been 2 Lloyd's Rep 560.
267 [1997J 1 Lloyd's Rep 586.
concluded is discussed in Chapter 4 ahove. In the context of held covered clauses,
it seems clear that: (a) the doctrine of utmost good faith attaches hecause the
insurer is being asked to make an underwriting decision; (h) the scope of the
utmost good faith duties is limited in that circumstances are material only if they
would influence the prudent underwriter in assessing the extension of cover under
the clause; and (c) the remedy for breach of a good faith duty is avoidance only of
the extension of cover, leaving the original policy unaffected, although the precise
legal reasoning that leads to this result has yet to be authoritatively resolved. 264
264 See 4.193-4.204 above.
562 563
19
SUB-STANDARD SHIPPING
A. The Concepts of Seaworthiness D. Proof of Unseaworthiness 1951
and Cargoworthiness 19.Q3 E. The Relationship Between
(l) Seaworthiness Unseaworthiness and Cover
Cargoworchiness 19.11 under the Inchmaree Clause 19.56
Stowage 19.14
F. The Relationship Between
The relative nature of
Unseaworthiness, Inherent Vice,
seaworthiness and
and Ordinary Wear and Tear 19.60
cargoworthiness 19.18
G. Cargo Policies 19.61
Seaworthiness in Voyage Policies 19.20
H. Contractual Responses to
Rationale for the warranty
Sub-srandard Shippiug 19.64
Time of compliance and the (1) The due diligence proviso to
doctrine of stages 19.23
the Inchmaree clause 19.65
(2) Ownership, management,
Seaworthiness in Time Policies
Privity 19.32 and flag 19.66
Who is the assured? 19.39 (3) Classification 19.71
Causation 19.40 (4) The International Safety
Multiple instances of Management Code 19.78
unseaworthiness 19.49
The safety of human life, the confidence of catgo intetests and parties with 19.01
financial intetests, whether insurets 01' banks, and the protection of the environment all
demand certain standards of construction, maintenance, and operation of shipping.
Marine insurance law establishes required standards by affording insurets defences
where vessels ate unseaworthy 01', in catgo insurance
only, unfit to catry theit catgo. Fot hull underwritets, howevet, the law is
unsatisfactory. The unseaworthiness defence vaties between voyage and time
policies. The vast majotity of vessels ate insured on a time basis, but the un-
seaworthiness defence in time policies requires not merely that the sub-standard
condition of the vessel causes loss but also that the assured knows of the vessel's
condition. Whete the condition of the vessel is attributable to the neg-ligence of the
owner in, fot example, employing a sub-standatd crew or failing to maintain the
vessel properly, the insurer remains liable unless such negligent
565
Sub-standard Shipping The Concepts o/Seaworthiness and Cargoworthiness
conduct is accompanied by knowledge of the consequences for the condition of the is a question of fact.' The notion of being curable must, however, include overt
vessel. In practice, proof of such knowledge is extremely difficult. .need for attention. A latent defect that is in principle easy to cure bur that cannot
reasonably be discovered must render a vessel unseaworthy.
Dissatisfaction with the underlying law has led insurers to seek protection against sub-
standard shipping through express contractual terms. In particular, attention has (b) Master and crew'
focused on the due diligence proviso to the Inchmaree clause and clauses relating to
The seaworthiness of a vessel also includes the adequacy of the crew, in terms of 19.06
the vessel's flag, to classification, and to the International Safety Management
both numbers and competence, with respect to readily foreseeable circum-stances of the
Code.
adventure." Unseaworthiness by reason of inadequate ability of
the master or crew in handling the vessel may stem from a disabling want ofskill in
matters of seamanship generally, which may in turn flow from an inherent lack of
The Concepts of Seaworthiness and Cargoworthiness
abiliry or a lack of appropriate training. Equally, however, a vessel will be
Seaworthiness unseaworthy if the master or crew are generally competent but suffer from a
disabling lack of knowledge of the behavioural characteristics of the particular
The Marine Insurance Act 1906 states simply that: 'A ship is deemed to be vessel or its equipment," irrespective of whether that Jack of knowledge results
seaworthy when she is reasonably fit in all respects to encounter the ordinary perils from failure by the master or crew to inform themselves or the owner's failure to
of the seas of the adventure insured." It may be noted that the required standard is impart information to them. In any such case, the result is that the vessel is unfit for
not fitness but reasonable fitness. the adventure.
(a) Physical condition Competence, moreover, is not an abstract quality to be appreciated divorced 19.07 from the
19.04 The concept of seaworthiness clearly embraces the physical condition of insured adventure. The question is not simply whether the master or relevant crew member
the insured vessel and its equipment. Accordingly, vessels have been held is generally capable and fully knowledgeable of the par-
unseaworthy by reason of a diverse range of problems, including an excessively ticular vessel, but whether that person can reasonabJy be relied upon to apply the
leaking hull,2 inadequate or defective anchors,3 engineering defects,4 and defects in skill and knowledge possessed in an appropriate fashion as circumstances may
5
fire-fighting equipment. The precise nature of the problem need not be identified.' dictate. Consequently, a vessel will still be unseaworthy if, for example, the master,
although highly qualified and knowledgeable, nevertheless cannot be reasonably
trusted to respond appropriately by reason of physical disability, ill-health or
It has been suggested that a vessel is less likely to be rendered unseaworthy by defects addiction," mental incapacity, or even a simple disinclination through
easily curable by those on board,' but the remediable nature of a defect is not laziness or any other reason to perform a masteeS functions properly.13
incompatible with unseaworthiness. The same may be said of minor defects.
Ultimately, whether a remediable or minor defect renders. vessel unseaworthy Unseaworthiness is, nevertheless, a condition ofthe vessel and such a condition is 19.08 not
to be equated with the occurrence of one or more acts of poor seamanship.
, MiA 1906, s 39(4). See also Hedley v Pinkney 6-Sons Steamship Co Ltd[1894J AC 222, 227.
A vessel is seaworthy if 'in a condition to encounter whatever perils of the sea a ship of that kind
and laden in that way may be fairly expected to encounter on the voyage': Steel v State Line , Project Asia Line Inc v Shorle (The Pride o[Donegal) [2002J EWHC 24 (Comm), [2002J 1
Steamship Co (1877) 3 App Cas 72, 77, cited in Manifest Shipping Co Ltd v Uni-Polaris Insurance Lloyd's Rep 659, para 38.
Co Ltd (The Star Sea) [1995J 1 Lloyd's Rep 651, 657. R White, 'The Human Factor in Unseaworthiness Claims' [1995] LMCLQ221.
, Hoffinann (C) 6- Co v British General Insurance Co (1922) 10 LlLRep 434: Neue Fischmehl U700d v Associated National Insurance Co Ltd [1984J 1 QdR 507,553 (Supreme Court of
Haselhorst mbH v Yorkshire Insurance Co Ltd (1934) 50 LlLRep 151.
Vertriebsgesel~chafi Queensland), Competence is determined in fact and not by reference to formal qualifications,
3 Wilkie v Geddes (1815) 3 Dow 57.
although their presence or absence may be relevant to any question of the assured's knowledge of
, Project Asia Line Inc v Shone (The Pride o[ Donegal) [2002J EWEC 24 (Comm), [2002J the crew's incompetence or to the operation of the due diligence proviso in the Inchmaree clause.
1 Lloyd's Rep 659. See also wedderburn v Bell (1807) 1 Camp 1 (defective sails). " Marlifist Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2001J UKHL 1,
S Manifist Shipping Co LtIv Uni-Polaris Insurance Co Ltd (The Star Sea) [20011 UKEL 1,
[2003] 1 AC 469 (vessel unseaworthy by reason, inter alia, of the master's 'massive
[2003J 1 AC 469. ignorance' with respect to operating the fireNfighting equipment).
, Project Asia Line Inc v Shone (The Pride o[Donegal) [2002J EWHC 24 (Comm), [2002J 1 " Moore v Lunn (1923) 15 L1LRep 155, 161 (alcoholism).
Lloyd's Rep 659, paras 39,82-85. 13 Papera Iraders Co Ltd v Hyundai Merchant Marine Co Ltd (The Eurasian Dream) [2002]
7 Ajum Goolam Hossen & Co v Union Marine Insurance Co Ltd[1901] AC 362, 371. EWEC 118 (Comm), [2002J 1 Lloyd's Rep 719, para 129(3)(d).
566 567
Sub-standard Shipping The Concepts ofSeaworthiness and Cargoworthiness
A competent and fully able master or crew member may make an error or extend to the vessel's suitability as a floating warehouse for certain goods. A
commir an act of negligence. Conversely, an isolated acr may of itself evidence ship will remain seaworthy despite blocked ventilation causing unfitness to
the incompetent condirion of the crew. There is no requirement of legal prin- receive cargo, 19
ciple for a series of acts of sub-standard seamanship before the conclusion In the law of carriage of goods by sea, in contrast, the concept of seaworthiness 19.12
can be drawn that there is incompetence amounting to unseaworthiness,14 extends beyond the suitabiliry of the vessel to encounter the waters through
although the existence of such a series may increase the likelihood of a finding which it will pass and embraces the fitness of the vessel to carry cargo. For the
of unseaworthiness. owner of cargo, the fitness of a vessel for its cargo is as relevant as the vessel's
With respect to crew numbers and composition, it was held in Forshaw v abiliry to withstand the perils of the adventure. While the same is true of a cargo
Chabert15 that seaworthiness requires a vessel to have a crew sufficient in number insurer, a hull and machinery insurer has no interest i~ the experience of the
for the whole voyage16 at the commencement thereof. Moreover, it may be that a cargo. To accommodate this limited interest of a hull insurer, marine insurance
vessel will not be adequately manned unless, at least in the case of voyages of a law distinguishes between seaworthiness and cargoworthiness, with the latter
substantial length, the crew includes persons capable of substituting in case of need forming no part of the law relating to hull policies but featuring in cargo
for leading personnel. In CliffOrd v Hunter,17 a vessel on a voyage from insurance law.
Mauritius to England turned back because the master fell ill and no other member In the context of cargo policies, therefore, the carrying vessel is in principle 19.13
of the crew could perform a master's duties. On these facts, the issue of required as at the commencement of the voyage to be reasonably fit for the
seaworthiness was left to the jury, which decided in the insurer's favour. carriage of its cargo to the destination contemplated by the policy.'o Accord-
ingly, a vessel that has carried a cargo of cattle infected with foot and mouth
(c) Documentation
disease is unfit to embark a further cargo of cattle unless properly cleansed and
19.10 Vessels are required to carry a significant and increasing number of documents in disinfected. 21 Where health regulations are in force at a particular port, any
accordance with international conventions and national regulations. Indeed, the vessel embarking cargo for that port must be able to comply therewith without
growing volume and diversiry of documentary requirements led to the Convention damage to the cargo. 22 Refrigeration machinery on board a ship should, in its
on Facilitation ofInternational Maritime Ttaffic 1965, designed to reduce, simplifY, original state at the inception of the voyage, be suitable for the voyage in
and harmonize the documentary requirements to which vessels are subject. Pursuant question23 and a bullion room should be reasonably fit to withstand thieves. 24
to the Convention, a Facilitation Committee produce;; and regularly revises a list of A vessel carrying livestock must have sufficient ventilation and stockmen to
certificates and documents required to be carried on board ships in order to comply care for the cargo. 25
with certain international converltions. The absence of such a document that is
necessary to fulfil the insured adventure renders a vessel unseaworthy.18
19 Reed (AE) & Co v Page, Son & Eas' L'd [1927] 1 KB 743, 754. The term 'seaworthiness'
Cargoworthiness is sometimes employed (0 cover fitness to receive cargo, but such usage has been deplored as
apt to create confusion: Eldet; Dempster (} Co Ltd v Paterson, Zochonis 6- Co Ltd [1924] AC 522,
It is important to distinguish the fitness of the vessel to commence the contem-plated 539-40.
adventure of navigation from its fitness to receive particular cargo. In the MIA 1906, s 40(2). In practice, the requirement is considerably diluted by express con-tractual
law of marine insurance, seaworthiness is confined ro the former and does not term: see 19.61-19.63 below.
lkttersall v National Steamship Co Ltd (1884) 12 QBD 297. See also Mediterranean Freight
Services Ltd v BP Oil International Ltd (The Fiona) [19931 1 Lloyd's Rep 257, affd on other
grounds [1994] 2 Lloyd's Rep 506.
" ManiftstShipping Co L'd v Uni-Polaris Insurance Co L,d (The S'ar Sea} [199711 L1oyd's Rep Ciampa v British India Steam Navigation Co Ltd [1915] 2 KB 774 (vessel originally from a
360.373-4. plague-contaminated port picked up a cargo of lemons from Naples for Marseilles, where, by
" (1821) 3 Brod & B 158. reason oflong-standing French regulation, the ship was subject to a compulsory procedure
Or, should the voyage be"divided into stages, for the next stage. for the extermination of rats, which procedure damaged the lemons).
(1827) Moo & M 103. 23 Owners ofCargo on Ship 'Maori King' v Hughes (The Maori King) [1895J 2 QB 550.
Projec' Asia Line Inc v Shone (The Pride ofDonegal) [20021 EWHC 24 (Comm), [20021 1 Queensland National Bank Ltd v Peninsular 6- Oriental Steam Navigation CO [1898J
Lloyd's Rep 659, para 41; Papera Traders Co Ltd v Hyundai Merchant Marif/e Co Ltd (The Eurasian QB 567.
Dream) (No I) [2002] EWHC 118 (Comm), [200211 L1oyd's Rep719, para 128. Sleigh v :lYser [1900] 2 QB 333.
568 569
Sub-standard Shipping The Concepts ofSeaworthiness and Cargoworthiness
Stowage tharthe ability of the vessd to survive the ordinary perils of the insured voyage is
Both seaworthiness and cargoworthiness are attributes of the vessel. As a result, .contingent upon sacrificing the cargo. Daniels v Harris 31 concerned insurance
where the adverse consequences of the manner ofstowage of cargo are confined on deck cargo that jeopardized the safety of the cartying vessel even in
to the cargo, the stowage does not render the vessel unseaworthy or unfit for its ordinary rough weather. lt was argued, however, that the vessel was seaworthy
cargo. as the cargo had been stowed so as to permit easy jettisoning should such
weather be encountered. Such a concept of seaworthiness conditional upon
In The Thorsa,26 cases of chocolate deteriorated in transit by rea.<;on of stowage in the destruction of the subject-matter insured was roundly rejected by the court. The
same hold as gorgonzola cheeses. The Court ofAppeal held that stowage of two case has been regarded as authority for the proposition that seaworthiness as a
items of cargo so that one could damage the other in transit could not quality of the vessel reflects the particular adventure insured, but it is suggested
render the vessel unseaworthy. This principle received House of Lords apptoval instead that it illustrates the warranty of cargoworthiness.
in Elder, Dempster 6- Co Ltd v Paterson, Zochonis 6- Co Ltd," where casks of
palm oil stowed in the bottom of holds of a ship structurally fit for their carriage (4) The Relative Nature of Seaworthiness and Cargoworthiness
were damaged by the weight of very heavy bags of palm kernels stowed
immedi-ately on top of them. In an action against the carrier on the contract of Seaworthiness and cargoworthiness are not fixed or abstract concepts. The 19.18
affreight-ment, it was held that the cause of the loss was superincumbent weight standards to be met for a vessel to be seaworthy or cargoworthy develop over
by reason of poor stowage rather than the condition of the ship, which was in no time to reflect evolving knowledge and standards of ship construction, oper-
way rendered unseaworthy by the stowage. According to Lord Sumner;" 'Bad ation, and certification.32 Moreover, the requisite condition of a vessel may
stowage, which endangers the safety of the ship, may amount to unseaworthi- vary according to the demands of the particular adventure. Certain waters
ness, of course, but bad stowage, which affects nothing but the cargo damaged present different challenges depending upon the time of year, as maya stay in
by it, is bad stowage and nothing more, and still leaves the ship seaworthy for port. Should the insured adventure embrace more than one such environment,
the adventure, even though the adventure be the carrying of that cargo.' seaworthiness may vary between the different parts of the one adventure. 33
In contrast, stowage will render a vessel unseaworthy where it affects the firness of the In addition, seaworthiness and cargoworthiness reflect the risk as presented to 19.19
vessel for the insured adventure. In Kopito/f v Wilson," the ship was loaded insurers. Burges v Wickham" arose out of the loss of the Ganges, a vessel built in
with three armour plates each weighing between fifteen and eighteen tons. In the United Kingdom for use on the river Indus and, therefore, generally unfit
rough weather, one plate broke free, crashing through the side of the ship, for ocean navigation. Nevertheless, everything possible was done temporarily
which duly sank. The trial judge, in a direction upheld on appeal, left to the jury to strengthen and equip the vessel for the rigours of the passage to India. The
the issue ofwhether the vessel at the time of sailing was reasonably fit in respect assured disclosed to the insurer both the original construction and character of
of the stowing of the plates to encounter the ordinary perils which might be the Ganges and the temporary work, and an additional premium was paid to
expected on the voyage at that season. The jury found the vessel unfit. teflect the risk represented by an ocean voyage for a river vessel. When the
Similarly, a wooden ship was held unseaworthy when loaded with sulphuric Ganges was lost, the undetwriters unsuccessfully sought to avoid liability on the
basis of unseaworthiness. The court held that seaworthiness was to be judged
acid in such a way that the acid could escape and render the ship incapable of
flexibly and by reference to the insured adventure, namely the exposure to ocean
performing the voyage in ordinary weather. 30
perils of a river vessel. According to Blackburn J:35
19.17 Moreover, a vessel will not be cargoworthy where the manner of stowage is such
.. . on such an adventure as this, viz, sending a river steamer across the ocean, the
warranty of seaworthiness was complied with if as much was done to make her fit
[1916J P 257.
[1924J AC 522. See also Wade v Cockerlinc (1905) 10 Com Cas 115: Steamship Calcutta Co
Ltd v Andrew w"ir & Co (1910) 15 Com Cas 172, 191. " (1874) LR 10 CP 1.
28 [1924J AC 522, 561-2. 29 (1876) 1 QBD 377- 32 Burges v Wickham (1863) 3 B & S 669, 693--4: Bradley (FC) & Sons Ltd v Federal Steam
30 Firemans Fund Insurance Co v \.%stern Australian Insurance Co Ltd (1927) 33 Com Cas 36. Navigation Co (1926) 24 LlLRep 446, (1927) 27 LlLRep 395: w"stem Canada Steamship Co Ltd
See also Foley v Tt:tbor (1861) 2 F & F 663; 672; Paterson Steamships Ltd v Canadian Co-operative v Canadian Commercial Corp [196012 Lloyd's Rep 313 (Supreme Court of Canada).
Wheat Producers Ltd [1934J AC 538: Smith Hogg & Co Ltd v Black Sca &·Baltic 33 See further below for discussion of time of compliance and the doctrine of stages.
GeneraiInsurance Co Ltd [1940J AC 997. 34 (1863) 3 B & S 669. 3S ibid 696.
570 571
Sub-standard Shipping Seaworthiness in Voyage Policies
for the voyage as was in such adventure usual and proper; though it might not 4
vessel and the safery of the master and crew. ' This is, however, ro impute a
make her as fit for the voyage as would have been usual and proper if the regulatory function to marine insurance law inconsistent with its general private
adventure had been that of sending out an ordinary seagoing vessel.
law character and capricious in its operation, since it applies regardless of whether
Having disclosed all material facrs, the assured did not warrant the prudence of the the assured has any control over the vessel at the time the warranry attaches. 43 The
adventure; rather, thar was for the underwrirer to judge in deciding whether to true explanation seems ro relate to the nature of the adventure insured under a
accept the risk and the level of premium. 36 voyage policy. The underwriter, when assessing the risk of a particular voyage,
must have the right to assume a certain fitness of the vessel ro encounter the
ordinary hazards of the adventure in order to fix an appropriate premium. It is
Seaworthiness in Voyage Policies importanr to remember that the law on seaworthiness was estab-lished when the ]
ast-in-time concept of proximiry prevailed. Simply ro exclude losses caused by
Into every voyage policy," whether on cargo, hull, freight, or other interest," there is
unseaworthiness would have failed to protect the insurer, as unseaworthiness
implied a warranry of seaworthiness of the vessel. Although the basis of the
leading ro rhe loss of a vessel would have been disregarded as remote and
warranty today is section 39(1 )-(4) of the Marine Insurance Act 1906, the classic
irrelevant, leaving the insurer liable for a loss by perils of the sea." Hence the resort
exposition of the warranry remains thar of Parke B in Dixon v Sadler:" to the warranry, a blunderbuss of an instrument for the pur-pose, as the absence of
In the case of an insurance for a certain voyage, it is clearly established that there is any requiremenr of a causal link between a breach of
an implied warranty that the vessel shall be seaworthy, by which it is meant that she warranty and a casualty protects the insurer even where the unseaworthiness
shall be in a fit state as to repairs, equipment, and crew, and in all other respects, to contributes in no way to the 10ss,45
encounter the ordinary perils of the voyage insured, at the time of salling upon it.
If the assurance attaches before the voyage commences, it is enough that the state
(2) Time of Compliance and the Doctrine of Stages
of the ship be commensurate to the then risk; and, if the voyage be such as to
require a different complement of men, or state of equipment, in different parts of The implied warranry of seaworthiness is prima ftcie confined to the com- 19.23
it, as, if it were a voyage down a canal or river, and thence across the open sea, it
mencement of the voyage. Supervening unseaworthiness affords the underwriter
would be enough if the vessel were, at the commencement of each stage of the
navigation, properly manned and equipped for it. But the assured makes no war- no defence. 46 Nor can it be argued in freight insurance that the warranry attaches at
ranty to the underwriters that the vessel shall continue seaworthy, or that the the time of conclusion of the freight-generating contract." Where, however,
master or crew shall do their duty during the voyage, .. different legs of rhe one voyage embrace differenr maritime condirions, requiring
19.21 Notwithstanding the general applicabiliry of rhe warranry ro all voyage policies, the vessel to be seaworthy for all such conditions at the inception of the voyage
could impose an impossible burden. Consequently, the seaworthi-ness warranry is
a cargo owner is unlikely to have any control over the condition of the carrying
relaxed by the doctrine of stages, permitring one to distinguish, for example, a stay
vessel. Consequently, modern cargo policies severely restrict the circumstances 48
in which a cargo underwriter can invoke breach of the seaworthiness warranry.40 in porr, a river voyage, and a sea voyage. In such a case, the
(1) Rationale for the Warranry

" Wilkie v Ceddes (1815) 3 Dow 57; Douglas v Scougall (1816) 4 Dow 269. cf Christie v
19.22 The basis of the implication of the warranry41 has been stated as being a desire Secretan (1799) 8 TR 192, 198.
to ensure rhat persons with an insurable interest arising out of the adventure do 43 Thus, rhe warranty may attach to the ship when in a foreign port, and, although the position is
mitigated by the modern Institute cargo clauses, applies equally to policies taken out by those with
nor, by reason of their insurance cover, grow careless of the condition of the interests only in cargo or freight and, consequently, with little or no control over the vessel.
See Thompson v Hopper (1856) 6 EI & BI 172, 188.
44 For discussion of causation in the context of unseaworthiness, see 19AOf[ below.
Foley v Tabor (1861) 2 F & F 663,673. For a contrary earlier view that did not survive, see
weir v Aberdeen (1819) 2 B & Aid 320.
Burges v Wickham Was followed in Clapham v Langton (1864) 34 LJQB 46; Turnbull v MIA 1906, s 39(1); Bermon v Woodbridge (1781) 2 Dougl 781; Wotson v Clark (1813) 1
Janson (1877) 36 LT 635 (where the assured failed to render the vessel as seaworthy as possible). Dow 336; Sadler v Dixon (1841) 8 M & W 895; McFadden v Blue Star Line[190511 KB 697.
There is no implied seaworthiness warranry in time policies: see 19.30 below.
Project Asia Line Inc v Shone (The Pride ofDonegal) [2002] EWHC 24 (Comm), [2002] 1
38 DanielsvHarris(l874)LRI0CPl,5. 39 (l839)5M&W405,414.
40 See 19.61-19.63 below. .
Quebec Marine Insurance Co v Commercial Bank of Canada (1870) LR 3 PC 234, 241
41 See Sir Michael Musrill, 'Fault and Marine Losses' [1988] LMCLQ310, 345-6.
('definite, well-recognised, and distinctly separate stages of the voyage').
572 573
Sub-standard Shipping Seaworthiness in Voyage Policies
seaworrhiness of a vessel will be judged ar rhe commencement of each stage by from Portneuf, about thirty-six miles up tiver from Quebec, warranted to sail on
reference to the circumsrances of that stage. Section 39(3) of rhe Marine or before 28 October. Before that date, the vessel sailed from Portneuf with a
Insurance Act 1906 thus provides that: 'Whete the policy telates to a voyage crew adequate for river navigation. On 29 October, the vessel cleared customs at
which is petformed in diffetent stages, during which the ship tequires different Quebec and took on extra crew for the sea voyage, continuing the voyage on 30
kinds of or further preparation or equipment, there is an implied wattanty that at Octobet. Lord Ellenborough held that the sailing warranty required com-
the commencement of each stage the ship is seaworthy in respect of such mencement of the voyage with a crew competent to work the ship to the port of
prepatation or equipment fot the purposes of that stage.' destination and that, consequently, the departure ftom Quebec was too late and
that from Portneuf did not comply for want of a crew sufficient for the whole
One particular manifestation of the doctrine of stages occurs where the policy attaches voyage. Ridsdale was distinguished in Bouillon v Lupton on the ground that it
to a ship in port. Clearly the demands of a stay in port differ markedly from was not necessary to perform the river voyage to Quebec with a ctew insuffi-
those of a voyage. Consequently, by virtue of section 39(2) of the Matine cient for the sea part of the voyage, a test of necessity of different provision
Insurance Act 1906, where tisk attaches while the ship is in port, the assured derermining whether a voyage was divided inro stages. 52
impliedly warrants that the ship 'shall, at the commencement of the tisk, be
reasonably fit to encounter the otdinary petils of the POtt'. Although expressed Since the decision in Bouillon, however, the emphasis has shifted in two tespects. 19.27
by the statute as a second warranty additional to that of seaworthiness at the First, the enquiry today is whethet a different leg of the voyage requires different
commencement of the voyage, section 39(2) effectively renders a stay in port at or further equipment as opposed to whether it was necessaty nor to carry the
the inception of the tisk a different stage. According to Scrutton L]:49 differenr Ot further equipment from the ourset. Secondly, a test of necessity has
given way to a tesr of commercial reasonableness, a development spurred by
A ship when she sails on her voyage, must be seaworthy for that voyage, that is,
fitto encounter the ordinary perils which a ship would encounter on such a voyage.
the emergence ofsteamships and the need ro stop for coaling. In The
But she need not be fit for the voyage before it commences, and when she is Vortigern,53 Collins L] stated rhat:
loading in pOrt. It is enough if, before she sails, she has completed her equipment The custom of a particular trade ... or the convenience of the parties to a
and repair. But she must be fit as a ship for rhe ordinary petils of lying alloat in particu-lar adventure, may make it reasonable that the vessel should be
harbour, waiting to sail. She must, in my view, be fit as a ship, as distinguished equipped up to a different standard at different stages of the voyage, and the
from a carrying warehouse, at each stage of her contract adventure, which may ... warranty of seaworthi-ness has to be adjusted accordingly ... I regard this not
commence before loading. so much as a concession to the shipowner as an adjustment of the standard of
Clearly it is important to know wherher a voyage is divided into stages. Bouillon seaworthiness to the require-ments which the conditions of the adventure,
according to the understanding and convenience of both parties, demand.
Luptor!'° concerned insurance on a voyage from Lyons to Galatz, the vessel
being warranted to sail before a stipulated date. It left Lyons in time fully The warranty must teflect the evolution of commerce and 'be made to conform
equipped for the tiver voyage to Marseilles, bur not fot the sea voyage thence to modern exigencies-that is, to the rules of convenience which regulate the
ro Galatz. In accordance with usual practice, the vessel was then tigged our for practice of merchanrs in respect of particular voyages', having regatd to the
the sea voyage at Marseilles, whence the ship sailed after the warranted sailing ordinary course of business. 54 In the context of bunkering, it has been stated
date. The Court of Common Pleas held that it was impossible not ro divide the that the shipownet has a discretion to fix any reasonable and convenient stages
voyage into two stages and customaty so to do. It was necessary to complete for the voyage. 55
the rivet navigation with different equipment than that requited for the sea
voyage. No seaworthiness warranty had been inftinged as the vessel had been 52 See also Quebec Marine Insurance Co v Commercial Bank ofCanada (I870) LR 3 PC 234,
fit for each stage at the commencement thereof Moreover, the sailing warranty 241. Pittegrew v Pringle (1832) 3 B & Ad 514 (discussed at 18.69 above) was similarly dis~
had been fulfilled as the voyage had commenced from Lyons in time. tinguished in Bouillon v Lupton on the basis of an absence of necessity, but far less convincingly
since different quantities of ballast were necessary for different stretches of the voyage. The
19.26 To be conttasted is Ridsdale v Newnham,51 a case that involved insurance at and decision in Pittegrew can only be defended on the basis of the wording of the policy which
required that the vessel be 'ready for sea', but it is strongly arguable that this should have been
interpreted as 'ready to proceed on the voyage' (see the discussion of reasonable interpretation of
warranties at 18.67ff above).
Reed (AE) & Co v Page, Son & East Ltd [1927] 1 KB 743, 754. See also Annen v Woodman [1899] P 140, 159.
49
(1810) 3 Taunt 299. ibid 160. See also Northumbrian Shipping Co Ltd v Timm (E) & Son Ltd[1939] AC 397, 404.
50 (1863) 15 CB(NS) 113. " (1815) 4 Camp lll. Northumbrian Shipping Co Ltd v Timm (E) & Son Ltd [1939] AC 397, 409, 412.
574 575
Sub-standard Shipping Seaworthiness in Time Policies
Where the risk attaches ro a vessel before loading is commenced and continues throughout refused to imply any seaworthiness warranty into time policies but recognized
a voyage, it might be possible to divide the voyage into a consider-able number of .a defence based upon knowledge of the assured."' As a result, section 39(5) of the
periods during which the risks ro be faced are different. The ship may initially lie Marine Insurance Act 1906 provides as follows: 'In a time policy there is no
in port awaiting loading, then proceed to a loading phase followed by a further implied warranty that the ship shall be seaworthy at any stage of the adventure, but
delay whilst awaiting departure. A voyage through calm waters to the open sea where, with the ptivity ofthe assured, the ship is sent to sea in an unseaworthy state,
may be followed by a sea voyage, perhaps calling at one or more intermediate the insurer is not liable for any loss attributable to unseaworthiness.'
ports, and a further passage up river to the port of destin-ation, followed in turn by a
In contrast with the position under voyage policies, the unseaworthiness may be 19.31
period of unloading. One should, however, beware treating each of these parts of
present at any time the vessel puts to sea, whether or not at the commencement
the voyage as a separate stage. Thus, while it is possible that the loading and sea
of a voyage or stage thereof, but the assured must be privy to .the unseaworthi-ness
voyage stages may on the facts be separated by an intermediate period of lying in
and the loss in respect ofwhich the claim is made must be causally linked ro the
port or proceeding in sheltered waters, it is undesirable to multiply unduly stages of
unseaworthiness. Of course, where the vessel receives its death wound before the
seaworthiness unless circumstances so require. 56 Merely because a vessel may
time when a time policy is due ro attach, the insurer will never come on risk by
legitimately call at an intervening port 63
reason of the ab initio impossibility of the insured adventure.
does not produce a voyage in stages, 57 and it has been stated that landing goods by
lighter at destination does not constitute a separate stage in the voyage. 58 The (I) Privity
burden of proving that a voyage is divided into stages, in order to defeat the
underwriter's defence of unseaworthiness by reference ro the voyage as a whole, The requirement of privity of the assured ro the unseaworthiness denotes that ir 19.32 must
lies on the assured. 59 be known to the assured. In particular, it does not suffice that it be attributable ro the
negligence of the assured, with the result that the law on unseaworthiness provides a hull
It should be noted thar the doctrine of stages does not produce a continuing warranty of
insurer under a time policy with no defence against negligent failure properly to maintain
seaworthiness. Instead, the warranty operates at several isolated points during the
the insured vessel.
voyage, requiring the vessel ro be seaworthy by reference ro the circumsrances of
each stage at the commencement thereof'o but not In The Gloria,64 Branson J, although rejecting an argument that privity was 19.33
thereafter. Accordingly, the warranty was not broken where a vessel was sea- confined ro actual knowledge of the unseaworthiness, stated his opinion as follows:
worthy at the commencement of loading but became unseaworthy during loading
by reason of excessive deck cargo that caused the vessel to list and cargo to fall I think that if it were shown that an owner had reason to believe that his ship was in
overboard. 61 fact unseaworthy, and deliberately refrained from an examination which would
have turned his belief into knowledge, he might ptOperly be held privy to the
unseaworthiness of his ship. But the mere omission to take precautions against
Seaworthiness in Time Policies the possibility of the ship being unseaworthy cannot, I think, make the Owner
privy to any unseaworthiness which such precaution might have disclosed.
The approach ro seaworthiness in time policies is radically different from that
This approach was subsequently adopted and elaborated upon by the Court of 19.34 Appeal
adopted with respect to voyage policies. A line of nineteenth-century case law 65
in The Eurysthenes. It was emphasized that mere negligence in not
56Svenssons Travaruaktiebolag v Cliffe Steamsbip Co [19321 1 KB 490, 493. Gibson v Small (1853) 4 rILe 353, discussed by Sir Michael MustiH, 'Fault and Marine
Thin v Richards & Co [1892]2 QB 141. Losses' [19881 LMCLQ310. 347-9; Michael v Tredwin (1856) 17 CB 551; Thompson
Lane v Nixon (1866) LR 1 CP 412. Quaerewhether transhipment by lighter in the course of v Hopper (1856) 6 EI & BII72; rvsd on orher grounds (1858) El BI & EII038; Faw,us
the voyage constitutes a separate stage. vSarsfield(1856) 6 E1 & BII92; Dudgeon v Pembroke (1877) 2 App Cas 284.
" The Vbrtigern [18991 P 140, 155. Fawcns v Sarsfield (1856) 6 EI & B1192, 203,
60 MIA 1906, s 39(3); Quebec Marine Insurance Co v Commercial Bank afCanada (1870) LR3 Compania Naviera Vascongada v British 6- Foreign Marine Insurance Co Ltd (The Gloria)
PC 234,241. (1935) 54 L1LRep 35, 58.
61 Svenssons TYavaruaktiebolag v Cliffe Steamship Co [1932] 1 KB 490: See also McFadden v 6S Compania Maritima San Basilio SA v Oceanus Mutual Underwriting Association (Bermuda)
Blue Star Line[190511 KB 697. Lcd (The Eurysthenes) [1977] QB 49.
576 577
knowing the truth was insnfficient, bnt equally that the concept of privity was not vessel was equipped with a carbon dioxide fire-fighting system. This worked by
ro be equated with wilful misconduct. Privity is not synonymous with any species releasing the entirety of the gas into a sealed area so as to deprive the fire of
of fault, but connotes instead knowledge of the vessel's unseaworthiness, oxygen. However, an engine-room fire rendered the vessel a constructive total loss
and an assured that, correctly, suspects unseaworthiness and refrains from because defective fire dampers meant that the room could not be properly sealed
enquiry in order ro avoid having suspicion transformed into certainty is taken as and because the master waited for too long to release the carbon dioxide and then
having the requisite knowledge. Thus, according ro Roskill L]: did so only in stages. The defective dampers and the lack ofknowledge of the
master rendered the insured vessel unseaworthy, but the question was whether the
... knowledge does not only mean positive knowledge, but includes that type
of knowledge which is exptessed in the phtase 'turning a blind eye.' If the facts assured was privy to that unseaworthiness.
amounting to unseaworthiness are there staring the assured in the face so that he must
The Star Sea was one of a fleet of over thirty vessels beneficially owned by the 19.37
... have realised their implication upon the seaworthiness of the ship, he
assureds. The previous year, two other vessels in the fleet, the Centaurus and the
cannot escape from being held ptivy to that unseaworthiness by blindly or blandly
ignoring those facts or by refraining from asking relevant questions regarding them Kastora, had been rendered constructive total losses by fires. Defective dampers
in the hope that by his lack of inquity he will not know for certain that which were a cause in both cases and the Korean crew of the Centaurus had also failed
any inquiry must have made plain beyond possibility of doubt." to release the carbon dioxide until too late because of an 'extraordinary belief
It is important ro resist any temptation ro shade blind eye knowledge into negligence. The that it would damage the ship's engines.'o The assureds responded by replacing
phrase 'blind-eye knowledge' originates in the refusal by Vice-Admiral Nelson at their Korean crews with Greek officers and Maldivian ratings. They did not,
the Batrle of Copenhagen to recognize a signal from a superior officer. Nelson had however, ensure that the insured vessel's safety equipment was thoroughly
lost an eye in an earlier engagement. Informed that the flagship had signalled ro checked in the light of what was known abour the earlier fires, nor did they
disengage, Nelson raised a telescope ro his blind eye and is reported as saying: 'I ensure that the vessel's new Greek master was properly trained in the operation
have only one eye; I have a right ro be blind sometimes!' He continned with the of the vessel's carbon dioxide fire-fighting system. This was clearly an
inadequate response but provided no basis for inferring knowledge about the
engagement and won a famous vicrory. The important point for legal principle is
that Nelson was well aware of what the flagship was signalling but deliberately state of the Star Sea itself At first instance, Tuckey J made no express finding of
ignored confirmarory evidence. A person wirh blind-eye knowledge has a clear and a deliberate decision to refrain from seeking confirmatory evidence of a subject-
conscions suspicion of the existence of the relevant circumstances and deliberately ive belief of unseaworthiness," and the higher courts reaffirmed the inadmissi-
refrains from seeking or receiving confirmation that the firm suspicion is true. In bility of inferring subjective knowledge from objective negligence. It was of
contrast, a failure to pursue 'an untargeted or speculative suspicion' amounts ro course possible, as Tuckey] observed, that the assured failed to respond properly
negligence only and cannot sustain a finding of privity.67 According ro Lord through an unwillingness to incur substantial repair costs." However, that
Hobhouse, whether the sus-picion is sufficiently strong may be revealed by asking inadequate response was consistent also with other states of mind and could not
why the assured failed to seek further information. There is privity if the reason of itself establish priviry.73
was to avoid suspicion being transformed into certainty. 'If, on the other hand, he To what must the assured be privy? Despite an earlier dictum of Buckley L] 19.38
did not enquire because he was roo lazy or he was grossly negligent or believed suggesting that mere privity to the state of things that in fact rendered the
that there was nothing wrong, then privity has not been made out.'68 vessel unseaworthy sufficed," it was held in The Eurysthenes
75
that the assured
19.36 The limits of blind-eye knowledge are illustrated by The Star Sea:' The insured must know also rhat those facts had the consequence of rendering the vessel
unseaworthy. Roskin L] accepted the phrase, suggested by counsel, 'conscious
realisation of the implication of the facts making the ship unseaworthy'. 76
66 ibid 76. See also Lord Denning MRat 68 and Geoffrey Lane LJ at 81. The ellipsis represents
the clause 'had he thought of it', which conveys an incorrect connotation ofan objective standard:
Maniftst Shipping Co Ltd v Uni'Polaris Insurance Co Ltd (The Star Sea) [2001J UKHL I, [2003J I 70 [2001] UKHL 1, [20031 lAC 469, para 28 per Lord Hobhouse.
AC 469, paras 25, 114. 71 Something Lord SCOtt considered essential for a finding ofblind~eye knowledge: para 115.
67 The Star Sea [2001J UKHL 1, [2003J lAC 469, para 116. 68 ibid para 25. 72 [199511 Lloyd's Rep 651, 664. 73 [2001J UKHL I, [2003J lAC 469, para 35.
" ManifistShipping Co Ltd v Uni-Polaris Imurance Co Ltd (The StarSea)[199511 Lloyd's Rep 74 Thomas (M) & Son Shipping Co Ltd v London & Provincia! Marine & Genera! Insurance Co
651, rvsd in part [1997J I Lloyd's Rep 360. affd [2001J UKHL I; [2003J lAC 469. Ltd (1930) 30 TLR 595, 596.
7S [1977J QB 49. 76 ibid 76.
578
579
According ro Geoffrey Lane LJ, the wording of section 39(5) was clear: 'It restraint upon the outbreak of the Second World War. The shipowner sought to
says "unseaworthiness», not "facts which in the upshot prove to amount to evade liability to cargo owners by invoking a war risks exclusion covering such
unseaworthiness". '77 restraints, but the House of Lords held that the dominant cause of the loss was the
vessel's unseaworthiness. Lord Wright observed that although a vessel might be
Who is the Assured? unseaworthy and in breach of warranty at the commencement of the voyage,
pending the casualty the unseaworthiness remains inoperative and pos-
In determining who is the assured for the purposes of section 39(5), one adopts the usual sibly latent; once the casualty occurs, however, the unseaworthiness 'operates
approach to attribution of rhe acts or knowledge of agents of identifY-ing the directly as a cause and, indeed, a dominant cause'. Noting that, following
person or persons with responsibility with respect to the relevant marters such that Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd,'4 causation
their knowledge can fairly be attributed to the assured, bearing in mind the purpose is not a matter of immediacy in time, he continued:
of the legal rule in question." In the context ofsection 39(5), the appropriate
question becomes 'who was involved in the decision-malting processes required for But unseaworthiness as a cause, operates immediately whenever it comes inw effect; it
has until then only been dormant. The maxim causa proxima non remota spectatur is
sending the [insured vessel] to sea?'79 either meaningless or misleading until 'remota' and 'proxima' are defined. Thus
unseaworthiness as a cause cannot from its very nature operate by itself; it needs the
Causation 'peril' in order to evince that the vessel or some part or quality of
it, is less fit than it should have been and would have been if it had been seaworthy,
Unlike the position with respect to voyage policies where the warranty renders causation and hence the casualty ensues. A fitter ship would have passed through the peril
irrelevant, unseaworthiness under time policies affords insurers no defence unless unscathed. In this way unseaworthiness is a decisive cause or as it is called a
causally linked to the loss. Thus, inoperative fire-fighting equip-ment may render a 85
dominant cause. ...
vessel unseaworthy, but unless it could, if functioning, have been used successfully
Accordingly, where a vessel is unseaworthy by virtue of negligent loading of 19.43 cargo
to combat the fire that in fact occurred, such unseaworthiness has no significance
and the master in consequence departs from his proper course and strands
under section 39(5).'0
the vessel, the unseaworthiness is 'the real cause' of the casualty." Again, the
Unseaworthiness and the doctrine ofproximate cause dominant cause of an explosion resulting from contamination of a cargo of oil by
the remains ofthe previous cargo is the unseaworthiness ofthe vessel by reason of
A blueprint for analysing causation in the context of unseaworthiness may be found in the
the failure properly to clean the cargo tanks after discharging the previous
law of carriage of goods by sea." Under rhe Hague-Visby Rules, where goods are S7
cargo.
shipped in good condition but arrive damaged, the shipowner is prima ficie liable
ro the cargo owner but may seek to rely upon an exclusion in the contract of In the law of marine insurance, nineteenth-century cases on causation in the 19.44
affreightment relating, for example, to loss caused by perils of the sea or context of seaworthiness inevitably require careful consideration in the light of the
negligence. The cargo owner in turn may seek to displace the exclusion by proving modern abandonment of the last-in-time approach to proximity of caus-ation in
the vessel was unseaworthy at the commencement of the voyage and that the favour of the dominant cause. In Redman v Wilson,88 a vessel insured under a
unseaworthiness caused the 10ss.82 voyage policy was rendered unseaworthy by negligent loading of the homeward
cargo. In order to prevent it from sinking and to preserve the cargo, the ship was run
In Monarch Steamship Co Ltd v Karlshamns Oljeftbriker,83 delay caused by
ashore. Parke B held the insurers liable for a loss proximately caused by a peril of
unseaworthiness resulted in a vessel being caught by a British government
the sea, namely stranding. The negligence was viewed as
causally remote and unseaworthiness received no causation mention.
77 ibid 81. 78 For fuller discussion ofattribution, see 4.113-4.116 aboves.
Manifist Shipping 6- Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) (19971 1
Lloyd's Rep 360, 375 per Leggatt LJ. (19181 AC 350.
Manifist Shipping 6- Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) (19951 1 Lloyd's (19491 AC 196, 227. See also Smith, Hogg 6- Co Ltd v Black Sea 6- Baltie General Insurance
Rep 651. 659. • Co Ltd (19401 AC 997, 1005.
See Leyhnd Shipping Co Ltd v Norw.ich Union F'ire Insurance Society Ltd[1918] AC 350, 368. Paterson Steamships Ltd v Canadian Co-operative Wheat Producers Ltd [1934] AC 538.
The Hellenic Dolphin [19781 2 Lloyd's Rep 336, 339. However, the shipownet is liable only Mediterranean Freight Services Ltd v BP Oillnternationtd Ltd (The Fiona) [1993] 1 Lloyd's
in respect of loss caused by unseaworthiness attributable to its negligence; Rep 257.
83 (19491 AC 196. (1845) 14 M & W 476.
580 581
In Dudgeon v Pembroke," a vessel insured under a time policy underwent an examination only ordinary risks simply because of the defective character of the hull, the
in harbour by reason of having made more water than the weather justified. No assured cannot recover under the heading of perils of the sea,97 although the
explanation having been discovered, another voyage was commenced during which assured should be able to recover under the Inchmaree clause where the
bad weather was encountered. The vessel tried unsuccessfully to reach port and was unseaworthiness constitutes a latent defect or has been caused by the
run ashore. The House of Lords held the underwriters liable for a loss by perils of negligence of a relevant person.98
the sea, rejecting their argument that the cause of the loss was unseaworthiness
rather than a peril of the sea. In rejecting this argument, however, Lord Penzance (b) The causation test ofsection 39(5)
adopted two differing approaches to causation and unseaworthiness. On the one Section 39(5) avoids the phrase 'proximately caused by' in favour of 'attribut- 19.47
hand, he referred to 'a loss proxim-arely caused by the sea, but more remotely and able to', the phrase also adopted in the context of the wilful misconducr defence." This
substantially brought abour by the condition of the ship',90 whereas, on the other responds to the last-in-time approach to proximity of causation
hand, he stated that, by virtue of the causa proxima maxim, 'any loss caused by permitting the courts to consider an orherwise legally remote if factually
immediately by the perils of the sea is within the policy, though it would not have significant cause. Thus, if unseaworthiness necessarily increased the danger
occurred bur for the concurrent action of some other cause which is not within it'.91 which led to the loss, the insurer would have a good defence even if, when rhe
Although the second approach recognizes that unseaworthiness and perils of the sea accident overtook the vessel, rhe accident was the cause of the loss most
1Oo
may be concur-rent causes, with the insurer liable for the covered peril in the immediate in rime. The position is the same today, except that, as
absence of any express exclusion of losses caused by unseaworthiness,92 both discussed above, causation doctrine does nor today deny the unseaworthiness
approaches favour status as the, or a) proximate cause. 101
the last-in-time view of proximity of causation. Warnings against equating Where unseaworrhiness consritutes the proximate cause of a loss, insurers of 19.48
marine insurance with carriage of goods in the context of causation and course do not need an unseaworthiness defence, since the assured's claim will
unseaworthiness93 reflect such instances of this now obsolete insurance law ,o2
approach to proximate cause. fail for want of an operative covered peril. In the context of the last-in-time
approach to proximity of causation, section 39(5) established an important
It is suggested that, today, the causation dichotomy between marine insurance exceprion to the irrelevance of temporally, and therefore Jegally, remote causes.
law, given its modern 'dominant' approach to proximity, and the law of carriage of Given the modern dominanr cause approach to the concept of proximate cause,
goods by sea should be formally abrogated. Where a vessel insured against perils of however, section 39(5) has been partly overraken by the transformation of
the sea sinks in weather which ranks as such a peril and does so because unseaworthiness from remote to proximate cause. The significance of section
unseaworthiness rendered the vessel incapable of surviving, both unseaworthi-ness 39(5) in the modern law of marine insurance lies in irs requirement of privity.
and perils of the sea should be classified as proximate causes. 94 In the absence of Where the unseaworthiness and a covered peril constitute joint causes of the
an express exclusion,95 the assured may recover for loss by perils of the sea." casualty, the insurer will be liable unless it can establish the section 39(5)
Unseaworthiness of itself is not, however, a peril of the sea. Where a vessel with an unseaworthiness defence. 103
unseaworthy hull takes on water or sustains damage on encountering
97 ibid 41. See also Fawcus v Sarsfield (1856) 6 EI & B1 192; Mountain v Whittle[1921J 1 AC 615,
89 (1877) 2 App Cas 284. 90 ibid 295. 91 ibid 297. See generally 297-8.
92 See]] Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987J 1
626; Capital Coastal Shipping Corp v Hartftrd Fire Insurance Co (The Cristie) [1975J 2
Lloyd's Rep 32,37. Lloyd's Rep 100.
93 eg Thomas Wilson, Sons & Co v Owners ofthe Cargo per the Xantho (The Xantho) (1887) 12 " The Cristie [1975J 2 Lloyd's Rep 100, 105.
App Ca, 503, 510. MIA 1906, s 55(2)(a), discussed at 15.14-15.17 above.
S4 Frangos v Sun Insurance Office Ltd (1934) 49 LlLRep 354; JJ I.loyd Instruments Ltd v
Thompson v Hopper (1856) 6 EI & Blln; (1858) EI BI & EII038.
Northern Star Insurance Co Ltd (The Miss]ay]ay) [1987J 1 Lloyd', Rep 32; Manifist Shipping Cv For reference to the proximate cause in connection with unseaworthiness and time policies,
Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [1995J 1 Lloyd', Rep 651, 659 (fire and see Manifist Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The
unseaworthiness concurrent causes). Star Sea) [1995J 1
ss Where the unseaworthiness results from ordinary wear and tear, the insurer may Lloyd's Rep 651, 659.
invoke an exclusion cast in such terms. Ballantyne v Mackinnon [1896J 2 QB 457.
]] I.loyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987J 1 Lloyd's
" JJ I.loyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss]ay]ay) [1987J 1 Lloyd's
Rep 32. Rep 32; Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [1995J 1 Lloyd's
Rep 651, 653-4.
582
583
Sub-standard Shipping ProofofUnseaworthiness
Multiple Instances of Unseaworthiness where the copper sheathing had worn off and the vessel was declared unseaworthy
A vessel might be unseaworthy in several respects with the assured privy to some but not on 15 July. The trial judge cortectly direcred the juty that, as a matter of law) there
all. On a literal reading, section 39(5) of the Marine Insurance Act 1906 would was a prima facie presumption in favour of seaworthiness with the burden of
provide an insurer with a defence regardless of the absence of any causal link proving unseaworthiness lying on the insuter. However, he continued that, if the
between the unseaworthiness to which the assured was privy and the loss in inability of the ship to proceed on the voyage became evident within a short time of
respect of which the claim is made. This is not how the subsection has been sailing, as a marter of law it was then presumed that this inability was present at the
interpreted. In Thomas v Tjne & wear Steamship Freight Insurance time of sailing and the burden of proof shifted to the assured to prove the vessel
Association,104 a vessel put to sea unseaworthy by reason of the state of the hull seaworthy at that time. He further directed the jury that, again as a matter oflaw, the
and also an inadequate crew. An arbitrator found that the subsequent loss of the period of time from 4 June to 15 June was sufficiently short to shift the burden of
vessel was caused by the state of the hull but that the assured was privy only to the proof
inadequacy of the crew. In these circumstances, the insurers were held liable for The Queen's Bench Division, upheld by the Court of Appeal, ordered a new 19.53 trial on
the loss, Atkin J observing that the intention behind section 39(5) was that the the grounds of a misdirection. Although it was possible to read earlier authority as
assured should be unable to recover in respect of a loss occasioned by its own
supporting a shifting legal burden of proof,'l0 an unexplained inability to prosecute the
s
fault. ' ° voyage, even if rapidly manifested, was held to give rise
merely to an inference of fact. The judgment of the Queen's Bench Division was
19.50 In a second case arising out of the same casualty,'06 brought on a different policy, it
deliveted by Cockburn CJ:111
was held at first instance that the srate of the hull and the inadequacy of the crew
were joint causes of the loss. The Court of Appeal held that the insurers had a If a vessel very shortly after leaving POrt founders, or becomes unable to prosecute her
defence, provided the unseaworthiness to which the assured was privy was a cause voyage, in the absence of any external circumstances to account for such disaster or
of the 10ss.'07 inability rhe irresistible inference arises, that her misfortune has been clue to inherent
defects existing at the time at which the risk attached. But this is not by reason of any
legal presumption or shifting of the burden of proof but simply as a matter of reason
and common sense brought to bear upon the question as one of fact, inasmuch as in the
Proof of Unseaworthiness absence of evelY other possible cause the only conclusion, which can -be arrived at, is
that inherent unseaworthiness must have occasioned the result. Indeed, on closer
s
The insurer carries the burden of proving a vessel unseaworthy at the relevant rime. '° examination, it becomes apparent that time enters to a very limited extent only into the
Discharging this burden may, however, be facilitated by a factual-infer. ence question in arriving at this conclusion. If the vessel strikes on a rock or a sandbank
arising from an unexplained deterioration in the condition of the vessel. immediately after. leaving port, or, while still in sight of it, is overpowered by a storm,
the shortness of the time which has elapsed since she started becomes at once
In the leading case of Pickup v Thames & Mersey Marine Insurance Co Ltd,109 a immaterial. On the other hand, though the vessel may have been at sea days, or even
vessel sailed on 4 June and encountered severe weather from 9 June until 15 June. weeks, if during the whole of the time she has had favourable weather, fair winds, and
Such a quantity of water was raken on that the master feared for the safety of rhe vessel calm seas, and yet goes down, or proves unable to continue on her course, the same
inference as to inherent unseaworthiness presents itself as in the former case, though,
and put back to the port of loading, which it made despite running aground. Surveys
perhaps, with diminished cogency in proportion as the interval has been longer. But in
showed the hull to be badly strained and worm·eaten the latter case, as in the former, the inference arises from the impossibility of ascribing
the result to any other cause than the condition of the vessel on starting the voyage, the
interval of time being matter of very secondary consideration, if any. It is from the
entire absence of any other cause than inherent unseaworthiness that the probative
'" [1917] 1 KB 938.
This reference to fault must now be read subject to the judgment of the Court ofAppeal in The value of such a combination of circumstances is derived. Time can enter to a very
Eurysthenes, discussed at 19.34 above. limited extent only, if it enters at all, into the question as a factor in leading to the
Thomas (M) & Son Shipping Co Ltd v London & Provincial Marine & Genera/Insurance result. It certainly cannot be said of itself and without more, to give
Co Ltd(1929) 29 TLR 736; affd (1930) 30 TLR 595.
See also Cohen (George)-Sons 6' Co v Standard Marine Insurance Co Ltd (1925) 30 Com
Cas 139.
108 Davidson v Burnand(1868) LR 4CP 117; Hoffmann (C) & Co v British Genera/Insurance
Co (1922) 10 LlLRep 434.
'" (1878) 3 QBD 594. 110 11&"on v Chrk(1813) 1 Dow 336. ", (1878) 3 QBD 594, 597-8.
584 585
Sub-standard Shipping Unseaworthiness and Cover under the Inchmaree Clause
rise to any new presumption oflaw, or as a matter of law to shift the onus of
E. The Relationship between Unseaworthiness and
proof from the parry on whom the law has cast it.
Cover under the Inchmaree Clause
This factual inference derived from appropriate circumstances has been likened to the res
ipsa laquitur doctrine, of value only if no competing evidence of any credibility is Unseaworthiness of the insured vessel may give rise to loss falling within the 19.56
adduced'12 Where a vessel capsized and sank within twenty-four hours of leaving tetms of the Inchmaree clause. A latent defect may render a vessel unseaworthy
port, apparently without encountering any external cause for the casualty, the and a shaft may break or a boiler burst because it, and thetefore the vessel, was
possibility of a factual inference of unseaworthiness was over-ridden by evidence not reasonably fit to withstand the ordinary perils of the insured adventure. To
of mismanagement of the vessel aftet sailing.'" In The Tatjana,114 in contrast, a what extent do the unseaworthiness defences and the Inchmaree clause conflict
vessel's after feed pump, which served the boilers with fresh water, broke down and, in the event of conflict, which prevails?
within a few hours of putting to sea and two other pumps that might have been
In The Lydia Flag, '17 the relevant provisions of the Inchmaree clause were held, 19.57
expected to substitute wete unable to do so, necessitating feeding of the boilers with
as a matter of contractual interpretation, to constitute exceptions from an
sea water. The shipowner sought general average contribution to consequential
express suspensive condition of seaworthiness at the inception of cover and of due
expenditute from cargo owners, who resisted on the basis that the vessel was
diligence to maintain seaworthiness through the duration of the policy. If the
unseaworthy at the commencement of the voyage. The House of Lords held that, in
suspensive condition wete read as overriding the Inchmatee clause, the result would
the circumstances, the ship-owner bore an onus of proving seaworthiness, which
be considetably to reduce, although not to eliminate, the cover ostensibly conferred
had not been discharged. Lord Shaw fully acknowledged that the burden of
by the televant parts of the Inchmaree clause. This was not a commercially sensible
proving unseaworthiness lay on the party so alleging, but affirmed that this
interpretation.
principle of law in no way impaired 'certain presumptions of fact' arising from, for
example, the age, admitted defects, and classification or absence of classification A similar approach is appropriate for the relationship between the warranry of 19.58
or survey of the ship, a generally poor and deterioraring recotd of the vessel, and unseaworthiness implied into voyage policies and the express provisions of the
breakdown of machinery 'immediately, or almost immediately,' after sailing."' In Inchmaree clause. Were the warranty to ovetride, the relevant provisions of the
other Inchmaree clause would be largely deleted. Latent defect cover, fot example,
wotds, in the absence of rebuttal evidence from the shipowners, the known facts would be confined to defects that arose after rhe commencement of the voyage
provided circumstantial evidence sufficient to prove unseaworthiness. or wete sufficiently minor and unlikely to progress during the insured adventure
so as to avoid a breach of warranty. It is suggested that this, too, would not be a
It should, of course, always be recollected that, even if an insurer is unable to persuade a
commercially sensible interpretation. 118
court of the unseaworthiness of a vessel, whether by direct or circumstantial
evidence, the assured will not recover unless able to prove on a In the context of time policies, there is unlikely to be a conflict. The privity of 19.59
balance of probabilities that the casualty was caused by a covered petil. The the assured requited by the unseaworthiness defence is incompatible with
insurer's evidence may be insufficent to establish unseaworthiness yet sufficient to latency. Moteover, cover under the Inchmaree clause is subject to the due dili-
prevent the assured from discharging its burden of proof '16 gence proviso. If, for example, an assured knows when the vessel purs to sea that a
shaft is liable to bteak or a boiler is liable to burst and fails to intervene, it is
unlikely that any loss resulting from such a casualty will not result from a want of
due diligence by the assured, so that recovery will be denied. A conflict could arise
m Waddle v Wallsend Shipping Co Ltd[1952J 2 Lloyd's Rep 105, 139. only in the unlikely situation that citcumstances ofemergency mandated the vessel
113 Ajum Goolam Hossen & Co v Union Marine Insurance Co Ltd [190 IJ AC 362.
sailing notwithstanding its unseawotthy condition known to the assured. '19
'" Lindsay v Klein (The Tatjana) [1911] AC 194
115 ibid 203. According to the American case of Capital Coastal Shipping Corp v Hartford Fire
Insurance Co (The Crfstie) [197512 Lloyd's Rep 100, 105, thesinking of a vessel in calm water
gives rise to a presumption of unseaworthiness that denies recovery unless either the assured can
adduce rebuttal evidence of seaworthiness, which will in turn raise a counter~presumption ofloss by Martin Maritime Ltd v Provident Capital Indemnity Fund Ltd (The Lydia Flag) (1998] 2
perils of the sea, or the unseaworthin~s was caused by a latent defect or act covered by the Lloyd's Rep 652.
Inchmaree clause, This American formulation goes beyond English law, See also 9.25 above.
'" Rhesa Shipping Co SA v Eamunds (The Popi M) [1985J 1 WLR 948, dIscussed at 7.49-7.51 eg a hostile invasion or revolution threatens to destroy the vessel or detain it for an extended
above. '
period.
586 587
Sub-stand4rd Shipping Cargo Policies
US
In such a case, there appears no reason to deny insurers the benefit of the section vessel. Moreover, although seaworthiness does not extend to fitness to receive
39(5) defence. particular cargo, secrion 40(2) of the Marine Insurance Acr 1906 implies into
cargo policies a further warranty that 'ar the commencement of rhe voyage rhe ship
is ... reasonably fit to carry the goods or other moveables to the destination
F. The Relationship between Unseaworthiness, Inherent contemplared by the policy'. The common law is, however, capable of consider-
Vice, and Ordinary Wear and Tear able unfairness to cargo owners, since they will generally have little, if any,
knowledge ofor control over the condirion of rhe carrying vessel. Consequently,
Both unseaworthiness and lack of cargoworthiness on the one hand and inher-ent vice and modern cargo policies heavily dilute the common law on seaworthiness and
ordinary wear and tear on the other hand afford insurers defences based on the lack cargoworthiness by express contractual provision. Clause 5 of the Institute Cargo
of fitness for the insured adventure. The relationship between them depends on the Clauses (A), (B), and (C)126 provides as follows:
type of cover. In cargo insurance, the doctrines comple-ment one another.
In no case shall this insurance cover loss damage or expense arising from
Seaworthiness and cargoworthiness relate to the carrying vessel, while inherent unseaworthiness of vessel or craft,
vice and ordinary wear and tear concern the insured goods. In principle, the unfitness of vessel craft conveyance container or liftvan for the safe carriage of
cargo insurer is at large to invoke any of the doctrines, although in practice the the subject-matter insured,
abiliry to invoke seaworthiness and cargoworthiness is severely circumscribed by where the Assured or their servants are privy to such unseaworthiness or
the terms of the policy.120 The posirion is different in hull insurance. The unfitness, at the time the subject-matter is loaded therein.
The Underwriters waive any breach of the implied warranties of seaworthi-
unseaworthiness defences are confined by various limita-tions. The warranty is
ness of the ship and fitness of the ship to carry the subject-matter insured
confined to the condition of the vessel at the commence-ment of rhe insured voyage to destination, unless the Assured or their servants are privy to such
or any stage of that voyage. The time policy defence is confined to the condition unseaworthiness or unfitness.
ofthe vessel when it puts to sea and is also subject to ptoofofprivity and causation.
Clause 5.2 relaxes rhe common law in the assured's favour by providing for 19.62 waiver of
To allow a hull undetwriter to circumvent limita-tions of timing or privity by
a breach of the seaworthiness and firness for cargo wartanties unless
invoking inherent vice would be to ignore the
balance of risk struck by marine insurance law and codified by Parliament with the assured is privy to such breach.'" The rime at which such privity must exist is
121 not stipulated. It might be suggesred rhat it includes all moments during the voyage
respecr to the condition of an insured vessel. The result is that the doctrine of when the wartanties attach. It would, however, be commercially sensible, and
inherent vice has no role to play in hull insurance. 122 The same is true of the consistent wirh the purpose behind the waiver, to limit privity under clause 5.2 to
defence of ordinary wear and tear.'"
such time when the assured could prevent the cargo from being (further) exposed to
the shortcomings of the vessel and it would be commercially sensible for the
assured to do so, in the sense rhat a reasonable uninsured cargo owner would so
Cargo Policies '28
act. It remains irrelevant under clause 5.2 that there may be no causal link
In a voyage policy on cargo, it is not a condition precedent to the attachment of the risk, and between the breach of warranty and the casualty.
the assured does not warrant, that the cargo is fit at the com-mencement of the Clause 5.1, in contrasr, is an exclusion clause that operates independently 19.63
voyage to encounter the ordinary vicissitudes of the voyage. 124 Voyage policies on of the warranties. The exclusion again requires the assured's privity to the
cargo do attract the warranty of seaworthiness of the carrying
125 MIA 1906, s 40(2); Gibson v Small(l853) 4 HLC 353, 373; Biceard v Shepherd(1861) 14
See 19.61-19.63 below. Moo PC 471; Daniels v Harris (1874) LR 10 CP 1. In accordance with general warranty prin-
Dudgeon v Pembroke (1877) 2 App Cas 284; Frangos v Sun Insurance Office Ltd (1934) 49 ciples, the unseaworthiness of the vessel need not cause the loss of or damage to the goods: Koebel
LlLRep 354, 359. v Saunders (1864) 17 CB(NS) 71.
122. A possible exception is the rare case where unseaworthiness is the sole proximate cause of the Also the Institute War Clauses (Cargo) and Strikes Clauses (Catgo), d 4.
loss: JJ Lloyd Imtruments Ltd vNorthern Star Insurance Co Ltd (The Missjay jay) [1987J 1 Lloyd's For the meaning of privity in this context, see the discussion of seaworthiness in time policies at
Rep 32, 37. Ofcourse, the insurer will in any event not be liable simply because the proximate cause 19.32-19.37 above. Note that cl 5.2 is not a seaworthiness admitted clause, as to which see Parfitt v
is not an insured peril. Inherent vice is, therefore,~n unnecessary inclusion in the legal analysis. Thompson (1844) 13 M & W 392. In the Institute Commodity Trades Clauses (A), (B), (C) the
123 Anderson v Morice (1874) LR 10 CP 58, 68-9. . 124 MIA 1906, s 40(1); equivalent waiver is not subject to any privity qualification: d 5.3 theteof.
Koebel v Saunders (1864) 17 CB(NS) 71: See amher the discussion of d 5.1, in 19.63 below.
588 589
Sub-standard Shipping
Contractual Responses to Sub-standard Shipping
unseaworthiness or unfimess, but expressly ties that privity to the time of load- (2) Ownership, Management, and Flag
ing of rhe goods on board the unseaworthy or unfit craft. Although, by virtue of
the comma in the last line of clause 5.1, the phrase 'at the rime the subject- The primary responsibility for the operation of well built, equipped, manned, 19.66
matter is loaded thereon' qualifies the time of the unseaworthiness or unfitness and maintained vessels naturally falls on the vessel's owners and managers.
rather than the time of loading, the excluding privity of the assured must relate Shortcomings in the approaches of individual shipowners and managers,
to 'such' unseaworthiness or unfitness, namely unseaworthiness Or unfitness at together with the practical need of international shipping for harmonized
that time. Such an interpretation would again serve to confine relevant know- standards, have led to a significant number of safety standards being prescribed
ledge of the state of the carrying vessel on the part of the cargo owner to a time by international maritime law with the primary responsibility for enforcement
when it is more likely to be able to respond by instructing that the cargo not be being allocated to the vessel's flag state. For hull and freight underwriters,
exposed to the inadequacies of the vessel. A furrher restriction in compatison therefore, the identity of the owner, managers, and flag state is of critical
with the statutory warranties is introduced in the form of causation by requiring importance in the assessment of the risk. A change of identity represents a
the casualty to 'arise from' the unseaworthiness or unfitness. On the other hand, material alteration of risk, which may signal a less diligent attitude towards
the exclusion is not confined to the ship, but extends to all forms of standards. A change of flag, for example, may indicate a desire by the owner to
conveyance on which the goods are loaded in the course of transit.'29 move the vessel to a flag state with a more relaxed approach to compliance.
The Institute hull and freight clauses and International hull clauses respond 19.67
to underwriters' concerns through a clause accorded paramount status that
Contractual Responses to Sub-standard Shipping
provides for automatic termination of cover, unless underwriters agree to the
The weakness in the law on seaworthiness under time policies has prompted contrary in writing, upon the occurrence of any of the following four events
insurers to address the problem posed by sub-standard shipping by a variety of indicative of a change of control over or effective supervision of the vessel's
express contractual terms. opetation or condition: (a) any change, voluntaty or otherwise, of ownership or
flag; (b) any transfer of the vessel to new management; (c) any bareboat charter
The Due Diligence Proviso to the Inchmaree Clause of the vessel; or (d) any requisition of the vessel for title or use. The instant-
aneous termination of cover is, however, subject to two provisos. First, if the
Inadequate maintenance may surface as a claim under rhe Inchmaree clause in respect of vessel is at sea with cargo or in ballast at the time of the relevant event, it remains
loss or damage caused by a broken shaft, burst boiler, or latent defect. The insurers' covered, if requested, for its planned voyage until arrival at the final port of
protection lies in the proviso to the Inchmaree clause, whereby discharge of cargo or destination if in ballast. Secondly, if the vessel is requisi-
liability is excluded if it results from the want of due diligence of specified tioned for title or use without the prior written agreement of the assured, cover
persons. In the 1983 Institute hulls clauses, the specifed persons are rhe assured, terminates fifteen days after requisition irrespective of the location ofthe vessel. "0
owners, or managers. The 1995 clauses saw an extension of the proviso to include
'superintendents or any of their onshore management'. This extension In addition, the International hull clauses also provide, subject to contrary 19.68
was designed to catch lower level management to whom might be delegated written agreement by underwriters, for automatic termination the moment that
immediate responsibility for maintenance. However, it proved commercially a vessel sails, with Or wirhout cargo, with the intention that it be broken up or
unacceptable, and it is understood that the 1995 clauses are highly unlikely to sold for breaking Up.'" Where the owners of a vessel have decided it has only
be used without amendment of the proviso so as to delete the reference to scrap value, that vessel clearly presents a different risk in terms of condition
superintendents and onshore management. The International Hull Clauses and attitude towards safety standards.
(01111103) revert to the 1983 wording. In the event of termination, the Institute and International hull and freight 19.69
clauses provide for a pro rata daily return of premium unless the
130 Institute Time Clauses Hulls (1110/83), cI 4.2; (1111/95), cI 5.2; International Hull Clauses
129 Contrast, in the context of the warranties, Lane v Nixon (1866) LR 1 CP 412. (1/11/03), c114.1.
131 International Hull Clauses (1111/03), c114.2.
590
591
Sub-standard Shipping Contractual Responses to Sub-standard Shipping
vessel is rendered a total loss by insured or orher perils during the period of only classification societies can meet. Consequently, it is classification societies
cover. 132 ~hat carry out the vast quantity of survey and inspection work required under
international maritime law.
In addition, clause 14.4 of the International Hull Clauses (01111/03) imposes a
The 1995 Institute hull and freight clauses and the International hull clauses 19.73 seek
continuing duty on the assured, owners, and managers:
to reinforce the work of rhe International Maritime Organization and
.. . at the inception of and throughout the period of this insurance and any lACS, while at the same time providing additional protection for underwriters
extension thereof to by including new and enhanced provisions relating to classification. The main
provision in the International Hull Clauses (01/11/03) is clause 13, which has
comply with all statutory requirements of the vessel's .flag state relating to paramount status. Clause 13.1 provides as follows:
construction, adaptation, condition, fitness, equipment, operation and
manning of the vesseL At the inception of and throughout the period of this insurance and any extension
thereof
Underwriters are not liable for any loss, damage, liability, or expense
13.1.1 the vessel shall be classed with a Classificarion Sociery agreed by the
artributable to any breach.
Underwriters
there shall be no change, suspension, discontinuance, withdrawal or expiry of the
Classification vessel's class with the Classification Society
any recommendations, requirements or restrictions imposed by the vessel's
Marine insurance pre-dares the advent of international maritime standards for the condition Classification Society which relate to the vessel's seaworthiness or to her
and operation ofvessels, and marine insurers rapidly realized both the need for maintenance in a seaworthy condition shall be complied with by the dates
expert and objective inspection of vessels. Classification societies evolved to meet required by that Sociery ...
this need. A shipowner will enter its vessel with a classification society to have the Subject to contrary written agreement by underwriters, breach of clause 13.1 19.74
society perform a variety of surveys and inspections of the hull and equipment. The
triggers immediate and automatic termination of cover. However, by vtrtue of
leading classification societies are members of the International Association of clause 13.2, if the vessel is at sea at the time of breach, termination is postponed
Classification Societies (lACS), which promulgates new technical specifications
until arrival at the next port. Moreover, a breach of clause 13.1.2 that results
for vessels133 and oversees members' internal quality
from loss of or damage to the insured vessel covered under the International
management systems and compliance with a code of ethics."4 Certification that Hull Clauses (01111/03) themselves or under the current Institute War and
a vessel is classed by certain classification societies, especially lACS memhers, Strikes Clauses (Hulls-Time) triggers termination only if and when the vessel
will be used by a shipowner as evidence of the good condition of its vessel
sails from its next port without the prior approval of the classification society.
when seeking insurance cover.
In the event of termination under clause 13, the assured is entitled to a pro rata 19.75
In addition, international conventions that impose oblig~tions on flag states requiring a
daily return of premium provided the vessel has not been rendered a total loss
variety of surveys and inspections of vessels permit the national authotities ofsuch
while insured under the policy or any extension of cover. 135
states to delegate the carrying out of such surveys and inspections to 'recognized
organizations'. In practice, delegation·represents the routine approach. The In addition to the termination provision of clause 13, clause 14.4 imposes a 19.76
International Maritime Organization has adopted resolutions addressing eligibility for duty on the assured, owners, and managers
status as a recognized organization that, in practice,
.. . at the inception of and throughout the period of this insurance and any exten-
sion thereof to
14.4.1 comply with all requirements of rhe vessel's Classification Sociery regard-
Institute Time Clauses Hulls (1/10/83), cl4; (I/ll/95), d 5; International Hull Clauses ing the reporting to the Classification Society of aCCIdents to and defects III
(1111103), cl14.3.
the vessel.
Known as 'Unified Requirements'.
134 A classification society surveyor may, eg, face a conflict of interest between the fundamental duty to
act impartially and ethically as req,uired by lACS and pressure from a shipowner to waive certain
standards or adopt a less rigorous approach in the interests of COSt. lACS auditors, independent from
member societies, often accompany surveyors to ensure that standatds are
upheld. 135 1nternarional Hull Clauses (1111103), cl13.2.
592 593
Sub-standard Shipping Contractual Responses to Sub-standard Shipping
Underwriters are not liable for any loss, damage, liability, or expense attributable the vessel in question. The flag state is then responsible for verifying compliance
with the ISM Code and then certifying that compliance through the issue of
to a breach of this duty.
two key documents.
The classification provisions in the 1995 Institute hull clauses are broadly simi-lar
First, a Document of Compliance is issued to an ISM Code-compliant com- 19.80
although differently structured. However, the 1983 clauses contain no express
pany. This 'should be accepted as evidence that the Company is capable of
requirement that the vessel's classification society is agreed by underwriters, a
complying with the requitements of the Code'.'39 In othet wotds, a Document
provision added to prevent an owner from entering the vessel with a less reputable
of Compliance evidences the existence of a confotming safety-management
society, nor any equivalent to clauses 13.1.3 or 14.4 of the 2003 International hull
clauses. system. Each vessel should carty a copy of the Document of Compliance.
Secondly, a Safety Management Certificate is issued ro a specific ship, attesting
The International Safety Management Code to the fact that on inspection the company and the shipboard management of
that vessel were found to operate in accordance with the ISM Code-compliant
The International Management Code for the Safe Operation of Ships and for Pollution safety-management system.'40
Prevention (known as the International Safety Management (ISM) Code) was
adopred by the International Maritime Organisation on 4 November 1993'36 and Clause 13 of the International Hull Clauses (01/Il/03), which has paramount 19.81
incorporated the following year into the Safety of Law at Sea Convention 1974 status, imposes continuing obligations at the inception of and throughout the
(SaLAS) as Chapter IX. This rendered compliance with the ISM code mandatoty period of cover that the vessel owners, or party assuming responsibility from the
for all states that adhere to SaLAs. The Code was adopted into domestic English owners for operating the vessel, hold a valid Document of Compliance in
law by the Merchant Shipping (Inrernational respect of the insured vessel and that the vessel has a valid Safety Management
Certificate.'41 In the event of breach, cover terminates auromatically, subject to
Safety Management (ISM) Code) Regulations 1998. 137 It came into force at
deferment of termination if the vessel is at sea at the date of breach until arrival
staggered dates for different classes of vessels, finally becoming binding for all
vessels within its remit as from 1 July 2002. at the next port. Such termination results in a pro rata daily return of premium
unless the vessel has been rendered a total loss by whatever cause during the
The core requirement of the ISM Code is set our in paragraph 1.4 as follows:
period of cover.'42
Every company138 should develop, implement and maintain a safety-management
Clause 13 confines itself, therefore, to the holding of the twO key documents. It 19.82
system (SMS) which includes the following functional requirements:
is indeed illegal for a company ro operate a vessel unless it holds a Document of
a safety and environmental-protection policy;
Compliance and a Safety Management Certificate has been issued in respect of
instructions and procedures to ensure safe operation ofships and prot~ction of
the environment in compliance with relevant international and flag state the ship. Clause 13, however, obviates any need for an underwriter to invoke an
legislation; illegality defence. Clause 13 does not, however, enquire into the reality behind the
defined levels ofauthority and lines ofcommunication bet:':\Tccn, and documents. Where the reality is that the company and shipboard management do
amongst, shore and shipboard personnel; not in fact operate the vessel in accordance with an ISM Code-compliant safety-
4 procedures for reporring accidents and non-conformities with the provisions
management system, the company is operating illegally and underwritets may
of this Code;
procedures to prepare for and respond to emergency situations; and invoke the wartanty oflegality under section 41 of the Marine Insurance Act
procedures for internal audits and management reviews. 1906.'43 An isolated breakdown in the system would not, how-ever, support an
illegality defence.
Further provisions of the Code elaborate in general terms on specific aspects of the
required safety-management system while leaving any individual company
flexibility ro design rhe particular system most appropriare for the company and ISM Code, para 13.2.
Safety of Life at Sea Convention 1974, Ch IX, reg 4; ISM Code, paras 13.2-13.4.
International Hull Clauses (01111103), clI13.1.4-
14'
n6 ResolurionA.74I(l8). 137 SI 199811561. 13.1.5. '" Internarional Hull Clauses (01111/03), cl13.2.
143 It is unclear whether exposing a vessel to maritime perils in the absence o~ an operative
138 Meaning 'the owner of the ship or any other organisation or person such as the
manager, or th~ bareboat charterer, who has, assumed the re.sponsibility for operation of safety-management system as required under the ISM Code renders the adventure Itself
the ship from the shipowner and who, on assumlllg such responsibility, has agreed to unlawful or renders unlawful the manner of performance of a lawful adventure. However,
take,'over all duties and responsibility imposed by the Code': ISM Code, para 1.1.2. the MIA 1906, s 41 warranty of legality covers both.
594 595
20
RIGHTS OF THIRD PARTIES
A. Contracts (Rights of Third (2) QualifYing events for a transfer

Parries) Acr 1999 20.02 of rights 20.40
B. Assignment 20.07 (3)The timing of a transfer of rights 20,42
(1) Assignment of the subject-matter (4) Ant)-avoidance provisions 20.44
insured 20.08 (5)The rights that arc transferred 20.48
(2) Assignment of the benefit of the (6) Distribution of inadequate fund 20.73
contraCt of insurance 20.12 (7) Provision of information 20.74
(3) Assignment of the policy 20.14 (8)Relationship between assured and
(4) Protection of the insurer 20.21 third party in the light of a
(5) Contractual restrictions on statutory transfer of rights 20.81
assignment 20.27 (9) Relationship between insurer and
assured in the light of a statutory
C. Third Parties (Rights against
transfer of fights 20.82
Insurers) Act 1930 20.33
(I) Insurance policies covered 20.36
(10) Recovery of the assured 20.83
The doctrine of privity of contract applies to insurance contracts as a matter of 20.01

common law as it applies to all other contracts. In principle, therefore, only the assured is
entitled to the benefit of the insurer's promise of indemnification. For example, a 'loss
payable' (or 'loss payee') clause that directs the insuter to pay the proceeds of any claim to a
designated third party confers no rights on that third
party as against the insurer. Payment to the third party will generate a good
discharge of the insurer's indemnification obligation owed to the assured under the
insurance contract' and failure to pay the designated third party will consti-tute a
breach of contract by the insurer actionable by the assured, but the third party
receives no tight to claim payment from the insurer.' The privity rule is, however,
subject to a number of exceptions both at common law and by virtue
1 For express provision to this effect, see International Hull Clauses (01/11/03), d 48.
, Iraqi Ministry ofDeftnee v Arcepey Shipping Co SA (The Angel BeZO [1979J 2 Uoyd's Rep 491,
497 (unless the clause constitutes or evidences an assignment of the assured's rights to the third
parry); Canadian Imperial Bank ofCommerce v Insurance Corp ofIreland Ltd (1991) 75 DLR (4rh)
482 (Court of Appeal of British Columbia).
597
Rights ofThird Parties Contracts (Rights ofThird Parties) Act 1999
of statute. Three such exceptions are of particular significance for contracts of into.' Thus, in the case of a contractor's all risks policy taken out by a head
marine insurance. First, there is the general statutory exception to the privity contractor for the benefit of itself and, inter alia, all sub-contractors, any sub-
rule arising under the Contracts (Rights of Third Parties) Act 1999. Secondly, a contractor, even if engaged only after the insurance was procured, would
third party may receive righrs by virtue of an assignment, rhe general law of qualifY as an identified third party under the 1999 Act.
assignment being supplemented by marine insurance law. Thirdly, a third party
Where these two conditions are satisfied, rhe third party is entitled to enforce 20.05 the
with a claim against the assured may benefir from a statutory rransfer of rights
term and claim such remedies for breach as would be available were the third
under a liability policy under the Third Parties (Rights against Insurers) Act
party a party to the contracr.' Moreover, by virtue of section 2(1) of the Act, the
1930. parties to the contract are not permitted to rescind or vary the contract so as to
extinguish or alter the third party's rights without the third party's consent,'
provided rhe third party either has communicated its assent to the term or has relied
Contracts (Rights of Third Parties) Act 1999 on the term and the promisor is aware of that reliance or could reasonably be
expected to have foreseen such reliance. Under section 2(3)(a), however, the
At common law, the privity of contraer rule prevents a third party to a contract from
contract may dispense with the requirement for the third party's consent.
being entitled to enforce that contract even if the intention of the contract-ing
Accordingly, clause 36.2 of the International Hulls Clauses (01111/03) provides
parties is to benefit the thitd party and even if the contract itself provides that
the third party is to have the right to enforce it.' The Contracts (Rights of Third for rescission or variation by agreement between assured and underwriters with-
Parties) Act 1999 was designed to bring an end to such frustration of the parties' out the consent ofany third party that is granted a right ofenforcement and falls
intentions. It does so not by abolishing the privity of contract rule but rather by therefore within section 1(1)(a).
creating a statutory exception to the rule. Importantly, the statutory right of enforcement under section 1 is, by virtue of 20.06
Section I (1) of the 1999 Act confers upon a third party to a contract a right to enforce section 3, subject to all the defences and rights of set-off, first, that arise from or
a term of that contract provided two conditions are fulfilled. First, either the in connection with the contract and are relevant to the term, or that the contract
contract so provides (section 1(1)(a)) or the term in question purports to confer provides can be invoked against the third party and also, secondly, rhat the
a benefit on the third party (secrion 1(1)(b)). This latter alrernative is promisor could have raised against the promisee. 7 Assuming therefore that an
subject to the proviso, stated in section 1(2), that the proper interpreration of the insurance contract contains a loss payee clause and a casualty occurs, an insurer-
contract as a whole reveals an intention that the third party should nOt be able promisor can assert against the designared third party payee (by way of extinc-
to enforce. If the rest of the contract on its true interpretation is neutral as to tion or reduction of the measure of indemnity) any defence or righr of set-off
third party enforceability, the proviso does not apply.4 One effect of section available if the assured itself were the payee and bringing the claim. The third
1(2), therefore, is that parties may contract out of the operation of the 1999 Act. party's claim would therefore be defeated entirely should the insurer, for
Accordingly, clause 36.1 of the International Hull Clauses (1/11103) provides example, be entitled to avoid for non-disclosure or misrepresentation,' or have a
that: 'No benefit of this insurance is intended to be conferred on or enforceable defence of dischatgefor breach of warranty or other alteration of risk or breach
by any party other than the Assured, save as may be expressly provided herein of condition precedent or serious breach of an innominate term, or should, for
to the contrary.' The effect of this is that no third party can avail itself of the example, the cause of the loss be the wilful misconduct of rhe assured or the
1999 Act merely because it falls within section 1(1)(b). An express grant of a
right of enforcement, which would fall under section 1(I)(a), is required.
, C(RTP)A 1999,,1(5).
6 Unless the contract provides that consent is not required (C(RTP)A 1999, s 2(3)(a» or, in the
The second condition, srated by section 1(3), is rhat: 'The third party must be identified
circumstances stated in s 2(4), (5), the court or arbitral tribunal exercises its discretion to dispense
in the contract by name, as a member of a class or as answering a particular with the requirement of consent.
description but need not be in existence when the contract is entered 7 In the case of defences arising from or in connection with the contract, the contract may
provide that any or all such defences cannot be invoked against a third parry: C(RTP)A 1999, s
3(5).
8 The reference in C(RTP)A 1999 to defences arising 'from or in connection with the contract'
Tweddle v Atkimon (186I) 1 B&5393. removes any conceivable problem created by the nature of the duties of pre-formation disclosure
Hirshin Shipping Co Ltd v Cleaves 6- Co Ltd [20031 EWHC 2602 (Carom), [2004J 1 Lloyd', and avoidance of misrepresentation. Compare the position in the law of assignment discussed
Rep 38, pa,a 23. at 20.21-20.23 below.
598 599
Rights ofThird Parties Assignment
assured submit a fraudulent claim. Similarly, a tight of set-off of unpaid pre-mium :he absence of an adequate and contempotaneous agreement to ttansfer the
or ofdamages for a non-repudiatory bteach of an innominate term would be msuran~e, any later assignment of the insurance is invalid. 12
In North ofEngland
opposable against the third party. In this respe~t, the po~ition of a third party under Pure Ozl~Cake Co v Archangel Maritime Insurance Co, 13 S insured a catgo of
the statute is analogous to that of an assIgnee taking the benefit of an assigned Im~eed 011 with the defendants. While in transit, the cargo was sold by S to the
contractual ptomise 'subject to equities'. 9 In addition, the ptomisot can clalman;s on term~ that payment fell due on delivety. Part of the cargo was
also invoke against the third party action under the 1999 Act any defences or lost dunng unloadmg and before the claimanrs paid the price. Four months
rights of set-off and any counter-claims not ~rising ftom the contract that, in later, S handed the insurance policy to the claimants, and, aftet anorhet four
either case, arise directly between the promIsor and thltd party. An msurer months, S purported to endorse an assignment on the poliey. It was held that the
would, therefore, be able to teject a claim brought by the third party in case of claimants could sustain no action on the poliey. On delivery, S's interest in the
thitd party fraud with which the assured was not complicit. In addition, the subject-matter ceased and the poliey lapsed. No latet assignment was pos-sible.
14
insurer would be able to assert a right of set-off not opposable against the Moteovet, since S maintained an interest in the subject-matter after the
assured, for example for unpaid premiums on a different policy. concltlsion of the conttact fot its sale because entitlement to payment was
deferred tlntil delivety, it was impossible to imply an agreement to assign the
pohey contemporaneous with formation of the sale contract. According to
Assignment Cockburn C]: 15
Matine insurance cases use the term 'assignment' to tefer to thtee diffetent types of This is .not like the commOn case of the sale of a floating cargo, where the seller
parts WIth and the buyer tak~ at once the property, and all risks. In such a case, the
transfer, namely transfer of the subject-marter insured, of the benefit of the policy, according to the established practice, passes as part of the shipping docu-
contract, and of the policy. Each of these transactions tequires separate ments, and on asSIgnment the vendee can sue upon it in case of loss. And there is no
consideration. hardship in this on the insurers, because they insured the safety of the cargo to
the end of the voyage, and it is immaterial to them in whom the interest rests
Assignment of the Subject-matter Insured at the tim~ of the loss; and ther~ is great convenience in the practice, as it obviates
the neceSSIty of the vendee gettmg a fresh policy and facilitates the sale of cargoes at
In the general law of personal property, the term 'assignment' is employed to denote sea.
the mechanism for rhe transfer of interests in choses in action. It may,
In the case of a hull poliey incorporating either the Institute Ot International 20.11
therefore, be an unfortunate choice of terminology in the context of hull Ot
hull clauses, a change of ownership automatically terminates at the time of the
cargo insurance, albeit appropriate for freight.
change, unless insurers have agreed to the contrary in writing. 16 Consequently, a
CodifYing a principle well established in the case law,1O section 15 of the Marine contemporaneous agreement between vendor and purchaset of an insured vessel to
Insutance Act 1906 provides as follows: 'Where the assured assigns or otherwise ttansfer the institance is ineffective unless the institers' agteement is obtained.
parts with his interest in the subject-matter insured, he does not thereby transfer to
the assignee his rights under the conttact of insurance, unless there be an
express or implied agreement with the assignee to that effect.' " MIA 1906, s 51. 13 (1875) LR 10 QB 249.
~4 Whe~e policy and subject-matte,r arc ~eparated at the time of the loss, the insurer can dearly
Once the subject-matter insured has been ttansferred, the principle that insur-ance is a resiSt a c1alffi because, of absence of eIther Insurable interest or insurance. This does not explain,
contract of indemnity prevents the transferor from recoveting on the however, why the pohcy should lapse upon such separation so as to preclude a later reunification.
Presumably, the explanation is that separation produces a gambling policy rendered void under
policy except quattustee for the transferee where it has been agteed that the policy MIA 1906, s 4. It has also been suggested that an attempted assignment of the insurance before tran~fer
of the thitd party will be maintained fot the transfetee's benefir." Moteover, in of the subject-matter w~uld be 'inoperative' because insurance is a contract of indemnity
and 10 the event of a loss .the aSSIgnee w?uld have sustained no prejudice: Lloyd v Fleming (1872)
LR 7 qB 299, 30.2: It IS,. however,. dIfficult to see why an assignment to a person with an expectatIon
ofacqumn? an ms~rable mte~est (see s 4) would be 'inoperative' and why the assignee
See 20.21-20.23 below. could nOt recover proVIded an msurable mterest were acquired subsequently and by the
See Powles v Innes (1843) 11 M & W 10; North ofEngland Pure Oil-Cake Co v Archangel time of the loss.
Maritime Insurance Co (1875) LR 10 QB 249, eSp 255; &tyner v Pres,on (1881) 18 ChD 1, " (1875) LR 10 QB 249, 254.
11-12. 16 Institute Time Clauses Hulls 0/10/83), cl4; (1/11/95), d 5.2; International Hull Clauses
11 Powles v Innes (1843) 11 M & W 10. (01/11/03), cl14.1.
600 601
Assignment of the Benefit of the Conttact of Insutance assignor may no longer give a good discharge. 24 Secondly, in the event of more
than one assignment, prioriry goes to the first assignee to give notice to the
The common law has a historical hostility to third party involvement in con-tracts. By
the process of novation, it permits the replacement of a contract between A and insurer." Both equitable and statutory assignment take effect 'subject to equi-ties'
B with a new contract between A and C. However, novation and rights of set-off. As discussed below, therefore, the insurer may oppose against
requires the consent of all three parties. The common law still refuses to recog-nize the assignee any defence or right of set-off valid as against the assured."
the assignment by B to C of the benefit of a promise by A to B. Assignment is,
nevertheless, recognized in equity and. since 1873, has been authorized by sratute. 17 (3) Assignment of the Policy
It creates no new contract between A and C, nor does it render the assignee a full
It is a truism of the general law that one assigns the benefit of a contract rather 20.14
party to the contract between A and B." Where A is the insurer and B the assuted,
than the contract itself. 27 Marine insurance law, however, recognizes a blend of
the contract of insurance remains a contract between A and B, bur the assignee
assignment and novation, referred to as assignment of the policy, governed by
becomes entitled to the benefit of the insurer's promise of indemnity,19 either
section 50 of the Marine Insurance Act 1906. It combines the absence of
generally or in relation to a specific claim.'o The only differ-ence between the
formality of equitable assignment with the right to sue in the assignee's own
consequences of the two types of assignment is that an equitable assignee must join
name of statutory assignment and operates slightly differently from either form
the assignor in any action against the insurer,21 whereas a
of assignment with respect to set-off. In the modern law, it exists as a third form
statutory assignee need nor do so.
of assignment, additional to equitable and statutory assignment," although
A statutory assignment of the benefit of an insurance contract must be in writing and historically pre-daring the Jatter."
under the hand of the assured as assignor. Express writren notice must be given
to the insuter, although the insurer's consent ,is not required. Finally. the The concept of assignment of the poJicy is designed to respond to the demands 20.15
assignment must be absolute in the sense that the assured must divest itself of of international sale of goods contracts, especially on CIF terms. Under such
all legal title to the benefit of the promise assigned." In the absence of any of contracts the price paid by the buyer covers three items: the goods, their insur-
these requirements, the assignment will nevertheless take ance, and the freight payable for their carriage. The seller contracts to supply
effect in equiry provided the intention to assign is clear. Even in the context of goods, see to their shipment, and insure them in transit. Alternatively, the seller
equity, however, notice to the insurer is significant. First, once the insurer. has may procure a cargo already afloat which was shipped within the agreed ship-
notice, payment of any loss moneys must be made to the assignee.') The ment period. Moreover, the sellet undertakes to produce a document respond-
ing to each of the three elements that provides evidence of petformance by the
seller of its contractual undertalcings. Traditionally, the required documents are
Currently by the Law of Property Act 1925, s 136. a bill of lading in respect of the goods, a carrier's invoice fot the freight, and
Consequently, the insurer does not owe the assignee any continuing duty of good faith that
might exist: Bank ofNova Scotia v Heftenic Mutual \.%r Risks Association (Bermuda) Ltd (The Good an insurance policy. The importance of these documents cannot be over-
Luck) [1988J 1 Lloyd's Rep 514, 546-7, affd [1990J 1 QB 818, 890. emphasized. If one of the documents is missing or inadequate in some respect,
19 After assignment, the assured cannot recover against the insurer for its own benent. The courts will
they may be rejected and the goods along with them, even if there is in fact
not even permit the assured to obtain judgment without joining the assignee as a party to the
proceedings, even where only part of the benefit has been assigned and the assured wishes to nothing wrong with the goods.'o Transfer of the documents triggers the passing
recover in respect of the balance: Walter & Sullivan Ltd v Murphy [19551 2 QB 584. of property in the goods and a passing of risk retrospectively as from the time of
20 Raijfiisen Zentralbank Osterreich AG v Five Star General 'Hading lie [200lj EWCA Civ 68,
shipment. As between seller and buyer, therefore, the risk ofloss ofor damage to
[2001] 1 Lloyd's Rep 597, para 74. . .. ' .
21 Although the requirement of joinder may be overlooked If there IS no rIsk of a confhcnng
claim by the assignor: Raijftisen Zentralbank Osterreich AG v Five Star General Trading lle [2001]
EWCA Civ68, [2001] 1 Lloyd's Rep 597, para 60. The assignor is joined as co~daimant if willing or as
co~defendant if unwilling. For an example of the latter, see Laurie v west Hartlepool Steamship 24 Swan v Maritime Insurance Co (1907] 1 KB 116.
Thirds Indemnity Association (1899) 15 TLR 486. 2S By virtue of the rule in Dearie v Hall (1823) 3 Russ 1. 26 See 20.21-20.26 below.
22 Hughes v Pump House Hotel [1902] 2 KB 190. Contrast Durham Bros v Robertson [1898] 1 27 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd[1994] 1 AC 85, 103.
QB 765. See further 20.16--20.18 below. Raiffiisen Zentralbank Osterreich AG v Five Star General 'Hading llc (2001] EWCA Civ 68,
23 Although it is higWy questionable whetl1~r the account debtor should be affected by a [2001J 1 Lloyd's Rep 597, paras 58-60.
communication from a purported assignee in the absence of corroboration from the assignor. See Assignment of the policy waS introduced into marine insurance by the Policies of Marine
further 20.29 below. Assurance Act 1868, 31 & 32 Viet, c 86, s 1 of which is re~enacted without substantial amend~ ment by
MIA 1906, s 50(2). Marine policies are assignable subject to contrary intention: s 50(1).
30 Orien' Co Ltd v Brekke & Howlid [1913J 1 KB 531.
602
603
Rights o/Third Parties Assignment
the goods during the entire transit after loading on board the carrying vessel lies and entered with the defendant P&I club. It was agreed that the club should pay
with the buyer. Ifthe carrying vessel sinks, the buyer must pay the seller, rake the loss moneys to the assured shipowners unless the bank gave notice to the club of
documents, and claim on the insurance.31 Consequently, marine policies are default by the shipowners on the mottgage loan, which they failed to do.
assignable after 10ss.32 Mocatta J considered that there was nO assignment within section 50 nor any
statutoty aSSIgnment, but the assignment was effective in equity. Again, in
Assignment of a marine policy requires transfer of the whole beneficial interest in the
RaiffitSen Zentralbank Osterreieh A G v Five Star General Trading lIe,39
policy." In Raiffeisen Zentralbank Osterreich AG v Five Star General
the insured vessel was mortgaged to the claimant bank, which sought a declaration
Trading llc,34 Mance LJ distinguished between assignments before and after a
that it was entitled qua assignee to the proceeds ofa collision claim. It was held that
loss. An assignment before loss could not satisfy section 50 unless the assured were
the assignment had not transferred the entirety of the assured's beneficial interest in
also ttansferring the entirety of its interest in the subject-matter insured: 'A the policy and therefore could not take effect under section 50. There were three
person cannot be said to have parted with his beneficial interest in ongoing reasons. First, the assignor remained covered under the ongoing insurance as
insurance cover, if he remains the person whose interest is insured, even if (for
mortgagot and operator of the insured vessel. Secondly, the insutance cover
example) he has assigned the entire right to the benefit of any claims which arise extended beyond hull and machinery cover to collision covet and protection and
in respect of his interest.''' Conversely, after a total loss the entire beneficial indemnity covet. With respect to such liability cover, the assignment could
interest in the policy lay in the claim for indemnification for the total loss." Section transfer, at most, only the benefit of such future claims as might arise. 'The
50 was complied with by an assignment of the benefit of such claim or claims. In insutable interest in the subject-matter to which such cover related, namely [the
the case of a partial loss, once the policy had expired so that no new claims could assured's] pecuniary interest in maintaining its patrimony free of the butden of
arise, a post-expiry assignment of the benefit of the partial loss claim would again
comprise the entirety of the assured's interest in the policy. such expenditute or liability, must then have remained with [the assured] If
The requirement for a transfer of the assignor's entire beneficial interest was not satisfied the assignment did not in fact embrace such liability cover, a fOrtiori section
in Williams v Atlantic Assurance Co Ltd." The assured assigned the benefit of a 50 co~ld nOt apply, since the policy could not 'be split into a series of sub-policies'.
claim on an expired cargo policy for £7,000 on terms that the assignee would also Thltdly, by vmue of a loss payable clause, the proceeds of claims were split
pay the assured the first £1 ,000 recovered from insurers, or such lesser sum as between aSSIgnor and assignee until notice of default on the mortgage loan. These
might be tecovered. The Court ofAppeal held that this right to a possible additional same factors prevented the assignment from being'absolute' as required by section
payment out of insurance proceeds represented a continuing equitable interest on 136 of the Law of Property Act 1925, but none of them ptevented the assignee
the part of the assignor in the insurance. Consequently, the assignee's claim from invoking the docttine of equitable assignment.
brought in its own name withoutjoining the assignor failed. In two furthet cases,
Section 50(3) of the Matine Insurance Act 1906 provides that assignment of a 20.19
however, although section 50(2) was again not satisfied, the assignee was not
marine policy may be effected 'by indorsement thereon or in other customary manner'."
prejudiced since it was able to pursue its claim
Although it has been held that mere delivery is normally inadequate
equally effectively as an equitable assignee.
to transfer title to the policy," equally the opinion has been expressed that
20.18 In The Evelpidis Era," the insured vessel was mortgaged to the claimant bank delivery without indorsement is almost certainly an established customary
method of assigning policies in connection with CIF contracts." Evidence was
tendered in one case that the giving of an unsigned and undated notice to
31 Manbrt Saccharine Co Ltd v Corn Products Co Ltd[1919] 1 KB 198. assignment of a policy was accepted in the cargo market as effecting an
32 Lloyd v Fleming (l 872) LR 7 QB 299. at 303: MIA 1906. ss 50(1). 51 (proviso). assignment. 44 Under the Institute and International hull clauses, in contrast,
ibid s 50(2).
[20011 EWCA Civ 68, [2001] I Lloyd's Rep 597 paras 63-66. See also Lloyd v Fleming
(1872) LR 7 QB 299, 303.
3S [2001] EWCA Civ 68. [?001l 1 Lloyd's Rep 597, para 63.
39 [2001] EWCA Civ 68, [2001] 1 Lloyd's Rep 597.
Together, presumably, with any pardallosses not merged into the total loss and any ibid pm 70 pcr Mance LJ. 41 MIA 1906,,50(3).
40
liabilities covered by the insurance.
42 Baker v Adam (1910) 15 Com Cas 227 (aliter with respect to transfer by way ofsecurity)
[1933] I KB 81. " Saftdi v Wistern Assurance Co (1933) 46 LlLRep 140, 144. .
First National Bank ofChicago v \.Vest afEngland Shipowners Mutua! Protection and Indemnity
" Iraqi Ministry ofDeftn" v Arcepey Shipping Co SA (The Angel Bell) [1979] 2 Lloyd', Rep
A.5sociation (Luxembvurg) (Tbe Evelpidis Era) [1981] I Lloyd's Rep 54.
491,497. Donaldson Jremarked: 'It would not have required much to rebut this evidence.'
But no rebuttal evidence was introduced: ibid.
604
605
underwriters will not recognize the claim of any assignee ro any loss moneys expressed the view that the phrase'arising our of the policy' in section 50(2) had 'a
or return of premium unless, before payment, the assignee produces the policy vety wide connotation', embracing 'fraudulent claims made under rhe very contract
endorsed with a dated notice of assignment signed by the assured. 45 The of insurance itself, even if the obligation not to make them were not to be treated
validity of assignment as between assured and assignee is not challenged, but strictly as an implied term'.51 While post-formation duties may yet be regarded as
the assignee acquires no rights against the insurer unless the policy is produced based on contractual terms implied in law, the expansive approach ro the
with the stipulated endorsement. interpretation of section 50(2) applies equally to the pre-formarion doctrine. Since
any proposition rhat assignment launders the benefit of a pro-mise under an
Assignment of a marine policy so as ro pass the whole beneficial interest in the policy insurance contract of a defence of avoidance of the policy is commercially
entitles the assignee to bring proceedings in its own name."
unsustainable, the approach of Hirsr J is to be welcomed.
Protection of the Insurer Where the outbreak of war renders the assured an enemy alien, an assignee is 20.23
barred from recovety.52 This barrier is based on public policy. However, in so
All forms of assignment have in common that the assent of rhe insurer is nor required.
far as it falls within the wording of section 50(2), it provides support for an
In return, it is a fundamental principle of all forms of assignment rhat
expansive reading of the phrase'arising out of the contracr'.
the insurer is not ro be prejudiced. In the context of equitable and statutory
assignment, this is effected by the rule that the assignee takes the benefit of the Thus far, it appears both logical and possible to draw a direct parallel between 20.24
assigned promise subject to the insurer's equities and rights of set-off valid as equitable and statutory assignment on the one hand and assignment ofthe policy
against the original assured." With respect to assignment of the policy, section under section 50 on the other. With respect ro set-off, however, section 50 is
50(2) of the Marine Insurance Act 1906 provides that 'the defendant is entitled slightly more limired.
to make any defence 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 A desire for procedural simplicity prompted the introduction by statute of 20.25
on behalf of whom the policy was effected'. common law ser-off, confined to 'liquidated debts or money demands which
could be ascertained with certainty at the time of pleading'.53 Although a set-off
In William Pickersgill & Sons Ltd v London & Provincial Marine & General jurisdiction developed in equity that admitred of an unliquidated cross-claim,s4
Insurance Co Ltd,., Hamilton J held that a breach of a pre-formation duty of the mere existence of a cross-claim was an insufficient reason for equity to
utmost good faith on the part of the assured provided a defence good against an grant protection against the primaty claim. Equitable set-off evolved where 'the
assignee of the policy. The duty, it was said, rested upon an implied contractual equity of the [cross-claim] impeached the title ro the legal demand'." No such
term, consequently genetating a defence 'arising out of the contract'. The Court connection is required at common law. 56 As against assignees, the availability of
of Appeal has now determined that the pre-formation doctrine rests on a con-tingent set-off rights was stated as follows by Templeman J in Business Computers Ltd
condition precedent ro the enforceability of the COntract, and not upon a term v Anglo-African Leasing Co:"
4
implied inro rhe contract. ' Nevertheless, in The Litsion Pride, so Hirst J
On fraud, see also Graham Joint Stock Shipping Co v Merchants Marine Insurance Co [1924]
Institute Time Clauses Hulls (1/10/83), cl 5; (1111/95), d 21; International Hull Clauses AC 294 (owner's connivance in the scuttling of insured vessel prevented recovery by
(01/11103), el23. innocent mortgagee assignee).
MIA 1906, s 50(2) (in the sense that the assignor need oot be joined in the proceedings). Bank a/New South Wales v South British Imurance Co (1920) 4 LlLRep 266, 384.
However, a~signment does not release the assignor from its obligation to perform the con- Hanak v Green [1958] 2 QB 9, 17 per Morris L]. Common law set-offwas introduced by the
tract (and the assignee does nOt assume the burden of the contract), with the result that the Statutes of Set-off, 1729 and 1735, 2 Geo II, c 22; 8 Geo II, c 24. Although these statutes were
insurer cannot actively sue the assignee. The subject to equities rule operates purely by way repealed by the Civil Procedure Acts Repeal Act 1879, the jurisdiction created thereby was
of defence. An eq~ity such a.s the right to rescind the contract ror misrepresentation can preserved. The concept of a money claim has received a broad interpretation: BICCpic v Bumdy
negate the assignee's claIm and a nght of.set-off ~n reduce or extinguish that claim, but any Corp [1985) Ch 232.
excess (eg arising where the amount of unpaid premium exceeds the value of a claim) must 54 eg a quantum meruitdaim: Hanak v Green [195812 QB 9.
be claimed from the assignor. On illegality and assignment, see 20.23 below. " Rawson v Samuel (184l) Cr & Ph 161, 179 per Lord Cortenham LC.
[1912J 3 KB 614. 56 Contrast the sale of goods doctrine of 'abatement': Mondel v Steel (1841) 8 M & W 858,
Banque Key,er Ullmann SA v Skandia (UK) Imurance Co Ltd [1990J 1 QB 665. See further codified in the context of sale of goods by the Sale of Goods Act 1979, s 53(l)(a). See generally
4.175 ahove. Aries Tanker Corp v Total Tran,port Ltd [1977] 1 WLR 185.
so Black King Shipping Corp v Mas,ie (The Litsion Pride) [1985) 1 Lloyd's Rep 437, 519. 57 [1977) 1 WLR 578,585.
606 607
Rights of Third Parties Assignment
... a debt which accrues due before notice of an assignment is received, whether or not
convince a court that the clause indeed purports to invalidate the assignment as
it is payable before that date, or a debt which arises out of the same contract as
that which gives rise to the assigned debt, or is closely connected with that con-
between the assignor and the assignee. 60 Moreover, a clause that is confined to
tract, may be set off against the assignee. But a debt which is neither accrued nor assignments leaves the assured free to undertake a personal obligation to
connected may not be set off even though it arises from a contract made before the account to a third parry for the policy proceeds Ot to declare itself a ttustee of
assignment. the benefit of the policy or any policy proceeds in favour of a third patry
beneficiary.61
Three categories of cross-claim may be identified: those arising out of the insur-ance
contract that generates the primary claim, rhose not so arising bur closely Even a clause so worded as to deny any possibiliry of obligation to account, 20.28
connected to the insurance contract, and money claims due before notice of the assignment, or trust may be ineffective to achieve its aim. First, it has been
assignment is given to the insurer that mayor may not have a connection with the suggested that it is contrary to public policy for an account debtor to attempt to
insurance contract. The first two categoties may be taken as representing equitable control the disposition of proceeds once in the hands of its creditor. 62 Secondly, it is
set-off, which appeats equally opetative with respect to assignment of the benefit of uncleat whether a contractual promise not to assign or create a trust can, as a matter
insurance and assignment of the policy under section 50. The third category may be of legal principle, be effective to render a promise non-assignable or incapable of
viewed as encompassing common law set-off claims. forming the subject-matter of a trust." As a matter of marine insurance law, the
However, where the cross-claim is unconnected to the insurance contract which Marine Insurance Act 1906 appears to contem-plate that an appropriately worded
generates the primary claim, it cannot be viewed as 'arising out of the contrace non-assignment clause would be effective to render the policy non-assignable.
and, to that extent, the insurer's protection under section 50 is narrower Section 50(1) provides that: 'A marine policy is assignable unless it contains· terms
than that enjoyed in the context of assignment of the benefit of the contract. expressly prohibiting assignment.' It should be noted, however, that the case
Thus, in Baker v Adam,58 mutual debts under coincidental, unconnected cross- purportedly so codified" confirmed merely that an assignment in breach of a clause
reinsurances gave rise to no set-off rights under section 50 as against an assignee that required assignment to be apptoved by the insurer conferred no right on the
of the policy. assignee to claim against the insurer. It was not concerned with the validiry of the
assignment as between assured and assignee and it may be that section 50(1) should
Contractual Restrictions on Assignment be read as simi-larly confined. Section 50, moreovet, does not speak to the
possibiliry of cteat-ing a trust of the policy or its proceeds. While the constitution of
The effect of contractual restrictions on assignment depends upon their true
a trust may
construction, legal ptinciple, and, possibly, public policy. As between the
amount to a breach of contract if carried out contrary to a no-constitution
insurer and the assignee, a prohibition on assignment will provide the insurer
clause, it is suggested that it will still take effect as between trustee and
with an absolute right to refuse to pay the assignee. 59 There is, however, doubt beneficiary.65
as to whether a term in an insurance contract can prevent the transfer of a
proprietary interest in the policy proceeds by the assured to a third parry. Provided Standard market wordings vary in their approach to assignment. As already 20.29
the insuret is not obliged to treat with the assignee, the insurer would seem to have
no legitimate interest in restricting the application of the insur-ance proceeds after
payment and, in particular, in affecting the distribution of those proceeds upon the
assignor's insolvency. Consequently, as a matter of ibid 108.
interpretation of the restrictive clause, the clearest wording will be required to Re Turean (1888) 40 ChD 5; Don King Produetiom Inc v ""'rren [2000J Ch 291.
R Goode, (Inalienable Rights?' (1979) 42 MLR 553; Linden Gardens Trust Ltd v Lenesta
Sludge Disposals Ltd [1994J 1 AC 85,108.
That the benent of a contract retains the character of assignability notwithstanding a no-
assignment clause, see Shaw v Moss Empires & Bastow (1908) 25 TLR 190 as interpreted in
58 (1910) 15 Com Cas 227. Likewise. in Pe/las (E) &Co v Neptune Marine Insurante Co (1879) Linden Gardem Trust Ltd v Lenesta Sludge Disposals Ltd [1994J 1 AC 85; Re Griffin [18991 1 Ch
5 CPD 34 set-off was denied as between the insurer and the assignee of premium debts 408; Anning v Anning (1907) 4 CLR 1049, 1067; Re Westereon [19191 2 Ch 104. Fot a contrary
incurred on separate policies by the assured to insurer after the date of assignment but dictum, see Helstan Securities Ltd v Hertflrdshire County Council [1978J 3 All ER 262,
before notice of the assignment was given to the insurer. 266.
59 HeMan Securities Ltd v Hertflrdshire County Council [1978] 3 All ER 262; R
64Laurie v U7est Hartlepool Steamship Thirds Indemnity Association (1899) 15 TLR 486.
Goode, 55MIA 1906, s 50(1) is also directed to the assignability of the policy as a whole. It is, perhaps,
'Inalienable Rights?' (1979) 42 MLR 553; Linden Gardem Trust Ltd v Le"esta Sludge Disposals Ltd debatable whether an express contractual term can deny more limited assignability in
[1994J 1 AC 85. equity of part of the benefit of a matine policy.
609
608
Rights o/Third Parties Third Parties (Rights agaimt Insurers) Act 1930
seen, the Institute and International hull clauses and the Institute freight C. Third Parries (Rights against Insurers) Act 1930 66
clauses do not contain any restrictions on the freedom of the assured to assign
The Third Parties (Rights against Insurers) Act 1930 is the Parliamentary 20.33
the benefit or rhe proceeds of the policy. However, for underwriters to become
bound to make any payment that may be due under the policy to rhe assignee, response to a mischief highlighted by two cases decided in 1928.67 In each case,
the assured under a third parry liability policy incurred liability to a third party,
they do require the assignment ro be endorsed on the policy and that the policy
but became insolvent before discharging that liability. Although the insolvency
so endorsed be produced ro rhe undelwrirers.
of the assured in no way prejudiced the liabiliry of the insurer to the assured, the
The rules of some mutual insurance associations contain prohibitions on assignment. assured's claim against the insurer constituted an asset of the assured, the pro-
Rule 42(1) of the Britannia Club for Class 3 (P&I) provides as follows: 'No ceeds ofwhich were available to the assured's liquidator or trustee in bankruptcy
insurance given by the Association, and no interest under these Rules or under for distribution in accordance with the priorities dictated by insolvency law. In
any contract between the Association and any Member, may be assigned insolvency law, however, the third parry ranked merely as one unsecured credi-
without the written consent of the Managers, who shall have the right in their tor in the assured's insolvency with no prior claim to an asset generated solely
discretion to give or refuse such consent without stating any reason or to give such by its loss. Judicial dissatisfaction68 was answered by: 'AnAct to confer on third
consent upon any such terms or conditions as they may think fit.' In case of an parties rights against insurers of third-party risks in the event of the insured
assignment in breach of such a rule, in the light of the case law discussed above, becoming insolvent, and in certain other events. '69
the assignee would clearly be denied any claim against the club, but the rule would
not be interpreted as affecting the rights of the assignee as against the assignor. The mischief giving rise to the Act lies, therefore, in the approach of insolvency 20.34
The Britannia rule therefore mirrots in effect the more economically worded law to the distribution of liability insurance proceeds. The Act does not, how-
equivalent provision of rhe British war risks rules, which provides only that an ever, simply confer a prior right on the third party to the proceeds of the
unauthorized assignment 'shall, unless the Managets in their discretion otherwise insurance in the hands of the assured's liquidator to the extent of the third
detetmine, be unenforceable against the party's claim. Instead, upon the occurrence of anyone of a number of specified
events, the assured's rights under the policy in respect of the liability are trans-
Association' .
ferred to the third parry. In order to facilitate the exercise of any such ttansferred
Occasionally, club rules go further. Rule 15A of the United Kingdom P&I Club not 6ght, the third party is also given rights to obtain information regarding the
only prohibits assignment without consent of the club managers, who have the Insurance cover.
right to grant consent subject to conditions, but also goes on to declare that any
purported assignment without consent or in breach of conditions 'shall, unless In the 1990s, a number of apparent shortcomings led to the operation of the 20.35
the Managers in their discretion otherwise decide, be void and of no effect'. 1930 Act being referred to the Law Commission. The resulting repott, in July
Such a provision seeks to take advantage of section 50(1) of rhe 1906 Act. 2001, recommended that the 1930 Act be repealed and replaced by fresh legisla-
However, while any assignment may be of no effect, the prohibition does not tion. 70 The report has yet to be implemented, although some of the problems
address the possibility of declaration of a trust. identified have since been addressed by case law.
In the event of club managers consenting to an assignment, club rules often ptovide for (1) Insurance Policies Covered
an extended right of set-off against any payment to an assignee embracing such
amount as the managers may think necessary at the time of the payment to The 1930 Act applies to any contract of insurance against 'liabilities to third 20.36
cover any liabilities or potential liabilities of the member to the club. Thus, rule parties'. This is defined by section 1(5) as excluding 'any liability of [the
15B of the United Kingdom P&I Club provides as follows:
Whether or not the Managers shall expressly so stipulate as a condition for giving See generally, Sir Jonathan Mance, 'Insolvency at Sea' [1995] LMCLQ 34.
their consent to any assignment, the Association shall be entitled in settling any claim Re Harrington Motor Co Ltd, ex p Chaplin [1928] Ch 105; Hoods Trustees v Southern Union
Generallnsurance Co ofAustralia Ltd[1928] Ch 793. See also Bradley v Eagle Star Insurance Co Ltd
presented by the assignee to deduct or retain such amount as the Managers may then
[1989] AC 957,967-8.
estimate to be sufficient to discharge any liabilities of the assignor to the
68 R, Harrington Motor Co Ltd, ex p Chaplin [1928] Ch 105, 111, 116-17.
Association, whether existing at the time of the assignment orh'aving accrued or The long title of the Third Parties (Rights against Insurers) Act 1930.
being likely to accrue thereafter. Law Com No 272.
610 611
Rights o[Third Parties Third Parties (Rights against Insurers) Act 1930
assured] in the capacity of insurer under some other contract of insurance), with just as much as liabilities in damages'. 75 While Tarbuck was not formally over-
the tesult that reinsurance contracts are excluded. Moreover, where suppliets of ruled, it is highly unlikely to be followed by any first instance court.
property provide aftet-sales packages and then insure against their liability
under such packages, any attempt to invoke the 1930 Act in respect of such (2) QualifYing Events for a Transfer of Rights
insurance may require consideration of the legal nature of the package in ques- A transfer of rights under the 1930 Act requires the occurrence of anyone of a 20.40 list
rion so as to ascertain whether it is properly characterized as insurance. If so, of events specified in secrion 1 of the Act. Whete the assured is an individual,
the supplier's own cover will fall within secrion 1(5) and the 1930 Act will not the events ate the assured becoming bankrupt or making a composition or
be available. 71 arrangement with creditors. 76 Where the assured is a company, the events are
The question has also arisen ofwhether the 'liabilities' referred to encompass all the making of a winding-up ordet, the passing of a tesolution for a voluntary
liabilities howsoever arising or ate testricted to liabilities that arise on a second- winding-up,n the company enteting administrarion, the appointment of a
aty basis by way of a remedy for a legal wrong, such as a tort or breach of receiver or manager of the company's business or undertaking, the taking of
contract. In Tarbuck v Avon Insurance pic," Toulson J adopted a restrictive possession by the holders ofdebentures secuted by a floating charge of the
reading, excluding the operation of the 1930 Act in cases where the policy whole or patt of the propetty encompassed by the charge,78 and the approval of
a company voluntary arrangement undet Part I of the Insolvency Act 1986."
covered non-performance of a reimbursement liability voluntarily incurred,
Bo
namely a contracrualliability fot legal costs, non-payment of which resulted in The Act applies to limited liability partnerships as it does to companies.
an action in debt not damages. This was followed in T6'N Ltd v Royal 6' Sun Four observations may be made of this list. First, the 1930 Act is not confined to 20.41
Alliancepic," where the insurance covered a contractual liability ro reimburse an insolvent assureds. The listed events encompass cases of solvent winding-up and
employers' liability insurer. As in Tarbuck, the insurance covered a voluntarily of certain enforcement of security irrespective of the solvency of the assured.
incurred reimbursement liability, bur, unlike Tarbuck, the reimbursement debt was According to Bingham LJ:81 'The legislative intention was, I think, that .. , the
generated by an employment liability imposed by law sounding in damages for provisions of the 1930 Act. should apply upon an insured losing the effecrive
bteach. Lawrence Collins J held that this disrincrion was immaterial and that the power to enforce its own rights and dispose of its own assets.' Secondly, the
1930 Act did not apply to any insurance of voluntarily incurred liabilities, 1930 Act contemplates only three types of legal person as assureds, namely
including non-payment of any contract debt. natural persons susceptible to bankruptcy, companies, and limited liability
20.38 Such a limiting interptetation was, however, rejected by the Court of Appeal in Re partnerships. Partnetships other than limited liability partnerships are not
included. Consequently, while an appropriate event affecting an individual
OT Computers Ltd.74 The policy in quesrion covered liability on an after-sales
partner can trigger a transfer of that partner's insurance rights,82 orders against
warranty operated by compurer suppliers. This was indistinguishable from T6'N, in
that the liability was voluntarily undettaken bur would sound in damages for
non-limited liability partnetships as legal entities made under the Insolvent
breach. Overruling T6'N, the Court of Appeal held that thete was no reason to
import any limitarion into the prima ficie general wording of the 1930 Act. The
Act applied to any liability sounding in damages for breach, no matter how 7S ibid para 19 perLongmoreLJ.
Any form of composition or arrangement is envisaged, including an Individual Voluntary
arising. Arrangement under the Insolvency Act 1986, Pt VIII.
But TP(RI)A 1930 does not apply in the case of a voluntary winding-up 'merely for the
Since the liability in Re OT Computers sounded in damages rather than debt, it was not purposes of reconstruction or of amalgamation with another company': s 1 (6) (a). This
necessary to rule on the correctness of the decision in Tarbuck. Never-theless, exception would be removed under the Law Commission's proposals.
78 But crystallization of a floating charge is not in and of itself a qualifying event.
the Court of Appeal expressed the clear, albeit obiter, view that the
Approval takes effect from the time of the creditors' meeting: Insolvency Act 1986, s 5(2)
generality of the wotding of the 1930 Act was 'apt to include liabilities in debt (a). Likewise for individual voluntary arrangements: s 260(2)(a).
TP(Rl)A 1930, s 3A(1). In this context, references to a resolution for voluntary winding-up
being passed should be read as references to a determination for voluntary winding-up being
made: s 3A(2).
" See Re OT Computers Ltd [2004J EWCA Civ 653, [2004J Lloyd's Rep IR 669. Firma C- Trade SA v Newcastle Protection & Indemnity Association (The Fanti); Socony Mobil
[2002J QB 571. Oil Co Inc v U1est ofEngland Ship Owners Mutual Insurance Association (London) Ltd (The Padre
[2003J EWHC 1016 (Ch), [2004] Lloyd's RepIR 106, pa,as 586-601. Island) (No 2) [1989J I Lloyd's Rep 239, 247.
[2004J EWCA Civ 653, [2004] Lloyd's Rep IR 669. 82 Jackson v Greenfield [1998] BPIR 699 proceeds on that assumption.
612 613
Rights o/Third Parties Third Parties (Rights against Insurers) Act 1930
Partnerships Order 1994 fall outside the Act. Thirdly, the list of qualifYing events (4) Anti-avoidance Provisions
under section 1 is a closed list and is not to be intetpreted as merely indicative of the The 1930 Act contains two anti-avoidance provisions. First, by virtue of section 20,44
relevant types of events. Events that are similar in type but that are not listed (such 1(3), any provisi~n in the insurance contract that 'purports, whether directly or
as the appointment of a provisional liquidator under section 135 of the Insolvency mdlfectly, to aVOid the contract or to alter the rights of the parties thereunder
Act 1986, the striking of a company off the register under section 651 or 653 of the upon the happening to the insured of [a qualifYing event] shall be of no effect',"
Companies Act 1985, or the entry by a company into a composition with creditors The subsection must be read in a purposive manner, Read literally, it invalidates
under section 425 of the Com-panies Act 1985) cannot trigger a statutory transfer of any alteration of rights, whether the alteration has a detrimental, beneficial, or
rights. Fourthly, the 1930 Act does not expressly state whether the qualifYing neutral impact on the assured's position. It has, however, been held that section
events are procedures governed by English law alone or whether, for example, the 1(3) is to be construed as confined to provisions that have a detrimental
winding-up of a company under a foreign law would trigger the application of the impact upon the assured's rights'" Consequently, a clause that transfers c1aims-
1930 Act against an insurance policy governed by English law. However, the handling responsibilities to the insurer should the assured become insolvent
restriction of the Act to specified events and the exclusion of similar events which is neutral with respect to the value of any claims, is unaffected b;
indicates that parallel events and procedures under foreign laws are not covered." section 1(3).'0
The scope ofsection 1(3) is also controlled by timing. It is not sufficient that the 20.45
The Timing of a Transfer of Rights cla~s~ affects the position of the third party; it must effect a change in that
p~slt1on at the time of the qualifYing event, The assured's rights after the quali-
An enforceable right to claim under a liability policy requires that the existence and extent fYmg event must be rendered different from what they were before that event.
of the liability be established by judgment, arbitral award, or agree-ment between Thus, a contractual term that prevents any rights from arising in rhe first place is
the parties."' The statutory transfer, however, is not dependent upon such
unaffected. 91 However, an insistence upon an exact temporal coincidence would
establishment of liability and occurs at the time of a qualifYing event. In Re OT result in the 1930 Act being susceptible to evasion, Contract terms could be drafted
Computers Ltd," the assured incutred liability but then became insolv-ent before so as to effect a detrimental change to the assured's rights upon the o~currence of an
liability could be established so as to enable the assured to bring a valid claim evenr technically distinct from and perhaps occurring at a slIghtly different time
against the insurer. The Court of Appeal held that a statutory transfer occutred on from a qualifYing event, yet an event that clearly contem-plates the occurrence of a
the onset of insolvency. 'The rights so transferted may be contingent or inchoate in qualifYing event. Consequently, in Centre Reinsurance International Co v
the sense that the rights may not give tise to legal Curzon Insurance Ltd," Blackburne J held that section 1(3) would apply provided
liability on the part of the insurer until the existence and amount of the liability is there was a 'sufficient connection' in the form of a 'direct factual link' between the
established bur the transfer nevertheless takes place on the insolvency.'8' contractual event and the statutory qualifYing event,"
The transfer of (inchoate) rights is not postponed even if at the time of the In Curzon itself, the relevant clause was triggered by either an 'insolvency event' 20.46 or
qualifYing event losses have yet to reach some contractual threshold for recovery, the ultimate net loss reaching the policy excess. The phrase 'insolvency event'
8
such as a deductible Ot franchise clause. ' was defined to include, inter alia, the presentation of a petition for an adminis-
tration order. The making of an administration order is a statutory qualifYing event
and an administration order must be applied for by petition!4 but
83 See also Centre Reinsurance International Co v Curzon Insurance Ltd [2004] EWHC 200
(Ch), (2004] Lloyd's Rep IR 622, para 67 (foreign proceedings similar or analogous to various
English proceedings listed in a policy had no equivalent in the qualifying events listed in s 1(1». See also TP(RI)A 1930, s 3, which invalidates certain agreements between the insurer and
" See 21.14-21.17 below. as 120041 EWCA Civ 653,120041 Lloyd's Rep IR 669. assured which would otherwise operate to defeat the third party's rights under the Act.
86 ibid para 28 per Longmore L], overruling Nigel Upchurch Associates v Aldridge Estates
The Allobrogia [1979J 1 lloyd's Rep 190, 198; Centre Reinsurance International Co v Fretlkley
Invest- [2005] EWCA Civ 115, [2005] Lloyd's Rep lR 303.
ment Co Ltd 11993] 1 Lloyd's Rep 535. See also Cox v Bankside Members Agency Ltd [1995] 2 Centre Reinsurance International Co v Curzon Insurance Ltd [2004] EWHC 200 (Ch)
[2004] Lloyd's Rep lR 622, patas 43-44. '
Lloyd's Rep 437, 443, 467.
91 See 20.63 below. 92 [2004] EWHC 200 (Cb), [2004] Lloyd's Rep lR 622
87 Centre Reinsurance International Co v Curzon Insurance Ltd (2004] EWHC 200 (Ch),
[2004] Lloyd's Rep lR 622. Tbe point was not appealed: [2005] EWCACiv 115, [2005] Lloyd's 93 ibid para 63. 94 Insolvency Act 1986, s 9. .
Rep IR 303, para 55. On deductibles and franchise clauses, see 23;40-23.48 below.
615
614
Rights o[Third Parties Third Parties (Rights against Insurers) Act 1930
section 1(I) read literally does not include the necessary preliminary applica-tion. been established by legal judgment, arbitral award, or binding agreement?'
However, Blackburne J held that 'it is artificial in the extreme to maintain that the Consequently, the mere fact that an assured incurs a legal liability and is then
presentation of the administration petition can operate as a free-standing event, subject to a qualitying event is insufficient for the 1930 Act to confer upon the third
entirely divorced from the administration to which it necessarily relates, and that it party an enforceable right against the insurer. Since the assured would have no
is apt therefore to trigger [an alteration of rights] without risk of avoidance under claim until the fact and extent of liability had been definitively established, neither
section 1(3) by reason of the making of the administration order'.9S Conversely, has the third party. This leads to the need for the third party to establish liability, if
an alteration ttiggered by the attainment of the policy excess by the ultimate net necessary by instituting proceedings against the assured, in order to invoke the
loss had no connection with a statutory qualitying event and was, therefore, 1930 Act against the insurer.
immune from challenge undet section 1(3).
In the leading case of Post Office v Norwich Union Fire Insurance CO,99 the policy
The second anti-avoidance provision is section 3 of the 1930 Act, which addresses a 20.50 conferred an indemnity against all sums which the assured became 'legally liable
number of other events that might prejudice the assured's rights and thereby the to pay' third parties. The assured became insolvent before the third party com-menced
rights transferred to the third party. It applies, however, only in the event of a litigation. The Court ofAppeal held rhat the 1930 Act was inoperative. In a passage
narrower range of qualitying events than that acknowledged by section 1(I), being subsequently approved by the House of Lords as 'unassailably correct',100 Lord
confined to the bankruptcy of an assured who is a natural person or, in the case of Denning stated as follows: 101
an assured company, to the making of a winding-up
Under [section 1] the injured" person steps into the shoes of the wrongdoer. There
order or an administration order or the passing of a resolution for a voluntary
are transferred to him the wrongdoer's 'rights against the insurers under the con-
winding-up. Section 3 then provides that the rights transferred to the third party are tract.' What are those rights? When do they arise? So far as the 'liability' of the
unaffected by any agreement between insurer and assured after the assured insured is concerned, there is no doubt that his'liability to the injured person arises
incurred liability to the third patty and the qualitying event occurred. Any earlier at the time of the accident, when negligence and damage coincide. But the 'rights'
settlement is unaffected." Similarly ineffective as against the third party are 'any of the insured person against the insurers do not arise at that time. The policy says
waiver, assignment or other disposition made by, or payment made to' the assured that 'the company will indemnifY the insured against all sums which the insured
sball become legally liable to pay as compensation in tespect of loss of or damage to
after the qualitying event.
property.' It seems to me that the insured only acquires a right to sue for the money
when his liability to the injured person has been established so as to give rise to a
The Rights that are Transferred right of indemnity. His liability to the injured person must be ascertained and
determined to exist, either by judgment of the court or by an arbitration or by
Whete the assured under a liability policy incurs a third party liability and a qualitying agreement. Until that is done, the right to an indemnity does not arise. I agree with
event occurs, the 1930 Act operates to transfer to the third party the 'rights [of the the statement by Devlin J, in West Wilke Price & Co v Ching [1957] 1 WLR 45 at
assured] under the contract in respect of the liability'.9? The Act operates, 49: 'The assured cannot recover anything under the main indemnity clause or
therefore, metely to ttansfer the assured's rights to the third party and not to create make any claim against underwriters until they have been found liable and so
new rights or improve existing rights. sustained a loss.'
Under [section 1J it is clear to me that the injured person cannot sue the insurance
An enftrceable right to claim under a liability policy company except in such circumstances as the insured himself could have sued the
insurance company. The insured could only have sued for an indemnity when his
Subject to conttary intention, an assured under a liability policy has no enforce-
liability to the third person was established and the amount of the loss ascertained.
able claim against the insurer until the existence and amount of the liability has
The correct procedure, therefore, is for the third party to proceed against the 20.51 assured
to establish liability and quantum and then to use the 1930 Act against
[2004J EWHC 200 (Ch), [2004J Lloyd's Rep IR 622, para 62. The policy also contained
a number of other contractual insolvency events upon which Blackburne J commented without making
any decision as to whether there was a sufficient connection with a statutory qualifYing event: at para See 21.14 below. Note that in the case of a global settlement of a variety ofclaims against the
67. assured, an individua11iability will not be established so as to give rise to a claim unless the
Normld Housing Association Ltd v Ralphs [1989J 1 Lloyd's Rep 265. Quaere whether such a settlement is btoken down so as to attach a figure to the insured liability, see 21.16 below.
settlement might be vulnerable to challenge under the Insolvency Act 1986, s 423 as a transaction [196712 QB 363.
aran undervalue: Normid Housing Association Ltd v Ralphs (No 2) [19891 1. Lloyd's Rep 274, 277. '00 Bradley v Eagle Star Imurance Co Ltd [19891 AC 957, 966 per Lord Brandon.
S7 TP(R1)A 1930, s 1(1). '" [1967J 2 QB 363, 373-4. See also Salmon LJ ar 377-8.
616 617
Rights of Third Parties Third Parties (Rights agaimt Imurers) Act 1930
the insuter, effectively by way of enforcement of judgment or recovery of the Where the qualifying event is entry into an individual or company voluntary 20.54
settlement figure.'o, This raises the problem of either suing an insuted company arrangement, rhe third party may find itself precluded by the terms of the atrangement
which is in the process of being wound up or resutrecting a dissolved company from establishing the assured's liability. In such a case, rhe thitd
for the putposes of rhe required litigation pteliminary to using the 1930 Act. party may challenge the voluntary arrangement on rhe ground thar such preclu-
Where a company is being wound up by the COutt, in the interim between presentation of sion 'unfairly prejudices' irs interests.'" In Sea Voyager Maritime Inc v Bielecki,
'12 it was held that the removal of the privileges of enforceability of claim and
the winding-up petition and making of the winding-up order, an application may be
made to the court to restrain any proceedings against the company.'03 Once a prioriry over other creditors with respect to proceeds conferred by the 1930 Act
winding-up otder has been made or a provisional liquidator appointed, no action would consritute unfair prejudice. On the facts, it was further held thar the
may be commenced or continued against the company except with the leave of the terms of rhe arrangement, on rheir true interpretation, precluded the third party
COutt.'o, Howevet, a court will gtant leave to a third party seeking to establish from bringing proceedings against the assured in order to establish liabiliry or,
liabiliry as a preliminary step ro pursuing an insurer under the 1930 Act,'05 and
alrernatively, thar judgment could be obtained for the equivalent of a dividend
rather than the full amount of the claim. This consrituted unfair prejudice.
ptesumably will not restrain any such action.
If the assured company has already been dissolved, the COutt has the power under In the case of a company voluntary arrangement, directors proposing an 20.55
arrangement may seek a moratorium on proceedings against the company.'13
section 651(1) of the Companies Acr 1985 to make an order declaring the
dissolution void.,06 'Thereupon such proceedings may be taken as might have Such a moratorium would require a third party who wished to take proceedings
been taken if the company had not been dissolved."o, In general, however, the to esrablish liability in order to invoke the 1930 Act to obtain the leave of the
court may make an order under section 651 only on an application made no court. 114 However, since such proceedings are neutral with respect to other
creditors, it is anticipated thar leave would be forthcoming.
later than two years from the date of the dissolution.'os Consequently, the third
party may find itself out of time to establish liabiliry againsr a dissolved (b) Definces
assured even if srill within the limiration period governing such action.'o, The
1930 Act was 'not passed to remedy any injustice which might arise as a result The fundamental proposition that the third party receives only rhose rights 20.56 which
of the dissolution of a company making it impossible to establish the existence have accrued to the assured permits the insurer to invoke against the third
and amount of the liability of such company to a third parry'."0 party any defences that would have been available against the assured. 'You
cannot rake rhe righrs under the contract separate from the defences under the
contract."15 Apart from substantive defences, such as the right to avoid the
102 Post Office v Norwich Union was fought by the insurance company to the C9urt of Appeal to policy for non-disclosure or misrepresentation116 or the automatic discharge
establish this procedural point for reasons of publicity. The result avoids the necessity for an from liability rriggered by a breach of warranty, assureds have been held bound
insurer that wishes to resist liability to do so in its own name and perhaps gain a reputation,
whether merited or not, for always repudiating liability: ibid 378. On joinder of the insurer to by a variety of contractual limitations to rhe insuter's liability.
defend the third party's action against the assured, see U700d v Perfection Travel Ltd (1996) LRLR
293. Notification and claims co-operation provisions Liability policies routinely 20.57
'" IA 1986, s 126(1). contain clauses requiring the assured to notify the insurer of any occurrence
ibid S 130(2). The appointment of a provisional liquidator is not, however, a qualiiying event that may give rise to a claim or of the making of a claim against the assured.
under the 1930 Act, see 20.41 above.
Post Office v Norwich Union Fire Insurance (1967] 2 QB 363, 375, 378. Thereafter, rhe assured may be required to co-operate with the insurer in various
It would appear that the coun will never decline to exercise the restorative power: Law Com
No 272, para 2.11.
107 CA 1985, s 651(2). When making a s 651 order, the cOUrt may direct that the period
between dissolution and the making of the order shall not count for limitation purposes: s 651 (6). '" Insolvency Act 1986, 55 6 (CVA), 262 (IVA).
'" CA 1985. s 651(4), as inserted by rbe CA 1989, s 141. m [19991 Lloyd's Rep lR 356. 113 Insolvency Act 1986, s lA, Sch AI.
109 Where, however, the action against the assured would be for damages for personal injuries 1M ibid Sch AI, para 12(I)(h).
or under the Fatal Accidents Act 1976, proceedings seeking an order under CA 1985, s 651 may be McCormick v National Motor & Accident Insurance Union Ltd (1934) 49 LlLRep 361, 365 per
brought at any time within--rhe limitation period governing the main cause of action: s 651 (5), as Scrutton LJ. 'The rights assigned . . . by the statute must be coupled with the rest of the particular rights
inserted by the Companies Act 1989, S 141(3). This is subject to the proviso that the company was and obligations which make up the contract of insurance. One cannot pick our one bit-pick out the plums
dissolved no earlier than 16 November 1969: CA 1989, s 141(4). On the operation of and leave the duff behind': Post Office v Norwich Union Fire Insurance
s 651(5), see Re Workvale Ltd (No 2) [19921 1 WLR 416, noted H Bennett (1993) 12 C]Q 326. Society Ltd [19671 2 QB 363, 376 per Harman LJ.
"0 Bradley v Eagle Star Insurance Co Ltd [1989] AC 957, 968 per Lord Brandon. McCormick v National Motor & Accident Insurance Union Ltd(1934) 49 LlLRep 361.
618 619
Rights of Third Parties Third Parties (Rights against Insurers) Act 1930
ways. Where such a clause ranks on irs rrue interprerarion as a condition prece- time the claim was made, the assured company had been wound up. On the
denr ro rhe insurer's liability under rhe contracr, non-compliance will consrirure a ~asis' that it is 'not '\easonably possible" to report an occurrence of which one is
complere defence ro any claim by the assured and, therefore, ro any right ro claim unaware',122 the claim was made too late to fall within the ambit of the clause. By
transferred ro a third party under the 1930 Act. Thus, in Pioneer Concrete (UK) the time the claim was made, the assured did not exist and could not become awate
Ltd v National Employers Mutual General Insurance Association Ltd, 117 rhe insurer of it.
was protected by rhe failure of the assured to give immediate norice of a third party
Dispute resolution procedures Where rhe policy contains provisions relating 20.60
claim as required by the policy, even though a similarly required notice of the accident
to dispute resolution, these will bind the third party to the same extent that they
had been given. That the insurers were in no way preju-diced by the absence of a
are obligatory for the assured. The Padre Island''' concerned a claim against a
second notice was irrelevant, since the requirement of a second notice was drafted as a
mutual insurance association under the rules of which any dispute had to be
condition precedent ro rhe insurer's liability. Likewise, in The Vainqueur jose,"8 the
referred to the association's committee and subsequently to arbitration before
claimant rhird party was unsuccessful because rhe assured failed ro norify the club of
being litigated before the courts. The thitd party was held to be bound by such
the claim within a stipulated time period as required by the rules. Breach of that rule
procedural prerequisites to the club's liability to the assured.
gave rhe club the right ro reject any claim by the assured or reduce the sum payable by
way of indemnity. Restrictions on rhe scope of cover In The Vainqueur jose,'24 the relevant 20.61
club rule excluded certain cover unless the club committee should 'in its sole
Notification and co-operation provisions are especially problematic in rhe con-text of the
discretion' otherwise determine. The third party's attempt to invoke the 1930
1930 Act, since an assured rhat is, or is likely to be, subject ro a qualifying event
Act in respect of liability within the exclusion foundered upon refusal by the
such as insolvency may be less concerned with the preservation of the third party's
committee to exercise its discretion in the third party's favour. There was no
insurance rights. The question arises, therefore, ofwhether it is open to the third
ground for holding that this refusal had been 'improper or unjustified or
parry to fulfil rhe requirements of a notification provision by itself supplying the
misguided' .125
insurer with the requisite information. This question can be approached from rwo
angles. First, even where a clause requires information to be supplied by the Pay first clauses A pay first clause restricts an insurer's liability to reimburse- 20.62
assured, it is a matter of interpretation whether the assured is so designated ro the ment of such sums as the assured may have become liable to pay and has in fact
exclusion of anyone else.' 19 Secondly, it has been suggested paid to the third party. Payment to rhe third party is rendered a condition
that a staturory transfer of a right to claim against an insurer might catry wirh it precedent to any right to claim against the insurer and insurance against third
the right ro fulfil notification and co-operation provisions. 120 Although' such party liability is transformed into indemnity cover against the making of pay-
clauses might be regarded as embodying obligations rather than righrs, so that ment in respect of liability. Pay first clauses are found in the rulebooks of all
they fall outside the scope of any statutory transfer, it would be in the spirit of mutual insurance associations, and the reference to 'sum or sums paid' in the
the legislation ro regard them rather as shaping the transferred rights. collision liability clause of the International and Institute hull clauses may also
Notification and co-operation clauses pose furrher problems where the assured has ceased import a pay first principle. 126 Obviously, it is only where the assured becomes
to exist, since compliance may obviously be impossible. Where pos- insolvent without discharging its liability that the third party will wish to invoke
the 1930 Act. If pay first clauses are effective, they will prevent the Act from
sible, however, the courrs will construe such clauses as inapplicable in such cases.
applying.
In Horne v Prudential Assurance Co Ltd, '21 the policy required the assured ro
notify the insurer of a rhird party claim 'as soon as reasonably possible'. By the The conjoined appeals to the House of Lords in The Fanti and The Padre Island 20.63
'" (1985J 1 Uoyd's Rep 274. ibid 77 per Sheriff Principal Macleod QC.
118 CVG Siderurgicia del Orinoco SA v London Steamship Owners) Mutual Insurance Socony Mobil Oil Co Inc v 'West of England Ship Owners Mutual Insurance Association
Association (The VainqueurJose) [1979] 1 Lloyd's Rep 557. For an additional ground of (London) Ltd (The Padre Island) (1984J 1 Lloyd's Rep 408.
rejection of the claim, see further, 20.61 below. CVG Siderurgicia del Orinoco SA v London Steamship Owners' Mutual Insurance Association
119 This, it is suggested, is the preferable explanation of Barrett Bros (Taxis) Ltd v Davies [1966] (The v"inqueurjose) (1979] 1 Lloyd's Rep 557.
1 WLR 1335. ibid 580.
120 Sir Jonathan Mance, 'Insolvency at sea' [1995] LMCLQ 34, 44. Re Nautilus Steam Shipping Co Ltd[1936] Ch 17, 31. cf Charter Reinsurance Co Ltd v Fagan
'" 1997 SLT (Sh Ct) 75. (1997J AC 313, see 8.16 above.
620 621
Rights ofThird Parties Third Parties (Rights against Insurers) Act 1930
(No 2)127 concerned the 'pay first' clauses of twO P&I clubs. The House held that transferred' .'31 In contrast, in Cox v Bankside Members Agenry Ltd, 132 insurers
the clubs were protected by the clauses, which did not fall within the mischief the covered not only liability but also defence costs subject to an excess. In
1930 Act was designed to address. In particular, the clauses were not invalidated by practice, however, insurers bore the entirety of the costs of defending third
section 1(3), which was confined to provisions altering the assured's rights against party claims where the assured was insolvent and thereby acquired a right of
the insurer upon the occurrence of the events specified in section 1(1). The pay first reimbursement of a sum equal to the excess. Under rhose circumstances,
clauses applied equally before and after such events. That upon such an event a Phillips J held that insurers were entitled to set off that sum against a third
club member would in all likelihood be unable ro discharge third party liability and party claimant under the 1930 Act. The decision in Cox is clearly distinguishable
be thereby prevented from obtaining an indemnity from the club resulted not from from that in Murray, in that the expenses in Cox were clearly referable to the
any alteration of rights by the clause but from the assured's financial predicament particular liability in respect of which the third party sought to exercise transferred
and probable insolvency.'2' rights. Nevertheless, Phillips J asserted that'" 'the rights transferred under the Act
must be subject to any defences that would have be.en available had those rights
It is noteworthy that while the Law Commission's proposals generally involve
been asserted by the assured from whom they are transferred. Insofar as the
disapplying any pay first provision once there has been a statutory transfer, an
decision in Murray v Legal & General Assurance Society Ltd . .. is inconsistent
exception is proposed in the case of marine insurance on the basis that direct
with this conclusion, I decline to follow it'.
action against marine insurers should be left to international measures. Pay first
clauses would remain effective except to the extent that the third party liability Given that the facts of Cox were distinguishable from those in Murray, it is 20.67
arises in respect of death or personal injury. This is said to reflect current best unclear to what extent PhilJips J intended to question the decision in Murray.
practice. 129 However, the categorical reference to any defences' must raise a question as to
t
whether the decision in Murray wilJ be followed. It is suggested that it should

20.65 Liabilities and set-off The effect of a statutory transfer is limited to vesting in the
not be for two reasons. First, the decision in Murray runs counter to the general
third party the assuted's 'rights against the insurer under the contract in respect of
assimilation of the position of the third party to that of the assured. It is difficult
the liability'. The third party receives only rights and there is no question of any to see why a statutory transfer should have the effect of laundering the assured's
transfer ofliabilities. The third party cannot, therefore, be sued by way of claim or rights of the stain of any right of set-off not direcrly related to the liabiliry in
counter-claim for unpaid premium. The availabiliry of any defence of set-off is less question when it is powerless to launder it of the stain of other non-specifically
clear. 134
related defences, such as voidability for non-disclosure. Secondly, it is also
In Murray v Legal & General Assurance Society Ltd, 130 the insurer sought to difficult to see why the duty of disclosure of infotmation regarding transferred
invoke a defence of set-off of unpaid premium against a third p~rry's claim rights, discussed below,'35 should extend to receipts for premiums if unpaid
under the 1930 Act. Cumming-Bruce J denied any such set-off, observing that premium cannot be set off against a third party.13'
the statutory transfer is limited 'to the rights under the contract in respect of the
Limitation The operation of the doctrine of limitation in the context of 20.68 the 1930
liabiliry incurred by the insured to the third parry. Rights which are not referable to
Act ought not to cause difficulty. The Act transfers to the third party
the particular liabiliry of the insured to the particular third party are not
the rights of the assured; it does not create new rights and vest such new rights
in the third party. Consequently, the relevant limitation period should be that
governing the assured's claim, and ifa qualifYing event does not occur until
after the limitation period expires, any atrempt by the third party to invoke the
127 Firma C-Jrade SA v Newcastle Protection & Indemnity Association (The Fanti); Sacany Mobil
Oil Co Inc v W0st ofEngland Ship Owners Mutua! Insurance Association (London) Ltd (The Padre
1930 Act against the insurer will be time barred. The 1930 Act was designed to
Island) (No 2) [1991] 2AC 1. address the distribution of assets upon insolvency, not to alter the law of limitation
In response to this decision, the question arises whether money can be lent to the insolvent club so as to preserve an asset that would otherwise be lost.
member impressed with a Quistclose trust to be employed in satisfaction of the pay first condition. The
rules of some dubs, however, deny any such possibility by providing that the condition precedent to the
member's right of recovery against the dub is payment by the member out of funds belonging
unconditionally .to the member and not by way of loan or otherwise, 131 ibid 503, The question was also raised how of set~offwould operate in a case of multiple
Law Com No 272, para 5.37, However, for an example of pay first provisions being statutory transferees.
invoked in a personal injury case, see Lloyd's List; 10 September 1999. m [1995J 2 Lloyd', Rep 437. 13' ibid 451. '" See 20.56 above.
130 [1970J 2 QB 495, 503. '" See 20.75-20.79 below. 13' TP(Rl)A 1930,,2(3).
622 623
Rights of Third Parties Third Parties (Rights against Insurers) Act 1930
20.69 In Leflore 0 White,137 the assured's liability was established by judgment on 16 considered the point, I have not felt it necessary to reconsider the conclusion
December 1981. On 8 December 1987 the assured issued proceedings against the that I have reached in this case.
insurer, the following day the assured was made bankrupt, on 16 December 1987 While Phillips J did not elaborate upon the reasoning that led him to the view 20.72 that the
the limitation period for the assured to sue the insurer expired, and on 3 June 1988 club would not have a limitation defence, the obvious inference is that Phillips J believed
the third party issued proceedings against the insurer under the 1930 Act. that a fresh limitation period commenced from the date of
Popplewell J held that the third party's claim was time barred. The 1930 Acr the qualifYing event, perhaps subject to the proviso that the assured had com-
transferred to the third party the right to bring proceedings againsr the insurer in its menced proceedings in time. In this respect, there is a clear conflict with the
own name and for its own benefit; it did not vest the assured's action in the third express, later ruling in Leflore 0 White, '42 in which The Fetide was not men-
party. Moreover, Popplewell J also summarily rejected an argument that the third tioned and which, it is respectfully suggested, is correct. If a third party claim in the
party had the benefit of an independent limitation period running from the date of circumstances of The Fetide is defeated by limitation, the defeat is inflicted not by
the qualifYing event: 138 'I confess that I find neither logic nor sense in that the 1930 Act bur by the timing of the qualifYing event. As stated above, the
argument. It would enable a [claimant] to bring an action under the 1930 Act years purpose of the 1930 Act is not to guarantee payment to the third party regardless of
ourside any limitation period contemplated by the Limitation Act. It would the course of events aftet the incurting of liability.'4'
undermine totally the concept that liability under the policy is the starting point for
determining when the cause of action arises.' (6) Distribution ofInadequate Fund
A somewhat different sentiment was, however, suggested by Phillips J in The Felicie.'39 The value of third party claims under the 1930 Act may exceed the fund 20.73 available for
The assured's liability was established by judgment on 21 July 1981. Arbitration distriburion under the policy. In such a case, claimants rank in the
proceedings against the insuring P&I club, as required by the club rules, were order in which they succeed in establishing the existence and quantum of the
commenced in time by the assured. However, the assured was wound up on 29 July assured's liability to them by judgment, arbitral award, 01' settlement.'44
1987, on which day the third party instituted fresh arbitration ptoceedings. Phillips
J held that the third party did not automatically succeed under the 1930 Act to the (7) Provision of Information
proceedings commenced by the assured. Those proceedings, if pursued, would
inevitably result in an award in the club's favour, since the right to claim in respect If the 1930 Act is to achieve its purpose and third parties are to recover 20.74
of the liability had been transferred t';' the third party. It was for the third party to indemnification from liability insurers, third parties need to be able to find out enough
pursue the fresh proceedings. abour the insurance to decide whether 01' not to pursue a claim against
the insurer. Consequently, section 2 of the 1930 Act creates a duty on specified
Thus far, the decision is consistent with Leflore 0 White. However, Phillips J, in the final persons on the occurrence of a qualifYing event to provide information to thitd
paragtaph of the judgment, alluded to the issue of limitation that could parties. The section has given rise to a number of difficulties.
consequently arise. Whether the fresh proceedings were time barred was not a
point before the court and had not been argued. Consequently, Phillips J made no (a) Section 2(1): disclosure by persons other than an insurer
ruling on limitation but stated that, had he believed that his decision would
Once a qualifying event has occurred, section 2(1) of the 1930 Act provides that 20.75 any
have afforded the club an insuperable limitation defence, he 'would have felt it
'd 'h' d .. '40 H . d '4' third party that claims the bankrupt or deceased debtor or the company is
necessary to reconSl er IS eClSlOn. e continue : liable to it is entitled to requite of certain specified persons that they disclose
It would be absurd if the effect of the 1930 Act, in circumstances such as those of
this case, were to be to defeat what might otherwise have been a good claim by the
insured. Such a result would be diametrically opposed to the purpose of the Act. A The Felicie (n 140 above) was decided in 1987, albeit not reported umi11990, while Lefevre
decision which produced this result would be suspect. Suffice it to say that, having White (0 138 above) was decided in 1989.
It is perhaps noteworthy that, in its repon on the 1930 Act, the Law Commission doubts the legal basis for
the suggestion of Phillips Jin The Fe/ide and, withom referring to Lefevre v White, considers that the
better view of the current law is that the third parry is bound by the same limitation period as the
137 [1990J 1 Lloyd's Rep 569. 138 ibid 578-9.
assured. Moreover, it proposes no change, except where the third party has commenced proceedings
139 London Steamship Owners Mutua! Insurance Association Ltd v Bombay Trading Co Ltd against the assured before a qualifying event: Law Com No 272, paras
(The Felicie) [1990J 2 Lloyd's Rep 210. ' 5.51-5.58.
140 ibid 27. 141 ibid. '44 Cox v Bankside Members Agency Ltd[1995J 2 Lloyd's Rep 437.
624 625
Rights ofThird Parties Third Parties (Rights against Insurers) Act 1930
'such information as may be reasonably required by him for the purpose of the duty extends to any terms of cover and to any aspect of the relationship
ascertaining whether any rights have been transferred to and vested in him by between assured and insurer or anything else that impacts on the existence and
this Act, and for the purpose of enforcing such rights, if any'. The disclosure enforceability of any transferred rights. Thus, section 2(3) provides that the
duty is mandatoty: any provision of an insurance contract that purporrs to duty to give information includes 'a duty to allow all contracts of insurance,
derogate from the duty is 'of no effect'. receipts for premiums, and other relevant documents in the possession or power
of the person on whom the duty is so imposed to be inspected and copies to be
A major issue is the time at which the right to require information arises. It was previously
taken'. Moreover, it is consistent with the approach of Re OT Computers that
thought that the subsection was subject to the grave disadvantage that the duty of
the duty will extend to any matters germane to decisions about whether it is
disclosure required first that the third party establish the assured's liability. This
might require the third party to engage in time-consuming and expensive litigation worth pursuing the insurer.
against a defendant of dubious solvency in order to establish liability, only to One difficulty with section 2(1) lies in the fact that a duty of disclosure is 20.79
discover, assuming success, that the defend-ant had neither the means to meet nor
imposed on a limited number of specified persons, namely 'the bankrupt, debtor,
insurance to cover the liability. Such a prospect could prove a serious deterrent to a
third party and, therefore, a serious personal representative of the deceased debtor or company and ... the
trustee in bankruptcy, trustee,150 liquidator, administrator, receiver, or manager,
impediment to the statutory ambition to provide third parries with access to the
benefits ofliability insurance. Nevertheless, in two first instance cases it was or person in possession of the property'. Other persons who may possess
relevant information, such as brokers, owe no duty.
held that the establishing of liability was a condition precedent to the right to
information on the basis either that prior thereto there was no transfer of rights (b) Section 2(2): disclosure by an insurer
to the third party'45 or that there was a transfer of inchoate rights as soon as a
qualifYing event occurred bur that no information could exist that could serve By virtue ofsection 2(2) of the 1930 Act, a parallel duty of disclosure is imposed 20.80
the designated purpose of ascertaining whether any rights against an insurer on any insurer where information disclosed 'in pursuance of subsection (I) of
had been transferred until it had first been determined what those this section discloses reasonable ground for supposing that there have or may
.h have been' a staturory transfer of rights against that insurer. This wording
rs were. 146
rIg contains two preconditions for the insurer to come under a disclosure obliga-
In Re OT Computers Ltd,'47 however, the Court of Appeal rejected both lines of tion. First, the third party must have reasonable grounds for supposing there has
reasoning. As already seen, it held that a transfer of rights, albeit possibly incho- been or may have been a statut0ty transfer. There is scope for dispute over the
ate, occurs on a qualifYing event.'4' With respect to the provision of informa-tion,
meaning of 'reasonable ground'. However, the threshold imported by that phrase
the key lay in the phrase 'reasonably required'. Information regarding rhe existence
and terms of insurance cover could be reasonably required to enable the third party is limited by the requirement that the third party need only 'suppose' that there
to decide whether to instigate or pursue liability proceedings. This view was 'may have been' a statutory transfer. There is no need for the third party to
supported, inter alia, by the fact that the duty to disclose infor- 'know' or 'have established' that rights have been transferred. Secondly, the
mation is owed to any third party 'claiming' that liability has been incurred reasonable ground should be based on information disclosed by virtue of section
(rather than 'having established' liability), and that the information relates to 2(1). It would appear that should the third party's reasonable grounds for the
rights 'if any', therefore clearly contemplating that information sought may relevant supposition be based upon information otherwise obtained, section 2(2)
reveal that no rights exist to have been transferred.'4' cannot apply. There would appear to be no logical reason for this restriction.
Indeed, in one case where the third party's information had not been gained
20.78 With respect to rhe scope of the duty, the third party is entitled to information through section 2(1), insurers commendably refrained from taking the point. 151
relating to the existence and enforcement of transferred rights. It is clear that
145Nigel Upchurch Associates v Aldridge.Estates Investment Co Ltd[1993J 1 Lloyd's Rep 535.

'" Woolwich BuildingSociery v Taylor [199511 BCLC 132.
150 Defined to include the supervisor of a voluntary arrangement under the Insolven<..)' Act
147 [20041 EWCA Civ 653, [20041 Lloyd's Rep IR 669. '" See 20.42 above.
[20041 EWCA Civ 653, [20041 Lloyd's Rep IR 669, pa,as 33~38. 1986, Pt 1 0' VlII, s 2(IA).
149
'" Woolwich BuildingSociery v Taylor [199511 BCLC 132, 137.
626
627
Rights ofThird Parties Third Parties (Rights against Insurers) Act I930
Relationship between Assured and Third Party in the Light of a Statutory Transfer (10) Recovery of the Assured
of Rigbts
While the various qualifYing events under section 1(1) of the 1930 Act all signal 20.83 a
Should the transferred insurance righrs yield a measure of indemniry less rhan rhe loss of control on the part of the assured over its rights and assets, thar loss is
assured's liability ro rhe third party, section 1(4) (b) of the 1930 Act provides that not necessarily permanent. An administrator may succeed in restoring a com-pany
the third party's rights against the assured are unaffected with respect to the to health so that the order can be discharged and the company resume trading under
shortfall. There is, however, no provision that expressly addresses the third par-ty's its directors, There is, however, no indication that such a recovery of the assured
rights against the assured to the extent that the transferred rights do yield would reverse a prior statutory transfer. In conttast, once the company has
indemnification. It seems uncontroversial that the third party should not be recovered, there is no reason why any subsequent incurring of liability should
permitted ro recover and retain any measure of double recovery by enforcing both trigger a statutory transfer simply because at some time in the company's histoty a
its transferred rights against the insurer and its liability claim against the assured. It qualifYing event had occurred. The 1930 Act is designed to ensure that the benefit
is suggested that section 1(4) (b) should be read as providing implicitly that, apart of liability insurance enures to the third party suffering the loss that generates the
from any shortfall after enforcement of the transferred rigbts, success-ful recovety claim. If any qualifYing event is history, there is no operative mischief for the Act
pursuant to such rights pro tanto discharges the assured's liability to the third to address. It is, accordingly, suggested that any qualifYing event is implicitly
party. The alternative leaves the assured liable to pay the thitd party in full, with exhausted for the purposes of the 1930 Act once the assured recovers from that
double recovety being avoided through the insurer claiming the benefit event.
of such recovery as reducing the insured 10ss.'52 This approach, however, results
in loss as between insurer and assured lying with the assured rather than the
'53
insurer that has been paid a premium to carry that risk and, generally, at the
expense of the assured's credirors. The 1930 Act was designed to address the
disttibution of the assured's assets between the assured's creditors, not to dimin-ish
154
the assets available for distribution by reducing the insurer's net payment.
Relationship between Insurer And Assured in the Light of a Statutory Transfer

of Rights
The statut0ty transfer is confined to the assured's rights in respect of the third patty
liability. The assured's rights remain vested in the assured in respect of
other casualties covered by the policy and in respect of other losses arising
155
out of the same casualty that generates the statutory transfer. Moreover, any
liabilities of the assured undet the insurance contract are ~naffected. No claim
or counter-claim for unpaid premium can be brought against a statutory
transferee. 156
'" See 25.36ffbelow.

153 The assured cannot complete the circle and recover in turn from the insurer because a
statutory transfer leaves the assured with no rights against the insurer in respect of the third party's
loss.
154 The issue is canvassed in Centre Reinsurance International Co v Freakley [2005J EWCA Civ
115, [20051 Lloyd's Rep lR 303, paras 39, 138-139.
155 TP(Rl)A 1930, s 1(4)(a). Unless and to the extent that such other casualties or losses give rise to statutory
transfers in favour of other third parties.
156 The more difficult question of the availability of set-off against a ,statutory transferee is discussed
at 20,66-20.67 above.
628 629
21
LOSSES
A. The Concept of a Loss 21.02 of freight and loss of vessel

(1) Property insurance 21.03 or cargo 21.93
(2) Liability insurance 2J.l4 (3) W'hecher total loss of freight
B. Attaching Losses to Periods is actual or constructive 21.96
afCover 21.18 E. Loss of Adventure 21.97
(1) Property insurance 2J.l9 E Finality of Losses and the
(2) Liability insurance 21.31 Doctrine of Ademption of Loss 21.98
C. The Classification of Losses 21.36 G. Successive Losses 2J.109
(1) Actual total loss 21.37 (1) Successive losses: cumulative
(2) Constructive roealloss 21.53 recovery 2J.l1O
(3) Partia1losses 21.84 (2) Successive unrepaired losses 2J.l12
D. Loss of Freight 21.90 (3) The doctrine of merger of
(1) Whether freight lost 21.91 unrepaired paniallosses 2J.l15
(2) Relationship between loss (4) Successive total losses 2J.l23
Marine policies afford cover in respecr of differenr rypes of loss. First, there is 21.01
physical damage to or loss of the subject-matrer insured. Secondly, the assured
may also recover losses, charges, or expenditure incurred voluntarily or as a
matter oflaw in order to avert or minimize a loss. Cover for such losses,
charges, or expenditure is discussed in Chapter 24 below. Thirdly, the assured
may incur loss in the form of liabiliry to a third parry, although commonly the
relevant entitlement under a marine policy will be to indemnification of
payment made in satisfaction of that liabiliry. This chapter is concerned
predominantly with loss in the first sense, although certain issues relating to
liability cover are also considered.
A. The Concept of a Loss
What counts as a loss for the purposes of an insurance contract depends on the 21.02
rype of insurance and, ultimately, on the wording of the contract in question.
631
Losses The Concept ofa Loss
Property Insurance could be almost impossible for the underwriters to estimate in fixing a premium
proportionate to the risk.
Contracts for the insurance of property usually cover 'loss of or damage to the subject-
matter insured'. This is the approach of the Institute and International marine Even where the subject-marrer insured incurs physical loss or damage, the insur- 21.06
ance cover does not, unless the contract otherwise provides, extend to con-
clauses. This wording is interpreted as confining cover to direct, physical loss s
and damage. sequential loss. In the hull insurance case of Field Steamship Co Ltd v Burr, a
collision occasioned setious damage to the insured vessel that resulred in putre-
Standard wording does not limit rhe nature of the damage. There is an insured loss faction of the cargo and lawful rejection by the consignee at the port of destin-
even if the damage is not apparent to the naked eye and a sophisticated ation. A claim against hull and machinery underwritets for the cost of unloading
enquiry is required in order to ascertain the existence and extent of the damage. In
and disposal of the putrid cargo failed simply because the claim was not in
Quorum v Schramm,' a valuable painting was exposed to rapid and consider-able respect of loss of or damage to the insured property.' Nor does hull insurance
increases in heat and humidity by reason of a fire in the warehouse where it extend to 'business connexion', so that detention of the ship by a belligerent
was stored. The policy covered 'direct physical loss or ditect physical damage party to a war gives rise to no claim on a war risks policy on the ship. 7
of wharsoever nature'. Alrhough the pastel sustained no visible damage,
Thomas J concluded that rhe pastel had sustained sub-molecular damage Where insurance on cargo includes the packaging of that cargo, loss caused by 21.07
causing advanced ageing and enhanced risk of deterioration. The assured damage to the packaging is recoverable even though the goods themselves are
accordingly succeeded in claiming for a partial loss.' undamaged. In Brown Bros v Fleming,8 insurance on cases of whisky was held to
cover damage occasioned by an insured peril to the bottles, labels on the bottles
21.05 Loss or damage cannot, however, be equated with suspicion of loss or damage. In or corks, and even straw used to pack the bottles in the cases, as reflected in a
Cator v lVt'stern Insurance Co ofNew York,' bad weather damaged part of a cargo reduced sale value of the cases, even though the whisky itself was unaffected.
of tea, namely 449 packages. The remaining 1,711 arrived in perfect condition and However, where, on its true interpretation, the policy covers the goods alone
were sold. However, as was customary in the rrade, the packages were numbered and their value is unaffected by damage to packing, such damage will not
and sold in order ofconsecutive numbers. Any departure from a normal and constitute a loss of insured property.'
complete sequence aroused suspicion as to the state of the contents and depressed
the price. Consequently, the assured sustained a considetable financial loss even The assured clearly cannot recover for physical loss or damage within the scope 21.08
with respect to the undamaged packages. The Court of Common Pleas held, of a property policy unless the assured can prove on a balance of probabilities
however, that such loss was irrecoverable from the insurers. Delivering the that the property allegedly lost did embark upon the insured adventure. In
judgment of the court, Bovill CJ explained as follows: 4 Fuerst Day Lawson Ltd v Orion Insurance Co Ltd, 10 the assured was unable
to prove on a balance of probabilities that oil drums contained oil at the com-
The underwriters insure against damage to the goods by the perils insured against; but mencement of the insured adventure, the evidence leaving open the realistic
they do not, in our opinion, insure against damage by prejudice or suspicion, though
possibility, at least, that the drums had only ever been filled with water with a thin
such prejudice or suspicion be reasonable and be general in fact in business, when there
is no damage in fact to the goods themselves; and, if this policy were to be so
film of oil to create a deceptive impression. In Coven SpA v Hong Kong
construed, it would make them insurers, not only against direct damage to the goods
insured, but against damage to other goods in the same ship affecting the credit and
thereby the value of the goods insured, and would create indirect and collateral and [1899J 1 QB 579.
consequential liabilities from suspicion and prejudice, which it The cost of unloading of cargo at a pore of distress necessary for the effecting of repairs to the
vessel would be recoverable under the sue and labour clause, discussed at 24.02ff below.
7 Polurrian Steamship Co Ltd v Ytmng(l913) 19 Com Cas 143 (although should the detention
--_._--------------- ~--- endure sufficiently, it may become a constructive total loss). For other examples of lack of cor-
, [20011 EWHC 505 (Comm), [20021 1 Lloyd's Rep 249. respondence between loss and subject-matter of insurance, see Robertson v Ewer (1786) 1 TR 127
2 It does not appear that the phrase 'of whatsoever nature' was significant in that the assured (wages and provisions not covered by insurance on body, tackle, and furniture of a vessel); Xenos v
would otherwise have been unable to recover on the facts. Thomas J was satisfied that the painting had Fox (1869) LR 4 CP 665 (costs incurred in successfully defending action brought as a result of a
been physically damaged. collision not covered by third party collision liability policy nor by sue and labour clause therein).
, (1873) LR8 CP 552. See also LysaghtW Ltdv Coleman [1895J 1 QB 49; Overseas 8 (1902) 7 Com Cas 245. Although where the packing is defective, insurers will have a defence of
Commodities Ltd v Style [1958J 1 Lloyd's Rep 546, 561-2. inherent vice: see 15.55 above.
<1 ibid 559. Such extension of liability would also extend the potential scope of the duty of utmost 9 Vttcuum Oil Co v Union Insurance Society afCanton Ltd (l925) 24 L1LRep 188.
good faith. 10 [1980] 1 Lloyd's Rep 656.
632 633
Losses The Concept ofa Loss
Chinese Insurance CO,11 a cargo of broad beans was insured under a contract such cases, it is necessary. to wait and see what transpires, and whether a total loss
incorporating the Institute Commodity Trade Clauses (A). No cargo was lost in occurs depends on how the facts unfold. Thus, captures in time of war tend to
transit, bur measurement error on loading led to a bill oflading being issued for constitute total losses immediately. In contrast, where ptoperty is hijacked by
385,891.09 metric tonnes more beans than were in fact shipped. It was com-mon terrorists or held to ransom, it is necessary to wait and see how the circumstances
gtound, and accepted as correct by the Court of Appeal, that the concept of loss of develop in order to characterize the loss sustained."
insured ptoperty could not embrace such a 'paper loss'.
It may, therefore, take some time before a dererminarion of total loss can be 21.13 made.
In Coven, moreover, the Court of Appeal rejected the assured's argument that a paper loss In rhe meantime, rhe policy may expire." While a period of loss of possession not
was covered by the particular policy wording, which ptovided that the goods were amounting to a total loss constitutes a partial loss, marine hull
insured subject to the Institute Commodity Trade Clauses (A) 'Cov-eringAIl and catgo policies offer propetty insurance rather than loss of earnings insur-ance.
Risks ... including shortage in weight'. The term 'including' indicated that the Any claim is, therefore, confined to particular charges, salvage charges, and sue
contemplated shortage was not designed to extend cover beyond the and labour expenses."
physical losses covered under the all risks cover of the Institute clauses. The
context of a typical marine cargo policy, moreover, rendered it unlikely that the (2) Liability Insurance
insurance was intended to guarantee the accuracy of the bill of lading or insure
goods that never existed. Insurance against 'liability' is interpreted, subject to contrary intention, as cover- 21.14 ing
legal liability. 18 This is incurred, so as to constitute a loss recoverable from an insurer, not
Protection against measurement ertors for purchasers who rely on bills oflading in entering when the assured commits a legal wrong giving rise to a right on the
into international sale contracts Can be obtained by means of a 'full outrurn part of the injured third party to seek redress ftom the assured, bur at the later time
guarantee'. The insurer is liable for any disparity between loading and discharge when the existence and quantum of liability is established by judgment, arbitral
figures and is not entitled to require the assured to prove any physical award, or settlement." Liability may be established by a foreign court ptovided four
10ss. 12 conditions are satisfied:20
21.11 In the context of time insurance offreight, a peril may occur during the period of That the foreign court should in the eyes of the English Court he a Court of
cover which results in a loss of freight but not rhe freight insured. In Hough competent jurisdiction.
the insurance covered loss of chartered freighr ftom 15 April to 14 That judgment should not have heen obtained in the foreign Court in breach of
an exclusive jurisdiction clause or other clause by which the original insured was
October caused by accidenrs occurring between 15 April and 15 October. On contractually excluded from proceeding in that Court.
27 June, the vessel was involved in a collision bur was able to complete rhe That the [assured] took all proper defences.
voyage. On arrival in November, ir was discovered rhat considerable repairs were That the judgment was not manifestly perverse.
needed, resulting in the rriggering by the charterers of an off-hire clause. This,
however, did not relate to the insured period, freight for which was fully paid.
A rotalloss may arise through a deprivation of possession where insured prop-erty is either IS Kuwait Airways Corp v Kuwait 1murance Co SAl( (No 1) [199611 Lloyd's Rep 664, 688-9;
irretrievable or unlikely to be recovered wirhin a reasonable time.'4 Scott v Copenhagen Reinsurance Co (UK) Ltd [2003J EWCA Civ 688, [20031 Lloyd's Rep IR 696,
paras 73-77. On the attribution of such losses to particular policies, see 21.22ff below.
Wherher and when such a loss has occurred depends ultimately upon the facrs of 16 Until repeal by the Finance Act 1959, s 25(2) of MIA 1906 invalidated time policies in excess
the parricular case. Where rhe circumsrances reveal an intention immediately to of 12 months. The provision remains in force in some jurisdictions that have adopted the
deprive rhe assured of possession for rhe requisite period of time and success in 1906 Act.
17 Integrated Containers Service Inc v British Traders Insurance Co [1984] 1 Lloyd's Rep
achieving that aim, rhe loss occurs immediarely. Orher deprivarions, however, 154; Empresa Cubana de Fletes v Kissavos Shipping Co SA (The Agathon) (No 2) [1984J I
occur in circumstances that do nor supporr such an immediate prognosis. In Lloyd's Rep 183, 190.
18 Smit Tak Offihore Services v Youell [l992J 1 Lloyd's Rep 154.
19 Versicherungs und IransportAC Daugava v Henderson (1934) 39 Com Cas 312 (reinsurance);
Post Office v Norwich Union Fire Insurance [1967] 2 QB 363; Bradley v Eag!eStar Insurance Co Ltd
11 [1999J Lloyd's Rep 1R 565. [1989] AC 957, 966; Halvanon Insurance Co Ltd v Compania de Seguros do Estado de Sao Paulo
12 If a full outturn guarantee is an insurance contract, it may be unenforceable in law for want [1995J LRLR 303 (reinsurance).
of insurable interest: Coven v Hong Kong [1999] Uoyd's Rep IR 565,569. 20 Commercial Union Assurance Co v NRC Victory Reinsurance [1998] 2 Lloyd's Rep 600,
13 (1885) 55 L]QB 43. 14 See 21.46-21.51 and 21.59~21.73 below. 610-11 per Potter L].
634 635
Losses Attaching Losses to Periods ofCover
Subject to any contrary provision in the insurance contract, a settlement between the Subject to contrary intention, which is invariably present in the context of rhe 21.17 cover
assured and the aggrieved third party is not binding on the insurer, which is provided by mutual insurance associations,25 there is no requirement that
entitled to contest both the fact of the assured's liabiliry and the amount for which the assured should have satisfied the liabiliry so established before becoming
the rhird parry's claim was settled. If the assured cannot prove that the third parry's entitled to claim against the insurer.26
claim falls within the terms of the cover, the insurer is not
liable: a liability policy does not impliedly extend beyond liabilities expressly
covered to others for which the assured agrees to pay in a settlement. 21 With B. Attaching Losses to Periods of Cover
respect to quantum, the question is whether the agreed amount is reasonable given
rhe damages payable if legal proceedings had ensued. The settlement will Assuming that the assured has incurred a loss caused by a covered peril, the 21.18
be regarded as reasonable provided rhe assured's liability in damages would at question is whether that loss falls within the temporal parameters of the policy.
least equal the sum payable under the settlement. 22 Again, a distinction needs to be drawn between property and Iiabiliry insurance.
Where insured liability is addressed in a global settlement that also addresses other claims
(l) Property Insurance
outside the scope of the insurance, there is no establishment of rhe insured liability
so as to give rise to a claim against the insurer unless the Although the issue is ultimately one of construction of the policy in question, it 21.19
settlement is broken down so as to attach a specific figure to the insured liability. In is extremely unlikely that a properry insurer will be held liable in respect of a loss
Lumbermens Mutual Casualty Co v Bovis Lend Lease Ltd, 23 Bovis brought occasioned by a peril that occurs outside rhe period covered. Thus, subject to
proceedings against Braehead Glasgow Ltd for £37,778,266, being the balance contrary intention, there is no liability in property insurance where a peril occurs
payable on building contract. Braehead counter-claimed for £103,594,367, before rhe insurer comes on risk, but the consequences of the peril manifest
comprising claims for mismanagement of the project in various respects, defect-ive themselves only during the covered period. 27 The policy may provide to the
and non-compliant work, and liquidated damages. The action was settled on terms contrary, rendering the insurer liable for damage manifested during the period of
that Braehead would pay Bovis £15 million in full and final settlement of all cover even ifcaused by a peril occurring before attachment ofrisk, bur this would
disputes under the contract. The settlement did not indicate how that figure had be 'contrary to common understanding' and require 'compelling language'."
been determined. In particular, there was no indication to what extent, if at all, the
Assuming an insured peril occurs while the insurer is on risk, the insurer will be 21.20
ovetall figure represented a settlement of claims against Bovis that fell within the
liable, subject to contrary intention, only for such loss or damage as is thereby
scope of Bovis's Iiabiliry insurance. Consequently, it was held that the
settlement did not give rise to a claim by Bovis on those policies as liability caused during the covered period. 29 Thus, the mere discovery of a latent defect
while the insurer is on risk does not give rise to a claim under the Inchmaree clause.
thereunder had not been established. Colman J stated as follows: 24
Without any change in the physical condition of the insured vessel, there is no
... I have no doubt that a global settlement agreement of the Il_3ture of that found in the 10ss.30 Likewise, the measure of indemnity for damage to a vessel responds only to
present case does not satisfy the requirement of ascertainment of loss under these damage incurred while the insurer is on risk. 31 And again, cargo insurance under
liability insurance policies. It does not impose on the assured any identifiable loss in the Institute cargo clauses does not cover a 'paper loss' arising where a
respect of any identifiable insured eventuality. It merely identifies the overall
price paid by the assured as consideration for a contract which conferred on the
assured various different benefirs including the dropping by Braehead of all claims
in respect of the project. 25 By virtue of 'pay to be paid' clauses, see 16.03 above.
26North Atlantic Insurance Co Ltd v Bishopsgate Insurance Ltd [1998] 1 Lloyd's Rep 459, 462.
Kelly v Norwich Union Fire Insurance Society Ltd [1989] 2 Lloyd's Rep 333. See also
Promet Engineering (Singapore) Pte 0 Sturge (The Nukila) [1997J 2 Lloyd's Rep 146, 151.
[1989J 2 Lloyd's Rep 333, 339, 340 per Bingham LJ. See also Reinhart Co 0 Joshua Hoyle &
Sons Ltd[I961J 1 Lloyd's Rep 346, 358, 361.
21 MDIS 0 Swinbank [1999J Uoyd's Rep IR 516; Lumbermens Mutual Casualty Co 0 Boois Aside from representing the natural interpretation of the contract, this promotes financial certainty for
Lend Lease Ltd [2004J EWHC 2197 (Comm), [2005J I Uoyd's Rep 494, paras 44-45. insurers by facilitating a more reliable financial assessment of liabilities at an earlier dare, Lockyer v
" Structural Polymer Systems Ltd v Brown [2000J Lloyd's Rep IR 64,72; Lumbermens Mutual OjJley (1786) 1 TR 252, 261.
Casualty Co v Boois Lend Lease Ltd [2004J EWHC 2197 (Comm), [2005J 1 Lloyd's Rep 494, Promet Engineering (Singapore) Pte 0 Sturge (The Nukila) [1997J 2 Lloyd's Rep 146, 151.
para 44. See 11.21ff above.
23 [2004J EWHC 2197 (Comm), [2005] I Lloyd's Rep 494. 24 ibid para 55. 31 MIA 1906, s 69, discussed at 23. 15ff, esp 23.21 below.
636 637
Losses
Attaching Losses to Periods
weighing error on shipment results in the issue of a bill of lading for a larger to serve a notice of abandonment immediately after seizure of the carrying
quantity of goods than were in fact loaded. There is no physical loss during the vessel in favour of contesting a condemnation action brought by the Ametican
period of covet as delineated under the transit clause." captor in the hope of recovering the goods and exploiting a profitable market.
The American Prize Court ruled in favour of the assured and the captors
The occurrence of a loss may be presumed. According to section 58 of the Marine
decided to appeal. The cargo was subsequently sold by dectee of rhe Prize
Insurance Act 1906: 'Where the ship concerned in the adventure is missing, and
Court, a sale that the assured could have prevented by pledging the full value of
after the lapse of a reasonable time no news has been received, an actual total loss
the cargo in American paper currency. The Court of Exchequer Chamber held
may be presumed.' The statutory provision, however, creates no ptesumption
that this failure did not break the chain of causation as no prudent uninsured
regarding the ptecise timing of the loss. It remains for the assured to adduce
owner would have acted differently given the deteriorated condition of the
evidence to convince the court on a balance of probabilities that the
goods and the volatile state of the American currency. The sale, which stripped
vessel was lost within the insured period. 33 Notth J once recollected a case 34 the assured of both the property in the goods and all possibility of repossession,
involving a man who left Singapore by ship two days before his twenty-first constituted a total loss in respect ofwhich the assured was entitled to recover.
birthday and was presumed dead when not heard of again for seven years.
On the facts it was irrelevant whether this total loss was actual or constructive
James V-C held that he had died before his twenty-first birthday on the basis of
as the assured had served a fresh notice of abandonment immediately
evidence that the ship had encountered a violent storm the night after leaving
thereafter." On the causation point, Kelly CB observed that the total loss by the
Singapore and never been heard of again, and that several othet vessels wete
sale 'arose, though not directly, out of the original capture ... through a series of
known to have been lost in the stotm.
consequences, viz the institution, the different stages, and the continuence of
The confinement of the insurer's liability to loss sustained during the currency of the the [prize] suir until the decree was pronounced; and the sale under the decree
tisk is subject to the 'gtip of the peril' doctrine." Accotding to this doctrine, was ... a completion of the total loss'."
whete the insuted property falls into the grip of an insured petil during the
In London & Provincial Leather Processes Ltd v Hudson," the liquidator of an 21.25
currency of the risk, the insurer is liable for any total loss proximately caused
insolvent company to which the assured had entrusted goods for processing refused to
by that peril after the expiry of risk.
return the goods to the assured and instead unlawfully sold them. The
The doctrine operates most readily in the context of perils of deprivation of seizure occurred during the risk although it was unclear whether the sale occurred
possession. The policy may expire between the insured property falling into the before or aftet the expiry ofthe policy. However, Goddard LJ considered that the
grip of a peril of deprivation of possession and that deprivation maturing i~to a timing of the sale did not matter. This decision was subsequently relied on at first
total loss. However, provided the peril of deprivation ofpossession thar grips the instance in Bayview Motors Ltd v Mitsui Marine & Fire Insurance Co
ptopetty while the insurer is on risk qualifies as the proximate cause of a total loss
that ultimately matures, the insurer will and should be liable fOt that total loss. Goods were insured under a policy expiring, inter alia, sixty days after
Otherwise, the apparent extent of cover againsr perils of deprivation of possession
completion of discharge at the final port of discharge. Within that period,
would be misleading and there would be a significant gap in a ship-owner's cover, customs officets unlawfully removed them from a customs compound and con-
since renewal or alternarive cover is unlikely to be available except at prohibitive
verted them to their own use. David Steel J held that there was a constructive
rates once the vessel is known to have been seized.
total loss of the goods within the policy period. AJternatively, he held there was
21.24 A leading example of the grip of the peril doctrine is provided by Stringer v a partial loss during the currency of the risk that ripened after expiry of risk into
English & Scottish Marine Insurance Co." The assured cargo owner elected not an actual total loss, which was recoverable under the policy.41
Coven SPA v Hong Kong Chinese Insurance Co [19991 Lloyd's Rep IR 565, 569.
Reid v Standard Marine Assurance Co Ltd (I 886) 2 TLR 807. 31 Although the court seemed to favour an actual total loss: ibid 606.
In the course of his judgment in Re Rhodes (I887) 36 ChD 586, 591. Notth J appeated as 38 ibid 603-4. See also Mellish v Andrews (I812) 15 East 13; Cossman v ","st (1887) 13 App
counsel in the otherwise unreported decision. Cas 160.
3S The phrase was suggested by Rix L] in'Scottv Copenhagen Reinsurance Co (UK) Ltd (2003J 39 [193912 KB 724. 40 [20021 EWHC 21 (Comm), [20021 1 Lloyd's Rep 652.
EWCA Civ 688, [20031 Lloyd's Rep IR 696, pata 47. . 36 (I870) LR 5 QB " An appeal was unsuccessful ([20021 EWCA Civ 1605, [2003] 1 Lloyd's Rep 131), although
599. the Court of Appeal noted the unreserved nature of the judgment in Hudson and expressly
reserved any opinion on the grip of the peril doctrine. The doctrine does, however, appear to
be well supported by authority.
638
639
Losses Attaching Losses to Periods ofCover
In contrasr, the grip of the peril docrrine was held inapplicable on the facts of inevitable course. This sets the threshold too high. The liquidator in Hudson might
Fooks v Smith,42 a case concerning insurance of cargo carried on an Austrian have realized any sale would have been unlawful and returned the goods. The
ship. Because of an imminent outbreak of war, the Austrian government dir-ected correct threshold is that of proximate causation. Provided the subsequent
that Austrian ships should seek safety, resulting in the insured vessel failing to loss was proximately caused by the insured peril, the insurer is liable.
complete its voyage. Although this constituted a constructive total loss by the
insured peril of restraint of princes, the assured failed to serve a notice of The grip of the peril cases all contain an initial partial loss maturing into a total 21.29
abandonment." A year later, and after the policy had expired, the Ausrrian loss or an initial constructive total loss maturing into an actual total loss. There
government requisitioned the goods and sold them, acts constituting an actual total is, indeed, no scope or need for the grip of the peril doctrine where the property
is afflicted with a partial loss that will continue to develop but not into a total
loss. Bailhache J held that the underwriters could not be held liable for a total loss
based on the requisition and sale as rhey were not a 'natural or direct consequence loss. The progressive narure of the loss will be factored into the normal measure
of the peril insured against'.44 As a marter of proximate causation, of indemnity. For example, the measure of indemnity for unrepaired damage to
'the seizure and sale were not so nearly connected with the restraint of princes that a ship is measured by reference to its diminution in value as at the time of expiry
I can hold that the total loss was a completion of what was begun by the of risk. 50 However, the -value of a vessel that has sustained a certain amount of
restraint of princes' ,45 damage will be less where the problem will develop further than in the case
where the full extent of the damage has been sustained.
In Lockyer v Offley,46 barratty during the insured voyage resulted in the vessel being
arrested approximately one month after the termination of the voyage and, Provided an insured loss is sustained duting the period of cover, it is immarerial 21.30
therefore, the expiry of risk. Insurers were held not liable. The case has that either the Joss or irs full extent is not discovered or ascertained until after
been explained on the basis that the proximate cause of the loss was the seizure rhe time has expired. 51 In Knight v Faith,52 a vessel insured under a time policy
and not the barrarry.47 While that approach has some support in pre-Leyland sustained a partial loss by stranding during the period covered. The damage was
Shipping case law, it is suggested elsewhere that it is unsustainable in the modern sufficiently serious to result in the sale of the vessel outside the covered period,
law." The result may, nevertheless, be sustainable. It is clear that the barratry although not in circumstances permitting the assured to claim for a total loss. 53
occasioned no loss at all during the currency of the policy. Consequenrly, any The insurer was held liable for the partial loss, as reflected in the reduced price
claim would have to be based on the grip of the peril doctrine. However, the obtained on the sale of the damaged ship.54
absence even of any investigation of the vessel at the time of expiry of risk may
preclude a finding that the vessel was in the grip of the peril of barratry rarher than (2) Liability Insurance
merely being the scene for barratrous conduct. Such a limitatiop. may find
Under liability insurance, a distinction needs to be drawn between the incurring 21.31
support in the financial uncertainty arising from the potential, emphasized by the
of loss by establishing the existence and quantum of a liability of the type
Court in Lockyer,49 for liability to arise long after the period of cover has
covered by the policy, and the occurrence that determines in point of time
expired, a concern that even today may be relevant in property insurance.
whether that liability falls within the policy. It is for the contract to stipulate the
The grip of the peril doctrine is sometimes referred to as the 'death's blow doctrine', but relevant occurrence.
this label is potentially misleading. It conveys the idea that the
The rule books of the P&I clubs identifY the original casualty that gives rise to 21.32
insured property must have sustained a terminal injury during the currency of the
the liability as the relevant event. For example, the P&1 rules ofthe Britannia club
policy and all that happens after the expiry of risk is that the injury takes its
50 See 23.21 below.

S1 ~his proposition is sometimes associated with the grip of the peril doctrine: Scott v Copenha-
[1924J 2 KB 508.
gen Reinsurance Co (UK) Ltd [2003J EWCA Civ 688, [2003J Lloyd's Rep IR 696, para 47. It is,
Thereby forfeiting th~ right ~o claim the. measure of indemnity for a total loss and being
however, distincr.
relegated to the measure of mdemOity for a partlalloss. No notice ofabandonment need be served
52 (1850) 15 QB 649.
in respect of an actual total loss. For discussion of the notice of abandonment procedure, see
S3 The casualty did not render the vessel an actual total loss and the assured failed to serve
22.33ffbelow. a notice of abandonment, barring recovery for a tota11oss.
44 [1924J2 KB 508, 515. 4S ibid 516. 45(1786) 1 TR 252. 54 Although the measure of indemnity is assessed by reference to the time when risk expires, the
47 Knight v Faith (1850) 15 QB 649, 668. 48 See 11.58-11.59 above. post-expiry sale price provided evidence of the loss sustained at that time. The loss in Knight
" (1786) 1 TR252,261. v Faith now falls witbin MIA 1906, s 69(3).
640 641
Losses The Classification ofLosses
provide generally that cover is against 'loss, damage, liability or expense incurred period of exposure spenr on ships enrered with the association bears to the
by [a Member] which arises ... our of events occurring during the period of enrty of tOtal period of exposure.
the Ship in the Association'. 55 Such a general rule may be supplemenred by
specific reinforcement in the context of individual perils. The rules of the United
Kingdom P&I club require in respect of wreck liability thar 'the enrered ship C. The Classification of Losses
became a wreck as tbe result of a casualty or event occurring during the period of
that ship's entry in the Association'. 56 Subject to this proviso, the club conrinues to Marine insurance law divides losses into total and parriallosses and subdivides 21.36
cover wreck liabiliries notwithstanding thar cover might otherwise have terminated total losses inro acrual and consrrucrive tOtal losses:' In this latter respect,
by reason of the vessel being rendered a rotalloss. marine insurance differs from non-marine, which does not recognize the con-
structive total loss62 The concept of a partial loss is residuary, embracing all
IdentifYing the time at whicb a relevanr evenr occurs may presenr difficulty. losses that do not qualifY as total, as defined by the Act:' This classification
Consequently, club rules may conrain deeming provisions, creating conclusive or affects the procedure to be followed in making a claim (for a constructive total
rebuttable presumptions as to the time of certain evenrs. Tllus, defence cover rules loss to be indemnified as a total rather than a partial loss, rhe assured must
of mutual insurance associations deem all claims and disputes arising generally serve a notice of abandonment on the insurer):' the measure of
under contract, tort, or statute to arise at the date of the cause of action and indemnity to which the assured is entitled, and the possibilities of recoupmenr
all claims and disputes concerning salvage or towage to arise at the date of by the insurer of moneys paid to the assured.
commencement of the salvage or towage services.
The Gard P&I rules also create a rebuttable presumption with respect to carrier's liability" (1) Actual Total Loss
that all loss of or damage to cargo on the same cargo-carrying voyage arose out of 65
An exhaustive definition of the concept of actual total loss is provided by 21.37 section
one evenr that occutred at the first place of discharge or port where such loss or
57(1) of the Marine Insurance Act in the following terms: 'Where the subject-matter insured
damage was ascertained. Specifically with respect to riming, the loss is destroyed, or so damaged as to cease to be a thing of
or damage is deemed to have occurred at the earlier of the time of ascertainmenr of the kind insured, or where the assured is irretrievably deprived thereof, there is
58 an actual total loss.' The subsection clearly conremplates three categories of
the loss or damage or discharge of the cargo. The presumption may be rebutted
by the association (but not rhe member) proving when the loss or damage actual total loss, each of which will now be considered.
occurred. Consequently, the associarion is not liable where a vessel is withdrawn
from rhe association after commencing the voyage but before arriv-ing at the port (aJ Destruction
where the loss or damage is first ascertained, even if the member can show that the Actual total loss in the form of destruction or damage involves a loss of char- 21.38
carrier's liability was incurred before withdrawal of the vessel. acter. In the conrext of hull insurance, the question has been asked whether the insured
A further rebuttable presumption in the Gard P&I rules" was introduced in response to vessel remained a ship or had been reduced to a mere collection of
60 6
asbestosis claims. Difficulty arises where a seaman has been exposed to an planks and become a mere wreck: However greatly damaged, there is no
illness over a prolonged period, but he worked on ships enrered with the actual total loss of a ship if it remains safe in the conrrol of the owner and still
association during only part of this period of exposure, and it is bears the characrer of a ship.6'
impossible to establish when he contracted asbesrosis. The rules deem the
member's liability for death, disease, or personal injury to be incurred at a
uniform rate throughout rhe total period of exposure. The association then
MIA 1906,,56(1). (2).
agrees to cover such proportion of the member's liability as thar part of the
Moore v Evans [1918) AC 185; Kastor Navigation Co Ltd v Axa Global Risks (UK) Ltd
(The Kast.r Too) [2004) EWCA Civ 277, [2004) 2 Lloyd', Rep 119, para 8.
" MIA 1906, , 56(1).
55 r3(I}. 56 r2,s15;' 57 r80.1. For discussion of the notice of abandonment procedure, see 22.33ffbelow.
58 A further limb of l'80.1 addresses the sale or other disposition by the member of its interest 65 Sanday & Co v British & Foreign Marine Insurance Co [1915] 2 KB 781,831.
in the ship in the course of a cargo-carrying voyage. Cambridge vAndmon (1824) 2 B & C 691.
r 80.2. Lohre v Aitchison (l878) 3 QBD 558, 562, Although there may be a constructive total loss:
Poland and Rooth, Gard Handbook on P&lInsurance (4th cdn, 1996) 579-80. Bell v Nixon (1816) Holt 423.
642 643
Damage so as to cease to be a thing ofthe kind insured dissipated that its role and function as a dead ship susceptible of being towed away
When considering wherher insured property has ceased 'ro be a rhing of the for scrap had been destroyed'. 7S Had the vessel already broken in two rendering it
kind insured', the question is whether the insured property has undergone a change incapable of being the subject of a single tow for scrapping, there might have been
of commercial identity. The leading case of Asfizr 6- Co v Blundell" involved a a loss of commercial identity. The evidence, however, demon-strated that the
cargo of dates shipped to London on board a vessel that sank in rhe river Thames. vessel retained its character as a single vesseL That salvage might necessarily
When the vessel was subsequently raised and docked, the dates were found to be 'a involve separation into two halves went to the modalities and eco-nomics of
mass ofpulpy matter impregnated with sewage and in a state salvage rather than loss of commercial identity. Consequently, insurers were not
offermentation'." Although condemned as unfit for human consumption, they liable under a policy that covered actual total loss only.
retained considerable value and were sold fot £2,400 for distillarion into spirit. Insured property may be so damaged as to render its sale the sensible com- 21.42 mercial
The issue was whether there was a loss of freight. This raised in turn the question response, but insurers are not liable for loss by sale. Where property
ofwhether the dates had been lost. The Court ofAppeal held there was constitutes an actual total loss or is in imminent danger of becoming one,
a toralloss of the dates. According to Lord Esher MR,'o the test to be applied: commercial necessity may justifY an immediate sale for rhe benefit of the
.. . is whether, as a matter of business, the nature of the thing has been altered. The underwriters, but where sale is merely the response of a prudent uninsured owner,
nature of a thing is not necessarily altered because the thing itself has been dam-aged; the property is at most a constructive total loss requiring the giving of notice of
wheat or rice may be damaged, but may still remain the things dealt with as wheat or abandonment." In Roux v Salvador," a leak in the carrying vessel caused the
rice in business. But if the nature of the thing is altered, and it becomes for business
insured cargo of hides to arrive at an intermediate porr in a state of progressive
purposes something else, so that it is not dealt with by business people as the thing
which it originally was, the question for determination is whether the thing insured,
putrefaction. By the time of arrival at the port of destination, the process, being
the original article of commerce, has become a total loss. If it is so changed in its impossible to contain, would have destroyed the character of the hides and rendered
nature by the perils of the sea as to become an unmerchantable them unsaleable as such. In consequence, they were sold at the intermediate port,
thing, which no buyer would buy and no honest seller would sell, then there is a realizing 27 per cent of their agreed value. Under these circumstances, it was held
total loss. that the assured could recover for an actual total loss.
Biologically the dates remained: commercially they had been lost. Similarly, on The existence of the hides in specie at the intermediate port was neither inconsis- 21.43
immersion in water, the metamorphosis undergone by a cargo of cement" and the tent with a total loss nor required notice of abandonment. In the course of a seminal
destruction by rust of the entire value of steel injection moulds" conssitute an judgment, Lord Abinger CB stated as follows:"
acrual total loss.
In the case before us the jury have found that the hides were so far damaged by a
In contrast, in Francis v Boulton," a cargo of rice with a declared value of £450 peril of the sea, that they never could have arrived in the form of hides. By the
which was submerged in the river Thames for two tides, recovered, kiln-dried at a process of fermentation and putrefaction, which had commenced, a total destruc-
tion of them before their arrival at the porr of destination became as inevitable as
cost of £68, and sold for £Ill as rice, albeit river-damaged, was held to have
if they had been cast into the sea or consumed by fire. Their destruction not being
sustained only a partial loss. consummated at the time they were taken out of the vessel, they became in that
Any question of change of commercial identity necessarily requires that the original state a salvage for the benefit of the party who was to sustain the loss, and were
accordingly sold; and the facts of the loss and the sale were made known at the
identity be ascertained and chatacterized. In The Shakir III,74 the insured vessel same time to the assured. Neither he nor the underwriters could at that time
was a 'dead ship' being towed for demolition when it broke loose and stranded. exercise any control over them, or by any interference alter the consequences. It
Albeit almost broken in two and incapable ofcompleting irs voyage without appears to us, therefore, that this was not the case of what has been called a
salvage and repair, 'its essential components were not so damaged or
. _ --- _ . _ -
68 [1896J I QB 123. 69Ibid 127. 70 ibid 127-8. 7S ibid 591 per Potter Lj.
71 Duthrie v Hilton (1868) LR 4 CP 138. 16Gardner v Salvador (1831) 1 M & Rob 116; Farnworrh v Hyde (1865) 34 LJCP 207;
n Berger 6- Light DiffUsers Pry Ltd v Pollock [1973J 2 Lloyd's Rep 442 (retained value as scrap Cobequid Marine Insurance Co v Barteaux (1875) LR 6 PC 319; Saunders v Baring (1876) 34
but lost commercial identity as steel injection moulds). LTNS 419.
(1895) 65 LJQB 153. (1836) 3 Bing NC 266.
Fraser Shipping Ltd v Colton (The Shakir III) [1997J 1 Lloyd's Rep 586. ibid 281. See also Dyson v Rowcrofi (1803) 3 Bas & Pul 473.
644 645
constructive loss, but ofan absolute total loss of the goods: they could never the vessel's release, one Maitre Rochon, described the task confronting him as
arrive; and, at the same moment when the intelligence of the loss arrived, attempting the impossible. The scheme he was working on involved procuring a
all speculation was at an end. survey report showing the vessel to be of little value in order to persuade the
Were such an eventuality to arise today, modern communications render it significantly Vietnamese government to sell it by aucrion. Assuming no other bidders, the vessel
less likely that the cargo-owner could not be contacted for instruc-tions and could then be bought back. Bribery of certain officials would be necessary. The
accordingly exercise control over the cargo. Nevertheless, if the cir-cumstances scheme, if successful, would take several months to come to fruition. As of 2 June,
were such that the cargo-owner could not 'by any interference alter the it had not been put in motion. By 29 August 1967, when the assured issued
consequences', following Roux v Salvador there would still be an actual total loss proceedings alleging an actual total loss, the vessel had been detained for 17
and, therefore, no need to give notice of abandonment to the underwriters. Any months. Ultimately, the scheme appears to have succeeded, in that the vessel was
sale by the master ought to be authorized by the cargo-owner, since modern tecovered by auction purchase on 21 May 1968. Judged by reference to the earlier
communications are likely to deny any commercial imperative for the master to date of issuing of proceedings,83 Mocarra J stated obiter that, despite the very
exetcise an agency of necessity and sell without obtaining actual authorization. By pessimistic prospects of recovery, the test of irretrievable deprivation was not
virtue of the doctrine of abandonment, however, the insutet would be entitled to satisfied. This test, he said, was 'clearly far mote sevete' than that for unlikelihood
the ptoceeds. 79 of recovery.84
As a marter of ptinciple, it is arguable thar damage resulting in a loss of com-mercial Whether sinking or stranding results in irretrievable deprivarion of an insured 21.48
identity should produce a consrructive, rarher than actual, roral loss. Since, by vessel depends upon the possibility, and not the cost, of its being raised or
85
definition, there remains something that might retain some value, an insurer ought refloated given its condition and location, and given available salvage facilities.
to be permitted to decide upon such steps as should be taken to realize that value. If salvage of a sunken or stranded vessel is uneconomic, the vessel is a construct-
This seems to call for the insurer to be notified of the loss by service of a notice of ive and not an actual totalloss. 86 Although improved salvage techniques render
abandonment,80 which is confined to cases of constructive total losses. As a it decreasingly likely that salvage will be impossible rather than uneconomic, in
matter of law, no such argument is tenable. Such concerns might, nevertheless, The Shakir II!,87 Potter LJ declined to reconsider the dividing line between the
indicate that in borderline cases a court should err towards holding that badly two rypes of total loss.
damaged property is a constructive rather than an actual total loss.
Irretrievable deprivation does not result even from a forcible seizure and sale of a 21.49
Irretrievable deprivation vessel, unless pursuant to judicial condemnarion of the vessel, since the property
88
in the vessel is not altered. In Cossman v west,89 the master and crew abandoned
Irretrievable deprivation does not require certainty that the property will not be recovered.
Unless the property has been destroyed, certainty is impossible to attain. In
insurance law, therefore, the notion that deprivation is irretrievable
connotes a degree of probability of non-recovery. Where the facts are that it is 83 For the significance of that date as the date by reference to which the existence ofactual
unlikely that the assured will recover the insured property within a reasonable total losses are determined, see 21,102-21.105 below.
84 [1970J 2 Lloyd's Rep 365, 383. In non~marine insurance, which does not have a concept of constructive
time, there is a constructive and not an actual totalloss.81 In marine insurance total loss, there is some authority that the concept of irretrievable deprivation is interpreted more
law, irretrievable deptivation necessarily involves a lower possibility of recovery. generously and requires nothing more than that the assured has taken all reasonable steps to recover the
property and recovery remains uncertain or unlikely: Holmes v Payne [193012 KB 301; Webster v
In The Anita," the insured vessel was seized by Vietnamese customs authorities and GeneralAccident Fire & Life Assurance Corp Ltd[1953] 1 QB 520; KuwaitAirways Corp 0 Kuwait
Insurance Co SAK (No 1) [199611 Lloyd's Rep 664, 686. Put another way, there will be an actual total loss
subsequently confiscated by order ofa special military tribunal. On 13 March where an informed observer would conclude that there was only a mere chance of recovery as opposed to
1967, the principal intermediary employed by underwriters to attempt to secure any realistic likelihood of recovery: Wikon
o jones (1867) LR 2 Ex 139, 152; Moore 0 Eoam [1917] 1 KB 458, 472-3. These tests do not
apply to actual total loss in marine insurance law.
es Cates (CaptainjA) Tug & Wharfage Co Ltd 0 Franklin 1murance Co [1927] AC 698, 704-5.
79For discussion of the doctrine of abandonment, see 22.31, 22.36ffbelow. explaining the comments of Lord Halsbury in Sailing Ship 'Blairmore' Co Ltd v Macredie [1898]
so See 22.34-22.35 below. AC 593, 597; Cohen (George), Som & Co v Standard Marine Insurance Co Ltd (1925) 21 LlLRep
For discussion of this type of constructive total loss, see 21.59ffbelow: 30; Fraser Shipping Ltd v Colton (The Shakir III) [19971 1 Lloyd's Rep 586.
Panamanian Oriental Steamship Corp v Wright (The Anita) [1970] 2 Lloyd's Rep 365. 86 Fraser Shipping Ltd v Colton (The Shakir III) [1997] 1 Lloyd's Rep 586, 592. 87 ibid.
" Wilson v Forster (1815) 6 Taollt 25. 89 (1887) 13 App Cas 160.
646
647
the insured vessel having bored holes in the hull in an attempted scuttling. The Under the Institute cargo clauses, where a covered peril causes termination of 21.51
vessel, however, was salved, sold under an Admiralty Court decree with the .the insured transit at a port other than the conrractual destination, 'the Under-
proceeds being paid to the salvors, and subsequently restored to good condition. writers will reimburse the Assured for any extra charges properly and reaso-nably
The assured shipowner, who was innocent of any complicity in the fraud of the incurred in unloading storing and forwarding the subject-matter to the
master, claimed for an actual total loss." According to Sir Barnes Peacock, destination to which it is insured hereunder'. 96
delivering the advice of the Privy Council:
(d) Applicability ofthe de minimis principle
To constitute a total loss within the meaning of a policy of marine insurance, it is not
necessary that a ship should be actually annihilated or destroyed; it may, as in the case It is unclear whether the maxim de minimis non curat lex (the law does not 21.52 concern
of capture and sale upon condemnation, remain in its original state and itselfwith very small matters) applies to the concept ofactual toralloss. If
condition; it may be capable of being repaited if damaged; it may be actually it does, the surviving proportion of the insured property must be truly minimal.
repaired by the purchaser, or it may not even ~eq~ire repairs. If it is lost to :he owner Where a cargo ofrice was delivered so damaged as to sell for less than ten per cent
by an adverse valid and legal transfer of hiS nght of property ~n~ P~Ss~ssl~n to a
of its sound arrived value but, nevertheless, yielded £972, the court held the loss
purchaser by a sale under a decree of a Court of competent J~r~SdICtlOn III
consequence of a peril insured against, it is as much a total loss as If It had been partial. 97 In Hedburg v Pearson,98 less than three per cent of the cargo remained,
totally annihilated .. 91 but the court refused to find a total loss, seemingly disliking the maxim on principle
as incapable of reasoned and conrrolled application. This, however is a criticism
Accordingly, the sale of the vessel pursuant to judicial decree constitured an actual that can be levelled at the maxim in any context, yet effect is given to it. A] though
total loss as it removed all speculation upon the possibility of redemption and the maxim has never been applied to actual total losses, that may be simply because
restoration of the vessel. 92 Likewise, plundering of wrecked cargo renders it an appropriate facts have yet to present themselves. Where all but twelve of a cargo of
actual total loss." 668 steel pipes were lost by perils of the sea and the twelve were delivered
Retardation of the voyage may result in deterioration of the goods so as to render them a damaged, the High Court of Malaysia held the de minimis rule inapplicable on the
totalloss.94 However, it follows from the concepr of irretrievable facts as the delivered pipes constituted toO high a proportion of the total cargo and
deprivation that mere retardation of itself cannot constitute an actual total loss. In were themselves insured for $16,000. It was conceded, however, that the rule might
Roux v Salvador,95 Lord Abinger CB stated the principle as follows: have applied had only one or two pipes survived."
If the goods are of an imperishable nature, if the assured become poss~ssed or san
(2) Constructive Total Loss
have the control of them, if they have still an opportunity ofsending them to theit
destination, the mere retardation of their arrival at their original POrt may be of no
Section 60 of the Marine Insurance Act provides the following exhaustive1O' 21.53
prejudice to them beyond the expense of re-shipment in another vesse1. In such a case,
definition of the concept of constructive total loss:
the loss can be but a partial loss, and must be so deemed, even though the assured
should, for some real or supposed advantage to themselves, elect to sell the goods where Subject to any express provision in the policy, there is a constructive total loss
they have been landed, instead of taking measures to transmit them to where the subject-matter insured is reasonably abandoned on account of its
their original destination. actual total loss appearing to be unavoidable, or because it cbuldnot be
preserved from actual total loss without an expenditure which wbuldexceed
its value when the expenditure had been incurred.
90 When abandoned by the master and crew, the condition of the vessel was such as to In particular, there is a constructive total loss-
constitute a constructive tota110ss, but no notice of abandonment was served, precluding a Where the assured is deprived of the possession of his
claim for a constructive total loss. peril insuted against, and (a) it is unlikely that he
" ibid 169-70. See also Mullett v Sheddon (l8ll) 13 East 304. can goods, as the case may be, or (b) the Cost
92 In Panamanian Oriental Steamship Corp v U::7right (The Anita) [1970] 2 Lloyd's Rep
as the case may be, would exceed their value when rec;ov,ewd;
365, 383, Mocatta J considered that divesting of legal ownership by judicial confiscation did
not necessarily resulr in irretrievable deprivation. However, first; the comment was obiter;
secondly, no authority is cited on this point in the judgment and it is unclear whether
Cossman v w:'estwas brought to the court's attention; and, thirdly, in the opinion of
Mocatta J (not shared by the Court ofAppeal: [1971] 1 WLR 882), the confiscation order Institute Cargo Clauses (A), (B), (C), cI12.
exceeded the tribunal's jurisdiction and was, therefore, invalid, Glennie v LondonAssurance Co (1814) 2 M & S 371.
93 Bondrett v Hentigg (1816) Holt 149. " Lozano vJanson (1859) 2 EI & El 160. os Boon & Cheah Steel Pipes Sdn Bhd v Asia Insurance Co
(1836) 3 Bing NC 266,278-9. Robertson v Petros M Nomikos Ltd [1939] AC 371,392; Irvin v
100
648 649
In estimating the cost of repairs, no deductl?n IS to be made In r~spectof
neral average contributions to those repairs payable by other Interests,
~:t account is to be taken of the expense of future salvage operations and
of any future general average contributions to which the ship would be
liable if repaired; or
In the case of damage to goods where the cost of repairing the ?amage
and forwarding the goods to their destination would exceed thelf
value on arrival.
Despite the phrase 'in particular' that introduces subsection (2), to some e~tent at
least the categories of constructive total loss contamed therem are addmonal to
rather than illustrative of subsection (1).101 A total of six categories may be
identified within the statutory wording. In four categories, there is a constructive
total loss when it is uneconomic to preserve, repair, or recover the insured
roperty. The various categories of consrrucrive total loss will be considered
before addressing how economic viability is determined.
(aJ Constructive total loss based on reasonable abandonment

The firsr twO categories of constructive total loss involve reasonable abandon-ment of the
insured subjecr-matter because an actual total loss either appears
navoidable or cannot be avoided without an expenditure in excess of the value
u 102 f
of the subject-matter once preserved. In The Lavington Court, the Court 0
Appeal considered the meaning of abandonment in this context.
A vessel requisitioned by the Crown was torpedoed on 18 July while part of a convoy. Neither
navigation nor towing were possible and the stricke l1 vessel was at the mercy of enemy
submarines. Accordingly, the master ordered the entire crew to transfer to another vessel
and leave the vessel behind, war conditions
necessarily rendering salvage the concern of the naval authorities. A tug was sen l'
and duly took the vessel in tow, bur on 1 August the vessel sank after bemg towed
more than 600 miles. The shipowners recovered from hull insurers as for a total
loss on 18 July, but further claimed hire from the Crown for the period from 18
July to 1 August. Since the charterparty of requisition provided for hire
-------------- _ . _ - _ . _ ---
IWbertson v Petros M Nomikos Ltd [1939] AC 371, 392; Rickards v Forestal Land, Timber
101
& Railways Co Ltd (The Minden) [1942] AC 50, 84; The Bamburi [1982] 1 Lloyd's Rep 312,
Court Line Ltd v R (The Lavington Court) [1945] 2 All ER 357. Apart from The Lavington
other examples of constructive totallos~by reasonable abandonment are pro:ided by cases
of frustration ofvoyage: British & Foreign Manne Insurance Co Ltd v Sanday,& Co [1916] AC 605.
On frustration of voyage generally, see 21.97 below.
650
Losses
In the case ofdamage to a ship, where she is so damaged by a peril insured

against that the cost of repairing the damage would exceed the value of
the ship when repaired. . . .
The Classification ofLosses
to cease on the vessel becoming a constructive total loss, it became necessary to

determine when that had occurred.
On the facts, a majority of the Court ofAppeal held in favour of the shipowners, 21.56
although their argument that abandonment in section 60(1) meant abandon-
ment by the assured to the underwriters was unanimously rejected. Scott LJ and
Stable J noted that abandonment to the insurer is not an ingredient of a con-
structive total loss but the manifestation of the assured's election for treatment
as a total loss in the light of such a loss, necessarily later in time and different in
103
quality from the reasonable abandonment contemplated in section 60. The
test for a section 60 abandonment 'in fact' was the same as that adopted in
salvage, namely 'an abandonment animo derelinquendi sine animo revertendi
et sine spe recuperandi', 104 the test being applied at the time when the decision to
leave the ship is taken and acted on.'os
According to du Parcq LJ, however, to abandon in section 60(1) meant to give 21.57
up for lost in the sense of renunciation of all rights, both proprietary and
possessory, in the insured property.'o, The act of the master in ordering the crew
to leave the ship satisfied neither approach to abandonment. The master's deci-
sion to order the entire crew to leave the vessel was motivated by a legitimate
concern for their safety and not by a belief that the vessel waS doomed. On the
contrary, he expressed the view that the vessel would not sink for a considerable
time, and he and the commander of the naval escort concluded that salvage was
a realistic possibility if it could be undertaken immediately. On those facts,
neither was there the requisite intention to give up the vessel as lost nor did the
actual total loss of the vessel at that time appear inevitable to the master.
The reason why du Parcq LJ adopted a less specific approach to the definition 21.58
of abandonment lies in the drafting of section 60(1). The clause 'where the
subject-matter is reasonably abandoned' also introduces a second category of
constructive total loss, namely reasonable abandonment of the insured property
because the cost of preservation from actual total loss would exceed its preserved
value. Scott LJ acknowledged that the salvage test of abandonment was fre-quently
inappropriate to this second limb of section 60(1) because the latter involves a
financial judgment unaccompanied by any physical manifestation on the insured
property. du Parcq LJ was not prepared to accept that the word 'abandoned', used
only once in section 60(1), had a different meaning
On abandonment to the insurer as the making of an election in the light of a constructive

total loss, see 22.33 below.
Intending to leave the vessel permanently, without any intention of returning either per~
sonally or through a salvor acting on the shipowners' behalf, and without any hope of the
owner ever recovering the vessel.
105 [1945] 2 All ER 357,369 perSrable]. See also ar 362-3. 106 ibid 365.
651
depending upon the limb ofthe subsection with which it was read in conjunction continued work on the project, although progress was delayed resulting in
and, accordingly, adopted a formula suitable for both limbs. completion at the end of October. In the meantime, in response to the
imposition of sanctions on Iraq, the Iraqi authorities introduced Law No 57,
Constructive total loss based on deprivation ofpossession which came into force on 24 Seprember but with retrospective effect to
The third and fourth categories of constructive total loss, enunciated by section 60(2) (i) of 6 August. This law opetated to attach automatically in a manner aldn to a
the 1906 Act, ate confined to hull and cargo insurance and occur where an insured freezing order the assets of all companies of countries that had implemented
peril deprives the assured of possession of the insured property and either (a) sanctions against Iraq. These included the Netherlands. The question was
recovety is 'unlikely' or (b) the COSt of recovery would exceed the recovered wherher there was a deprivation of possession as of 21 or 25 September and 11
value. The financial threshold in (b) is discussed below."7 This secrion considers October.' 11 Rix J held there was no deprivation of possession. The companies
the meaning of deprivation of possession and when recovery is unlikely. The remained free ro use the fleet in the completion of the project and any restric-
assessment of rhese elements, especially the probability inherenr in unlikelihood, tion on redeployment of the fleet prior to completion stemmed essentially from
may naturally vary over time. It is, therefore, important to note that the the contractual obligation to complete. Law No 57 raised the prospect of
requirements fot a constructive total loss are required ro be present both when the demobilization of the fleer being impeded even after completion, thereby pre-
assured serves a notice of abandonment and also at the date, if different, when the venting the assureds ftom planning future use of rhe vessels. While this was
assured commences, Ot is deemed to have commenced, legal proceedings by accepted as consrituting a present interference in use and disposal, it did not
108 amount to the tOtal physical loss of control or use and disposal that was present
issuing a claim form.
in The Bamburi. Had the law been invoked once the projecr was complete so as
21.60 Deprivation of possession In the context of constructive total losses, depriv-ation of
to detain the vessels and prevent demobilization and redeployment, at that stage
possession does not require loss of actual physical possession. It suffices thar the
there would have been a deprivation of possession. However, as of the relevant
assured has been wholly deprived of control or free use and disposal of the insured
dates this had not occurred, and, in fact, demobilization was negotiated and
property. Consequently, in The Bamburi, 109 there was a constructive total loss 1
occurred later in the year. 12
when, on rhe outbreal< of rhe Iran-Iraq war, the Iraqi POrt aurhorities at Umm
Qasr denied a vessel permission to leave. There was a loss of possession wirhin Unlil<elihood of recovery The reference in section 60(2)(i)(a) of the Marine 21.62
the meaning of section 62(2)(i), despite the fact that the vessel was not Insurance Act 1906 to unlikelihood of recovery deliberately modifies the pre-
confiscated, the owners retained a skeleton crew on board, and there was no Iraqi Act test of uncertainty of recovery to the disadvantage of the assuted, bur the
presence on board or interference in any way with life on board. The ~essel unlikelihood need extend only to a reasonable time. This qualification was
had completed dischatge of its cargo. All movement was prohibited and it was implied into the statut0ty wording by Pickford J in Polurrian Steamship Co Ltd
fotced to 'remain as idle as a painted ship'. v Young'13 and has been accepted ever since.
A contrast may be dtawn with Royal Boskalis Westmimter lVV
v Mountain. 110 In this The difference between the two tests was described, and some guidance given as 21,63
case, a fleet of dredgets owned by Durch companies was engaged on a project at to application of rhe new law, by Lord Wright in The Minden:'14
Umm Qasr wirh an expected completion date of the end of September 1990. On 2
There is a real difference in logic between saying that a future happening is
August 1990, Iraq invaded Kuwait, but the invasion did nor prevent uncertain and saying that it is unlikely. In the former the balance is even; no one
can say one way or another. In the later there is some balance against the event. It is
true that there is nothing in the Act to show what degree of unlikelihood is
107 See 21,77-21.81 below. required. If on the test of uncertainty the scales are level, any degree of unlikeli-
loa A valid notice of abandonment requires an existing, and not merely an anticipated, con- hood would seem to shift the balance, however slightly; it is not required that the
structive total loss. Moreover, the doctrine of ademption of 105$ requires the circumstances consti-
tuting a constructive total loss to persist umil the (deemed) commencement of proceedings. See
scale should spring up and kick the heam.
further 21.1 02 below.
t09 [1982)1 Lloyd's Rep 312, 320-1.
110 [l997J LRLR 523. Strictly speaking, the case concerned the interpretation of the phrase
'free use and disposal' in the detainment clause of the 1983 Institute war and strikes clauses 111 Being the dates of twO notices of abandonment and of when the assured was deemed to
for huUs (see 21.70 below). However, the detainment clause is based on The Bamburi and it have commenced proceedings against the insurer.
cannot be doubted that the contractual phrase is intended to' cany the same meaning as the m Albeit at a cost: see 24.38 below. 113 (1913) 19 Com Cas 143, 155.
statutory. No distinction was drawn in the judgment ofRix J. '" Rickards v Forestal Land, Timber & Railways Co Ltd (The Minden) [1942) AC 50, 87.
652
Losses 654
l16
" . f C115 I'T''hBb'
21.64 What constitutes a reasonable tIme 1S a questlon 0 lact. n 1 J e am un,
Staughton J, acting as a sole atbittator, noted that the policy in question covered
the loss of a vessel tather than delay or loss of earnings and held on the facts that a
reasonable time was twelve months from the giving of notice of abandonment.
The test of unlikelihood of recovery within a reasonable time was described

on appeal in Polurrian" 7 with some distaste as 'very difficult to
apply with any sense ofsatisfaction, because it necessarily involves
conjecture and speculation as
'bl . . ,118 I
to what is likely to be the ourcome 0 f anumb er 0 f POSSl e contmgencles . t
is to be applied objectively by reference to the time of service of the notice of
abandonment and the time, if later, when the assured commences proceedings or is
deemed to commence them119 and by reference to the true facts. The question is
whether a reasonable person as at those times and with knowledge of the true facts
would regatd recovery as unlikely, not whether it appears to the assured to be
unlikely.120 Thus, in Bayview Motors Ltd v Mitsui Marine 6- Fire Insurance
Co Ltd,121 on arrival at the port of destination, insured motor cars were placed in
a fenced customs compound from which they were unlawfully removed by
customs officers and distributed among theit families and friends. It was clear on
the evidence that, from the ourset, customs officers had resolved to appropriate the
motor cars for their own benefit. Accordingly, there was a constructive total loss
from an early stage, notwithstanding that at that time the assureds still entertained
false hopes of recovering their goods.
On the facts of the Polurrian case itself, the test of unlikelihood of recovery was not
satisfied. War having broken our between Greece and Turkey, a Greek
warship seized a neutral vessel for carrying contraband. The assured gave notice of
abandonment, but six weeks later the vessel was released. The relevant date for
determining whether the vessel had been a constructive total loss was that of
commencement of the action, deemed to be the date notice of abandonment was
given. 122 The claim failed, however, because it was not proved on a balance of
probability that at that time recovery of possession within a reasonable time
m MfA 1906, s 88. 116 [1981/ 1 Lloyd's Rep 312. '" [1915J 1 KB 922.
118 ibid 937. The words are those of Kennedy LJ who died the day after completing his
judgment, which was then adopted as the jud~ment of the C:::0urt of Appeal an~ read by
Warrington LJ, It would appear that Kennedy LJ did not regard with favour the change m
the law from uncertainty to unlikelihood of recovery.
119 See the discussion of finality of losses and ademption of loss at 21.102 below.
120 Marstrand Fishing Co Ltd v Beer [19371 1 All ER 158, 164--5; Kuwait Airways Corp
v Kuwait Insurance Corp SAK (No 1) [19961 1 Lloyd's Rep 664, 686; Royal Baskalis Westmimter
NV v Mountain [1997] LRLR 523, 534. Subsequent events are admissible to prove what
the probability of recovery truly was: KuwaitAirway.r, Royal Boskalis.
120021 EWHC 21 (Comm), [20021 1 Lloyd's Rep 652, para 30; 12002] EWCA Civ
1605, [200311 Lloyd's Rep 131, para 25.
Because underwriters so agreed.
was unlikely, albeit that it was uncertain.'" In Royal Boskalis Westminster NV v

Mountain,124 the facts ofwhich are set our above,125 the Iraqi authorities' attitude
to demobilization of the dtedging fleet was ultimately based on the contract
governing the project and they always held our the prospect of the fleet being
exempted from Law No 57, albeit at a price. Ultimately, this is what happened.
Consequently, while recovery of possession126 within a teasonable time was
uncertain on the relevant dates, it was not unlikely. Similarly, there is no con-
structive tatalloss where a vessel is trapped by seasonal ice but will be released
once the ice thaws. 127
In conttast, the tequisite unlikelihood was held to be present in Roura ,& Forgas 21.67 v
Townend.'" Having sailed on 4 Novembet, 1917, the Igor Mendiwas not heatd
of again until 27 February 1918. It transpired that the vessel had been captured by a
German warship, the Wolf, on 10 Novembet. Theteaftet, the Igor Mendi had been
manned by a prize crew until abandoned when it stranded and sustained
considetable damaged. Having been tefloated in Match by a salvage company
employed by the otiginal shipownets, the vessel was under repair until September.
Roche J held that the vessel had been a constructive total loss within section 60(2)
(i) (a) on captute:
It was conceded that in this case the ship was out of the owners' possession for
three-and-a-half months, but it was contended that it was never securely in the
possession of the Germans. It was asserted, I hope and believe with truth, that the
squadrons and patrols of the navies of Great Britain, her allies and associates, were
numerous and vigilant, and her recapture was probable or not unlikely. On the
other hand, it is to be remembered that the seas are wide and the nights were dark
and long during the critical stages of this voyage, and apart from any knowledge
which may be permitted to a Court with regard to German practice in the destruc-
tion of merchant shipping, the evidence as to the sinking of all other prizes by the
Wolf and as to the placing of bombs on board of the Igor Mendi convinces me
that the Igor Mendi would not} save by some unexpected accident, have
survived to be recaptured. I regard her actual recovery as due to a somewhat
surprising combination of circumstances, , ,129
In The Minden,130 British cargo was on board a German vessel at the outbreak of 21.68
the Second World Wat. A constructive total loss occurred as soon as the mastet,
in response to otdets of the Getman government, abandoned the voyage in favour
of returning to Germany, thereby deptiving the assuted of possession of
123 See also Marstrand fishing Co Ltd v Beer (The Girl Pat) (1936) 56 LlLRep 163.
124 [1997] LRLR 523,551-4. 125 See 21.61 above.
126 Assuming it had been lost, which ir had nor: [1997J Lloyd's Rep IR 523, 551-4 (see 21.61
above).
'" Hall v Hayman (1911) 17 Com Cas 81. Likewise Shepherd v Henderson (1874) 7 App Cas
49 (monsoon rains).
12' [1919] 1 KB 189. '" ibid 193-4.
130 Rickards v Forestal Land, Timber & lIdilways Co (The Minden) [1942] AC 50.
655
the goods. Recovery was unlikely even were the vessel caught by the British loss within section 60(2)(i)(a) is presumed to occur at that moment and the assured
blockade, since the master was under orders to scuttle rather than allow the vessel can serve a notice of abandonment. This does not, however, preclude a claim for a
to be recaptured. constructive total loss at an earlier date if the assured can sarisfY the
common law and prove at that earlier date thar it is then unlikely that possession
Whether a vessel that is stranded or sinks is a constructive total loss under either
will be recovered within a reasonable time. Indeed, if a construcrive total loss does
limb ofsection 60(2)(i) depends entirely upon the circumstances of the casualty. In
arise earlier, the assured will prima facie be obliged to serve a notice of
Cohen (George), Sons & Co v Standard Marine Insurance Co Ltd,131 an obsolete
abandonment at that earlier time and the time available for service is likely to have
battleship on its break-up voyage ran aground on the Dutch coast, coming to reSt
expired before the detainment clause applies. 137 However, since under the clause
upon part of the support of a groyne that protected land from inundation by sea.
there is deemed to be no likelihood of recovery at all, service of a notice of
The ship was held to be a constructive total loss on two bases: first, removal would
abandonment should be unnecessary.13'
have been prohibitively expensive, and, secondly, the risk to the protected land
posed by any removal operation was such thar it was disrinctly unlikely that any This twelve-months deeming principle is adopted also by the rules of the British 21.72
such operation would have been permitred by the Durch authorities and courts. In war risks associations, which nlrther provide, however, that no claim for a total
Cates (Captain JA) Tug & Wharfage Co Ltd v Franklin loss, whether actual or constructive, can arise from any detention 'before the
Insurance C0132 in contrast, a tug sank in circumstances such that raising was expiry of a period of 183 days (or such shorter period as the Directors may in
perfectly feasible and economically viable, and consequently did not qualifY as a their discretion decide) from the commencement of such detention'.
constructive total loss.
In order to succeed in a claim for a constructive tOtal loss under the detainment 21.73
The common law approach remains productive of uncertainty. What is a rea-sonable rime clause, the assured must prove not only that a capture, seizure, arrest, restraint,
depends on the facts. Moreover, the precise point at which recovery of possession detainment, confiscation or expropriation was the proximate cause of the ori-
within that time satisfies the criterion of unlikelihood may well be open to ginal loss of free use and disposal, bur also that such a peril continued as the
dispure.'" A measure ofcertainty is, however, introduced by proximate cause of that ongoing loss throughout the full twelve-month
13
the Institure war and strikes clauses for hulls through the following 'detainment period. ' Where the ongoing loss may legitimately be regarded as proximately
clause': 134 caused both by an insured peril and an expressly excluded peril, following
ordinary principles of causation, 140 the insurer will not be liable. 141
In the event that the Vessel shall have been the subject of capture seizure arrest
restraint detainment [confiscation or expropriation], and the Assured shall thereby
have lost the free use and disposal of the Vessel for a continuous period of 12 months (c) Constructive total loss based on damage to insuredproperty
then for the purpose of ascertaining whether the Vessel is a constructive Damage to a ship such that the cost of repair exceeds the repaired value consti- 21.74 tutes
total loss the Assured shall be deemed to have been deprived of the possession the fifth category of constructive tOtal loss. A question of some historical controversy is
of the Vessel without any likelihood of recovery.
whether the repaired value of the vessel should be compared with
By virtue of this clause, therefore, once the assured has suffered a loss of free use and the cost of repairs alone or with the value of the unrepaired vessel added to the cost
disposal 135 for a continuous period of twelve months,l36 a constructive total of repairs. In Angel v Merchants' Marine Insurance CO,I42 rhe Court of Appeal
held that the unrepaired value should be excluded, a view which repre-sented the
common law at the time the Marine Insurance Act 1906 was drafted and enacted.
'" (1925) 21 ULRep 30. 132 [I927] AC 698. Although Angelwas subsequently overruled as a matter of common
133 Moreover, the assured has a limited time in which to serve a notice of abandonment, see
22.53-22.57 above.
,,, Institute War and Strikes Clauses (Hulls-Time) (1/10/83 and 1111/95), (Hulls-Voyage)
(1/10/83 and 1/11/95), cl 3. The words in brackets were introduced in the 1995 clauses. A similar 137 On time for service of a notice of abandonment, see 22.53-22.57 below.
provision is found in the war and strikes clauses for freight. The detainment clause is based on the '38 MIA 1906, s 62(7). See 22.35 below.
decision in The Bamburi [1982] 1 Uoyd's Rep 312. Handelsbanken Norwegian Branch ofSvenska Handelsbanken AB (PUEL) v Dandridge (The
Meaning complete loss ofphysical control, see 21.60-21.61 above. Aliut Glacial) [2002] EWCA Civ 577, [2002] 2 Uoyd's Rep 421, para 61.
In both Royal Boskalis WestmirlSter NV v Mountain [1997] LRLR 523 and Sunport Shipping See 9.29 above.
Ltd v Tryg-Baltica Internatiorial (UK) Ltd (The Kleovoulos of Rhodes) 12003] EWCA Civ 12, 14' The Aliut Glacial [2002J EWCA Civ 577, [2002] 2 Uoyd's Rep 421, paras 60, 62. See
[2003] 1 Lloyd's Rep 138, the equivalent clause had been amended toreduce the further 21.82-21.83 below.
relevant period to 6 months. 142 [1903] I KB 811.
656 657
law by the House of Lords, 143 section 60(2)(ii) has been held to enact Angel and, thereby achieved. This gain is generally measured by reference to the value
therefore, to exclude the unrepaired value of the vessel ftom the equation,'44 an realized if the preserved, recovered, or repaired property were to be sold on the
'45 open market,'48 although an exception is recognized in the case of a ship with
exclusion confirmed by the Institute and International hulls clauses. particular features and characteristics or employed in a particular way so that no
The final category of constructive total loss recognized by the 1906 Act arises where the market exists. In such a case, the value adopted is the value the vessel had to the
cost of repairing damaged goods and fOlwarding them to their destin-ation exceeds assured at the time of the casualty, based on the original cost of the vessel with an
their value on arrival. Some doubt still surrounds the question of whether the '4
allowance for depreciation. ' Otherwise, in the absence of any market for the
equation takes into account the whole cost of completing the
vessel once repaired, the relevant figure would be the scrap value, which would
voyage or merely such part of the cost that exceeds the original freight. Ar common
'46 dearly be inappropriate.
law, only the excess was included. The statutory wording ('cost of
... forwarding the goods to their destination') seems to contemplate the entire The comparison between cost of preservation, recovety, or repair and market 21.78 value
forwarding cost, as does clause 13 of the Institute Cargo Clauses (A), (B), and applies in principle whether the policy is unvalued or valued. The conclu-
(C) which provides as follows: 'No claim for Constructive Total Loss shall be sive nature of an agreed value as berween assured and insurer often dictates the
recoverable hereunder unless the subject-matter insured is reasonably aban-doned measure of indemnity once the loss sustained has heen classified as total or partial.
either on account of its actual total loss appearing to be unavoidable or because the Subject to contrary intention, however, the classification of the loss is not affected
cost of recovering, reconditioning and forwarding the subject-matter to the by whether the policy contains an agreed value. Thus, according to section 27(4) of
destination to which it is insured would exceed its value on arrival.' This wording the Marine Insurance Act 1906: 'Unless the policy otherwise provides, the value
appears to contemplate the entire cost of forwarding, although it could conceivably fixed by the policy is not conclusive for the purpose of determining whether there is
be interpreted as contemplating the cost to the assured (in other words, the net cost) a constructive total loss. '
in accordance with the common law.
This subsection codifies a consistent line of authority'50 culminating in the 21.79 definitive
Clause 13 of the Institute cargo clauses clarifies the meaning in section 60(2) (iii) of ruling of the House of Lords in Irving v Manning. 1S1 A vessel insured
'repairing' so that it clearly includes both recovery and reconditioning, but also under a valued policy containing an agreed value of £17,500 was so damaged as to
defines the concept of constructive total loss less generously than the 1906 Act by be rendered unseaworthy. Repairs costing £10,500 were needed to restore the
excluding the third category therein contemplated, namely deprivation of vessel to seaworthiness, in which condition the market value of the vessel would
possession coupled with unlikelihood of recovery. However, the Institute cargo have been £9,000. The House of Lords summoned the judges and accepted their
clauses covering war and strikes risks, which are more likely to give rise to this unanimous advice that the vessel was a total loss. Under an unvalued policy, the
type of constructive total loss, 147 contain no such restriction. vessel was clearly a constructive total loss and there was no reason why the
insertion of an agreed value into the policy should reduce the legal classification of
Calculating whether imuredproperty is a constructive total loss the same damage to a partial loss. An agreed value was designed merely to avoid
The second limb of section 60(1) of the 1906 Act and three of the four categor-ies disputes about the measure of indemnity once the nature of the loss sustained had
ofconstructive total loss envisaged by section 60(2) all ask in essence whether the been determined.
insured property is worth preserving, recovering, or repairing. In order to make this
As section 27(4) expressly acknowledges, however, the policy may displace the 21.80
determination, the courts traditionally invoked the standard of the prudent
market value in favour of the agreed value. From the insurers' perspective, this is
uninsured owner, which necessarily involved a comparison of the cost
desirable. Since the measure of indemnity for a total loss under a valued policy
of repairing the loss sustained or preserving the property against the gain
is the agreed value and since agreed values almost always exceed, sometimes
Macbeth & Co Ltd v Maritime Insurance Co Ltd[1908]AC144. ------ -----------

Hail v Hayman [19121 2 KB 5. ", SailingShip 'Blairmore' Co v Macredie [18981 AC 593, 603.
Institute Time Clauses Hulls 0110/83 and 1/11195), d 19.1; Institute Voyage Clauses '" Grainger v Martin (I 862) 2 B & S 456; The Harmonides [19031 p 1.
Hulls (1/10/83 and 1111195), elI7.1: International Hull Clauses (1111/03), el21.1. 150 Allen v Sugrue (1828) 8 B & Cr 561; Edington vJackson (1832) unreported, cited in Irving
Farnworth v Hyde (1866) LR 2 CP 204, approving Rosetto v Gurney (1851) 11 CB 176 in v Manning (I 847) I HLC 287, 297: Herne v Bay (1842) unreported, ibid: Young v
preference to Reimer v Ringrose (I 851) 6 Exch 263. ' Turing(1841) 2 M & Gr 593.
147 But deprivation of possession through piracy falls within the Institute Cargo Clauses (A). '" (1847) I HLC 287.
658 659
Losses
considerably, the market value of the insured property, there is a clear danger depended upon whether it was reasonable to expect the assuted to provide the
of insurers frequently being called upon to pay the agreed value when a signifi- security in the sum required given the likelihood of its recovety and judged as
cantly lesser sum would suffice to repair the insured property. It makes against the vessel's actual value. The Court rejected the submission that the
finanCial sense for insurers not to behave as a prudent uninsured ownet would, yardstick should be the agreed value. Any claim for a constructive total loss
and pay mote fot tepaits than the tepaired propetty is worth, if the alternative is under the detainment clause is not 'based upon the cost of recovery' as required
to pay an even higher sum, namely the agreed value. Moreovet, an assured who by the contractual adoption of the agreed value, which is consequently
knows that damage to irs property will yield a measure of indemnity sufficient inapplicable.159
to repair the propetty and provide a significant surplus may, perhaps, be
tempted to engineer such damage. Consequently, the Institute hull clauses On the facts of The Aliza Glacia4 the insured vessel was seized and detained 21.83 by
provide that the agreed insuted value is to displace the actual value for the Australian authotities fot illegal fishing. Charges were brought against the
purpose of derermm-ing whether the insuted ptoperty has become a master and fishing master. These stated that an application would be made for
constructive total loss on the basis of the cost of recovety or repait. 152 A forfeiture of the vessel in the event of conviction. Subsequently, the Australian
compromise position is adopted by the International hull clauses, undet which aurhorities offered to release the vessel in return for security in the sum of
the threshold is set at 80 per cent of the agteed value.'" approximately A$lO million. The assured did not accept this offet. In response
to a claim for a constructive tOtal loss under the detainment clause, the insurers
21.81 In effecting the relevant calculation, 'only the cost relating ro a single accident Ot
contended that a concutrent proximate cause of the ongoing detention was a
sequence of damages arising from the same accident shall be taken into account' .
'failure to provide security'. However, the market value of the vessel was no
154 A series of partial losses cannot, therefore, be aggtegated to produce
more than A$6 million. Even allowing for the possibility of some negotiation,
a cumulative constructive total loss.
the amount of the security required to secure release of the vessel was at least
The contractual adoption of the agreed value as the yardstick fot a constructive total equal to its value. Moreover, a conviction of the mastet and fishing master and
loss is also incorporated into the Institute war and strikes clauses for hulls the consequent forfeiture of the security were seemingly inevitable. It was,
and freight. 155
However, under such clauses, a constructive total loss may not
there-fore, reasonable fot the assuted not to provide the requited security and
only occur in accordance with genetal principle but may also be deemed to occur the sole proximate cause of the ongoing detention was the original seizure.
undet the detainment clause. This clause provides that a constructive tOtal
loss is deemed to occur when the assuted is deprived of the ftee use and disposal of (3) Partial Losses
the insured vessel fot a period of twelve months.'56 The deptivation of free use and
Any loss that does not satisfY the criteria for a total loss is partial.'60 An assured 21.84
disposal must, however, be proximately caused by an insured peril. Under the
that unsuccessfully alleges a total loss may, unless the policy otherwise provides,
Institute war and strikes clauses for hulls and freight, cover against petils involving
recover fot a partialloss. 16 ' As a tesidual category, the concept of a partial loss
loss of free use and disposal is subject, inter alia, to an exclusion covering loss
does not present many problems. Some difficulty does, however, arise under
proximately caused by 'failure to provide security or to pay any fine Ot penalty'. In
valued policies where only part of the intetest valued is at risk at the time of a
The Aliza Glacia4157 the Court of Appeal held that whethet a failure to provide
coveted peril and the entirety of that part is lost. Is the loss to be treated as total
secutity could constitute a proximate cause of the loss' 58
or patrial? Suppose, fot example, that a valued policy is taken out on the goods
to be catried on a specified voyage. The valuation is based on a specific
quantity of goods of a specified matket value, but this basis is not incorpotated
Institute Time Clauses Hulls (1/10/83 and 1/11/95), cl 19; Institute Voyage Clauses Hulls as a term of the insurance contract. Some of the anticipated quantity of goods
(1110/83 and 1/11/95). d 17. commence the insured adventure and ate rendered a total loss by an insured
International Hull Clauses (Ill 1/03), d 21.
Institute Time Clauses Hulls (1I10/83 and l/11/95), cl 19.2; Institute Voyage Clauses peril. Thete is a total loss of the entirety of the goods at tisk but the quantity of
Hulls (1/10/83 and 1/11/95). d 17.2; International Hull Clauses (1/11/03), d 21.2. goods at risk does not teflect the interest valued.
155 eg Institute War and Strikes Clauses Hulls-Time (l/1/95), cl 2. 156 See 21.70 above.
157 Handelsbanken Norwegian Branch ofSvenska Hande/sbanken AB (PUEL) v Dandridge (The

Aliza Glacial) [2002J EWCA Civ 577, [20021 2 Lloyd's Rep 421.
158 So that the excluded peril of failure to provide security could prevail ·over the covered peril [20021 EWCA Civ 577. [200212 Lloyd's Rep 421, patas 70-71.
of detainment (a concurrent proximate cause) in accordance with general causation rules. MIA 1906, s 56(1).161 ibid s 56(4); Benson v Chapman (1849) 2 HLC 696.
660 661
With respect to the classification of the loss, the law is clear that inclusion of an agreed balance of probability. Where the facts are such that it cannot be determined, it
value in a policy cannot transform a partial loss into a total loss. As in the is no longer possible for the agreed value to function as a conclusive yardstick
context of constructive total losses,162 the agreed value serves as a conclusive basis for determining the measure of indemnity. It is conclusive evidence of the value
for quantifYing the measure of indemnity once the nature of the loss has been of an interest that has not been lost, while the interest lost bears no ascertainable
ascertained. Placing in issue the extent of the interest in fact at risk at the time of relationship to the interest that was valued. The only option is to calculate the
the loss does not involve reopening the agreed value and offending its conclusive measure of indemnity as for a partial loss on an unvalued policy,'67 subject to a
nature. Accordingly, section 75(2) of the Marine Insurance Act 1906 provides as maximum liability of the agreed value, operating, in effect, as a sum insured. In
follows: 'Nothing in the provisions of this Act relating to the meas-ure of indemnity
Denoon v Home & Colonial Assurance CO,'68 a valued policy on freight
shall ... prohibit the insurer ... from showing that at the time of the loss the whole or
contained an agreed value of £2,000 and a sum insured of £1,000. The vessel
any part of the subject-matter insured was not at risk under the policy.'
was wrecked with only a part cargo resulting in £1 ,412 lost freight. Willes J
held that an agreed value on freight referred, subject to contrary intention, to a full
This subsection codifies established case law. In Forbes v Aspinal4'63 a vessel loaded a cargo, so that apportionment was required. However, there was no evidence of the
part cargo of fifty-five bales of cotton for a return voyage but was lost while true value of freight on a full cargo. Apportionment, consequently, was not possible
seeking further cargo. The assured under a valued policy on freight claimed a and the policy had to be treated as unvalued with a sum insured of £1,000. Since the
total loss and, therefore, payment of the agreed value. The Court of King's freight was underinsured by 50 per cent, the insurer was liable for £706.
Bench held, however, that where a valuation was based upon a full cargo but
only part of a full cargo was lost, the indemnity principle demanded that the
assured's entitlement be confined to an appropriate portion of the agreed value. Some uncertainty attaches to the question of what degree of departure from the 21.88
In Williams v North China Insurance Co, 164 a valued policy on freight was valued interest need be present before apportionment is required. In the case of
held to include advances against freight not in fact at risk, so that the insurer's a valued policy on freight where the valuation is based on a full cargo, what level
liability was limited to the proportion of the agreed value as represented by the of shortfall can be tolerated before a total loss of the freight at risk must be
net freight at risk after deduction of the advances. Similarly, in The Main, 165 a treated as a partial loss of the freight insured? While there is no conclusive
policy on return freight at and from New Orleans was insured by the defendant resolution of this question, dicta favour a margin of tolerance that the interest at
insurers under a valued policy with an agreed value based on a full carg" of risk should not be 'substantially less' than the interest valued without clarifYing
£5,500 and a sum insured of £1,500. The actual value of the freight ultimately '6
exactly what is meant by substantial. '
to be earned on the voyage was £3,250 ofwhich £925 was paid in advance and,
Care must be taken to ensure that legitimate apportionment of an agreed value 21.89
therefore, not at risk. When the ship and freight at risk were totally lost by an
to reflect rhe fact that part of the interest valued was not in truth at risk is not
insured peril, the assureds collected £3,250 under other policies and claimed
transformed into illegitimate reopening of the agreed value. In Loders & Nicoline
£1 ,500 from the defendants. It was held, however, that the agreed value had to
Ltd v Bank ofNew Zealand,'70 a contract for the sale of goods on CIF terms
be apportioned to reflect the fact that part of the interest valued in the policy
was not at risk. As the assured had in fact lost £2,298 out of £3,250, the included in the contract price an element attributable to freight payable only on
assured's prima ftcie entitlement under the defendants' policy was £3,889,'66 arrival at destination. This freight was, therefore, at the seller's risk. The sale
contract required insurance in the value of the contract price plus five per cent.
against which credit had to been given for the £3,250 already recovered.
21.87 This approach of settling the measure of indemnity by apportioning the agreed
value assumes that an appropriate portion can be ascertained, at least on a
167 Tobin v Harford (1863) 13 CB(NS) 791, 803, affd (1864) 34 L]CP 37. The prohlem had
previously been recognized in Rickman v Carstairs (1833) 5 B & Ad 651, 665. The solution
adopted is consistent with Forbes v Aspinall (1811) 13 East 323, where there was no
evidence of what proportion ofa full cargo was represented by the 55 bales of cotton lost and
162See 21.78-21.79 above. '" (1811) 13 East 323. the insurer paid the freight lost on those lost bales.
'" (1876) 1 CPD 757, 769. "s [1894J P 320. '" (1872) LR 7 CP 341.
2298 '" Tobin v Harford (1863) 13 CB(NS) 791, 802 per Williams], delivering the judgment of
'" -- x 5500 = 3889. the Court of Common Pleas. See also Denoon v Home & Colonial Assurance Co (1872) LR 7 CP
3250 341,351.
;70 (1929) 33 LlLRep 70.
662
663
Losses Loss ofFreight
The seller tendered a policy covering an amount that excluded rhe freight. The freight turns upon whether the underlying charterparty is frustrated. Jackson v
seller argued thar this breach occasioned the buyer no loss since the shortfall in Union Marine Insurance Co Ltd'" concerned chartered freight insured at and from
value represented property not at the buyer's risk and in tespect of which the Liverpool to Newport, while there, and thence to San Francisco. On 4 Januaty,
buyer could not therefore claim. This atgument was rejected. The insurance did before arriving at Newport, the vessel hit rocks in Carnarvon Bay, sustaining such
not cover goods and freight under one agreed value. Instead, the policy covered damage that, after refloating, it returned to Liverpool. Before the vessel was
the goods alone. How the price of the goods under the contract, and therefore refloated, the charterers cancelled and the assured shipowners claimed successfully
the value ro be insured, was calculated was irrelevant to the question of what against the freight underwriters. Despite the absence of satisfactoty evidence of a
interest was at tisk. Since the insurance coveted the goods and there was no constructive total loss of the vessel, the jury found that the delay involved in
shortfall in the quantity of goods that provided the basis for the agreed value, refloating and repairing the vessel was too long reasonably to require the charterers
there could be no apportionment. to remain ready to supply the agreed cargo and, in a commercial sense, terminated
the adventure entered upon by the shipowners and charterers. In consequence, it
was held that the charterparty was frustrated, the chartered freight was lost, and the
Loss of Freight freight underwriters were liable.
The insurance of fteight raises the same total loss questions as the insurance of ships or (2) Relationship Between Loss of Freight and Loss ofVessel or Cargo
goods. However, the preliminary question ofwhether any loss offreight has
occurred assumes greater prominence, and it is also necessary to consider the Where the insured freight is to be earned by a named vessel, an actual total loss 21.93
relationship berween loss of freight and loss of the ship or cargo. of the vessel inevitably results also in an actual tOtal loss of the freight,174 as does
a constructive total loss that prevents the named vessel from completing the
Whether Freight Lost adventute. 175 An actual or constructive total loss of cargo will result in an actual
fu already noted, freight may be earned on commencement of the voyage and thus not be toralloss of freight only where the insured freight is for the carriage of that cargo
jeopardized by any casualty arising in the course of the voyage. Moreover, where and none other or where the insurance is on general freight and no substitute cargo
insurance is effected on freight generally and freight is earned, can be found. 176 At common law, however, a total loss of freight is neither
coincidental with nor dependent upon an actual or constructive total loss of the
underwriters incur no liability even if the freight in fact earned is not the freighr
vessel.'" If a vessel rhat is rightly abandoned to hull underwriters as being a
the assured intended. In Everth v Smith,171 homeward freight was insured
constructive total loss is in fact recovered or repaired and subsequently earns the
atcand from a Balric port not beyond Riga. The vessel was detained by
freight, the fact that no freight has been lost denies the original shipowner any
government order while in Riga and prevented from loading for five weeks.
claim at common law against freight underwriters even though it is the hull
Only'a few days into the detention, however, the Baltic iced up and the vessel
underwriters as abandonees and new owners of the vessel who are entitled to that
was detained until the following spring when an alternative cargo was obtained
and the vessel completed its return voyage. Although the policy had attached freight. 178 Similarly, freight earned only on the safe carriage to destination of
and the expenses of detention exceeded the freight earned, homeward freighr specified cargo on an unspecified vessel depends upon the continued exist-ence of
had been earned and the underwriters incurred no liability. In contrast, where the cargo rather than the vessel on which the cargo happens to be loaded, unless the
the freight insured can be earned only by a specific vessel performing a carrying vessel is unable to complete the voyage and no
stipulated voyage and the vessel is prevented from so performing by a peril
insured against, the underwriters are liable for the freight thereby 10st.172
'" (1873) LR 8 CP 572, affd (1874) LR 10 CP 125.
21.92 In the context of chartered freight, whether a vessel is prevented from earning 114 Cossman v ~st (1887) 13 App Cas 160.
11'5 Roura & Fourgas v Thwnend[1918] I KB 189.
116 Rankin v Potter (1872) LR 6 HL 83, 99; Associated Oil Carriers Ltd v Union
Insurance Society o/Canton Ltd [1917J 2 KB 184. For a total loss of cargo producing a
(1814) 2 M & S 278. See also M'Carthy v Abel (1804) 5 East 388; Brocklebank v Sugrue total loss of freight, seeAsfitrvBlundell[1896J 1 QB 123.
(1831) 1 M & Rob 102. m Carras v London & Scottish Assurance Corp Ltd [1936] I KB 291; Kulukundis v
Rankin v Potter (1872) LR 6 HL 83; Scottish Shire Line Ltd v London & Provincial Marine 6' Norwich Union Fire Insurance Society [1937] I KB I.
General Insurance Co Ltd [1912] 3 KB 51; Carras v London & Scottish Assurance Corp Ltd 178 See the discussion of abandonment and freight, including the treatment of freight
[193611 KB 291, 299. in the Institute and International hull clauses, at 23.37ffbe1ow.
664 665
Losses Loss ofAdventure
alternative vessel is available. Conversely, the adventure may be frustrated and the adventure,'84 although frustration of an adventure does not involve a 'cancella-
freight lost even where the damage sustained by the vessel is insufficient to tion' of the charterparty for the purposes of an exclusion so drafted. 185
constitute a constructive total loss. Whether a charterparty or contract of
affreightment is discharged does not depend upon whether the vessel is a con- (3) Whether Total Loss of Freight is Actual or Constructive
. all C • 179
structlve tot oss ror Insurance purposes. Since section 60(2) of the Marine Insurance Act 1906 is concerned only with 21.96
The common law position is much modified by the Institute freight clauses. Clause 15 of hull and catgo insurance, a constructive total loss of freight can fall only within
the Institute Time Clauses Freight (1/8/89) provides as follows: 180 section 60(1) and will be rare. Where freight is to be earned by a named ship
that is rendered a constructive total loss and the shipowner elects not to repair or
In the event of the total loss (actual or constructive) of the vessel named
herein the amount insured shall be paid in full, whether tbe Vessel be fully redeem, the insured freight cannot be earned and is an actual totalloss.' 86 If a
or partly loaded or in ballast, chartered or unchartered. vessel insured for freight generally loses its cargo, there will be an actual total loss
if no replacement can be obtained, or a constructive total loss if substitute
freight can be obtained only by an expenditure in excess of its value once
Should the Vessel be a constructive total loss but the claim on the insurance on hull earned. 187 Should a vessel become a constructive total loss but its cargo be saved
and machinery be settled as a claim for partial loss, nO payment with the possibility of freight being earned through shipment in a substitute
shall be due under this Clause 15. vessel, any total loss of freight can only be constructive. ISS Generally, however,
Consequently, any total loss of the vessel, but not a constructive total loss settled as the distinction between a constructive and an actual total loss of freight will be
"t academic by reason of the absence of any possibiliry of benefit accruing to the
a partial loss, is treated as producing a total loss of fteight. Moreover, the effect of
quantifYing the measure of indemnity by reference to an agteed value ptecludes the insurer through notice of abandonment and the consequent dispensing with
insuret from requiting proof of the freight that, but for the loss of the vessel, the that formality.'89 The theoretical possibility of freight underwriters co-operating
assured would indeed have earned. '" with the hull underwriters to arrange for repair of the vessel, sharing the expense
and subsequently earned freight, is too speculative a benefit to require the giving
In the context of war and strikes cover, rhe Institute freight clauses follow the hulls clauses
of a notice of abandonment. "0
by providing for payment in full of the amount insured, subject to interim claims
and sums recoverable under insurances subject to the ordinary freight clauses,
where hull underwriters pay on a constructive total loss of the vessel pursuant to the
E. Loss of Adventure
detainment clause in the hulls clauses. '" On the other
hand, exclusion clauses covering loss of time and loss or frusttation of advent-ure An insured peril may prevent a ship and cargo from reaching their destination so 21.97
protect underwriters against claims for freight lost by frustrarion of the as to destroy the insured adventure despite inflicting no physical loss or damage
on the insured properry. In such circumstances, the common law of marine
insurance recognizes a claim for loss of the marine adventure with respect to
n, Jackson v Union Marine Imurancc Co Lsd (1873) LR 8 CP 572, affd (1874) LR 10 CP 125;
Kulukundis v Norwich Union Fire Insurance Society [1937] 1 KB 1.
See also Institute Time Clauses Freight (1/11/95), cll 16.1, 16.3; Institute Voyage Clauses
Freight (1/8/89). clI13.1, 13.3; (1/11195), clI12.1, 12.3. 184 Institute Time Clauses Freight (118/89 and 1111/95), cl 14; Institute Voyage Clauses Freight
The freight clauses follow the hull clauses in determining whether a vessel is a constructive (1/8/89 and 1111195), cl 12; Institute War and Strikes Clauses (Freight~Time» (Freight-Voyage)
total loss: eg Institute Time dauses Freight (1/8/89), cl 15.2. The requirement that a constructive (l/10/83 and 1/ll/95), cl4.5.
total loss of the vessel be indemnified under the hull policy as a total loss was introduced in 185 Re]amieson & Newcastle Steamship Freight Insurance Association [1895] 2 QB 90.
response to the decision of the House of Lords in Robertson v Petros M Nomikos [1939] AC 371 that '" Rankin v Potter (1872) LR 6 HL 83, 99.
an unqualified reference to constructive total loss included all circumstances in which the vessel 187 Associated Oil Carriers Ltd v Union Insurance Society a/Canton Ltd[1917] 2 KB 184.
qualified as such a loss even if t~e loss was then treated as merely partial, whether by agreement or '" (1872)LR6HL83, 102-3.
by reason of failure to serve a notice of abandonment. MIA 1906, s 62(7); ninder, Anderson &Co v Thames & Mersey Marine Insumnce Co [1898]
For the huther relevance of the total loss clause for insurable interest; see 3.54 above. 2 QB 114. See generally 22.35 below.
Institute War and Strikes Clauses Freight~Time, Freight~Voyage (1/10/83 and 1111195), cl 3. &nkin v Potter (1872) LR 6 HL 83, 158, 166-7.
666 667
Losses ·Finality ofLosses and the Doctrine ofAdemption ofLoss
193
cargo insurance191 or freight insurance,192 but not with respect to hulls. In The [claimant's] demand is for an indemnity. His action, then, must be founded up'on
other words, the subject-matter of a cargo or freight policy is taken as being, not just the nature of his damnification, as it really is, at the time the action is
the insuted property itself, but also the adventure upon which the property is brought. It is repugnant, upon a contract ofindemnity,to recover as for a rotalloss,
'94 when the final event has decided that the damnification, in truth, is an average, or
embarked. However, the war and strikes clauses for cargo and freight expressly perhaps no loss at all.
exclude 'any claim based upon loss of or frustration of the voyage or adventure'.'95 Whatever undoes the damnification, in whole or in part, must operate upon the
This so-called 'frusttation clause' bars any claim that cannot be brought without indemnity in the same degree. It is a contradiction in terms, to bring an action for
relying on the loss of the adventure while leaving intact the right to claim for loss of indemnity, when, upon the whole event, no damage has been sustained. 198
or damage to the insured property itself 196 Where,
nevertheless, cargo is insured against war risks and against marine risks to an The principle was further enshrined in Bainbridge v Neilson199 where the insured 21.100
extent not less than the cover provided by the Institute Cargo Clauses (C), the vessel was captured by a French privateer and re-captured by a British privateer.
consequences of such frustration can be mitigated by extra cover incorporating the The assured gave notice of abandonment upon receiving news of the initial capture
Institute Additional Expenses Clauses (Catgo-War Risks). and only subsequently learned of the te-capture. The vessel completed its voyage,
incurring only a small partial loss. In a seminal judgment, Lord Ellenborough CJ
denied the finality of appearances as at the time of the notice of abandonment:
Finality of Losses and the Doctrine ofAdemption of Loss
And the question is, whether that which in the result turns Out to be only a partial loss
By virtue of the indemnity principle, an assured may recover only for the loss sustained, but to a trifling extent shall, because of the notice of abandonment given when a total loss
the initial impact of a casualty may be reversed or reduced by subsequent events. appeared to exist, be now recovered as a total loss? To give effect to such an attempt
Thus, a captured vessel may be redeemed by re-capture or ransom or a casualty may would grievously enlarge the responsibility of underwriters: it would be to make them
result in an initial prognosis that proves unduly pessimistic. The question arises as answerable, not for the acrualloss sustained by the assured whom
to the point in time for insurance purposes by which to judge definitively whether they have undertaken to indemnify against the risks stated in the policy, but for a
supposed total loss, which had in fact ceased to exist. It has been said in argument, that
the assured has suffered a loss and, if so, the measure of that loss. the offer to abandon having been rightly made at the time, a right of action vested in
In Hamilton v Mendes,'97 the assured was informed simultaneously of the cap-ture and re- the assured, which could not be defeated by the subsequent events. But that proposition
is not only not true in the whole, but it is not true in its parts. The effect on an offer to
taking of the insured vessel resulting factually in a partial loss. Notice of abandon is truly this, that if the offer appear to have been properly made, upon certa!n
abandonment was given on the basis that in law the assuted's rights against the supposed facts, which turn out to be true, the assured has put himself in a condition to
insurer crystallized on the occurrence of the capture, whIch, at the time it happened, insist upon his abandonment: but it is not enough that it was properly made, upon facts
constituted a constructive total loss. Lord Mansfield held, however, that the which were supposed to exist at the time, if it turns out that no such facts existed, or
insuter's liability was limited to a partial loss: that other circumstances had
occurred which did not justify such abandonment. It may be said to be properly
made upon notice received, and bona fide credited, by an assured, of his ship having
been wrecked, whether such intelligence were true or not, and though the letter
conveying it turned out to be a forgery; and yet dearly no right of action would vest in
Rodocanachi v Elliott (1874) LR 9 CP 518; British and Foreign Marine Insurance Co Ltd v him founded upon an abandonment made upon false intelligence, and without any thing
Sanday 6- Co [191512 KB 781, [191611 AC 650. in fact to warrant the giving of such notice. What is an abandonment more than this,
Associated Oil Caniers Ltd v Union Insurance Society ofCanton [1917J 2 KB 184. that the assured having had notice of circumstances, which, if true, entitle him to treat
Rickards v Forestal Land, Timber 6- &zilways Co (The Minden) [19421 AC 50, 69-70;
that adventure as a total loss, he, in contempla-tion of those circumstances, casts a
The Bambnri [198211 Lloyd's Rep 312, 318.
An insurer that paid for a total loss of goods that remained intact despite the loss of the desperate risk on the underwriter, who is to save himself as well he can. But .does not
adventure would then be entitled to those goods by virtue of the doctrine of abandonment: see all this presume the existence of those facts on which the right accrues to him to call
below. upon the underwriter for an indemnity; and if they be all imaginary, or founded in
Institute War Clauses (Cargo), d 3.7 (and note d 7); Institute Strikes Clauses (Cargo), cl misconception, or if at the
3.8; Institute War and Strikes Clauses (Freight-Time), (Freight-Voyage) (111 0183),
cl 4.5; (11111 95), cl4.6.
Rickards v Forestal Land. 17mber 6- Railways Co (The Minden) [1942]-AC 50.
198 ibid 1210. See also Goss v Withers (1758) 2 Burr 683; Falkner v Ritchie (1814) 2 M
(1761) 2 Burr 1l98.
S 290.
199 (1808) 10 Easr 329.
668
669
Losses Finality ofLosses and the Doctrine ofAdemption ofLoss
time it had ceased to be a total loss, and there be no damage to the assured, or at 23 May 1966, 12 October 1966, 12 May 1967, and 10 August 1967 and issued a
least if the only damnification arise out of the very act, (the recapture) which writ on 29 August 1967. Underwriters agreed to put the assured in the same
saves the thing insured from sustaining a total loss; the whole foundation of the position as if a claim form had been issued in the case of the first notice but not in
abandonment fails. 20o the case of each of the others. In consequence, the assured was entitled to rely on
21.101 Later case law exrends this doctrine of ademprion of loss, permitting the insurer to the facts as on the date of service of each of the notices but, with the exception of
take the benefit of a change of circumstances even afrer notice of abandon-ment. the first, subject to the possibility of circumstances changing so as to adeem the
201
Of course, whether recovery of the insured property negates a total loss loss up to the date of the claim form.
depends upon its condition. Property recovered in specie may still be so damaged
In Royal Boskalis Westminster NV v Mountain,"O notices of abandonment in 21.104
as to constitute a constructive total loss. 202 Any lesser amount of damage caused by a
respect of a fleet of dredgers detained by Iraqi authorities soon after the Iraqi
covered peril will, of course, be recoverable as a partial loss.
invasion of Kuwait in August 1990 were served on 21 and 25 September.
21.102 There must, however, be some point beyond which recoveries do not affect the Underwriters formally rejected them on I 1 October, agreeing to put the assured
assured's right to claim under the insurance contract. A (line of convenience' is, in the same position as if a writ had been issued. In consequence, for a con-
therefore, drawn upon issue of a claim form'o' by rhe assured, rhe existence and structive total loss claim to succeed it had to be established thar the ingredients
extent of any loss at that time being determinative at common law of the insuter's for such a claim both were present at one of the September dates and also
liability. '04 This is 'the date at which the assured's rights finally crystal-lize'.'os persisred through until 1I October. However, the crystallization of the assured's
Acceptance of a notice of abandonment is similarly definitive. 20' In practice, rights as on 11 October meant that the subsequent release of the fleet could not
moteover, underwritets who reject a norice of abandonment will gen-erally agree affect those rights. '"
to place the assured in the same position as if a claim fotm had been issued at the
There is some doubt as to whether the doctrine of ademption of loss applies to 21.105
time of the rejection'O' or, less commonly, at the earlier time of service of the
actual as well as constructive total loss. '12 As a matter of principle, it is difficult
notice of abandonment. '08
ro see why there should be any difference, although in practice the test for an
21.103 In The Anita,'O' the assured served a series of four notices of abandonment on actual total loss is such that it is highly unlikely that such a loss will be adeemed.
In particular, the threshold of unlikelihood of recovery for loss by irretrievable
deprivation is sufficiently high'13 as to render remote indeed the possibility of
200 ibid 341-2. See also Naylor v Taylor (1829) 9 B & C 718, confirming that reliance should not recovety before a claim form is issued.'14
be placed upon the doubts expressed by Lord Eldon in Smith v Robertson (1814) 2 Dow 474.
20' Patterson v Ritchie (1815) 4 M & S 392; Brotherston v Barber (1816) 5 M & S Al8; Cologan v The Marine Insurance Bill when introduced into Parliament contained a clause 21.106
London Assurance Co (1816) 5 M & S 447, 454; Lozano v Jamon (1859) 2 EI & El 160. The codifying the doctrine of ademprion of loss. For unknown reasons, this clause
question had been expressly left open in Hamilton v Mendes. This post~notice of
abandonment extension is, however, negated by market practice, see 21.102 below. was deleted and the 1906 Act makes no reference ro the doctrine. While the
202 Mill" v FI"ther (1779) 1 DougI231; Cologan v London Assurance co
(1816) 5 M & S 447; question has been raised of whether the doctrine should be understood as
Holdsworth v Wtse (1828) 7 B & C 794; Parry v Aberdein (1829) 9 B & C 411; Lozano vJanson
(1859) 2 EI & EI160; Shepherd v Henderson (1874) 7 App Cas 49, 70-J.
203 Formerly known as a wrir.
204 Rodocanachi v Elliott (1873) LR 8 CP 649; Roys v Royal Exchange Assurance Corp 2>0 [1997] LRLR 523,527,534.
[1897J 2 QB 135; Polurrian Steamship Co Ltd v Young [1915J I KB 922. 211 Instead, insurers would be entitled to the assured's rights in the fleet by virtue of the
Royal Boskalis westminster NV v Mountain [1997J LRLR 523,534 per Rix]. In the doctrine of abandonment, discussed at 22.31-22.32, 22.36ff below. Note, however, that the
absence of acceptance of the notice of abandonment, however, the assured may still revoke assured's conduct in respect of insured property after rejection of a notice of abandonment
the notice and elect to claim for a partial loss: at 555-8. could amount to revocation of the notice, see 22.61 below. On the facts, it was held that there
MIA 1906, s 62(6); Roura & Fourgas v Townend[1918J 1 KB 189, 195. was no constructive total loss at either of the September dates, see 21.61 above.
Polurrian Steamship Co Ltd v }'aung [1915J 1 KB 922; Marstrand Fishing Co Ltd v Beer (The '" Scott v Copenhagen Reimurance Co (UK) Ltd [2003J EWCA Civ 688, [20031 Lloyd's Rep
Girl Pat) (1936) 56 LlLRep 163; The Bamburi [19821 1 Lloyd's Rep 312, 321; Royal Boskalis IR 696, para 40.
westminster NVv Mountain [1997J 1 Lloyd's Rep IR 523, 527; Scott v Copenhagen Reinsurance Co See 21.46ff above.
(UK) Ltd [2003J EWCA Civ 688, [2003J Lloyd's Rep 1R 696, para 40. Even if an insurer refused so to Since there is no notice of abandonment in cases of actual total loss, the relevant cut-off
agree, the assured could simply serye a claim form that same day and produce the same point for finality of loss must be the date of issue of the claim form. However, where the
result: Polurrian (1919) 19 Com Cas 143, 153. assured alleges constructive and actual total losses in the alternative and has served a notice
208 Royal Baskalis Westminster NV v Mountain [1997J 1 Lloyd's Rep IR 523, 534. of abandon~ ment and obtained the insurer's agreement to treat the assured as having served
209 Panamanian Oriental Steamship Corp v Wright (The Anita) [1970] 2 Lloyd's Rep 365. a claim form, that agreement should finalize any and all forms of total loss as at that date.
670 671
Losses Successive Losses
implicitly repealed,'15 it seems clear that the doctrine survives as part of the into a total loss, because those who have the conttol ovet the goods may act
undetlying common law.'" prudently in selling them at an intermediate port, tathet than incur the expense
21.107 The indemnity principle and the doctrine of ademption of loss cannot be sttetched so of cleansing and te-shipping them.''''
as ta permit intervention on the part of the underwritets to rrans-form a tatalloss
inta a partial loss and reduce the measure of indemnity accord-ingly. In Sailing
Ship 'Blairmore' Co Ltd v Macredie,217 the assured served a notice of G. Successive Losses
abandonment in respect of the insured vessel, which had sunk in harbour. Before
Insured ptoperty may be subject to more than one loss while an insurer is on 21,109
the commencement of ptoceedings, the insurers raised the vessel at their own
risk. The question atising is whethet and how the occurtence of one loss may
expense. The cost of raising and repairing the vessel when compared with its
impact upon another.
repaired value rendered it a constructive total loss, whereas the cost of repairs on
their own amounted only to a partial loss. The House of Lords held the insurers
(1) Successive Losses: Cumulative Recovery
liable for a total loss. They had undertaken a contractual obligation to
pay as on a total loss in circumstances constituting a constructive tOtal loss and The inclusion of a sum insuted in a policy may fix the maximum sum tecover- 21.110
when such a loss occurred they could not defeat that obligation by their own able eithet in respect of anyone loss or in rhe aggregate in respecr of all losses
act. Otherwise, insurers could avoid paying on many total losses by the simple incurred. Where the sum insured is confined to individual losses and the insuret
expedient of effecting some minor repairs, although there can be no objection is liable for successive casualties, section 77( 1) of the Matine Insurance Act 1906
ta insurers effecting a complete reversal of a loss, for example by ptocuring the codifies a principle of cumulative recovery, providing, as is the logical interpret-
release of a detained vessel."8 ation of the conttact, that the assured may recover in tespect of each casualty
that occasions the assured loss even though the aggtegate tecovery exceeds the
21.108 By parallel reasoning, any loss that fails to satisfY the criteria specified in the
sum insured.
Marine Insurance Act 1906 for a total loss, whether actual or constructive, can only
constitute a partial loss and the assured cannot treat it as or convert it into a total This principle covers two sequences of losses, namely whete the insured prop- 21.111
loss.'" In Navone v Haddon,220 bales of silk were insured against total loss only. erty sustains successive partial losses in respect of which the assured incurs
Bad weather so damaged some bales that it was thought advisable to sell them at an expenditure in effecting repaits'" and where rhe insured property incuts such a
intetmediate port, although a modest expenditure would have would have enabled parrialloss followed by a total loss. 223
the bales to be te-shipped to their destination still bearing the mercantile chatacter
of silk, albeit damaged. The remainder either escaped dam-age altogether or (2) Successive Unrepaired Losses
sustained only minor damage permitting completion of tran-sit. Since no bale was
Where insured property sustains successive partial losses fat which the measure 21.112
so damaged as to render its entire contents unfit for any commercial purpose, the
of indemnity is calculated by reference to depreciation in the value of the
Court of Common Pleas held the assured unable to recover as on a total loss of any
ptoperty at the time the policy expires, the cumulative recovery to which the
individual bales. 'A partial loss cannot be rurned
assured is entitled cannot exceed the agreed value in a valued policy. Whete a
vessel sustains damage, in so fat as the damage remains unrepaired when the
---- ----~_._----------------
policy expires, the measute of indemnity is the 'teasonable depreciation, if any,
21'SeeCaptainJA Cates Tug & Wharftge Co v Franklin Insurance Co [19271 AC 698, 704.
21'MIA 1906, , 91(2). Polurrian Steamship Co Ltd v Young [19151 1 KB 915; Marstrand arising from the unrepaited damage' judged at the time of expiry. 224 lt is, how-
Fishing Co Ltd v Beer [19371 I All ER 158, 164; Rickards v Forestal Land, Timber & evet, conceptually impossible to incur more rhan 100 per cent depteciation and,
Railways Co Ltd (The Minden) [19501 AC 50, 85; &stor Navigation Co Ltd vAxa Global therefore, impossible fat untepaired damage to generate cumulatively gteatet
Risks (UK) Ltd (The Kastor Too) [20041 EWCA Civ 277, [2004J 2 Lloyd's Rep 119, para 38.
m [1898J AC 593.
218See the efforts of the insurers in Polurrian Steamship Co Ltd v J'Oung [1915] 1 KB 922.
'" Cazalet v St Barbe (1786) 1 TR 187; Thelluson v Fletcher (1793) 1 Esp 73; Gardner 221 ibid 44 per Maule J.
v Salvador (1831) 1 M & Rob 116; Lohre v Aitchison (1878) 3 QBD 558. This does not detract m Brooks v MacDonnell (1835) 1 Y & C Ex 500, 515; Kusel v Atkin (The Catariba) [1997J 2
from the possibility that a partial loss may subsequently be overtaken by a toralloss: see Lloyd's Rep 749, 757-8.
21.115ff below.
m Ie Cheminant v Pearson (1812) 4 Taunt 367.
22' (1850) 9 CB 30.
m MIA 1906, s 69(2), (3): see 23.19-23.21 below.
672 673
loss than is incurred in one blow by a total loss. It follows that the cumulative the assured able to recover, so far as the insured property itself is concerned, only
recovety for successive unrepaired partial losses cannot exceed the agreed value in in respect of the total loss. The result is that, where the total loss is caused by a
a valued policy or the insurable value in an unvalued policy. The principle of covered peril under the same policy that covers the initial partial loss, the
cumulative recovery is subject to the indemnity principle. 225 assured is entitled to indemnification for the total loss only. This aspect of the
merger doctrine is codified by section 77(2) of the Marine Insurance Act 1906.
21.113 A separate question arises where a vessel is insured for a sum less than the agreed or
However, there is still a merger at common law where the tOtal loss is not
insurable value and the measure of indemnity for successive unrepaired losses
covered by the policy that covers the initial partial loss, so that the assured
exceeds the sum insured. In such a case, it would need to be determined whether
recovers nothing under that policy and, indeed, if there is no alternative opera-
the sum insured applied to each loss independently or to the aggregate of all
tive policy, does not recover at alL'" In either case, any payment mistakenly
recoveries under the policy. Assuming independent application, there is no reason
made in respect of the inirial partial loss will be recoverable from the assured. 230
in principle why the principle of cumulative recovery as stated in section 77(1) of
Any merger is, however, confined to claims in respect of the insured property
the 1906 Act should not permit recovery in excess of the sum insured subject to
itself and is without prejudice to claims under other heads of liability under the
the upper limit of the agreed or insurable value.
policy, such as the sue and labour clause. 231
21.114 In Kusel v Atkin (The Catariba),226 Colman J confined the principle of cumula- The leading illustrations ofthe doctrine of merger ofloss are Iivie vjanson'" and 21.116
tive recovety to successive repaired losses in order to prevent the assured from British & Foreign Insurance Co Ltd v Wilson Shipping Co Ltd.'" Both are examples
invoking it to obtain recovery for successive unrepaired losses in excess of an ofthe common law doctrine since, in each case, the range ofperils covered by the
agreed value. With respect, however, it is suggested that such confinement is policy extended to the initial partial loss but not to the superseding total Joss.
unnecessary since a conflict between the cumulative recovery principle and the
agreed value concept could arise only if the former yielded a measure of indem- In Livie vjanson,'" a vessel sailed at night in an unsuccessful attempt to evade 21.117
nity in excess of the latter. As demonstrated in paragraph 21.112 above, there is no an American embargo. The vessel collided with ice and was forced ashore,
conflict since indemnification in the sum of the agreed value must by defin-ition sustaining large holes in its side and bottom. Four feet of water entered the hold
indemnifY in full for any amount of depreciation occasioned by successive and, as the tide left, the vessel fell on its side. The following morning, American
unrepaired losses.'" customs authoriries seized the ship, and both ship and cargo were condemned for
breach of the embatgo. The policy was warranted free ofsuch condemnation. The
court held that the later seizure deprived the assured of any right to an indemnity
(3) The Doctrine of Merger ofUnrepaired Partial Losses
for the initial partial loss by perils of the sea. Lotd Ellenborough ruled as foJIows:
235
21.115 The principle of cumulative recovety reflects the simple proposition that where an
assured incurs expenditure in respect of one partial loss, the occurrence of a
.. . where the property deteriorated is afterwards totally lost to the assured, and
subsequent loss, whether partial or total, in no way diminishes the loss to the the previous deterioration becomes ultimately a matter of perfect indifference to
assured occasioned by the first casualry. Where, however, the assuted does not his interests, he cannot make it the ground of a claim upon the underwriters. The
incur any expenditure in respect of a partial loss and the insured property is object of a policy is indemnity to the assured; and he can have no claim to
subsequently rendered a total loss, the assured cannot sustain a claim for repairs indemnity where there is ultimately no damage to him by any peril insured against.
that will never be carried out or for depreciation assessed by reference to the If the property, whether damaged or undamaged, would have been equally
expity of the policy''' in the value of property that has been totally lost before that taken away from him, and the whole loss would have fallen upon him had the
property been ever so entire, how can he be said to have been injured by its having
time. The initial partial loss is said to merge into the later total loss, leaving been antecedently damaged?
'" Kusel v Atkin (The Catariba) [1997J 2 Lloyd's Rep 749, 756. 229 British 6- Foreign Insurance Co Ltd v Wilson Shipping Co Ltd [1921] 1 AC 188, see
226 ibid 757-8. 21.118-21.119 below.
m The proposition advanced by Colman Jmay have been influenced by a The Dora Forster [1900J P 241.
misconception that MIA 1906, s 77(1) permits recovery in excess ofthe agreed value. MIA 1906, s 77(2) proviso: Iivie vjanson (1810) 12 East 648, 655.
The subsection refers, however, to the sum insured. m (1810) 12 East 648. 233 [1921] 1 AC 188. '" (1810) 12 East 648. 235 ibid 654. See
228 For the time of assessment of depreciation, see 23.21 below. also Knight v Faith (1850) 15 QB 649.
674 675
21.118 In British 6'Foreign Insurance Co Ltd v Wilson Shipping Co Ltd,'36 a ship that crystallizes. In Lidgett v Secretan (No 2),'41 the insurer of the outward voyage
was insured against marine risks was chartered to the Admiralty under an sought to escape liabiliry for an untepaired partial loss by virtue of an alleged
agreement by which the Admiralty assumed liability for war risks, with the merger with a subsequent total loss that occurred after expiry of the outward
measure of indemnity to be ascertained at the date of the casualty. Mter a partial insurance and that was covered by insurance on the return voyage. The Court
loss by a matine risk, the assured left unrepaired damage to the value of £1,770. held that there was no merger of loss. Montague Smith J stated as follows:'42
During the currency of the marine policy, the ship was subsequently totally lost by
No doubt, when both the partial and total losses occur during the same voyage,
war perils. The Admiralty paid the shipowners £1,770 less than they would have
and during the period covered by the same policy, the former is merged in the
done had the earlier damage been fully repaired. The shipowners, there-fore, latter. That is so upon obvious principles of justice. The underwriter insures
claimed a further £1,770 from the marine underwriters. The House of Lords held against accidents happening during the voyage; and the whole voyage must be
the underwriters not liable on the basis of merger of loss, Lord Birkenhead LC regarded before it can be ascertained whether and to what extent the assured are
damnified. But I am at a loss to see how anything which may occur after the
reaffirming the doctrine in the following terms: 237 'When a vessel, insured against
expiration of the risk can alter or affect the rights of the parties.
perils of the sea, is damaged by one of the risks covered by the policy and before
that damage is repaired she is losr, during the currency of the policy, by a risk Where insured ptoperty is rendered a constructive total loss but that loss falls to 21.121
which is not covered by the policy, then the insurer is not liable for such be treated as a partial loss either because the assured so elects or because the
unrepaired damage.' assured fails to serve a notice of abandonment where one is required, the partial
loss can be subsumed into a subsequent total loss, under either rhe statutory
21.119 The assured argued that the doctrine of merger ofloss had no relevance unless
doctrine or the wider common law doctrine. 243 Howeverl the doctrine is con-
recovery for the partial loss would infringe the indemnity principle and all that was
fined to partial losses so that a constructive total loss that falls to be treated as a
sought ftom the marine underwriters was the sum necessary to produce a full
total loss is not liable to merger into any subsequent total loss. 244 Conversely,
indemnity for an admittedly total loss. However, upon a tOtal loss, an insurer
where umepaired damage is followed by a constructive total loss that falls to be
under a contract of marine insurance is liable for either the agreed value of the
treated as a parrialloss for indemnification purposes, the merger will still oper-
insured property''' or its value at the inception of the risk.'" Payment of that sum
ate. The fact of the later total loss nullifies the earlier damage as a cause ofloss
indemnifies the assured fully in respect of the lost property no matter how much
to the assured. If the assured consciously elects or simply fails to elect to
untepaired damage the property was carrying when it met its ter-minal casualty.
receive indemnification as for a total loss in respect of the second casualry, that
On the facts, the shortfall in the assured's receipt was caused by the terms of the
will not revive the earlier casualry as a cause ofloss.
Admiralty's charrerparty and had nothing ro do witJ1' the marine underwriters.
Livie v]amon was both correct and indistinguishable. The marine policy cleatly A doctrine of merger of loss is incorporated expressly into the Institute 21.122 and
disclaimed liability for war risks. Had the assured chosen to cany the war risks International hull clauses. Clause 20.2 of the International Hull Clauses (01111/03)
itself or had full cover been obtained from a war risks insurer that subsequently ptovides as follows:'45 'In no case shall the Underwriters be liable for umepaired damage in
became insolvent, the assured would have had no rights against the marine the event of a subsequent total loss of the vessel (whether
underwriters. It made no difference that the shortfall arose from the terms of the by perils insured under this insurance or otherwise) sustained during the period
war risks cover. of this insurance or any extension thereof.' This contractual doctrine of merger
of loss reflects rhe common law rather than the statutory doctrine in that it is
21.120 The doctrine of merger of loss, whether common law or statutory, does not apply
where the subsequent total loss is caused by a peril that occurs after the policy has
expired. This is the time at which it is determined whether a partial loss is repaired (1871) LR 6 CP 616. See also Kastor Navigation Co Ltd v AGF MAT (The Kastor Too)
or unrepaired'40 and at which the insurer's liability on the policy [2002] EWHC 2601 (Comm), [2003] 1 Lloyd's Rep 296, para 12.
(1871) LR6 CP 616, 630.
Kastor Navigation Co Ltd vAGF MAT (The Kastor Too) [2004] EWCA Ciy 277, [2004J 2
Lloyd's Rep 119, paras 69,114, This may also be the explanation of Woodside v Globe Marine
Irlsurance Co Ltd [1896] 1 QB 105"" The Kastor Too at paras 64-67, 112.
236 [1921] 1 AC 188. '" ibid 199. See 21.124 below.
Such a valuation being conclusive between the parties: MIA 1906, s 27(3). For the equivalent provision containing no material change in wording, see Institute Time
The measure of indemnity for a total loss is discussed at 23.12 below; Clauses Hulls (1110/83 and 1111/95), clI8.2; Institute Voyage Clauses Hulls (1/10/83 and 1111/
See 23.15 below. 95), clI6.2.
676 677
irrelevant whether the subsequent total loss is covered under the policy. It also policy.251 The assured would, therefore, appeat to be similarly denied tecovery
follows the underlying law, both statutory and contractual, in applying only where where the cause of the initial total loss simply falls ourside the tetms of the policy,
the subsequent total loss OCCUtS before expiry of the policy. rather than being exptessly excluded, while the second total loss is caused by a
covered peril.
(4) Successive Total Losses
'" Kastor Navigation Co Ltd v AGF MAT (The Kastor Too) [2004J EWCA Civ 277, [2004J 2
21.123 It is possible for insured property to be rendered a total loss on mote than one Lloyd's Rep 119, para 116.
occasion by distinct casualties. While it is technically possible for rhe first total
loss to be an actual total loss, it is generally to be expecred thar it will be
consttuctive. If that first, constructive total loss falls to be treated as partial, the
rules in the previous paragraphs apply. Where, however, the assured elects to treat
the loss as total and duly serves a notice of abandonment Ot the circum-stances are
such as to dispense with that requitement, the rules discussed in this section apply.
21.124 Provided the cause of the first total loss is a covered peril, the assured has the right to
claim for the total loss so caused regardless of any ensuing casualty. In particulat,
the doctrine of metger of loss is confined to unrepaired partial losses and does not
extend to unrepaired damage amounting to a constructive total loss. Accordingly,
in The Kastor Too,246 the assured was entitled to recover where a constructive
total loss caused by a covered peril was followed by an actual total loss that could
not be proved to be caused by a covered peril. Again, in Hahn v Corbett,247 the
assured recoveted in respect of a total loss of cargo where a total loss by a covered
peril248 was followed by a total loss caused by an exptessly excluded peril.
21.125 Where the initial total loss is caused by an excluded peril, the assured cannot recover
in respect of any subsequent casualty. In Anderson v Marten,249 a neurral vessel
was captured by a combatant and then wrecked while being navigated to a Court of
Prize. The House of Lords held that the vessel had been rendered a total loss by
capture,250 so that the assured could not recover under a policy covering loss by
perils of the sea bur 'warranted free from capture'. The principle has been stated to
be that the establishment of a total loss exhausts the
246 Kastor Navigation Co Ltd v AGF MAT (The Kastor Too) [2004J EWCA Civ 277, [2004J 2
Lloyd's Rep 119.
W (1824) 2 Bing 205.
248 It is unclear whether the first total loss of the cargo (the carrying vessel was stranded on a shoal
and disabled so as itself to be totally lost) was actual or constructive, but it should probably be
regarded as constructive: Kastor Navigation Co Ltd v AGF MAT (The Kastor 100) [2004]
EWCA Civ 277. [2004J 2 Lloyd's Rep 119, para
45. ,<9 [1908J AC 334.
250 A constructive total loss: Pesquerias y Secaderos de Bacafao de Espana/SA v Beer (1945) 79
LlLRep 417, 434.
678 679
22
CLAIMS AND CLAIMS HANDLING
A. Claims Handling in a E. .Limitation 22.62

Subscription Market 22,02 (1) Property insurance 22.64
B. Liabilities in a Subscription (2) Liability insurance 22.68
Market 22.04 (3) Contract terms and accrual
of the cause of action 22.69
C. Occurrence Notification F. Insurers' Rights in Connection
Obligations 22.05
(l) Notification provisions in
with Claims 22.73
(1) Claims co-operation dauses 22.73
marine policies 22.06
(2) Appointment of surveyor
(l) The consequences of
and average adjuster 22.74
non~compliance with
(3) Approval provisions 22.75
notification provisions 22.12
(4) MutUal insurance 22.76
(3) Non-compliance under
marine wordings 22.25 G. F.raudulent Claims 22.77
(1) The concept of fraud 22.78
The Doctrine of Abandonment and (2) Fraud of the assured 22.80
the Notice of Abandonment
(3) Types of fraudulent
Procedure 22.30
conduct in the making
The doctrine of abandonment 22.31
of a claim 22.81
Abandonment and notice of
(4) Relevance to the claim 22.90
abandonment distinguished 22.33
(5) Temporal limits on the
"When notice of abandonment is not
fraudulent claims jurisdiction 22.96
required 22.35
(6) Joint and composite policies 22.100
Insurers' rights upon acceptance of
(7) Remedies for fraud in a claim 22.101
abandonment 22.36
(8) Fraudulent claims clauses 22.109
The impact of abandonment on H. Good Faith io the Making
the assured's rights
22.52 of Claims 22.113
Form of notice of abandonment
I. Making Payment of Loss
Time for giving a notice of
2253 Moneys 22.115
abandonment
(1) Method of payment 22.115
Acceptance and refusal of a notice of
22.58 (2) Time of payment 22.120
abandonment
22.61
Changing an election
This chapter is concerned with the process of making a claim under an insur- 22.01
anee policy and the handling of claims by insurers. A more developed set of clauses
addressing claims and their handling is a feature, and constitures Part 3,
681
Claims and Claims Handling Occurrence Notification Obligations
of the International Hull Clauses (01111103). After highlighting the potentially Marine Insurance Act 1906 and reiterated both in the standard market forms' and
significant role of the leading underwriter, the chapter considers assureds' obli- 4
the International hull clauses.
gations to inform the insurer of the possibility of a claim, the doctrine of
abandonment and the notice of abandonment procedure, the time limits for bringing
a claim, obligations that arise in connection with claims, the fraudulent claims C. Occurrence Notification Obligations
doctrine, and issues relating to payment of claims.
Insurance policies commonly contain provisions requiring the assured to notify 22.05 the
insurer of any occurrence that may give rise to a claim under the policy. Such
Claims Handling in a Subscription Market clauses have a clear commercial purpose:'
The obvious purpose of such provisions is to enable the insurers to take steps to
Since the subscription method of contract formation generates a seties of independent investigate claims or occurrences which may giv~,rise to claims, in order to minim-
ize their exposure under the policy. They may wish to set in motion independent
contracts, ' it follows that in principle each participating insurer is entitled to
investigations or cause repair or reinstatement' of insured property to be under-
separate notification and consideration of any claim. The attendant administrative taken and, in the case of a liability policy, to take over the defence of claims against the
inconvenience may be addressed by affording leading under-writers the authority to assured or negotiate direct with the third party claimants. Very often it may be
act in relation to claims on behalf of all subscribing insurers. The extent ofsuch in the interests of the insurer under a liability policy to be able to take steps to
authority necessarily depends on the wording of any leading underwritet clause. investigate circumstances which may give rise to a claim against the assured before any
such claim has been made against or by the assured under the policy. Undcr such a
Under clause 42.1 of the International Hull Clauses (01111103), the leading underwtiter
policy an insurer may be better able to protect himself if evidence as to the occurrence
designated in the slip or policy is granted authority to bind the following market in can be obtained as early as possible, for, if delay occurs, witnesses may disappear and
respect of: memories may fade and, if a claim is then made, an insurer may be
severely prejudiced by having lost the opportunity of defeating or diminishing
the appointment of surveyors, experts, average adjusters and lawyers, in relation
the third party claim.
to matters which may give rise to a claim under this insurance
the duties and obligations to be undertaken by the Underwriters including,
but not limited to, the provision of security (I) Notification Provisions in Marine Policies
claims procedures, the handling of any claim . .. and the pursuit ~of recoveries
all payments or settlements to the Assured or to third parties under this The precise requirements imposed by any given notification clause depend, 22.06
insurance other than those agreed on an 'ex-gratia' basis. inevitably, on the true interpretation of the language of the clause and questions
may arise, in particular, as to the event that triggers the requirement to notifY
Accordingly, for example, it would suffice in cases of constructive total loss for a
and the time within which notification must occur.
notice of abandonment to be served on the leading underwriter.'
The standard hull clauses contain a seties of differently worded provisions: 22.07
Clause 10.1 of the Institute Time Clauses Hulls (1/10/83) provides as fol-lows: 'In
Liabilities in a Subscription Market
the event of accident whereby loss or damage may result in a claim under this
An insurer that subscribes to a risk does so for a specified percentage. In the event of a insurance, notice shall be given to the Underwriters prior to survey and also, if
loss, its liability is limited to that percentage of the measure of indemnity payable. the Vessel is abroad, to the nearest Lloyd's Agent so that a sutveyor may be
Participation on a risk in a subscription market in no sense involves offering a appointed to represent the Underwriters should they so desire.'
guarantee of payment by other insurers that subscribe to the The 1995 hull clauses saw a significant change in wording. Clause 13.1
same risk. This principle of several liability is stated in section 67(2) of the provides that: 'In the event of accident whereby loss or damage may result in a
eg the Ins~sure Companies Marine Policy contains a statement ofseveraIliability on both

1 See 2.14 above. 2 Notice ofabandonment is discussed a(22.33ff below. the front and the third page. See Appendix 4.
International Hull Clauses (01/11/03), el2?
S Alfred McAlpine pic v BAI (Run-Of/) Ltd (1998J 2 Lloyd's Rep 694, 698-9 per Colman].
682
683
claim under this insurance, notice shall be given to the Underwtiters more relaxed 1983 clauses, the only requirement is that notice be given prior to
promptly after the date on which the Assured, Owners or Managers become survey. A third difference relates to the persons to whom notice must be given.
Ot should have become awate of the loss or damage and prior to survey so Under the 1983 clauses, notice is required to all subscribing underwtiters and, if
thar a surveyot may be appointed if the Underwriters so desire.' the vessel is outside the United Kingdom, to the nearest Lloyd's agent. No
Under the International Hull Clauses (01/11/02), clause 46.1 provides that: 'In reference to a Lloyd's agent is included in the other clauses, and the Intet-
the event of an accident Ot OCCUttence which may result in a claim undet national hull clauses dispense with notice to all underwriters in favour of just
this insurance, notice must be given to the Leading Underwriter(s) as soon the leading underwriter(s).
as possible after the date on which the Assured, Owners Ot Managers Notification provisions are also standard in the rule books of mutual insurance 22.11
become aware of the accident or occurrence so that a surveyor may be associations. For example, the Btitannia P&I rules adopt a threefold approach.
appointed if the Leading Underwriter(s) so desire.' First, rule 30(1) requires a member 'to give prompt notice in wtiting to the
Finally, clause 43.1 of the International Hull Clauses (01/11/03) provides as managers of every incident likely to give rise to a claim under these Rules and of
follows: 'In the event of an accident or occurrence wheteby loss, damage, any legal or arbitration proceedings commenced against him'. Secondly, rule
liability or expense may result in a claim under this insurance, notice must 30(4) provides that any claim made against a member in connection with a rule
be given to the Leading Underwriter(s) as soon as possible after the date on 30(1) incident has to be notified to the association 'as soon as possible, but in
which the Assured, Owners or Managers become aware of such loss, no case later than twelve months after the Member has received notice that
damage, liability or expense so that a surveyor may be appointed if the the claim is being, or may be, made against him in tespect of the incident'. In
Leading Underwriter(s) so desire.' addition, notice of the commencement of any legal or arbittal proceedings
against the membet must be given to the association 'as soon as possible,
Three differences between the various clauses may be identified. First, the ttig-ger fOt the
but in no case later than 30 days after the Member has teceived service of the
obligation to give notice varies. Under the 2002 clauses, the assured is faced with
said proceedings'. Thirdly, all requests for reimbursement of any losses, costs, or
the potentially difficult judgment of whethet an accident Ot occur-rence may result
expenses recoverable from the associationS are required by rule 30(5) to be made
in a claim. Recognizing the commercial difficulty, the 2003 clauses adopt the
to the association 'within twelve months of the incurring of the loss or the
ttigger of awareness of loss, damage, liability, or expense that may result in a
payment of the cost or expense by the Member'.
claim. This is redolent of the approach of the 1995 clauses, although they contain
no reference to liability Ot expense but are stricter in extending the trigger beyond
(2) The Consequences of Non-compliance with Notification Provisions
knowledge to constructive knowledge. The 1983 clauses refer simply to an
'accident whereby loss or damage may give tise to a claim', but notification cannot The consequences for an assured of failing to comply with a notification obliga- 22.12
be given of something of which one is ignorant. tion may be specified in the insurance contract. Alternarively they depend on
the classification of that obligation and breach thereof as a matter of general
The threshold oflikelihood ofa claim in all the notification clauses is set at a low
contract law. A number of possibilities arise.
level. It suffices that the accident or occurrence or the resulting damage,
liability, loss, Ot expense 'may' result in a claim. It is not necessary that a claim (aj Condition precedent
is likely; it suffices that it is a realistic, rather than fanciful, possibility."
A notification clause may constirute a condition precedent to the insurer's 22.13
Evidence of how circumstances in fact subsequently unfold is admissible 'to
liability for claims arising out of the event or casualty requiring notification so
assist in showing what the probabilities really were'. 7
that non-compliance affords the insurer an absolute and unimpeachable defence
A second difference between the clauses relates to the required speed of notifica-tion. The to such claims, although not to any other. There is no requirement that an insurer
1995 clauses require 'prompt' notification, while the International prove that non-compliance with a condition precedent has occasioned it any
hull clauses adopt the more urgent formula of 'as soon as possible'. Under the prejudice, still less serious prejudice; the consequences of non-compliance
6Rothschild OJ Assurance pic v CottY,ar lJ 999] Lloyd's Rep IR 6, 22-3. 8 The language of 'reimbursement' follows from the pay first clause (see 16.03 above), so that
7Bank Lin' Ltd vArthur Capel &Co [1919] AC435, 454 per Lord Sumrier, cited in Rothschild a claim against the association is for reimbursement of money paid out by the member
v Collyearat 23. rather than indemnification of liability incurred.
684 685
in fact ate irrelevant to the consequences of the non-compliance in law' and then declare that all the conditions listed are conditions precedent. 16
However, given the drastic consequences to the assured of non-compliance and Where $uch an approach is adopted, however, if an individual condition
the possible lack of any proportionality between the prejudice, if any, caused to indicates that it is not intended to be a condition precedent, the wording of the
the insurer by the non-compliance and the total loss of indemnity to the individual condition will prevail over the general clause covering the list of
assured, the courts will scrutinize the interpretation of the clause with conditions.17 Where the policy simply contains a seties of conditions, some of
considerable care before accepting that it constitutes a condition precedent. which state they are conditions precedent while others do not, the latter will not
be con-strued as conditions precedent." Where one clause declares itself to be a
Ptovided the tenor of the clause is clearly that of a condition precedent, effect
condi-tion precedent by using that label while another clause adopts a form of
will, indeed must, be given to it. lO It is not, however, necessary that the phrase
words making clear the intention that it should have condition precedent status
'condition precedent' be used provided the intention is clear." In insurance
but without using the label, the absence of the label in the second clause is no
contract law, conditions precedent are often termed 'promissory warranties' or simply
impediment to giving effect to the intention clearly stated.'9
'warranties',12 although the term 'warranty' may carry a variety of mean-
ings.13 In Re Williams,14 the clause contained mandatory language ('shall give In Alfred McAlpine plc v BAJ (Run-Off) Ltd,'o Colman J concluded that the 22.16
immediate notice', 'shall also forward to the company ... within thtee days aner occurrence notification clause in question was not a condition precedent for the
receipt') and the statement that 'Time shall be deemed to be the essence of following reasons. First, the possibility that failure to notifY might occasion
this condition'. Bigham J had no hesitation in concluding that the clause consti- little if any prejudice to the insurers coupled with the probable adequacy of a
tuted a condition ptecedent. In the absence of such clear language, the draco- dam-ages remedy for any loss sustained by the insurers militated against a
nian consequences of non-compliance for the assured militate, as a matter of mutual intention that any non-compliance should afford the insurers a complete
interpretation, against condition ptecedent status when set against the possibly defence to the claim. Secondly, neither the clause itself nor the policy
trivial consequences of bteach for the insurer, the adequacy of damages as a contained any statement to the effect that compliance with the notification
remedy for the insuter, and, depending on the wording, the ease with which the clause was a condition precedent. Thirdly, clause 4 of the policy provided for
assured might find itself in breach." arbitration on disputes as to quantification of any admitted loss and that an
arbitration award was a condition precedent to any right ofaction against the
22.15 It is not necessary for the individual clause, construed in isolation, to proclaim itself
insurers, Such express stipulation of a condition precedent within one condition
a condition precedent. It suffices for a policy to list a number of conditions
was a clear indication that other conditions lacking such stipulation were not to
be construed as conditions precedent. 21
9 Pioneer Concrete (UK) Ltd v National Emp!oyers Mutual Genera! Insurance Association Ltd
In Scott Lithgow Ltd v Secretary o/Statefor Defence,22 the relevant clause provided
[19851 1 Lloyd's Rep 274; Motor 6' General Insurance Co Ltd v Fary [1994] 1 WLR 462, 469 22.17
(PC); Alfred McAlpine pic v BAI (Run-Off) Ltd [1998] 2 Lloyd's Rep 694, 702. (emphasis added) as follows: 'In the event of incident whereby loss, damage or
10 London Guarantee Co v Fearnley (1880) 5 App Cas 911; Cawley v National Employers' Accident
liability may result in a claim under the Indemniry, the contractors should report
& Genera/Assurance Association Ltd (1885) 1 TLR 255; Welch v Royal Exchange Assurance
[1939] 1 KB 294 (obligation to supply the insurer with all proofs and information). This is the circumstances of the incident to the principal naval overseer immediately
subject to the obvious proviso that the clause is capable of operating as a condition
precedent. Thus, in Feamley an employees' fidelity policy purported to render a condition
precedent to payment of the claim by the insurer, inter alia, an obligation on the assured to
assist the insurer in recovering reimbursement from the employee. However, that 16 London Guarantee Co v Fearnley (1880) 5 App Cas 911; Cawley v National Employers'
particular obligation could not constitute a condition precedent to payment no matter how Accident & General Assurance Association Ltd (1885) 1 TLR 255; Pioneer Concrete (UK) Ltd v
expressed since reimbursement could not occur until after payment. National Employers Mutual General Insurance Association Ltd[1985) 1 Lloyd's Rep 274.
" Alfred McAlpine pic v BAI (Run-Off) Ltd [19981 2 Lloyd's Rep 694, 699; George Hunt " Re Bradley [191211 KB 415.
Cranes Ltd v Scottish Boiler 6' Generallmurance Co Ltd [2001] EWCA Civ 1964, [20021 Lloyd's 18 Stoneham v Ocean, Railway & GeneralAccident Imurance Co (1887) 19 QBD 237. See also
Rep lR 178. Re Colemans Depositaries Ltd [19071 2 KB 798, 812-13 per Buckley L], obiter, alrhough cf
12 See 18.54-18.60 above. 13 See 18.105-18.109 above. " (1902) 19 TLR 82. Fletcher Moulton L], dissenting, at 809.
Cox v Bankside Members Ageney Ltd [19951 2 Lloyd's Rep 437, 454; Alfred McAlpine pic
15 George Hunt Cranes Ltd v Scottish Boiler & General Insurance Co Ltd [2001] EWCA eiv
v BAl (Run-Off) Ltd [199812 Lloyd's Rep 694, 699-701. See also Stoneham v Ocean, Railway 1964, [2002J Lloyd's Rep IR 178.
& General Accident Imurance Co (1887) 19 QI3D 237. Difficulty of compliance cannot, [1998J 2 Lloyd's Rep 694, 699-701.
how-ever, override unambiguous condition precedent language as a matter of common law: Following Stoneham v Ocean, Railway & GeneralAccident Insurance Co (1887) 19 QBD 237:
Cassel v Lancashire & Yorkshire Accident Imurance Co Ltd (1885) 1 TLR 495. see 22.15 above.
22 (989) 45 BLR 1.
686
687
and, in the interests ofprompt settlement, should submit his priced claim as soon repudiatory breach is a denial of at least substantially the whole of the contract.
as possible theteafter.' The House of Lords held that this clause did not constitute Accordingly, a notification clause will not qualifY by virtue of its substance as
a condition precedent bur was merely of an administrative character, providing 26
either a condition or an innominate term. Failure. to ,notify could constitute a
guidance as to the procedure to be followed in making a claim. This conclusion repudiatory breach only if the notification clause were drafted in unequivocal terms
was supported by three factors. First, the clause lacked mandarory language as a condition of the contract or if the clause clearly specified that breach was to
('should report' and 'should submir'). Secondly, the clause lacked any precision as constitute a repudiation of the contract.
ro the time by when the report and priced claim should be provided, as might
reasonably be expected of obligations on which the validity of a claim (e) Severable innominate term
23
depended. Thirdly, the reference to settlement (understood as meaning pay- In Alfted McAlpine pic v BAJ (Run-OjJ) Ltd,27 an occurrence notification clause 22.21
ment) indicated rhat an obligation ro pay already existed so that the submission of was held not to be a condition precedent. Nevertheless, the Court of Appeal
a priced claim could not be a condition precedent to such an obligation. considered that the clause could operate as an' innominate term within the
severable context of the claims arising from the occurrence that should have
Suspensive condition been notified. In consequence, breach would entitle the insurer to reject the
Where a notification clause operates as a suspensive condition, non-compliance merely claim provided the insurer could establish that the failure to notifY had occa-
suspends the insurer's obligation to pay the claim so that the insurer can rightfully sioned it serious prejudice with respect to the handling of claims resulting ftom
decline to pay so long as non-compliance persists; however, the insurer remains the occurrence. Since the prejudice would not extend beyond such claims, the
liable to pay once the assured complies with the clause. Accord-ingly, where a policy would otherwise remain in force.
clause states that no claim shall be payable 'until' or 'unless and
The possibility of a severable innominate term was innovative" but was initially 22.22
until' notice has been given, non-compliance merely suspends the insurer's
24 accepted without demur in subsequent litigation. However, in McAlpine itself
obligation to pay pending cure and does not extinguish it.
and in two cases that subsequently reached the Court of Appeal,'9 there was on
warranty the facts no serious prejudice. Consequently, the result in each case was the same
as if a severable innominate term analysis was not available and the clause was a
A third possible analysis of a notification clause is as a warranty in the sense in which
warranty. Authority at the level of the Court of Appeal supporting the new
that term is employed in general contract law." In such a case, non-compliance
possibility was, therefore, obiter.
does not affect the insurer's liability under the policy bur affordHhe insurer a
cross-claim against the assured for damages compensating for such loss, if any, as In Bankers Insurance Co Ltd v South,'O the assured, under a consumer travel 22.23
the insurer can prove ro have been caused by the breach. The insurer can set off insurance policy, failed to report an accident as soon as reasonably possible.
the amount of the cross-claim against its liability under the policy, even to the The notification requirement was drafted as a condition precedent. However,
extent of extinguishing the claim. the possibility that a procedural breach might deprive the assured of cover in the
absence of any prejudice to the insurer was held to be unfair under the Unfair
(d) Condition or innominate term Terms in Consumer Contracts Regulations 1994 in so far as it permitted the
Theoretically, a notification obligation could constitute a condition or innominate term,
so that breach would or could amount to a repudiation of the contract as a whole.
This is highly unlikely. By definition, breach of a notifica-
tion provision relates to an individual event or casualty and the essence of a
" Alfred McAlpine pit: v BAI (Run-Of!) Ltd [1998] 2 Lloyd's Rep 694, 700, [2000] 1 Lloyd's
Rep 437, para 22.
[2000] 1 Lloyd's Rep 437.
In isolation, the absence of such precision cannot override dear condition precedent Although not unprecedented, in that a similar approach had been adopted in a different
word-ing, but is supportive of the clause not embodying a condition precedent in the insurance context in Phoenix Genera! Insurance Co of Greece SA v Halvanon Insurance Co Ltd
context of the contract at issue in Scott Lithgow. [1985] 2 Lloyd's Rep 599, 614.
w:'eir v Northern Counties ofEngland, Insurance Co 4 LR It 689; \\7estern Australian Bank v 29 K/S Mere-Scandia XXXXJI v Certain Lloyd's Underwriters (The Mercandian Continent) [2001]
Royal Insurance Co (1908) 5 CLR 533, 573. 2 Lloyd's Rep 563; Glenco", International AG v Ryan (The Beursgracht) [2001] EWCA Civ 2051,
As distinct from the promissory warranty of insurance contract law, 'Which operates as a [2002] 1 Lloyd's Rep 574.
condition precedent to the insurer's continued liability on the policy, 'see 18.54-18.60 above. 30 [2003] EWHC 380 (QB), [2004] Lloyd's Rep IR 1.
688 689
Claims and Claims Handling Occurrence Notification
insurer to deny cover in rhe absence of serious prejudice." On the facts, Buckley ] 1983 clauses, failure to notilY as required results in the measure of indemnity
held that a delay of some three-and-a-half years in notilYing the insurers of an . being reduced by 15 per cent. 34 The notification obligation is, therefore, con-
accident in another country would occasion serious prejudice through difficulry of sidered to be a warranty with the 15 per cent reduction operating as liquidated
tracing witnesses and the likely diminished abiliry of witnesses to assist given damages.
fading of memory over such a length of time coupled with a possible diminished
The International hull clauses adopt a different approach. Following on from 22.26
willingness to assist. A severable innominate term approach was therefore essen-
the notification obligation in clause 43.1, clause 43.2 of the International Hull
tial to the disposition of the issue. However, that analysis of the term was reached
Clauses (01111/03) provides that: 'If notice is not given to the Leading Under-
not as a marter of common law, bur as the result of the intervention of regulatory
writer(s) within 180 days of the Assured, Owners or Managers becoming aware
legislation.
of such loss, damage, liability or expense, no claim shall be recoverable under
22.24 Subsequently, however, in Friends Provident Lift & Pensions Ltd v Sirius Inter- this insurance in respect of such loss, damage, liabiliry or expense, unless the
national Insurance," a majority of the Court of Appeal rejected the idea of a Leading Underwriter(s) agree to the contrary in writing.'
severable innominate term as a legal concept thar could be applied to notifica-tion
Clause 43.2, therefore, renders notification pursuant to clause 43.1 within 180 22.27
clauses." First, as a marter of principle, while a notification clause is ancil-lary to
days of the assured, owners, or managers becoming aware of the loss, damage
the central bargain to indemnilY in respect ofspecified losses in return for the
liability, or expense that may result in a claim on the insurance a condition
premium and operates separately in respect of each occurrence that requires
precedent to recovery in respect ofany such claim. However, clause 43.1 requires
notification, the central bargain is indivisible and does not operate on a sever-able
notification'as soon as possible' after the assured, owners, or managers become
basis in respect of the claims arising out of each notifiable occurrence. Secondly, a
so aware. That period will expire long before 180 days have elapsed. The Inter-
severable innominate term could always be created by express word-ing. However,
national Hull Clauses (01111/03) are silent with respect to the consequences of
there was no basis for implying into notification clauses that would otherwise be
a notification that is late bur not in breach of the condition precedent contained
interpreted as ordinary contractual warranties an option to reject a claim in cases of
in clause 43.2. That clause clearly precludes the norification obligation in clause
serious prejudice. Thirdly, the concept of serious prejudice was itselfproblematic.
43.1 from ranking as a condition precedent. 35 Moreover, given the rejection by
For example, delay in notification might cause insurers to lose an opportunity to
the Court of Appeal in Friends Provident Life & Pensions Ltd v Sirius Inter-
recoup £50,000 by way of a subrogation action. That might be serious in the
abstract. Bur how should it be viewed inthe context of a claim for £1 million?
national Insuranc1" of the possibility of a severable innominate term analysis,
such a breach of clause 43.1 can only sound in damages for such loss, if any, as
Fourthly, the severable innominate ternlwas unnecessary in so far as the serious
the insurer can prove has been caused by the delay in notification.
prejudice occasioned on the facts pf any case could be quantified, since the
damages awarded for breach would compensate for the loss and could be set off The approach of the 1995 hull clauses is the same as that of the International 22.28
against any indemnity payable under the policy. The utility of the concept was, hull clauses, except that reference is to all subscribing underwriters rather than
therefore, confined to those cases where serious prejudice had been occasioned but just the leading underwriter, and the time beyond which late notification
could not be quantified in a damages awatd. However, that utility did not justilY becomes breach of a condition precedent is twelve months from the date when
extension of the severable obligation concept. Insurers that desired such a clause the assured, owners, or managers became or should have become aware of the
would have to contract for it. relevant loss or damage. 37
Non-compliance under Marine Wordings The P&I rules of the Britannia club are silent as to the consequences of failure 22.29
to comply with the various notification requirements in the rules. In the absence
The various Institute and International hull clauses address the consequences
of non-compliance but not always completely and in differing ways. Under the
Institute Time Clauses Hulls (1110/83), d lOA.
Thus, where a policy requires immediate notice but also provides that the insurer will not be
liable for losses that have not been notified within 14 days of occurrence, the latter provision is
31 Quaere whether, having concluded _that the clause was unfair on its wording, Buckley
inconsistent with condition precedent status for the former: Adamson 6'Sons v Liverpool &
J should not have held that it was not bindingat.all on the assured, rather than reworded. London & Globe Insurance Co Ltd[1953] 2 Lloyd's Rep 355, upholding the 14 days' provision.
12 (20051 EWCA Civ 601, (2005J 2 All ER (C6mm) 145. 36(2005J EWCA Civ 601, (2005J 2 All ER (Comm) 145.
33 ibid paras 31-33. " Institute Time Clauses Hulls (III II95), d 13.1.
690 691
Claims and Claims Handling The Doctrine ofAbandonment and the Notice ofAbandonment Procedure
of any wording indicating a contrary status, they rank as warranties with the to accept or decline that offer.41 In this respect, the 1906 Act altered the pre-
association's remedies for breach confined to damages. existing common law, under which property passed automatically to the
insurer.42 Should the insurer elect to take the assured's rights, the transfer occurs
on, and indeed is contingent upon, payment of the measure of indemnity fot a
D. The Doctrine of Abandonment and the Notice of totalloss. 43 It then takes effect retrospectively from the time of the casualty.44
Abandonment Procednre Accordingly, section 79(1) of the Marine Insurance Act 1906 provides that:
'Where the insuret pays for a total loss, either of the whole, or in the case of
In the context of constructive total losses, a distinct notification requirement is goods of any apportionable part, of the subject-matter insured, he thereupon
imposed by law. This serves the doctrine ofabandonment, a docttine that is not, becomes entitled to tal<e over the interest of the assured in whatever may
however, confined to constructive total losses. remain of the subject-matter so paid for'. Similarly, section 63(1) of the 1906
Act provides that: 'Where there is a valid abandonment, the insurer is entitled to
The Doctrine ofAbandonment take over the interest of the assured in whatever may remain of the subject-
matter insured, and all proprietary rights incidental thereto.'
According to Lord Abinger in Roux v Salvador:38 'The obligation of abandon-ment was
the necessary consequence of confining the object of the [insurance] contract to a
(2) Abandonment and Notice of Abandonment Distinguished
strict indemnity.' That which ranks in insurance law as a total loss does not
necessarily involve the complete annihilation of the subject-matter insured so as to Abandonment is a necessaty aspect of every claim for a total loss, whether actual 22.33
leave nothing ofvalue. Where a ship is physically destroyed by a storm so as to or constructive,45 and should not be confused with the procedural requirement
constitute an actual total loss, value may remain in the form of salvage ofthe wteck of notice of abandonment. In the event of a constructive total loss, the assured
for scrap. This is all the more so in the case of a constructive total loss. By virtue of enjoys a right of election between, on the one hand, treating the loss as a partial
this concept, marine insurance law permits the assuted to recover the measure of loss and, on the other hand, abandoning the subject-matter insured to the insurer
indemnity for a total loss where, from a commercial viewpoint, the subject-matter and treating the loss as total.46 If electing to abandon, the assured must, as a
insured is as good as totally lost, albeit still in existence. For example, there is a condition ptecedent to being able to recovet as for a toral loss, comply with the
constructive total loss where the subject-matter procedural requirement to give the insurer notice of abandonment with
insured is so damaged that the cost ofrepairs necessaty to prevent an actual total teasonable diligence after learning of the 10ss.47 The giving of norice of
loss would exceed its value once repaired. 39 The measure of indemnity for a tbtal abandonment is, therefore, a cond.ition precedent not to the existence of a
loss is taken, however, as indemnifYing the assured in respect of the full value of
the insured property. Since, by virtue of the indemnity principle, an assured's right
of indemnification is confined to the loss sustained, it follows that to permit the
assured both receipt of the total loss measure. of indemnity and retention of any 41 Allgemeine versicherungs-Gesellschaft Helvetia v Administrator of German Property [1931]
value remaining of the subject-matter insured would produce unjust entichment to 1 KB 672, 688; Pesquerias ySecaderos de Bacalao de Espana SA v Beer (1946) 79 LlLRep 417, 433:
Royal Boskalis Westminster BV v Mountain [1997] LRLR 523, 557; Kastor NamgatlOn Co Ltd
the extent of such value. Consequently, a claim for indem-nification for a total loss, v Axa Global Risks (UK) Ltd (The Kastor Too) [2004J EWCA Civ 277, [2004J 2 Lloyd's Rep 119,
or in catgo insurance a tOtal loss of a part,'O necessarily involves an abandonment para 76,
by the assured to the insurer of such rights as the assured continues to have in 42 Simpson & Co v Thomson (1877) 3 App Cas 279, 292. ..
43 Kaltenbach v Mackenzie (1878) 3 CPD 467, 471: Kastor Naotgatton Co Ltd v Axa Global
whatever remains of the insured property. Risks (UK) Ltd (The Kastor 7oo) [2004J EWCA Civ 277, [2004J 2 Lloyd's Rep 119, para 76. .
44 K'dstor Navigation Co Ltd v Axa Global Risks (UK) Ltd (The Kastor 7oo) [2004J EWCA CIV
22.32 There is, however, no automatic transfer of rights. An abandonment is an offer by 277, [2004J 2 Lloyd's Rep 119, para 76.
the assured of its rights in the remaining property and the insurer is entitled 4S RAnkin v Potter (1872) LR 6 HL 83, 156: Kaltenbach v Mackenzie (1878) 3 CPD 467, 471:
K'dstor Navigation Co Ltd v Axa Global Risks (UK) Ltd (The Kastor Too) [2004J EWCA CIV 277,
[2004J 2 Lloyd's Rep 119, paras 58, 93.
46 MIA 1906, s 61. b .
47 ibid S 62(1), (3). In the subscription market, notice of abandonment will need to ~ given. to
" (1836) 3 Bing (NC) 266, 283. each subscribing underwriter unless authority is given to the leading underwrit~r to receive notice of
For discussion of the concept of constructive tOtal loss, sec 21.53ff above. abandonment on behalf of all underwriters, as is the case under the International Hull Clauses
See 23.29-23.30 below. (01111103): see 22.03 above.
692 693
, total loss but to the insurer's liability as for a total loss in respecr of the insurer to intervene before the property becomes an actual total loss or, a
ftrtiori, it has already become an actual tOtal loss, 56 Similarly, rhe requirement of a
notice of abandonment is dispensed with if it is. too late to prevent insured goods from
serves the indemnity principle in all cases of total loss, whereas
dissipating, 57 or salvage of insured property is rendered impractic-able by reason of rhe
.uandonment is the vehicle whereby the assured makes an offer of 58
casualry occurring wirhin a war zone. lt is also open to the insurer to waive the
49
<4oandonment in cases where the insured property remains in specie. Aban- requirement of notice of abandonment. 59
The notice of abandonment procedure does
donment contemplates the divesting of interest by the assured required by rhe not apply to contracts of reinsurance:o
indemnity principle in all cases of total loss, whereas notice of abandonment puts
the insurer on norice of the assured's intention ro claim for a total loss in a case (4) Insurers' Rights upon Acceptance of Abandonment
where the insured property still exists. 50 The notice procedure responds to the
interests of equity in the case of a constructive total loss in compelling the assured If accepted by the insurers, abandonment altets the property in the subject- 22.36 matter
to make and communicate its election promptly so as ro enable the insurer to insured and does so retrospectively as from the time of the casualty that generates the
obtain maximum benefit from what remains. 51 abandonment. lt has often been likened to a sale or assignment of
the insured property immediately after the casualty. In Rankin v Potter:' Martin B
When Notice of Abandonment is not Required described an abandonment under a hull policy as involving:
It follows from the purpose ofa notice of abandonment in alerting the insurer to the possibility ... a cession or transfer of the ship to the underwriter, and of all his property and
of exercising tights over what remains of the insured property that
no notice is required in respect of either an actual total loss, 52 since by definition a interest in it) the claims that may arise from its ownership, and all the
profits that may arise from it, including the freight then being earned. Its operation is as
prompt intervention cannot benefit the insurer, 53 or a constructive total loss where
effectually to transfer the property of the ship to the underwriter as a sale for valuable
'at the time the assured receives information of the loss, there would be no consideration, so that of necessity it vests in the underwriter a chattel of
possibility of benefit to the insurer if notice were given to him'. 54 In this context, more or less value, as the case may be.
the term 'benefit' imports a realistic possibility of exercising control over salvage
Accordingly, where underwriters pay on an actual total loss presumed by virtue 22.37 of
rather than an inevitable financial advantage had notice of aban-donment been
given. 55 No notice will, accordingly, be required where, by the time the assured section 58 of the Marine Insurance Act 1906:' if the vessel is subsequently discovered it
becomes aware of the constructive total loss, it is too late-for belongs to the underwriters:' Similarly, an abandonee of a vessel is entitled to any freight in
the course of being earned at the time of the casualty
that generated the abandonment and that was subsequently earned: 'The aban-
donees are considered as purchasers of the ship at the moment of the casualty to
Roura & Forgas v Townend [1919) I KB 189: Robertson v Petros M Nomikos Ltd [1939)
AC 371: Court Line Ltd v R (The Lavington Court) [194512 All ER 357. which the abandonment refers: and although the contract of the shipowner does not
Kastor Navigation Co Ltd v Axa Global Risks (UK) Ltd (The Kastor Too) [2004) EWCA Civ run with the ship, it is well settled that, as incident to the ship, the right to the
277, [2004] 2 Lloyd's Rep 119, para 77. Consequently, notice of abandonment can be given only whole freight, pending at rhe time of the sale and subsequently earned, belongs to
by the person in whom is vested the interest abandoned: Jardine v Leathley (1863) 32 LJQB
132. so Rankin v Potter (1872) LR 6 HL 83, 156. A notice of abandonment is not conclusive the purchaser of the ship. '64
evidence of the assured's intention to claim for a total loss, as there stated, since the assured may
revoke the notice until accepted by the insurer: MIA 1906, s 62(6).
Sl Fleming v Smith (1848) 1 HLC 513, 535; Stringer v English & Scottish Marine Insurance Co
(1870) LR 5 QB 599, 606; Kaltenbach v Mackenzie (1878) 3 CPD 467, 471-2, 480; Kastor Kastor Navigation Co Ltd v Axa GWbal Risks (UK) Ltd (The Kastor Too) [20041 EWCA
Navigation Co Ltd v Axa Global Risks (UK) Ltd (The Kastor Too) [2004] EWCA Civ 277, [2004] Civ 277, [20041 2 Lloyd's Rep 119.
2 Lloyd's Rep 119, para 9. Utcuum Oil Co v Union Insurance Society ofCanton Ltd(1926) 25 LlLRep 546.
52 MIA 1906, s 57(2), 58 Black King Shipping Corp v Massie (The Litsion Pride) [1985) 1 Lloyd's Rep 437, 478.
S3 Rankin v Potter (1872) LR 6 HL 83,106. Such, at least, is the legal presumption. In cases 59 MIA 1906, s 62(8); Rickards v Forestal Land, 7Imber & Railways Co Ltd (The Minden) [1942]
involving a loss of commercial identity, however, property of considerable value may remain even if AC 50. Certainty of rejection of the notice by the insurer provides no foundation for a claim of
the property contemplated by the policy has ceased to be: see 21.39-21.45 above. waiver: Black King Shipping Corp v Massie (The Litsion Pride) [19851 1 Lloyd's Rep 437, 478.
MIA 1906; s 62(7); Rankin v Potter (1872) LR 6 HL 83. Arguably, in such a case the loss is 60 MIA 1906, s 62(9); Uzielli 6- Co v Boston Marine Insurance Co (1884) 15 QBD 11.
or has become an actual total loss. No analogy should be drawn between notice of abandonment and " (873) LR6 HL83, 144. See also Glen Line LtdvAttorney-GeneraI(930) 36 Com Cas I, 13;
notice of dishonour of a bill of exchange: ibid 125-31. Allgemeine Versicherungs-Gesellschaft Helvetia vAdministratorofGerman Property [1931] 1 KB 672.
Utcuum Oil Co v Union Insurance Society ofCanton Ltd (1926) 25 LILRep 546. 62 See 21.21 above. 63 Houstman v Thornton (1816) Holt 242.
64 Miller v Woodfill (1857) 8 El & Bl 493, 503 per Lord Campbell CJ; MIA 1906, s 63(2).
694
695
This principle originates from Case v Davidson,65 where a ship and irs freight were :heir rransportation had been insured under rhe designarion of freighr'O was
separately insured. The ship having been captured, the ship and the freight were melevant. No purchaser of rhe ship would have had a claim againsr rhe assured qua
abandoned to the respective underwriters who paid as on a total loss. When, cargo owner. Moreover, rhe increased value of the goods ar rhe time of rhe casualty
subsequently, the ship was re-captured, completed its voyage, and earned freight, artributable to rhe subsranrially complered carriage, as reflected by rheir enhanced
the benefit of the freight was held to inure to the ship underwriters. Lord price had rhey been sold afloar, was analogous ro freighr earned before rhe
Ellenborough srated the principle as follows:" 'Anabandonment to rhe underwriter casualty. The ship underwrirers were, rherefore, held entitled only ro an allowance
on ship, transfers to him nor merely rhe hull, but the use of the ship, and the for the carriage from Southporr to Liverpool in respect of rhat parr of the cargo left
advantages resulting from the completion of rhe voyage. If, upon the complerion in rhe vessel, this being the only benefit in the nature offreight the assured, qua
of the voyage, the abandonee may withhold the goods until the freighr is paid, he cargo owner, derived from use of rhe ship after the casualty to which the
musr have aoquired an indefeasible title to it. I consider his ritle as derived out of abandonment related.
the use of the ship.'
Abandonment transfers to insurers only rights attached to the property aban- 22.41 doned.
Where freight is payable on delivery of the goods ar the porr of destination, no freighr will It does not transfer rights vesred in.rhe person of the assured even ifsuch
have been earned ar the time of a casualty in the course of the voyage leading to an rights vest by reason of the events that give rise ro the toralloss and the aban-
abandonment. Where the voyage is subsequently completed, the cargo owner donmenr. In Glen Line Ltd v Attorney-General" the insured vessel was seized by
would be unjustly enriched if entitled to the benefit of carriage without payment the German government on the outbreak of the First World War, compensation
and the person who must be paid is the owner of the vessel at rhe time when the being paid at the end of the war pursuant to the peace treaty. The underwriters, who
right to payment of freight accrues. Upon abandonment of the ship, this becomes had indemnified the assured as on a toral loss, unsuccessfully soughr to claim that
rhe ship underwriter. Moreover, in the absence of appropriate wording, the assured compensation." Lord Warrington" observed that a wrongful act occasioning a rotal
cannot claim on a freight policy since the freight insured has nor been lost; it has loss of a ship gives rise to rwo distinct causes of action. The owner has a right to
67
been earned by someone other t.han rhe assured, but it has not been 10st. claim damages for the loss of the ship, a right which passes upon abandonment
along with any claim for freight in the Course of being earned at the date of the
Where, in contrast, freight is paid to the shipowner before rhe casualty to which
casualty. Secondly, however, the owner has an entirely personal claim for damages
the abandonment relates and is not contingent upon the safe arrival of the ship ar
for loss of profits. Not being a right connected or incidental to the ship, it remains
the porr of destination, that freight is earned by the shipowner and not by the use
vested in the owner notwithstanding any abandonment. Upon the true construction
of the ship by the underwriter after the abandonment. 68 In lvIiller v Woodfill" the of the treaty, the compensation was paid for lost profits and, alrhough more
assured loaded his own ship with goods on his own accbunt for a voyage from St generous than rhat recoverable under English law, belonged to the assured.
John, New Brunswick, to Liverpool, insuring ship and freighr separately. The ship
stranded at Southport, only rwenty miles shorr of Liverpool. The assured
abandoned the ship to the ship underwriters and, at his own expense, had parr of Likewise, in Sea Insurance Co v Hadden," the assured's ship was rendered a 22.42
rhe cargo conveyed by lighrer ro Liverpool and rhen pro-cured completion of rhe constructive total loss in a collision for which the other vessel was at fault. The
voyage by the ship togerher wirh rhe remainder of rhe cargo. The ship hull underwriters having paid for the total loss and the assured having recovered
underwriters rhen claimed credir for freight for rhe full cargo for rhe whole damages in respect of rhe lost ship and lost freighr, rhe question arose ofwhether
voyage. Had the cargo belonged to a third parry, their claim would have rhe ship underwriters were entitled to the freight damages. The Courr ofAppeal
succeeded. However, on the facts, ar rhe rime of rhe casualty no freight was held that such damages could be salvage only for freight underwriters.
pending. That the increase in the value of rhe assured's goods arrributable to
70 The meaning of freight in marine insurance law is discussed at 1.53-1.54 above.

55 (1816) 5 M & S 79, afFd (1820) 2 Bwd & B 379. 71(1930) 36 Com Cas 1.
66 (1816) 5 M & S 79, 82-3. See also Stewart v Greenock Marine Insurance Co (1848)
n The claimant was in fact the British government, which had assumed 80 per cent of the loss ?
2 HLC 159. y way of reinsurance and was claiming an entitlement of 80 per cent of the compensation for
67 Scottish Marine lmurance v Turner(1855) 4 HLC 312.
Itself and o~ 20 per cent for the primary underwriters, who, however, declined to support the
" The Red Sea [1896] P 20. 69 (1857) 8 El & Bl493. government s claIm.
73 (1930) 36, Com Cas 1,7. " (1884) 13 QBD 706.
696
697
:ase law continues to illustrate the nature of abandonment. However, removal" as referring to the owner at the rime of the removal as opposed to the
22.3P
nee's right to subsequently earned freight is today expressly waived .rime when the vessel became a wreck. Mter the casualty and before the disposal
~2 of the International Hull Clauses (1/11103) in the following operations, the appellant shipowners gave notice of abandonment to the
a total or constructive total loss of the vessel has been admitted underwriters who paid as on a total loss and also gave written notice to the harbour
lerwriters, they shall make no claim for freight whether notice of authorities that they had abandoned the vessel as a wreck. In these circumstances, it
abandonment has been given or not.' was held rhat the owners had successfully divesred themselves of ownership so as
to escape the statutory liability. Lord Herschell observed that they 'had abandoned
The efficacy of such a contractual waiver is confirmed by Coker v Bolton.76 Hull and
the vessel as derelict on the high seas, without any inten-tion of resuming
freight were separarely insured. The freight policy was valued and contai~ed an
possession or ownership. They had also given notice of aban-
underwriters' freight waiver clause. The vessel was rendered a constructlve
toralloss but was towed to its destination where its cargo was discharged and donment to the underwriters' ,80 Lord Watson, however, made no reference to
freighr less than the valuation in the freight policy was paid to the assured. It was the notice of abandonment to the insurers, while stating his agreement with Lord
held that the parties could contract out of the abandonee's right to freight leaving Herschell that the 'abandonment of the sunken ship in the open sea, sine animo
intact the assured's rights against the cargo owners and freight under-writers, the recuperandi, had divested the appellants of all proprietary interest in rhe wreck
latter on the facts being liable for the balance of the agreed value. before the respondents commenced operations with a view to its removal'." Lord
Ashbourne queried, without expressing an opinion, whether avoidance of liabiliry
The Impact ofAbandonment on the Assured's Rights could be achieved by 'a mere assignment'." Lord Macnaghten expressly disregarded
the appellants' dealings with the underwriters and held that by rheir letter to the
As already seen, abandonment as between assured and insurer constitutes an offer to
transfer such rights as the assured may have in whatever may remain of the harbout authorities the appellants 'declared that rhey had abandoned all rights of
subject-matter insured. That offer mayor may not be accepted. Three questions property and given up all interest in rhe vessel', thereby ceasing to be owners within
arise. First, is it possible for the assured to relinquish all rights in the insured the meaning of rhe statute, but left open the question of whether such abandonment
property by a unilateral act of abandonment without the rights being taken up by divested the appellants of ownership for all purposes." Lord Morris agreed that the
another party? Secondly, if that is possible, does it prejudice the assured's rights appellants had aban-doned the vessel although without clarifYing exactly how. The
on the contract of insurance? Thirdly, if the assured's rights are prejudiced, what decision inclines towards the proposition, although not without hesitation, that an
form does that prejudice take? There is no clear answer to/any owner can divest itself of proprietary rights by a unilateral act of abandonment
of these questions. without any reciprocal assumption of the divested rights by a third party."
(aJ Unilateral divesting ofrights

22.46 It appears to be possible for an owner of property unilaterally to divest itself of all Moreover, again for the purpose of liability for rhe expenses of wreck removal, it 22.48
rights in the owned property even in the absence of assumption of those rights by has been held that the assured is divested ofownership rights not only where the insuter
a counterparty." Such property is then res nullius and available to be raken into has accepted the notice of abandonment, rendering abandonment irrevocable,85 but
ownership by any finder. also where it has been rejected before incurral of the removal expenses. 86 The latter is
difficult to reconcile with the status of abandonment in
The issue of unilareral divesring of rights in vessels has arisen in rhe context of the modern Jaw as an offer of rights. Rejection of a notice of abandonment is
liability for wreck removal. In The Crystal," the House of Lords construed
legislation imposing liability on the owner of a wreck for the expenses of
79 Harbours, Docks and Piers Clauses Act 1847, s 56. 80 [1894] 508, 519.
" ibid 52!. " ibid 527. 83 ibid 532.
84 Britannia P&I rules, r 31 (3) provides that: 'In the event of an Entered Ship becoming
" See also Institute Time Clauses Hulls (1110/83 and lilI/95), cl20. an actual or constructive total loss, the Association shall, subject to the hull underwriters'
[191213 KB 315. rights in the matter, be entitled to request the Member concerned to abandon the Ship to the
For discussion, see A Hudson, 'Abandonment' in N Palmer and E McKendrick (cds) Inter- Association or to such other person (including the world at large) as the Association shall
ests in Goods (2nd edn, 1998) Ch 23. / nominate.' Failure to comply exonerates the Association from responsibility for any claim,
78 Arrow Shipping Co Ltd v Ijme Improvement Commissioners (The Crystal) [1894J AC 508. eg for wreck removal, that could have been avoided by the requested abandonment.
8S Barraclough v Brown (1895) 1 Com Cas 262,1 Com Cas 329, [18971 AC 615.
86 Mayor, &c, ofBoston v France Fenwick &Co Ltd (1923) 28 Com Cas 367, 375-6.
698
699
merely rejection of the offet. The modern law does not require a divesting of rights for a total loss but entitled to damages for breach of an implied contractual
by the assured as a necessary incident to indemnification for a totalloss.87 term quantified by reference to the sum that exercise of transferred rights
would have recouped and a set-off of such sum against rhe measure of
Does abandonment deny unilateral divesting? indemnity? The former would appear disproportionate to the assured's conduct.
The doctrine of abandonment reinforces the indemnity principle. Clearly, the assured
is not permitted to transfer rights in the remaining insured property to a third (6) Form of Notice ofAbandonment
party for value withour first offering them to the insurer. Otherwise, as
There is no prescribed form for a notice of abandonment, but its terms must 22.52
between assured and insurer, the assured would receive both indemnification 'indicate the intention of the assured to abandon his insured interest in the
for a total loss and the third party receipt and be unjustly enriched by double subject-matter insured unconditionally to the insurer'."
recovery to the extent of the latter. Where, however, an assured divests itself
of all rights in the insured property by unilateral abandonment (assuming this (7) Time for Giving a Notice ofAbandonment
is possible), any danger of double recovery is eliminated. The question arising,
therefore, is whether the insurance law doctrine of abandonment is designed to The time for giving a notice of abandonment is the subject of a line of authority 22.53
serve a further purpose, namely to afford insurets a possibility of recouping codified by section 62(3) of the Marine Insurance Act 1906 as follows: 'Notice
some of the indemnity for which they are liable to the assured. It is clear that it of abandonment must be given with reasonable diligence after the receipt of
can so serve, but the question is whether, subject to contrary intention, insur~ reliable information of the loss, but where the information is of a doubtful
ance contracts are to be understood as conferring such recoupment rights on charactet the assured is entitled to a reasonable time to make enquity.'
the insurer, denying the assured the right ro defeat the insurer's recoupment
The concept of a reasonable time, ultimately a question of fact," was discussed 22.54
opportunities by unilateral divesting of rights.
by Lord Chelmsford in Currie (MR) 1& Co v Bombay Native Insurance Co:'o
The Marine Insurance Act 1906 is equivocal. Section 61 provides that an assured that
What is a reasonable time ... must depend upon the particular circumstances of
wishes to treat a constructive total loss as a total loss must'abandon the subject- each case. On the one hand, the assured is not to delay his notice when a total loss
matter insured to the insurer'. Similarly, section 62(1) links the notice of occurs, in order to keep his chance of doing better for himself by keeping the
abandonment procedure with an election 'to abandon the subject-matter insured to subject insured, and then, when he finds it will be more to his advantage to do so,
the insurer'. It is unclear, however, whether the contemplated rights in the subject- throwing the burden upon the underwriters; while, on the other, the underwriters
matter that are to be offered to the insurer are those existing at the rime of the cannot complain of a suspense of judgment fairly exercised on the part of the
assured, to enable him to determine whether the circumstances are such as to
casualty, at the time of the claim for a total loss, or even at the time of the transfer
entitle him to abandon.
of rights (namely payment by the insurer).
In effect, once the assured knows of the casualty," notice of abandonment must 22.55
Consequences ofimproper divesting be given to the underwrirers promptly unless time is required to clarifY the state
Assuming that marine insurance contract law does require the assured to offer the insurer of the insured property in order to determine whether the casualty has rendered
such rights as existed in the insured property as at the date of casualty, the further it a constructive total loss and/or whether to exercise the right of election in
question arises of the consequences of failure to do so. Is the assured thereby favour of abandonment to the underwriters." It is to be emphasized that the
barred from a total loss claim or does the insurer remain liable assured's sole concern in so deferring communication of a decision to abandon
must be the physical condition of the relevant property. In particular, the
assured is not permitted to delay in order to judge the state of the markets and
87 Oceanic Steam Navigation Co Ltd v Evans (1934) 40 Com Cas 108, 11 1. The res nullius
analysis was also doubted in Blane Steamships Ltd v Minister a/Transport [1951] 2 KB 965. 990-1
as incompatible with the assured's option to treat a constructive total loss as a total or partial loss 8S MiA 1906, s 62(2). See Russian Bank ofForeign Trade v excess Insurance Co Ltd (1919) 24
and with the doctrine of ademption. The former objection depends on precisely what rights the Com Cas 55, 56; Norwich Union Fire Insurance Society Ltd v Price (WH) Ltd [1934] AC 455;
doctrine of abandonment requires the as~ured to offer to the insurer, see 22.49-22.50 below. Panamanian Oriental SS Corp v Wright [1970] 2 Lloyd's Rep 365, 379; Black King Shipping
With respect to ademption, this reverses the total loss and negates the basis of the abandonment. Corp v Massie (The Litsion Pride) [1985] I Lloyd's Rep 437, 478.
Similarly, becoming res nullius need not be a final, in'evocable change of stare. The " MIA 1906, s88. 90 (1869) LR3 pcn, 79. 91 Abel v Potts (1800) 3 Esp 242. " Read v Bonham
property may be claimed by a third party and restored to the assured. (1821) 3 Brod & B 147.
700 701
93
whether abandonment to the underwriters is to its financial advantage. Indeed, abandonment is a nullity by reason ofbeing based on a fundamental mistal<e, the
the requirement for a notice of abandonment is derived 'from a consensually nullity extends to an acceptance thereof and the insurer is entitled to restitution of
recognised need in the international and uncertain context ofa marine adventure any indemnity paid.'o,
to protect underwriters from an insured's attempt to play the market'. 94
Acceptance of the notice of abandonment by the insurer may be express or 22.59 implied
Once the assured has the necessary information, an election to abandon the insured from conduct consistent only with having accepted the abandon-ment.'04 Naturally,
property to the underwriters must be communicated by notice of aban-donment at conduct will give rise to such an implication if compatible
the first opportunity.95 In Anderson v Royal Exchange Assurance CO,96 an only with an assumption of ownership in the insured property.'os Two Privy
insured cargo of corn was damaged by immersion in water following the srranding Council decisions may be contrasted. In Provincial Insurance Co of Canada v
of the carrying vessel on 28 January. The assured commenced salvage operations Leduc,106 the insurers' agent took possession pursuant to instructions in May to
on 31 Januaty, the greater part of the corn being recovered and kiln-dried. Notice look after any interest the insurers might have in an abandoned vessel. The agent
of abandonment given on 18 February was held too late, the court stating that an disposed of cargo, floated and repaired the vessel, and retained possession until
assured cannot endeavour to mal,e the best of the casualty for its own benefit and sale in salvage proceedings in September. This conduct over such a period
then abandon. In Hunt v Royal Exchange Assurance;' a delay of five days was combined with a failure either to repudiate the notice of abandonment or to state to
held unreasonable." The improved communication systems of the modern world the assured that such acts were not effected qua owner of the insured property
can only shorten what is regarded as a reasonable time. constituted evidence of acceptance. In Cates (Captain fA) Tug &
Given that the assured is not prejudiced by an invalid notice of abandonment and the Wharfitge Co Ltd v Franklin Insurance Co, '0' tentative negotiations with
difficulty that may attend determining precisely when the insured prop-erty is salvors were held not ro imply the power to make title should a contract be
concluded, even a concluded agreement being only execurory and not of itself an
rendered a constructive total loss, the imperative of serving a timely notice may
act of ownership.
prompt a succession of notices. 99
Mere silence of the insurer after receipt of a notice of abandonment does not 22.60 connote
Acceptance and Refusal of a Notice ofAbandonment acceptance.'OB Moreover, the modern Institute and International hulls
clauses provide that: '09 'Measures taken by the Assured or the Underwriters with
Service of a proper notice of abandonment is generally'OO a condition precedent ro the
the object of saving, protecting or recovering the subject-matter insured shall
assured's right to indemnification as for a rotalloss in the event of a cons-
not be considered as a waiver or acceptance of abandonment or otherwise
tructive total loss. However, at least in the hull market, a notice of abandon~ent
prejudice the rights of either party.' It has, nevertheless, been observed that, while
is almost invariably refused for fear of liabilities that may attach ro the insured
such measures may not constitute an actual acceptance of abandonment, this
property. Refusal of the notice does not prejudice the assured's rights.'o, The
provision does nor of itself prevent such measures from constituting evidence of an
significance of acceptance is that the insurer thereby'conclusively admits liabil-ity
election by the insurer to accept."o
for the loss and the sufficiency of the notice' .'02 However, where a notice of
Abel v Potts (1800) 3 Esp 242; Gernon v Royal Exchange Assurance (I815) 6 Taunt
383. Service of a notice of abandonment, however, merely communicates the assured's 103 Norwich Union Fire Insurance Society Ltd v Price (WH) Ltd[1934] AC 455.
decision to abandon the insured property to the underwriters. The abandonment may be '" MIA 1906, s 62(5).
withdrawn by the assured unless the notice is accepted by the underwriters. 105 Shepherd v Henderson (I 874) 7 App Cas 49, 64; Robertson v Royal Exchange Assurance Corp
Kastor Navigation Co Ltd v Axa Global Risks (UK) Ltd (The Kastor Too) [20041 EWCA Civ (1924) 17 LlLRep 17 (Court ofSession).
277, [200412 Lloyd's Rep 119, para 62 per Rix LJ. '06 (1874) LR 6 PC 224. '07 [1927J AC 698.
95 Mitchell v Edie(1787) 1 TR 608. " (1805) 7 EaSt 38. 108 MIA 1906, s 62(5); Provincial Insurance Co o[Canada v Leduc (1874) LR 6 PC 224. This
97 (1816) 5 M & S 47. overrules the holding in Hudson v Harrison (1821) 3 Brod & B97 that just as the assured
" A fortiori the longer delays in Barker v Blakes (1808) 9 EaSt 283: Aldridge v Bell (1816) must give notice of abandonment within a reasonable time, so reciprocity of obligation
1 Stark 498; Fleming v Smith (i848) 1 HLC 513. restricts the insurer to rejecting within a reasonable time.
99 For an example of multiple notices of abandonment, see Panamanian Oriental S5 Corp to, Institute Time Clauses Hulls (1110183) cl 13.3: (1111195), cl 11.3; International Hull
v Wright (The Anita) [1970J 2 Lloyd's Rep 365. Clauses (01/11103), d 9.3. The reference to the assured relates to the sue and labour doctrine,
100 Subject to MIA 1906, s 62(7), (8), see 22.35 above. discussed at 24.02ffbelow.
'" ibid s 62(4). '02 ibid s 62(6). ,to Stringer v English & Scottish Marine Insurance Co Ltd(1869) LR 4 QB 676, 686.
702 703
Claims and Claims Handling Limitation
Changing an Election (I) Property Insurance
An election in favour of treatment as a total loss may be revoked until acceptance of notice A contract of property insurance being a contract of indemnity, honouring 22.64 the
of abandonment by the insurer,'" even after the assured has compromise of indemnification might, at first sight, be viewed as the insurer's primary
menced proceedings.'" Conversely, an election to treat the loss as partial is obligation, constituting performance of the contract as opposed to a remedial measure
irrevocable. The measure of indemnity will accordingly be reduced unless the for breach. 'A right to indemnity as such is given by the original bargain between the
insured ptoperty subsequently degenerates into or is overtaken by an actual parties. The right to damages is given in con-sequence of the bteach of the original
total loss.'" In either case, the election may be express or implied ftom conduct contract between the parties.'''' On this approach, the insurer should not be in breach of
consistent only with the assured dealing with the property beneficially for this primary obligation pend-
itsel£'14 ing communication of the assured's claim and lapse of a reasonable time for the
insurer to investigate and verifY the claim. Failure of the insurer to pay would
amount to a breach of conttact only upon the expiry of such a period of time. At
Limitation that point and no earlier, the iL'sured would have the right to enforce a
secondary obligation sounding in damages for breach of contract and the six-
The assured's claim against the insurer is classified in law as an action fot damages for year limitation period would commence. Indeed, in Pickersgill & Sons Ltd v
breach of contract.'15 By virtue of section 5 of the Limitation Act 1980: 'An London & Provincial Marine & General Insurance Co,''' Hamilton J
action founded on a simple contract shall not be brought after the expiration of observed that 'a polis:y of insurance is only a promise of indemnity giving a right
six years from the date on which the cause of action accrued.' The cause of of action for unliquidated damages in case of non-payment'. The weight of
action in contract accrues on the date of breach of the primary obliga-tion,''' authority, however, favours a different analysis.
regardless of whether the innocent party knows of the breach'17 The question Although it is ultimately a matter of the true construction of the contract,"O an 22.65
arising, therefore, is when the assured)s cause of action on an insurance
indemnitor has been held to promise to keep the indemnitee free from the specified
contraer accrues. A distinction needs to be drawn between properry and liability
loss or expense. On the occurrence of such Joss or expense, therefore,
insurance, and the impact of express contractual provision on the accrual of a
the indemniror is in breach of its primary obligation.'" The ensuing claim upon
cause of action requires consideration.
the contract of indemnity is consequently for damages pursuant ro the second-
It may be noted that nO limitation issue will arise in connection with a \,on-srmctive ary obligation to compensate for breaching a primary obligation. Applying this
total loss whete the assured validly elects to claim for a total loss by serving a analysis, the cause of action under marine property insurance accrues on the
notice of abandonment, since the notice will inevitably be served very eatly occurrence of the casualty giving rise to the claim. In Chandris v Argo Insurance
during the limitation period and insurers will then commonly agree to treat the Co Ltd,''' the assured claimed against the insurer in respect of general and
assured as if a claim form has been served. particuJar average losses more than six years after rhe losses had occurred but less
than six years afrer completion of the average adjustments. Since authority in the
context of set-offviews the assured's claim as unliquidared,123 with the result that
the quantification ofloss is a matter to be established at trial, Megaw J held that
ascertainment ofliability by adjustment could not be a condition precedent to
accrual of the cause of action. Moreover, citing the dictum of Hamilton J
'" MIA 1906, s 62(6).
Royal Boskalis Westminster NV v Mountain [1997J LRLR 523,555-8.
Roux v Salvador (1836) 3 Bing (NC) 266, 287. Or, conceivably, is subject to another
constructive total loss. 118 Binningham 6- District Land Co v London 6- North-western &ilway Co (1886) 34 ChD
"4 Fleming v Smith (1848) 1 HLC 513; Benson v Chapman (1849) 2 HLC 696; Stringer v
261.274--5 per Bowen LJ.
English 6- Scottish Marine/nsurance Co Ltd (1869) LR 4 QB 676, 688; &nkm v Potter (1872) LR
'" [1912J 3 KB 614, 622.
6 HL 83. 119.
115 Albeit that the term 'cia'mages' may be used in an unusual sense: Jabbour (F 6' K) v 120 Ftrma C-Trade SA v Newcastle Protection 6- Indemnity Association (The Fanti) [1989]
1 Lloyd's Rep 239. 255.
Custodian ofIsraeli Absentee Property [1954J 1 WLR 139, 143-4. 121 Re Richardson, ex p Governors ofSt Thomas's Hospital [1911] 2 KB 705; Firma C-Trade SA
'16 Battley v Faulkner (1820) 3 B & Ald 288; East India Co v Oditehu~ Paul (1849) 7 Moo v Newcastle Protection 6- Indemnity Association (The Fanti) [1991] 2 AC 1,35-36.
85. Ill. .
122 [1963J 2 Lloyd's Rep 65. 123 See 6.27 above.
117 ShortvMcCarthy (1820) 3 B & Ald 626; Brown v Howard (1820) 2 Brad & B 73.
704 705
Claims and Claims Handling Limitation
in Pickersgill but without addressing the distinction between indemnity and liability have been established and ascertained by judgment, arbitral award, or
damages, he held also that a demand for payment was not a condition precedent to binding settlement."8
accrual of the cause of action.
(3) Contract Terms and Accrual of the Cause of Action
This approach to limitation was subsequently approved by the Privy Council in The Potoi
Chau'24 and followed in The Kyriaki,125 where the assured argued The rule under both property and liability policies that occurrence of an insured 22.69 loss
unsuccessfully that in a case of a constructive total loss the commencement of the triggers the limitation period requires identification of what qualifies as a
limitation period was postponed until the giving of notice of abandonment. loss under the policy. Ultimately, this depends on the policy wording.
In The Italia Express (No 2),126 the assured argued that subjecting the insurer ro an The limitation period is not postponed by the need to fulfil procedural or 22.70 evidential
obligation to hold the subject-matter insured free from harm from the covered conditions precedent to the insurer's liability on the policy. In cases of constructive total
perils was absurd. On the facts, the insurer was thereby deemed to promise that the loss, time starts to run as soon as the casualty occurs; com-mencement of the limitation
ship would not sink, a promise that it was beyond its power period is not postponed until service of a notice of abandonment, '29 Moreovet, in
ro keep. Instead, the insurer should be regarded as promising ro indemnilY the Callaghan v Dominion Insurance Co Ltd, '30 a
assured upon receipt of a claim. For Hirst J, however, the assured's suggestion series of contractual provisions were held not to define the insured loss under a fire
produced an equal absurdity since no insurer would pay a claim in full and without policy. First, an option to pay the value of the destroyed property or the damage or
investigation, and, in practice therefore, would invariably break the obligation to reinstate Ot replace merely created an alternative means of satislY-ing the
suggested by the assured. This problem would be avoided were the insurer viewed insurer's liability.'31 Secondly, clauses postponing liability to pay until
as under an obligation to pay, not forthwith, but within a reason-able time, taking ascertainment of the cost of reinstatement and providing for arbitration in the event
into account the time required for any prudent enquiries. Such an approach would, of a dispute as to the quantification ofliability went only to quantification of
however, inevitably introduce a regrettable element of uncertainty in ascettaining liability. Thirdly, the requitement of cover for an alternative head of loss served
precisely when the assured's cause of action accrued only to provide the insurer with a defence in its absence. Fourthly, conditions
and the limitation period commenced. The overwhelming merit of regarding the precedent to 'the rigbt of the insured to recover', including notifica-tion obligations
cause of action, in property insurance, as accruing on the date of the casualty is the and obligations to provide information, qualified the assured's secondaty right to
avoidance of such uncertainty. claim rather than defining the circumstances in which the primary right to
indemnification arose.
Liability Insurance
In contrast, liability insurance may, on its true interpretation, provide an 22.71 indemnity
In the context of liability insurance, thete is no cause of action at common law until the not against the liabilities flowing from a casualty, but against the incurring of such a
assured has actually paid the third party, because the action is for indemnification liability. Under such a policy, the assured is damnified and
of loss and only upon such payment is a loss unequivocally sustained.'" In equity, the limitation period commences as soon as the casualty occurs.'" Again, in Virk v
howevet, the assured is not compelled to incur the expense before recovering on Can Life Holdings pIc,'" the critical illness section of a life policy, first,
the indemnity designed to avoid it, with the result
that the cause of action is recognized as accruing once the fact and extent of the
128 Re Richardson, ex p Governors o[St Thomas's Hospital [1911] 2 KB 705; County &
District Properties Ltd vJenner (C) & Son Ltd (1976] 2 Lloyd's Rep 729; Telfti,shipping Corp v
Inersea Carriers SA (19851 1 WLR 553.
124 Castle Insurance Co Ltd v Hong Kong lsidnds Shipping Co Ltd (The Potoi Chau) (19831 129 Bank afAmerica National Trust & Savings Association v Chrismas (The Kyriaki) [1993]
2 Lloyd', Rep 376, 381. 1 Lloyd's Rep 137. The contrary obiter suggestion in Insurance Corp afthe Channel Islands Ltd v
125 Bank ofAmerica National Trust & Savings Association vChrismas (The Kyriaki) [1993] McHugh [1997J LRLR 94, 134 is, with respect, incorrect.
1 Lloyd', Rep 137. See also Callaghan v Dominion Insurance Co Ltd (199712 Lloyd's Rep 541; no (19971 2 Lloyd's Rep 541.
Virk v Gan Lift Holdings pic (2000) Lloyd's Rep lR 159, para 10. Possible doubts expressed in cf the inconsistent decision in Transthene Packaging Co Ltd v Royal Insurance (UK) Ltd
Transthene Packaging Co Ltd v Royallnsuratlce (UK) Ltd [1996) LRLR 32, 41 cannot stand against (1996) LRLR 32, which appears wrongly decided.
the dear authority. Bosma v Larsen [1966J 1 Lloyd's Rep 22, discussed in Telfair Shipping Corp v Inersea
Ventouris v Mountain (The ltalia Express) (No 2) [1992] 2 Lloyd's Rep'2SI.
126 Carrim SA (19851 1 W1.R 553,563-6.
m Collinge v Heywood(1839) 9 A & E 633. B3 (20001 Lloyd's Rep lR 159.
706 707
Claims and Claims Handling Insurers'Rights in Connection with Claims
defined the term 'Critical Illness' and, secondly, provided that the insurers would interview(s) of any employee, ex-employee or agent of the Assured
interview(s) of any third party whom the Leading Underwriter(s)
pay a sum of money to the assured 'thirty days after the confirmed diagnosis of consider may have knowledge of matters relevant to the claim
Critical Illness provided that the Life Assured is then alive'. The Court of Appeal 45.2.3 survey(s) of the subject-matter insured.
held that the insured event was not merely the incurring of critical illness as inspection(s) of the classification records of the vessel.
defined but thirty days' survival. In other words, the policy distinguished between
morral critical illness, which fell under a separate section of the life policy, and Appoinrment of Surveyor and Average Adjuster
critical illness that the assured survived. Consequently, the survival provision
Under clause 46.\ of the Internatioual Hull Clauses (0\/\\/03), upon the 22.74 notification of
clearly defined the insured event and the limitation period commenced upon expiry
any loss, damage, liability, or expense arising from an accident or occurrence rhat may
of the survival period. tesult in a claim, leading underwriter(s) have rhe right, although no obligation, '36 to instruct
Whether a particular provision defines the insured loss or merely constirutes a procedural a surveyor and confirm the appointment
or evidential precondition to liability may not always be easy to determine. The of an independent average adjuster. The function of the surveyor is to 'reporr to the
rule books of murual insurance associations contain a 'pay first' provision, under Leading Underwrirer(s) concerning she cause and extent of damage, the necessary
which ir is a condition precedent of recovery by the member against the repairs and the fair and reasonable cost thereof and any other marrer which the
association that rhe member shall first have discharged the insured liabiliry.'" Leading U nderwrirer(s) or the surveyor consider reasonable'. The
Commercially, this provision defines rhe narure of the cover provided by the average adjuster, in contrast, is to assist the assured in preparing the claim.
mutual insurance associarions. The associations do not provide liabiliry Neirher appointment constitures an admission of liability for the claim or a waiver
cover in the normal way; instead they indemnify payments made pursuant to of any rights or defences. 137
liabilities incurred. The law is likely to reflect this commercial understanding by
characterizing discharge of liability as required by the pay first clause as the (3) Approval Provisions
insured event, rathet than as merely a procedural step in the process of making a Where rhe insurer reserves a right of approval in the policy, there arises a 22.75 correlative
claim. 135 obligation to give proper considerarion to a request for approval and
138
to respond within a reasonable rime. Under the Institure and International hull
clauses, insurers have the right to decide the porr of repair.'39 Should they fail, on
Insurers' Rights in Connection with Claims
request by the assured, to respond wirhin a reasonable time, the assured would be
(\) Claims Co-operation Clauses free to acr as a reasonable uninsured person and selecr an appropriare repair porro
Insurers would then be disqualified from subsequently declining indemnification
In order to enable an insurer berrer to evaluare a claim, commercial insurance contracts on the basis rhat the porr was not approved.'40
commonly contain clauses requiring the assured to co-operate with the insurer in
various ways, in parricular by providing the insurer wirh informa-tion or the (4) Mutual Insurance
means of obtaining information. Clause 45 of the International Hull Clauses
The rules of mutual insurance associations rourinely provide that the club man- 22.76 agers
(0\/ll/03) provides as follows:
have the right to control or direct rhe conduct of any claim or proceeding relevant to any
The Assured shall, upon request and at their own expense, provide the potential liability of the club and to require the member to settle, compromise, or otherwise
Leading Underwrirer(s) with all relevant information that rhey might
reasonably require to consider any claim.
dispose of the claim as and upon such terms as the managers think fir. The managers have
Upon reasonable request, rhe Assured shall also assisr the Leading Undet- the power to appoint and discontinue
writer(s) or their authorized agents in the investigation of any claim, the appointment of any legal or orher experts rhey think fit. The party to the
including, but not limited to
136 Notwithstanding that d 46 is headed 'Duties of the Underwriters in Relation to Claims'.

134 See 16.03 above. 137International Hull Clauses (DIll 1/03), cl46.3.
135 Firma C~7Yade SA v Newcastle Protection & Indemnity Association (The Fanu); Socany Mobil Oil '" Sprung v Royallnsurance (UK) Ltd[I9991 L1oyd's Rep IR III, Ill.
Co Inc v U7est ofEngln.nd Ship Owners Mutuallnsurance Association Ltd (The Padre Island 139 See 23.17 below.
(No 2)) [1989) 1 Lloyd's Rep 239, 255-6. . >4' Sprung v Royallnsurance (UK) Ltd [19991 Lloyd's Rep IR III, 118.
708 709
Claims and Claims Handling Fraudulent Claims
claim, however, remains the assured and parties appointed by rhe managers act for he believed must have happened' .146 A reckless disregard for the truth was,
the assured. 14' Consequently, COsfs incurred are for the account of the assured, however, established: '47
and the club has no obligation ro indemnifY the assured unless and ro the extent Anxious to persuade Underwriters and their representatives that the container had
that the policy so provides. However, the club is under an obligation, sounding in been packed properly, he made the statements in question, careless ofwhether they
damages for breach, ro conducr the claim with due regard ro the were true or false, without bothering to consider whether or not they were accurare. It
142 may well be rhe case rhat Mr Graham had convinced himself that the container
interests of the assured.
must have been properly packed and that what he said resulted from this conviction,
but this only goes towards rebutting an allegation of deliberate deceit. It does not
excuse or rebut the fact that Mr Graham simply gave no thought to the
Fraudulent Claims trurh or falsity of whar he was saying.
A fraudulent claim made by the assured is regarded by the law, as one might expect, with (2) Fraud of the Assured
particular severity. Stringent sanctions require the scope of the fraudulenr claims
jurisdiction to be traced with care. The fraud must be that of the assured. For these purposes, the assured is those 22.80
people with decision-making responsibiliryo with respect to the making and
The Concept Of Fraud handling of a claim such that their fraud can legitimately be attributed to
the assured.'48 People who constitute the assured with respect to operational
In the context of the fraudulent claims jurisdiction, the concept of fraud mirrors that matters may well not constitute the assured for the purposes of rhe fraudulent
adopted in the rorr of deceit. In Derry v Peek,''' the House of Lords held that claims jurisdicrion. 149
liability in the tort of deceit required a statement made in the know-ledge that it
was false, or without belief in its truth, or recklessly, careless as ro whether the (3) Types of Fraudulent Conduct in the Making of a Claim
statement was true or false. The hallmark of deceit is dishonesty, so that a person
who honestly believes the statement ro be true but lacks reasonable grounds for A claim is fraudulent when made or maintained with conducr that is frauduJent 22.81
that belief is not deceitful. Most of the case law on fraudulent claims involves in the sense described in the previous section. Three typical examples of such
starements the assured knows are false. However, authority establishes conduct are recognized in the case law.
that fraud in the claims context extends to recklessness.'44 It is fraud to bting a claim where the assured knows that the insurer is not liable 22.82
In Bucks Printing Press Ltd v Prudential Assurance CO,145 reconditioned printing for the loss and deliberately or recklessly either misrepresents circumstances
machinery packed in a container was damaged beyond repair in transit. The relating to the casualty or suppresses information that in either case would reveal the
question was whether the cause of the damage was improper packaging or an insurer's lack of liability. It is, moreover, irrelevant whether rhe lack of liability
accident in transit. A certain Mr Graham, a ditector of the sellers, stated ro results from the scope of cover or a defence such as breach of warranty or breach of
1So
insurers that he had been the foreman in charge of rhe packing and gave what a duty arising out of the doctrine of utmost good faith. The classic example of
purported to be a first-hand accounr of how the goods had been packed in the such a fraud would be a claim for the Joss of a vessel that has in truth been scutded.
container. In fact, he had not been the foreman and the process he described was While scutding one's own vessel is not fraudulent, since desrruction of property is
materially inaccurate. Saville J considered that Graham had not deliberately one of the privileges of ownership, it is fraud sub-sequently to bring a claim on the
vessel's hull poJicy deliberately or recklessly misrepresenting or concealing the
sought to deceive the insurers but rhat he 'was one of those people who give nO
1S
real thought ro what they are saying and who consequently ... failed to distinguish nature of the sinking. '
between first-hand recollection of what really happened and what
146 ibid 223, 147 ibid.

14' Groom v Crocker[1939J 1 KB 194.
14$ Manifest Shipping & Co Ltd v Uni-Polaris Imurance Co Ltd (The Star Sea) [1997] 1 Lloyd's
Cox v Bankside MembersAgency Ltd[199512 Lloyd's Rep 437, 462-3.
Rep 360, 366. cf 4.112-4.115 above.
(1889) 14 App Cas 337.
14' Lek v Mathews (1927) 29 L1LRep 141, 145, 167; Agapitos v Agnew (The Aegeorl) [2002J '" [1997J 1 Lloyd's Rep 360, 366.
150 Agapitos v Agnew (The Aegeon) [2002J EWCA Civ 247, [2003] QB 556, para 18.
EWCA Civ 247, [2003J QB 556, para
151 National Oilwell (UK) Ltd v Davy Offihore Ltd[1993J 2 Lloyd's Rep 582, 622.
30. 145 (1994) 3 Re LR 219.
710 711
Claims and Claims Handling
Fraudulent Claims
There is, however, no general duty ofdisclosure requiring the assured to alert the insurer to
as good a position to form a view of the validity of the claim as the insured, it will
the possibility of a defence or to the existence of a known defence.
be a legitimate reason that the assured was merely putting forward a starting figure
Suppose an assured under a policy incorporating the International Hull Clauses
for negotiation'. The caveats are important. A conclusion of fraud is avoided not
(01111103) notifies the insurer of a claim more than 180 days after learning of
merely by an absence of subjective intention on the part of the assured to obtain
the loss, thereby failing to comply with the condition precedent to liability found in
money to which it is not entitled, but by the status of the figure advanced as a
clause 43.2. Even if the assured knows that it is in breach of the condition
matter of objective interpretation as an initial bargaining position rather than a
precedent, it is suggested that the assured is not fraudulent if it fails to
representation as to the value of the insured loss. Where an assured inserted the
draw this fact to the insurer's attention. There is no misrepresentation and no
catalogue price of new replacements in a claim for loss of used goods, the resulting
deliberate suppression.
figure was 'preposterous' but not fraudulent. The prices fot the individual items
A second type of fraudulent conduct arises where the assured has suffered a genuine were clearly from producers' catalogues and represented an inirial bargaining
loss within the terms of the policy but then claims an indemnity greater than is figure. 157 If, however, a claim were put forward with an inflated figure where the
payable in respect of the genuine loss. This may be done, for example, by status of the figure as merely an initial bargain-ing position was not apparent, so
exaggerating the value of lost or damaged ptoperty or alleging that certain that the figure apparently constituted a repre-sentation by the assured as to the value
ptoperty has been lost or damaged when in truth it has not. of the insured loss, it is difficult to see on what basis the claim might not be
regarded as fraudulent. An obvious question is how the assured would respond if
It is not, however, any level of false inflating of the value of the claim that will render it
the insurer happened to offer to settle for a sum in excess of the true loss. Unless the
fraudulent. In Lek v Mathews,'52 Viscount Sumner stated that a claim was
assured could credibly explain how it would decline such an offer, it is hard to
fraudulent ifthe assured claimed falsely for 'anything not so unsubstantial as to
avoid a conclusion rhat the inflated claim is fraudulent. There are, moreover, limits
make the maxim de minimis applicable'. This idea is sometimes translated into the
to the level of exaggeration that can plausibly be alleged to be an initial bargaining
proposition that only 'substantial fraud' will suffice for the fraudulent
position. An excessive level of exaggeration may be regarded as evidence of
claims jurisdiction to apply.'" That, however, is to inflate the very limited toler-
ance granted under the de minimis maxim and runs counter to the repugnance fraudulent intent. '58
with which the law has always regarded fraud and the deterrent funcrion of the A third type of fraud arises where the assured makes a legitimate claim 159 but 22.87
15
fraudulent claims rule. ' The de minimis threshold is not determined as a per- then seeks to support that claim with a fraudulent communication with a view
centage of the overall claim, as a proportionate licence to be fraudulent would to obtaining payment more quickly or settling the claim on more favourable
be absurd. Instead, the fraudulent excess should be considered in isolation. 155 terms. This is known as a 'fraudulent device'.
A further issue arises from the tendency of assureds to inflate an initi,;r claim in order to Despite dicta recognizing a fraudulent device as rendering a claim fraudulent,'60 22.88
provide a margin for negoriation. Such inflation is not necessarily frauduJent. In '61
the issue appears not to have arisen for decision until The Litsion Pride in
Orakpo v Barclays Insurance Services,156 Hoffmann L] considered that 'provided
1985. In this case, the assuted decided to trade the insured vessel in an add-itional
nothing is misrepresented or concealed, and the loss adjuster is in premium area without notifYing insurers, as the policy required, in order to avoid
paying an additional premium. When the vessel was rendered a con-structive tOtal
loss inside the additional premium area, the assured posted a fraudulently backdated
152 (1927) 29 LlLRep 141, 145. The statement is aimed at the corrcct interpretation ofa
letter of notification to the insurers. As a matter of
clause in the policy, but applies equally to the common law.
153 See the argument advanced on behalf of the assured in Galloway v Guardian Royal
Exchange (UK) Ltd[1999J Lloyd's Rep IR209, invoking references to substantial fraud in
Orakpo v Barclays Insurance Services [1995] LRLR 443, although the relevant passages
157 Ewer v National Employers' Mutua/Insurance Association [1937] 2 All ER 193, 203. See
merely reflect the extent of the fraud on the facts of that case ramer than prescribing a
threshold to be achieved before the fraudulent claims jurisdiction can apply. also Orakpo v Barclays Insurance Services [1995] LRLR 443,450.
'" See Galloway v Guardian Royal Exchange (UK) Ltd [19991 Lloyd's Rep IR 209, 214, ,sa Central Bank ofIndia Ltd v Guardian Assurance Co Ltd (I 936) 54 LlLRep 247.
159 ~amely: for these purposes, a claim for which the insurer is liable under the policy or a claim
dishonest insurance claims have-·become all too common, and the fraudulent claims rule is 'a
necessary and salutary rule which deserves to be better known by the public' and should not for which the Insurer is not in fact liable, or not liable in full, but that is not made fraudulently.
be diluted, per Millett LJ. '60 Lek v Mathews (1927) 29 LlLRep 141, 164; Wisenthal v World Auxiliary Imurance Corp Ltd
155 ibid. (1930) 38 LlLRep 54, 62; Dome Mining Corp Ltd v Drysdale (1931) 41 LlLRep 109, 122;
os, [1995J LRLR443, 451. See also Norton o RoyalFire 6- LifiAssurance Co (1886) I TLR460. Piermay Shtppmg Co SA 0 Chester (The Michael) [19791 2 Lloyd's Rep 1,21-2.
161 Black King Shipping Corp 0 Massie (The Dtsion Pride) [19851 1 Lloyd's Rep 437, 513.
712
713
interpretation, Hirst] held that compliance with the notification requirement The issue is, however, confined to fraudulent devices because no qualification i.s
was not a condition precedent to the continuation of cover. Consequently, needed or acknowledged wirh respect to fraudulent claims stricto sensu, or
the vessel remained insured when inside the additional premium area and rhe alternatively is builr into the concept of such a fraudulent claim.'68 The fraudulent
assured had a good claim. However, the assured had forfeited the benefit of the element in any attempt to obtain money from an insurer that is not due under the
policy through rhe fraudulent letter. policy will, ex hypothesi, sarisfY any objective rest of marerialiry to the claim,
however phrased. In rhe context, however, of a genuine claim under the policy, one
Subsequently, rhis extension of rhe fraudulent claims jurisdiction attracted dif-fering
can contemplate 'an obviously irrelevant lie-one which, what-ever the insured may
responses in the House of Lords in The Star Sea.'62 Lord Hobhouse described the have thought, could nor sensibly have had any significant
decision as 'questionable' while Lord SCOtt considered it uncontroversial.'63 It impact on any insurer or judge'.169
was accepted as good law by the Court of Appeal in The Mercandian
Continent.'64 In The Aegeon,'65 Mance L] conducted an extensive, albeit obiter, With respect to the objective limitation to apply, in The Aegeon,170 Mance L] 22.92
review of rhe aurhoriries leading ro the 'tentative' conclusion that a fraudulent device advanced the tentative suggestion that 'the courts should only apply the fraudu-
should be regarded as a sub-species of fraudulenr claim, clearly lent claim rule to the use of fraudulent devices or means which would, if
reflecring the balance of judicial opinion, while advocating or at least leaving open believed, have tended, objectively but prior to any final determination at trial of
the possibiliry of differences between fraudulenr claims stricto sensu and the parties' rights, to yield a not insignificant improvement in the insured's
fraudulenr devices with respecr to materialiry and remedies.'66 The inclusion of prospects-whether they be prospects of obtaining a settlement, or a better
fraudulent devices wirhin rhe fraudulent claims jurisdicrion has since been fol- settlement, or of winning at trial'. While the language of judgments should not
lowed at first instance.167 be dissected in the manner of starutes, taken at its wording, this formulation
operates on an objective basis and sets a standard of a tendency to yield a not
Relevance to the Claim insignificant improvement in the insured's prospects of a favourable receprion
for the claim. A contrasr may be drawn with the concept of materialiry in the
In the context of the pre-formation docrrine of urmost good faith, fraudulent non-
context of the pre-formation doctrine of utmost good faith, which requires
disclosure or misrepresentation gives rise to a right to avoid the contract
merely that the relevant circumstance would have been taken into account by
only if ir induces the actual underwriter into the contract, although a fraudulent
the prudent insurer in deciding how to respond to the proposed risk. There is
assured cannot defeat an underwriter's claim to avoid on the gtound of lack of
no requirement rhat the prudent insurer would consider, for example, an
objective materiality. The question arises of whether the fraudulent claims
undisclosed circumstance as probably tending to increase the risk.
jurisdiction acknowledges any limitations in the form of or akin to objective
materialiry or subjecrive inducement. It is unclear whether the formulation of Mance L] will come to be accepted 22.93
It is clear that nor all fraudulent conduct on the part of the assured surrounding as articularing the requisite connection between the device and the claim. The
law on this point is currently regarded as insufficiently settled to permit the
or in connection with the making of a claim will rrigger the fraudulent claims
jurisdiction, and the line between fraud that does and fraud that does not trigger awarding of summary judgment. 171
that jurisdicrion is drawn by an objective test of materialiry to the claim.
Roya! Boskalis Westminster BV v Mountain [1997] LRLR 523, 599; Agapitos v Agnew
(The Aegeon) [2002J EWCA Civ 247, [2003] QB 556, para 36.
162 Maniftst Shipping Co L,d v Uni-Polaris Insurance Co L,d (The Star Sea) [2001] UKHL Agapi'os v Agnew (The Aegeon) [2002J EWCA Civ 247, [2003J QB 556, para 38 per
1, [20031 1 AC 469. Mance LJ.
163 ibid paras 71, 106. Lords Steyn and Hoffmann agreed with both Lords Hobhouse and Scott, ibid.
while Lord Clyde delivered a shore concurring judgment without commenting on fraudulent See the refusal to grant summary judgment in Interpart Comerciao e Gestao SA v Lexington
devices. Insurance Co [2004] Lloyd's Rep IR 690 because of the unsettled state of the law on this point. In
164 KlS Mere-Scandia XXXXlI v Certain Lloyd's Underwriters (The Mercandian Continent) Eagle Star Insurance Co L,d v Games Video Co (GVC) SA (The Game Boy) [2004J EWHC 15
[2001] EWCA Civ 1275, [2001] 2 Lloyd's Rep 563, pata 29. (Comm), [2004] Lloyd's Rep IR 867, Simon J referred not to The Aegeon but to Wisenthal v
105 Agapi'os v Agnew (The Aegeon) [2002J EWCA Civ 247, [2003J QB 556, paras
World Auxiliary Insurance Corp L,d (1930) 38 LlLRep 54, whese Roche J directed the jury rhat
45. 166 See furrher 22.91, 22.108 below. fraud in the claims context included the use of deceit to secure payment or quicker payment. This
167 Eagle Star Insurance Co Ltd v Games Video Co (GVC) SA (The Game'Boy) [2004] EWHC
could be interpreted purely as a test of subjective intention, and Simon J indeed analysed the
15 (Comm), [2004J Lloyd's Rep IR 867. tendering offraudulent documents in the case in terms ofthe assureds' intentions and expectations.
714 715
Claims and Claims Handling 716
An example of fraud by the assured in the broad context of a claim that falls outside
the fraudulent claims jurisdiction as clearly not being material to the claim,
however the test is formulated, is provided by the facts of The Mercandian
Continent.'" Ship repairers in Trinidad incurred liability to the claimant ship-
owners. Mr K Baboodal and his brother Dr R Baboodal were managing director
and chairman of the insured repair company. Legal advice was obtained that the
tonnage limitation regime applicable in Trinidad was less generous than that
applicable in England, but the claimants contended for English jurisdiction on rhe
basis of a jurisdiction agreement concluded with one Mr Totressen, the assureds'
assistant general manager. One of the Baboodal brothers, therefore, forged a letter
stating that only the two brothers had the aurhority to discuss the claim, also
forging a countersignature on the letter of the claimants' technical director. The
forgety was, however, rapidly discovered. The Coutr of Appeal concluded that the
ftaud had no relevance to the insurers' liability on the policy. The fraud was
confined to jurisdiction and jurisdiction did not affect liability.'" The fraud also
was directed not at the insurers but at the claimants. The only adverse
consequence for the insurers was that they opposed English jurisdiction for longer
than otherwise would have been the case.'74
In contrast to an objective limitation, subjective inducement of the actual insurer has no

role to play in the context of fraudulent claims. The moral culpability of an
assured that malees a fraudulent claim is not purged merely because the fraud is
discovered before the insurer can be induced to respond to the claim in some way
differently from the way it would have responded with-out the fraud.
Pragmatically, moreover: 'Whether insurers are misled or not is in this context
beside the point. The principle only arises for consideration where they have not
been misled into paying or settling the claim,175 and its application could not
sensibly depend upon proof that they were temporarily misled.'176
However, there was no doubt that an objective materiality test would have been passed on the
facts. Wisenthal had previously been rejected in Khan v Abbey Lift Assurance Co (2002) NPC 5, para 85
as inconsistent with a different decision test of materiality adopted by the Court ofAppeal in KlS Mere-
Scandia XXXXIl v Certain Lloyd's Underwriters (The Mercandian Continent) [2001J
EWCA Civ 1275, [2001J 2 Lloyd's Rep 563. However, the Court ofAppeal was there addressing
not the fraudulent claims jurisdiction but a possibly wider doctrine of utmost good faith: see
22.113-22.114 below.
172 KlS Mere-Scandia XXXX11 v Certain Lloyd's Underwriters (The Mercandian
Continent)
[2001J EWCA Civ 1275, [200l] 2 Lloyd's Rep 563. In fact, insurers in this case did not seek to
invoke the fraudulent claims jurisdiction (see 22.97 below) but to invoke a broader post-
formation docuine of utmost good faith, see 22.113-22,114 below:

it transpired, it did not even affect quantum since the legal advice on limitation proved
erroneous.
'" [200l] EWCA Clv 1275, [2001J 2 ~loyd's Rep 563, pata 42.
175 Or have been misled, but have since discovered that fact.
H'Agapitos v Agnew (The Aegeon) [20021 EWCA Civ 247, [2003J QIi 556, para 36 per
ManeeL].
Fraudulent Claims
(5) Temporal Limits on the Fraudulent Claims Jurisdiction

A claim may be honestly made bur dishonestly pursued or maintained. Such 22.96
fraud also attracts the fraudulent claims jurisdictiori. An assured that honestly
attaches a certain figure to the insured loss is fraudulent if it fails to inform the
insurer on subsequently learning that the true loss is a lower figure. Similarly,
whether a fraudulent device attracts the fraudulent claims rule does not depend
on whether it happens to be deployed before or after the claim is made. 177
It has, however, been suggested that fraud cannot attract the fraudulent claims 22.97 rule
unless the assured has a right to make a claim on the policy at the time of
the fraud. In the liability insurance case of The Mercandian Continent, "8 the
sequence of events was as follows:
incurring of liability by the assured;
concocting by the the assured of a fraudulent letter designed to assist the
msurers;
discovety of the fraud by the insurers;
purported avoidance of the policy by the insurers in reliance on the fraud;
ascertainment and quantification by litigation of the assured's liability to the
third party;
insolvency of the assured;
claim by the third party against the insurers under the Third Party (Rights
against Insurers) Act 1930.
The policy contained a clause that provided for the policy to be void and all
claims to be forfeit 'if the assured shall make any claim knowing the same to
be false and fraudulent'. Under liability insurance, it is clear that ascertainment
and quantification of the assured's liability by litigation, arbitration, or binding
settlement is required for there to be a loss and for the limitation period to
commence."9 The insurers conceded that the fraudulent claims clause was
irrelevant on the basis that, until liability had been ascertained and quantified,
there could not be a claim. This was noted withour demur by the Court of
Appeal, adding the comment that rhe position was the same at common law.
This approach, however, has the undesirable result of rendering the con- 22.98
sequences of fraud dependent on an accident of timing. The same conduct
would escape sanction if before liability was ascertained and quantified but
severely sanctioned if after that point. Moreover, a fraudulent communication
ibid paras 15-17.

K/S Mere-Scandia XXXXJl v Certain Lloyd's Underwriters (The Mercandian Continent)
[2001J EWCA Civ 1275, [200l] 2 Lloyd's Rep 563, para 10.
17S See 21.14, 22.68 above,
717
must be regarded not only as effective when initially communicated but also as (aJ Rejection ofthe claim
perpetrating fraud on a continuing basis at least until the fraud is discovered and A fraudulent claim, whether the fraud relates to the loss in respect of which the 22.102
possibly until the insurer has rejected the claim or waived the right to invoke the claim is made or takes rhe form of a fraudulenr device, forfeits the right of
fraud. The element ofchance in timing is thereby accentuated. More the assured to be indemnified in respect of rhat claim. It is to be emphasized that
fundamentally, there is no distinction in terms of moral culpability between an the forfeiture relates not juSt to such part of the claim as may be fraudulent bur
assured that seeks fraudulently to pave the way for a claim and one that seeks to the entirety of the claim. For example, the fraudulent exaggeration of a
fraudulently to bolster a claim already made. It is noteworthy thar, in The genuine claim, the fraudulent suppression of a defence with respect to part of a
Aegeon,'80 Mance L] btoached the possibility of a distinction between the mak-ing claim, or the use of a fraudulent device relevant only to part of the loss allegedly
of a claim and the accrual of a cause of action. It is suggested that a srrict temporal sustained forfeits cover in respect of not just that part of the claim that is
apptoach to the making ofa claim and fraud is unnecessaty. It should suffice that the fraudulent or ro which the fraud directly relates but also such part of the claim
fraud is material to the claim. that, considered in isolation, is genuine and legitimately recoverable under the
Once, however, litigation or arbitration has formally commenced, rhe conduct of the policy.lB' That the entire claim is forfeit means also rhar any payments already
parties falls to be governed by rules of civil procedure or the relevant rules made pursuant to the claim before the fraud is discovered are recoverable and
ofarbitral process. There is no scope for supplementary, common law regulation any settlements concluded cease to bind. Thus, a payment on account in respect
through the fraudulent claims jurisdiction of the conduct of parties thar by of a genuine loss covered by the policy will be recoverable if the assured later uses
definition are now in an adversarial relationship.18t a fraudulent device in order to influence the final settlement of the claim even in
'85
the absence of any fraud at the time of the payment on account. 'The logic of
(6) Joint and Composite Policies the law is simple. The fraudulent insured must not be allowed to think: if rhe
fraud is successful then I will gain: if it is unsuccessful, I will lose nothing.'18' If
22.100 A fraudulent claim by any assured under a joint policy provides a defence operative fraud carried no risk, there would be no deterrent. On the contrary, there would
in respect of the entirety of the unitary interest insured under the policy and,
be a perverse incentive to be fraudulent.
therefore, against each joint assured. In contrast, a fraudulent claim by a co-
assured under a composite policy provides, subject to contrary inten-tion, a While it is clear that fraud forfeits the entire benefit of rhe claim, ir has been 22.103
defence confined to the separate, or severable, cover of the particular co-assured suggested that ir goes furrher and removes or bars the assured's cause of acrion
that has made the fraudulent claim. In Samuel (PJ & Co Ltd v Dumas;''' a on the policy.'87 If this is correcr, it would answer rhe question of whether the
fraudulent claim by the insured vessel's owner did not affect a claim brought by dishonest presentation of a claim on one basis would taint an otherwise genuine
the co-insured mortgagee. However, where a fraudulent claim on behalf of a co-
claim that might be brought on a separate basis in respect of the same loss.
assured is brought by an agent that is ignorant of the fraud, the fact that the agent
Suppose, for example, that the assured knows that the insured vessel has been sunk
is another co-assured under the policy does not prevent the fraud from corrupting
by its master. Concerned that the insurer mighr respond to a claim for bartatry by
the claim. ' " invoking the due diligence proviso in the Inchmaree clause and arguing that the
assured was negligent in employing the master in the first place,
(7) Remedies for Fraud in a Claim
22.101 Fraud in a claim gives the insurer the right to reject the claim. In addition,
184 Orakpo v Barclays Insurance Services [1995] LRLR 443 (fraudulent exaggeration of amount of
consideration needs to be given to the possibility of the fraud being regarded as a rent lost by insured fire and fraudulent inclusion of other loss not caused by insured perils);
repudiatory breach of contract affording the insurer a right to elect to treat the Galkway v Guardian Royal Exchange (UK) Ltd [1999J Lloyd's Rep IR 209 (fraudulent
conttact as discharged or as an infringement ofa duty arising under the doctrine of addirion of computer to list of goods genuinely stolen); Direct Line Insurance v Khan [2002]
Lloyd's Rep IR 364 (fraudulent claim for rent for alternative accommodation added to genuine
urmost good faith giving rise to a right to avoid the entire policy.
claim for property lost by fire).
Axa General Insuran", Ltd v Gottleb [2005J EWCA Civ 112, [2005J Lloyd's Rep IR 369.
Manifest Shipping Co Ltd v Uni-Pokrir Insurance Co Ltd (The Star Sea) [2001J UKHL I, [2003]
Agapitos vAgnew (The Aegeon) [2002J EWCA Civ 247, [2003J QB 556, para 23. 1 AC 469, para 62 per Lord Hobhouse. See also Orakpo v Barclays Insurance Services [1995J LRLR
ibid paras 47-52. 443,452: Axa General Insurance Ltd v Gottlieb [2005J EWCA Civ 112, [2005J
182 11924J AC 431. See al,o Arab Bank pic v Zurich Insurance CO [1999J rtloyd's Rep 262. Lloyd's Rep IR 369, paras 28, 31.
183 Direct Line Insurance v Khan [2002J Lloyd's Rep IR 364. ibid para 26.
718 719
the assured suppresses rhe fact that the master sank the vessel and claims for a While the matter has not been authoritatively resolved, judicial opinion appears 22.107
loss by perils of the sea, despite being aware that such a sinking cannot be .to favour analysing the fraudulent claims jurisdiction as a rule of common law
considered fortuitous for the purpose of perils of the sea.'88 Assuming that the thar is independent from the doctrine of utmost good faith.'" This avoids what
fraud comes to light, the question is whether the assured is thereby precluded from may be regarded as overly punitive retrospective forfeiture of cover and also the
rhen claiming for a loss by barratry and endeavouring ro refute the defence based lack of orthodoxy of a rettospective response to misconduct during the life of a
on the due diligence proviso.'89 If the fraud removes the assured's cause of action properly concluded contract. Conversely, it has been asked why the law should
in respect of the loss, the assured is indeed precluded. This is consistent with the treat an innocent failure to disclose during pre-formation presentation of the
policy against encouraging settled expectations in a fraudulent assured. An assured risk more severely than 'rhe most heinous fraud in the malcing of a claim on the
should not be able to endeavour by means of fraud to sidestep an insurer's defence, policy'.'92 This, however, is merely ro highlight the distinction drawn by con-
safe in the knowledge that should the fraud be discovered the only consequence tract law generally between problems with formation of a contract and problems
will be ro require the assured to advance the claim that should have been advanced in the performance of a contract. In general contract law, innocent misrepresen-
all along. tation generates a right to rescind while the most fraudulent and malicious
breach of contract can only ever prompt a prospective discharge ofliability.
22.104 It also follows that in cases of double insurance a fraudulent claim under one policy
bars the right to recover under any other, since an assured should not be able to Analysed as a rule of common law, the question arises of whether a fraudulent 22.108
employ fraud under one policy without any risk, safe in the knowledge claim can lead to a discharge of the contract. This may happen in either of two
that, if discovered, it can recover under another. ways. The fraudulent claims jurisdiction could be based on an implied term of
the contract, with fraud eligible for status as a repudiatory breach, or it could
22.105 Greater difficulry arises where the same casualry gives tise to more than one claim.
constitute a rule of general law applicable ro insurance contracts but not form-
Suppose the insured vessel is involved in a collision and borh sustains physical
ing part of rhe contract, in the manner of the doctrine of frustration in general
damage and incurs third parry collision liability. Does a fraudulent claim in
contract law."3 As a matter of principle, it is difficult to see why a fraudulent
respecr of the physical damage vitiate the liabiliry claim? The punitive ethos of the
claim should not be capable of constituting a discharging event, whether as a
fraudulent claims rule might indicate that it should, although the policy against
breach of contract or extra-conrractual act. Fraud is 'fundamentally inconsistent
settled expectations would not so demand.
with rhe bargain and the continuarion of the contractual relationship between
(b) Contract termination the insurer and the assured' ,194 It is conceivable, however, that a fraudulent
device will not necessarily amount to a repudiation of rhe contracr."s
22.106 It has been persuasively stated that the right to reject a claim arises by virtue of a
common law rule independenrly of any right to terminate the contract, either
(8) Fraudulent Claims Clauses
prospectively or retrospectively."o If a fraudulent claim also constitures a repu-
diatory breach of contract, the insurer will have the right to elect to accept the Insurance policies have long contained clauses addressing the consequences of a 22.109
breach and treat the contract as discharged, so that no primaty obligations can be fraudulent claim. Indeed, the prevalence of such clauses explains the absence of
incurred from the moment of acceptance of the breach. If it constitutes a breach of
a dury arising under the doctrine of utmost good faith but not based juridically on a
contractual term and not remedially controlled by the principles of general contract 191 ibid paras 50-52, 61, 66; Agapitos v Agnew (The Aegeon) [2002] EWCA Ciy 247, [20031
law, the insurer will have the right to avoid the entire con-ttact retrospectively. In QB 556, para 45(g}. This approach was favoured, albeit that the law was regarded as toO uncertain
for summary judgment, in Marc Rich Agriculture Trading SA v Fortis Corporate Insurance NV
such a case, the insurer will be entitled to recover all sums paid out under the
[20041 EWHC 2632 (Comm), [2005] Lloyd's Rep IR 396. The point was [eft open in The Star
policy in respect of previous claims, even if their legitimacy and honesry is Sea, para 110.
unimpeachable. Orakpo v Barclays Insurance Services [1995] LRLR 443, 452 per Sir Roger Parker. See also the
reference to good faith by Millett Lj in GalkJway v Guardian Royal Exthange (UK) Ltd [19991
Lloyd's Rep IR 209,214.
Or the requirement to serve a notice of abandonment in most cases of constructive total loss as
188 See 10.16 above. a condition precedent to entitlement to indemnification for a total10ss.
r" Agapitos v Agnew (The Aegeon) [2002J EWCA Ciy 247, [20031 QB 556, para 28. Manifest Shipping Co Ltd v Uni~Polaris Insurance Co Ltd (The Star Sea) [2001] UKHL 1,
190 Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sed) [2001] UKHL 1, [200311 AC 469, para 66 per Lotd Hobhouse.
[20031 1 AC 469, para 62. '" Agapitos v Agnew (TheAegeon) [20021 EWCA Ciy 247, [20031 QB 556, para 45(b).
720 721
Claims and Claims Handling Good Faith in the Making ofClaims
a fully developed position at common law with respect to remedies for making a H. Good Faith in the Making of Claims
fraudulent claim.
In The Star Sea,]97 the insurers contended that in the claims contexr rhe doctrine 22.113
22.110 In the marine context, the J and J(a) Schedules to rhe Lloyd's and Ins-sure policies of utmost good faith as articulated by section 17 of rhe Marine Insurance Acr
ptovide that: 'If the Insured shall make any claim knowing the same to be false 1906 imposed a duty of fair dealing and disclosure beyond the fraudulent claims
and fraudulent, as regards amount or otherwise, this Policy shall become void and jurisdiction. Initially, it was argued thar the docrrine imposed strict liability
all claim hereunder shall be forfeited.' Clause 45.3 of the International Hull obligations parallel to those rhat apply at the pre-formation srage. At the stage of
Clauses (01111/03) is more comprehensive: oral argument before the House of Lords, however, counsel for the insurers
It shall be a condition precedent to the liability of the UndelWriters that the Assured limited the suggested duty to one to refrain from unconscionable conduct. This
shall not at any stage prior to the commencement of legal proceedings argument was rejected. The House of Lords held rhat the assured's only duty
knowingly or recklessly: was one of honesry."8
45.3.1 mislead or attempt to mislead the Underwriters in the proper consider-
ation of the claim or the settlement thereof by relying on· any evidence The House of Lords did nor need to go so far as to hold thar section 17 of rhe 22.114
which is false; 1906 Acr is confined to the pre-formation doctrine of urmost good faith. The
conceal any circumstance or matter from the Underwriters material to the remedy of avoidance, however, is both extremely serious and not a remedy
proper consideration of a claim or defence to such a claim. acknowledged by general contract law for failure to perform a duty arising under a
22.111 Several points of difference may be nored. Clause 45.3 mirrors the common law in validly formed contract. In The Mercandian Continent,'99 therefore, the Coun of
extending beyond intentional deceit to recklessness, including fraudulent devices, Appeal held that section 17 applied at the post-formation stage only where (1) the
and embracing fraud at any srage until legal proceedings commence. In contrasr, assured was guilty of fraud, (2) the fraud was material in that the matter concealed
the clause in the Schedules is confined to knowledge, requires the fraud to exist in or misrepresented justified a defence to the claim, and (3) the fraud or its
the claim when made, and does not embrace fraudulent devices.]96 The reference consequences are sufficiently serious as to render the fraudulent conduct also a
in clause 45.3.1 to the proper consideration of the claim performs the function of repudiatoty breach of contract. However, if it is correct, as has subsequently been
the common law's requirement of materiality to the claim. This is explicit in clause stated, albeit obiter, that the fraudulent claims jurisdiction itself forms no pan of the
45.3.2. With respect to the consequences of a fraudulent claim, clause 45.3 doctrine of utmost good faith and does not, therefore, attract the remedy of
declares the insurer free from liability, presumably in respect of the casualty that retrospective avoidance of the contract under section 17,200 it is difficult to see
gave rise to the fraud, while the clause in the Schedules also declares that the how conduct that can be no more reprehensible can attract that remedy. The logical
policy 'shall become void'. It is suggested, however, that clause 45.3 should not be conclusion is that section 17 of the Marine Insurance Act 1906 has no post-
read as exhaustive of the consequences of malting a fraudu-lent claim and formation application. This does not preclude the exisr-ence of a posr-formarion
precluding the fraud from also constituting a repudiatory breach of contract. dimension to the doctrine of utmost good faith. means only that section 17 does not
comprehend the entirety of the
good faith doctrine.20]
22.112 The disclosure obligation in clause 45.3.2 has to be read subject to clause 45.4,
whi~h provides that: 'Clause 45.3 does not require the Assured ar any stage to
d,sclose to rhe Underwriters any document of matrer which under English law is
protected from disclosure by legal advice privilege or litigation privilege.' A
document that is privileged under the law of the jurisdiction where it is created but
not privileged under English law would have to be disclosed under clause 45.3.
197 Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea)
[2003J 1 AC 469.
196 This follows from rhe requirement that the ftaud must exist at of and in the 198 Overruling the proposition of a wider duty to refrain at least from '",In,hle
'making' of the claim. able' misrepresentation or non-disclosure as advanced in Blaek King Shipping
Litsion Pride) [1985] 1 Lloyd's Rep 437, 511-12.
199 KlS Mere-Scandia XXXXlI v Certain Lloyd's Underwriters (The Mercandian Continent)
722 [2001] EWCA Civ 1275, [2001] 2 Lloyd's Rep 563, paras 26, 35.
200 See 22.107 above. 20' See 4.197(3), 4.199 above.
723
Claims and Claims Handling
Making Payment ofLoss Moneys
Making Payment of Loss Moneys a settlement by set-off has occurred and the broket subsequently goes into
insolvency without paying the assured, the question arises of whether this
Method of Payment method of claims settlement is binding upon the assured. The market custom
amounts to ousting the broker's aurhority to colleer a claim for the benefit of the
22.115 In principle, loss moneys should be paid to the assured or an agent of the assured
assured in favour of discharging the broker's personal obligation to the under-
authorized to receive payment of such money. Alternatively, the policy may writer to pay premium due on any of its clients' policies. It is not surprising,
nominate a designated loss payee, or the benefit of the insurer's promise to therefore, that the Custom has been viewed with some disfavour and held bind-
indemnifY (or of the entire policy) may have been assigned and notice given 207
ing only on an assured that both knows of the custom and adopts it. With
to the insurer. In such a case, the insurer should pay the loss payee or assignee,
202 respect to knowledge, a clause in a policy providing that 'all losses and claims
as the case may be. arising hereon are to be recoverable only according to the custom and usages of
22.116 It is standard practice in the London market for loss moneys to be paid through the Lloyd's' will not suffice to bind an assured otherwise ignorant of the set-off
placing broker. The question arises of whether the broker has authority to give a
208
settlement CUStom. It is unlikely that the statement in the International
good discharge of the insurer's indemnification obligation and, if so, what fotm of 2o
payment the broker has authority to receive. Consistent with the prin-ciple that the hull clauses , that payment of a sum 'whether in account or otherwise' shall to
assured should not bear the risk of the broker's insolvency flowing from a system that amount discharge the insurers' obligations is any more effective.
of accounting between the broker and insurer designed for the convenience of the
insurance market,203 the insurer is directly responsible to the assured in respect of Once a broker has become insolvent, the availability of set-off as between the 22.118
210
loss moneys and returnable premium and does not discharge its liability to the broker and the undetwriter is governed by mandatory rules of insolvency law.
204 Set-off is denied in the absence of muruality of capacity in which the parries
assured by payment to the broker as principal. Nevertheless, the assured may, incurred liability on the opposing claims. Consequently, there can be no insolv-
and frequently will, constitute the broker as its agent to receive money from the ency set-off between premiums and loss moneys in the case of marine policies
insurer, the broker's authority usually being evidenced by possession of the placed by a broket. By virrue of section 53(1) of the Marine Insurance Act
policy.205 It is not, however, inferred from the circumstance of having been the 1906, subject to contrary intention, the broket is personally indebted to the
placing broker. 211
insurer but is to receive loss moneys qua agent of the assured.
22.117 With respect to the form of payment, aurhority to receive payment does not confet The previous paragraph focuses upon insolvency of the broker. Should the 22.119 broker
authority to make judgments regarding the creditworthiness of the debtor, with the pay loss moneys to the assured and then discovet that one or more parricipating insurers
20B had become insolvent before such payment, no action
result that the agent should accept only payment in cash. Much litigation has
will lie against the assured to recover the loss moneys on the basis of mistaken
resulted from the practice of the London market, pioneered at Lloyd's, of
payment. 212
underwritets and brokers operaring general accounts, debiting indemnities against
premiums, and periodically striking a Qalance with only the net surplus being
actually paid by the appropriate party. Underwriters thus settle claims in whole or (2) Time of Payment
in part by set-off against premiums payable on any policy placed by that broker,
regardless of any absence of muruality. Where such At common law, there is no obligation on an insurer to process a claim and pay 22.120
the appropriate measure of indemnity within any particular period of time.
There is no cause of action that permits an assured to sue an insurer for undue
For express provision to this effect, see International HuH Clauses (01111103), cl 48. On
loss payees, see 20.01 above.
See 6.23 above.
MIA 1906, S 53(1), The rule is subject to contrary intention, but this is not evidenced by a
207 Bartlett v Pentland (1830) 10 B & Cr 760; Scott v Irving (1830) 1 B & Ad 605; Stewart v
clause in the policy providing for the broker to collect all claims: Stolos Campania SA v Ajax
Insurance Co Ltd (The Admiral C) [1981] 1 Lloyd's Rep 9. Aberdein (1838) 4 M & W 211; Sweeting v Pearce (1861) 30 LJCP 109; MatviefJ v Crosfield
205 I-line Bros v Steamship Insurance Syndicate Ltd(1895) 72 LT 79; Legge v Byas, Mosley & Co (1903) 8 Com Cas 120.
(1901) 7 Com Cas 16. 20aMcCowin Lumber & Export Co Inc v Pacific Marine Insurance Co Ltd(1922) 38 TLR 901.
206 Trading & General Investment Corp v Gault Armstrong & Keble Ltd (The Okeanis) [1986J 1
International Hull Clauses (01/11/03), d 48.
Lloyd's Rep 195. See generally Bowstead & Reynolds on Ageney (17th edn, 2001) Art 28. Insolvency Act 1986, s 323; Insolvency Rules 1986, r 4.90.
2" Wihon v Creighton (1782) 3 Doug1132. '" Edgar v Bumstead (1808) I Camp 411.
724
725
Claims and Claims Handling Making Payment ofloss Moneys
delay in the paying of a claim and recover damages for consequential loss caused resulting in the loss of profits that would have been made from trading the vessel,
by the delay. the insurer will be liable to reimburse the assured for the financial loss. No
22.121 In The Italia Express (No 2),213 the assured sought to recover various consequen- objection can be raised that the cause of rhe loss is the impecuniosity of the
tiallosses in addirion to the statutory indemnity for the total loss of the insured assured.'16 Of course, a voluntary decision of the assured not to effect repairs will
vessel. The assured argued that the insurer's primary obligation was to pay rhe brealc the chain of causarion.
statut0ty measure of indemnity on the assured's demand for payment sub-sequent
to the casualty. In default of payment forthwith, the insurer incurred a secondaty
'" Lagden v O'Connor [2003J UKHL 64, [20041 1 AC 1067. In so far as rhe decision in
liability to pay damages at large and not limited to the statutory measure. Hirst] Sprung v Royallnsurance (UK) Ltd[1999] Lloyd's Rep IR 111 rests on causation (see 118),
held in favour of rhe insurer. First, the Act'" was 'conclusively definitive' of the it is no longer good law.
extent of the insurer's liability and not merely of that liability during the brief
petiod following an assured's demand during which the insurer might discharge his
liability by paying the statutory measure. Secondly, Hirst ] accepted the analysis of
a contract of indemnity as involving a primary obli-garion to hold the assured free
from the specified harm. Consequently, the statutory measure of indemnity was the
measure of the secondary obligation. Moreover, on this analysis, rhe assured's
claim for addirional compensation necessarily amounted to a claim for damages for
late payment of damages, a claim not genetally recognized under English law."s
22.122 There is, nevertheless, no impediment to rhe parries agreeing express contractual
rime limits for processing and paying claims. Under the Internarional Hull
Clauses (01/11/03), clause 46.7 provides that:
The Leading Unclerwriter(s) shall make a decision in respect of any claim within
28 days of receipt by tbem of the appointed average adjuster's final adjustment or,
if no adjuster is appointed, a fully documented claim presentation sufficient t6
enable the Underwriters to determine their liability in relation to coverage and
quantum. If the Leading Underwriter(s) request additional information to make
a decision, they shall make a decision within a reasonable time after receipt of the
additional documents or information requested, or of a satisfactory explanation
as to why such documents and information are not available.
22.123 Non-compliance by the insurer would generate liability in damages nor for late
payment of damages but for breach of the expressly agreed, ancillary obligation to
pay by a certain time. Consequently, where the failure to pay within the agreed
time prevents the assured from effecting repairs to an insured vessel
213 Ventauris v Mountain (The Italia Express) (No 2) [1992] 2 Lloyd's Rep 281.
MIA 1906, s 67 and, on the facts, s 68.
President afIndia v La Pintada Campania Navigacion SA [1985J AC 104; President ofIndia v
Lips Maritime Corp (The Lips) [19881 AC 395. See also Sprung v Royaiinsurance (UK! Ltd
11999J Lloyd's Rep 111; England v Guardian Insurance Ltd [2000J Lloyd's Rep lR 404; Normhurst
Ltd v Dornoch Ltd [2004J EWHC 567 (Comm), [2005J Lloyd's Rep lR 27. Otherwise, where
responsibility is specifically assumed· for the consequences of late payment:/Wadsworth v Lydal!
[1981J 1 WLR 598.
726
727
23
MEASURES OF INDEMNITY
A. Loss of or Damage to Property 23.02 B. Thresholds to Recovery 23.38

(1) The yardstick for calculating the (I) Particular average warranties 23.39
measure of indemnity 23.03 (2) Deductib1es 23.40
(2) Total lasses 23.12 (3) Franchise clauses 23.48
(3) Partial losses 23.14 C. Under~insurance 23.49
The phrase 'measure of indemnity' denotes the quantum of the payment 23.01 required
of the insurer to discharge its liability under an insurance contract in respect of a
recoverable loss. This chapter considers the law governing measures
of indemnity for various types of loss as well as the thresholds to recovery and
reductions from the prima fide measure often found in marine policies.
A. Loss of or Damage to Property
In a claim for loss of or damage to property, such as hull, cargo, or freight, the 23.02
measure of indemnity depends upon whether the loss is total or partial and whether the
policy is valued or unvalued. The different types of loss are con-sidered in Chapter 21
above, while the concept of a valued policy is discussed in Chapter 7 above. 1
(1) The Yardstick for Calculating the Measure ofIndemnity

(aJ Agreed and insurable values
Marine insurance law subscribes to the indemnity principle, but does not in 23.03
principle attempt to calculate measures of indemnity in property claims by reference to
the precise financial loss in fact suffered by the assured. Instead, the
1 See 7.24ffabove.
729
Measures ofIndemnity Loss ofor Damage to Property
measure of indemnity is, subject to contrary intention,' calculated by tefetence to provide for the measure of indemnity to be quantified by reference to the agreed or
the insurable value of the insured property, and, in a valued policy, the agreed insurable value, they are all expressed to be subject to contrary intention. In the
value provides conclusive evidence as between insurer and assured of the in~ur case of unvalued policies, it appears that modern policy wordings will readily
3
able value. Under valued policies, therefore, where the Insured property IS a displace the insurable value in favour of the market value of the insured ptoperty
tatalloss, the assured receives the agreed value, and where it is a partial loss, the at the time of loss, thus aligning marine and non-marine insurance.
assured generally receives an appropriate proportion of the agreed value. In the In The Captain Panagos DP,' a mortgagee's interest policy provided that in the 23.07
London market today, the vast majority of marine policies are valued. However, event of loss of or damage to or liabiliry of the mortgaged vessel and subsequent non-
insurance on an unvalued basis, often incorporating Institute or International payment by underwriters under the hull policy, insurers would pay the insured mortgagee
clauses and subject to English law, is more common in some other markets.' the lesser of 'the amount of such damage or liability' and the
The insurable value, as such, applies only where the policy is unvalued and even then total indebtedness. Mustill J held that the policy was an unvalued marine policy on
may be displaced by the policy wording. Subject to contrary express provi-sion or the mortgaged ship, with the quoted phrase denoting the pecuniary con-sequences
valuation in the policy, section 16 of the Marine Insurance Act 1906 provides that of physical loss of or damage to the ship. Moreover: 'To keep the policy in tune
the insurable interest should be ascertained as follows: with what I believe to be its purpose, this must surely mean the
real pecuniary consequence, not a conventional measure, which was once
In insurance on ship, the insurable value is the value, at the commencement of the
risk, of the ship, including her outfit, provisions and store~ for the office~s and
thought appropriate for application to a type of policy which has nothing in
crew, money advanced for seamen's wages, and other dIsbursements (If any) common with a policy of the kind now under consideration, save that they are both
incurred to make the ship fit for the voyage or adventure contemplated policies of marine insnrance.' In consequence, the measure of indemnity was
by the policy, plus the charges of insurance upon the whole: . quantified by reference to the market value of the mortgaged vessel at the time and
The insurable value, in the case of a steamship, includes also the machmery. place of the loss.
boilers, and coals and engine stores ifowned by the assured, and, in the case of
a ship engaged in a special trade, the ordinary fittings requisi:e for ch.at trade: Thor Navigation Inc v Ingosstrakh Insurance Co Ltd' concerned insutance 23.08
In insurance on freight, whether paid in advance or otherwise, the incotporating the Institute Time Clauses Hulls (1/11195). Under the heading 'Interest' the
Insurable value is the gross amount of the freight at the risk of the subject-matter of the policy was stated to be 'Hull and Machinery'
assured, plus the charges of insurance:
and the perils clause provided that 'this insurance covers loss of or damage to the
In insurance on goods or merchandise, the insurable value is the prime
subject-matter insured', with no mention of the other items mentioned in section
cost?f the property insured, plus the expenses of and incidental to
shipping and the charges of insurance upon the whole: 16(1). Following the approach adopted in The Captain Panagos DP, this wording
In insurance on any other subject-matter, the insurable value is the ~mount at the was held to displace the section 16 insurable valve as the yardstick for the measure
risk of the assured when the policy attaches, plus the charges of Insurance. of indemnity, again in favour of the market value of the vessel at the time and place
It is clear from section 16 that, in calculating the insurable value, the value at the time of oftoss.
loss is discarded in favour of value at the inception of the risk. In the With respect, however, it is suggested that it is by no means self-evident that the 23.09
context of cargo insurance, this results from the concept of 'prime cost' referring reasoning in The Captain Panagos DP should be so extended into cases of ordinary hull
to the invoice or market value at or near the time of shipment. 5 and machinery cover. The Captain Panagos DP concerned a pro-
perty policy used ta reinforce a security interest over a vessel. The mortgagee's
Displacing the insurable value in modern unvaluedpolicies
commercial interest was confined to the adverse consequences to its prospects of
Specific statutory provisions govern the measure of indemniry in cases of total repayment of the secured loan flowing from a casualry affecting the secured asset.
loss and partial loss in the context of different types of insurance. While they That was the interest the insurance was designed to protect. It made no commercial
sense, therefore, to quantifY the measure of indemniry by reference to a loss that
the mortgagee had not incurred (namely a diminution in the value
, See 23.06-23.10 below. 3 MIA 1906, , 27(3).
4 See Thor Navigation Inc v Ingosstrakh Insurance Co Ltd [2005] EWHC 19 (Comm), [20051 1
Lloyd', Rep 547, para 8. .
5 Williams v Atlantic Assuran" Co Ltd[l93311KB 81, 90-2.102-3. MIA 1906.,16(3) 6 Continental Illinois National Bank & Trust Co ofChicago v Bathurst [1985] 1 Lloyd's Rep 625.
codifies Usher vNoble (J 81 0) 12 East 639. , [20051 EWHC 19 (Comm), [200511 Lloyd's Rep 547.
730 731
Measures ofIndemnity
Loss ofor Damage to Property
of the asset as at the time of inception of risk) or by reference to assets not covered
is valued or the insurable value if the policy is unvalued,lO regardless of whether
by the security interest, such as crew wages.
a greater sum would be required or a lesser sum would suffice to indemnifY for the
23.10 Thor Navigation, in contrasr, concerned insurance of the vessel itself fo~' the benefit loss actually suffered.
of irs owner. In that context, section 16(1) may be regarded as provldlllg an
As discussed above," in the context ofunvalued policies, it may be that a modern 23.13
extended definition of 'ship', avoiding the need to contract expressly to extend
policy will be construed as displacing the insurable value in favour of the market
cover to the other items mentioned in secrion 16(1), which, one may of the insured property at the time of loss.
assume, a shipowner would always wish to cover. In economic terms, section
16(1) avoids transaction costs. The decision in Thor Navigation means that any (3) Partial Losses
assured today that wishes to obtain an unvalued policy that extends to the full
range of items mentioned in section 16 will need to contract expressly to that An assured that unsuccessfully alleges a total loss, may, unless the policy other- 23.14
12
effect. The merits of this are, with respect, elusive. To the extent that the decision wise ptovides, reCOver for a partialloss. The Marine Insurance Act 1906 does
represents an instinctive dislike for indemnification by reference to the section 16 not, however, provide an exhaustive code for calculating the measure of indem-
insurable interest, one can only respond that section 16 represents the settled nity with respect to all forms of partial loss. By virtue of section 75(1), where the
position of pre-Act case law and the will of Parliament. Act is silent 'the measure of indemnity shall be ascertained, as nearly as may be,
in accordance with those provisions, in so far a~ applicable to the particular case'.
Vessels intendedfor scrap
(a) Damage to a vessel
By way of detogation from indemnification by reference to the agreed or insur-able value,
the 1983 and 1995 Institute hull clauses provide that where the insured vessel Where a vessel is damaged but not totally lost, section 69 ofthe Marine Insurance 23.15
should sail '(with or without cargo) with an intention of being (a) broken up or (b) Act 1906 envisages three eventualities: where the vessel is fully repaired (sub-
sold for brealdng up' the measure of indemnity for loss or damage should, subject section (1»), where it is partially repaired (subsection (2», and where it is
to prior contrary agreement with the insurers, be limited to the vessel's marker untepaired and not sold during the risk (subsection (3». In addition, there arises a
value as scrap at the time of the casualty." The wording has, however, been fourth possibility, not addressed by the Act, namely where the vessel is sold in its
criticized for uncertainty. If a shipowner accepts a charter that will leave the vessel damaged condition at a time when the insurer is still on risk. It is clear from section
near a scrapping centre and contemplates}he possibility of scrapping the vessel at 69(3) that whethet or not a vessel has been repaired is judged for these purposes by
the end of the charter depending on the then freight rates and scrap prices, does the reference to the time of expiry of the risk."
vessel sail on that char;er voyage 'with an intention' of being scrapped? What level
of firmness of contemplation must be proved in order to arrive at 'an Where the damage is fully repaired, section 69(1) provides that the measure of 23.16
intention'? Moreover, where the vessel is lost or damaged between two different indemnity is 'the reasonable cost of the repairs, less the customary deductions,
scrapping centres with different price levels, how is the market value to be but not exceeding the sum insured in respect of anyone casualty'. The limit of a
determined?9 sum insured in respect of anyone casualty reflects the possibility of a policy
containing a maximum sum payable on any single casualty. The cost of repairs
includes additional costs incurred in reasonably removing the vessel to another port
Total Losses
for repairs and also dry dock expenses. 14
Where the subject-matrer insured is the subject of an actual total loss Or a constructive
total loss and, in rhe case of a constructive total loss, the assured has either served The measure of indemnity is confined to the reasonable cost of repairs." The 23.17
a valid notice of abandonment or no such no rice is required, then,
subject to contrary intention, the assured receives the agreed value if the policy
10 MIA 1906, s 68. 11 See 23.06-23.10 above.
MIA 1906, s 56(4); Benson v Chapman (1849) 2 HLC 696.
In the context of a voyage policy, the risk terminates when the ship is abandoned in
8 Institute Time Clauses Hulls (1110/83), cl 1.3; (1111195), cl 1.5. Under the International circumstances and in language evidencing a clear intention not to pursue the voyage to its
Hull Clauses (01/11103), sailing with such an intention without destination: Irvin v Hine [I950J 1 KB 555, 571.
prior agreement of the 14Rules of Practice of the Association of Average Adjusters, 1986 (amended 1992), rr Dl, 5,
underwriters triggers immediate termination of cover: d 14 . 2, . _ ' 15On reasonableness in this context, see R Cornah, 'Reasonable COSt of Repairs under Hull
9 N Hudson and J Allen, The Institute Clauses (3rd edn, 1999) 93'-4. and Machinery Policies' (2005) 11 JIML 288.
732 733
Measures ofIndemnity Loss ofor Damage to Property
cOSt may vary considerably depending upon where and by whom the repairs Vessel fr~m one porr to ~nother for the repair of damage covered by the
are effected. Insurers will naturally want repairs to be undertaken where and Underwmers, or fo~ tnal tnps for such repairs, and then only for such wages
by whom they can most cheaply be ptoperly carried our. Consequently, clause and mamtenance as are mcurred whilst the Vessel is under way'. 22
44.1 of the International Hull Clauses (01111/03) confers upon the leading If the vessel is only partially repaired, by virtue of section 69(2) the measure of 23.19
under-writer the right to decide 'the port to which the vessel shall proceed for indemnity is the reasonable cost of such repairs, calculated as in section 69(1),
docking or repair ... and shall have a right of veto concerning a place of repair and also llldemnificati?n 'for the reasonable depreciation, if any, arising from
or a repairing firm'." The assured is entitled to indemnification of any the unrepalred damage. Where the assured elects not to repair and the vessel is
additional expense incurred by the assured in underraking a voyage to the port no: sold u.nrep~ired during the risk, secrion 69(3) entitles the assured again
of docking or repair nominated by the leader. In addition, clause 44.2 entitles to llldemnlficatlOn for the reasonable depreciation arising from the untepaired
the leading underwriter to take tenders or require the taking of further tenders damage." However, rhe measures of indemnity recoverable under subsections
for the repair work." The obtaining of such tenders may, however, extend the (2) and (3) cannot exceed the measure recoverable under subsection (1) had the
time during which the vessel is unavailable to the assured. Consequently, assured e1ecred for full repairs. Should the assured sell the ship untepaired
clause 44.2 pro-vides in such a case, and where a tender for the repairs has dun~g th: nsk, sectlOn 69 is silent with respect to the measure of indemnity,
been accepted with the leading underwriter's approval, that 'an allowance shall
but, III P,tman v Universal Marine Imurance CO,24 it was held by Lindley J and
be made at the rate of 30% per annum on the insured value for the time lost
~ffirmed by the Court of Appeal that the assured is entitled to the depreciation
berween the despatch of rhe invitations to tender required by the Underwriters
III the value of the vessel occasioned by the damage. It follows, however, from
and the acceptance of a tender to the extent that such time is lost solely as the
~eCflon 75(1) that even in this situation the assured cannot recover an indemnity
result of renders having been taken and provided that the tender is accepted
III excess of the estimated cost of repairs.
without delay after receipt of the Leading Underwriter(s)' approval'."
In three of the. above four situations, therefore, the measure of indemnity 23.20
The reference in section 69(1) of the Marine Insurance Act 1906 to customary
deductions reflects the fact rhat the courts evolved a rule in the context of reflects, or takes llltO account, the depreciation in the value of the insured vessel
wooden vessels that the assured could recover only rwo-thirds of the repair and two questions arise with respect to calculation of such a measure of indem-
costs." The one-third deduction served both the indemnity principle and con- nity. First, how is the actual depreciation sustained to be calculated? Secondly,
venience, as a repaired vessel might be rendered stronger and more valuable than must the depreciation so calculated then be related to the agreed or insurable
if no casualty had been encountered and the uniform percentage deduc~ion value, depending on whether the policy is valued or unvalued, in order to
obviated the need for detailed enquiry in every case. 20 The Ins,itute and determine the precise measure for which the insurer is liable and, if so, how
International hull clauses, however, provide expressly that claims are payable exactly should it be so related?
'without deduction new for old', although claims for bottom treatment are
With respect to the calculation of depreciation, the choice falls between, on the 23.21
restricted." The assured may claim for the wages and maintenance of the mas-
ter, officers, and crew 'when incurred solely for the necessary removal of the one hand, the difference between the market value of the vessel if undamaged
(the sound value) and the market of the vessel in its damaged condition (the
damaged value) and, on the other hand, the estimated cost of repairing the
" See also Institute Time Clauses Hulls (1/10/83), el 10.2; (III 1/95), d 13.2, although damage sustained. It is clear that at common law the former is the correct
reference is to underwriters rather than juSt the leading underwriter. appr~ach.25 Damaged and sound market values are ascertained by reference to
See also the right to instruct a surveyor and connrm the appointment of an independent
average adjuster under International Hull Clauses (01111103), cl 46.1: see further 22.74 above. the time of expiry of risk, 'whether that expiry is by effluxion of time in the case
The allowance is subject to certain deductions in accordance with cll 44.3, 44.4. For insurers' of a time policy, or by the completion of or abandonment of the voyage in the
parallel rights in respect of tenders under the Institute clauses, see Institute Time Clauses
Hulls (1I10/83), d 10.3; (l/11195), d 13.3, although reference is again to underwriters rather
than just the leading underwrit~r.
22 Institute Time Clauses Hulls (1/10/83 and 1111195), d 16· International Hull Clauses
19: For full details of the one-third new for old deduction, see the Rules of Practice of the
Association of Average Adjusters, 1986 (amended 1992), r D7. (Ill I/03), cI 18. '
Loh" v Aitchison (I878) 3 QBD 558, 563-4. :: See Knight v Faith (1850) 15 QB 649. 20 (1882) 9 QBD 192.
Institute Time Clauses Hulls (1I10/83 and 1I11195), dll4-15; Internatio,nal Hull Clauses Lit/gett v Secretan (No 2) (1871) LR 6 CP 616; Pitman v Universal Marine Insurance
(I/l I/03), ell 16-17. Co (188~) 9 QBD 192. The contrary statement in Goole & Hull Steam TOwing Co Ltd v
Ocean Manne Insurance Co Ltd [1928], 1 KB 589, 595 is, with respect, clearly incorrect.
734
735
Loss ofor Damage to Property
case of a voyage policy or by sale in the case of either type of policy or other- the agreed and insurable value, the measure of indemnity for depreciation at
wise'.26 The estimated cost of repairs remains relevant in two respects. First, ~ommon law may be represented as follows:
it may shed light upon the amount of diminution in market value in the
absence of more cogent evidence." Secondly, as noted above, ir limits the AV or IV X (SV - DV)
measure recoverable from the insurer. This has been explained as follows: an SV
assured rhat has suffered a loss by depreciation has the opportunity to mitigate
Thus, in the non-marine ca~e of Elcock v Thomson,32 fire-damaged buildings 23.24
that loss by effecting repairs where that would be cost-effective and the
lllsured under a valued poltcy were neither reinstated nor sold during the
assured cannot decline so as to minimize loss at the insurer's expense. 28 currency of the risk. The agreed value was £106,850, the marker value of the
Where a damaged vessel is sold in an unrepaired condition before expiry of the risk, buildings before the nre was £18,000, while their market value in their dam-
the assured cannot claim in respect of depreciation a sum greater aged condition was £12,600, and reinstatement would have cost over £40,000.
than the difference between the sound value and the sale price. 29 To the Morns Jheld that the principles stated in section 69(3) applied equally to a
extent that the sale price exceeds the damaged value, the assured may be non-manne cas:, that the agreed value operated as a yardstick for quantifYing
regarded as having minimized its loss, any costs reasonably incurred in the ',"easure of ,?demn,ty ror depreciation loss as for any other, and that this
making the sale being recoverable as sue and labour expenses. Were the reqUIred calculatlon of the proportion of the market value lost by depreciation
property sold at an unteasonably low price, the shortfall would be and the award to the assured of rhat proportion of the agreed value. The
irrecoverable as not caused by a covered peril and the sale would infringe any assured was, therefore, entitled to three-tenths of the agreed value nam I
contractual duty to minimize losses. £32,055. ' ey
Turning to the significance of the agreed or insurable value, afier some initial Ultimately, however, rhe measure of indemnity is a matter for contract. Clause 23.25
hesitation,'O the case law has consistently held that calculating the amount of 18 of the Institute Time Clauses Hulls (1110/83 and 1/11195)33 'd as
C II provl es
actual depreciation, according to sound and damaged market values, is only the ro ows:
first step. The amount of actual depreciation must then be expressed as a per- 18 UNREPAJRED DAMAGE
centage of the sound value of the vessel in order to give the proportion of the The measure of indemnity in respeCt of claims for unrepaired damage shall be. t~e
reasonable depreciation in the market value of the Vessel at the time
vessel's value lost by reason of the depreciation. The measure of indemnity for
thIS lU.surance terminates arising from such unrepaired damage, but not
depreciation is that proportion of the agreed or insurable value. 31 Consequently, exceedlng the reasonable COst of repairs.
where SV is the sound value, DV is the damaged value, and AV and IV are 18.2
The underwrit,ers shall nOt be liable in respect of unrepaired damage for more than the
Insured value at the time this insurance terminates.
Clause 20 of the International Hull Clauses (01111/03) is in identical terms.

Helmsville Ltd v YOrkshire Insurance Co Ltd (The Medina Princess) [1965] 1 Lloyd's Rep 361,
517 per Roskill J. The contractual approach is identical to that of the ~ommon law in that first 23.26
Lidgett v Secretan (No 2) (1871) LR 6 CP 616, 626-7; Pitman v UniversaL Marine Insurance depreciation is assessed by reference to the time when the policy expire~ and:
OJ (1882) 9 QBD 192,201.
Kusel vAtkin (The Catariba) [1997J 2 Lloyd's Rep 749, 755. On duties to minimize loss, see secondly, the assured cannot recover mOre than the agreed value at that time or the
24.02ffbelow. reasonable cost of repairs. However, the contractual approach departs from the
Pitman v Universal Marine Insurance Co (1882) 9 QBD 192,202.
common law by assessing depreciation purely by reference to market values. The
30 See the judgment of Jesse! MR in Pitman v Universal Marine Insurance Co (1882) 9
QBD 192. market value of the vessel in its damaged condition at the time the policy expires is
31 Pitman v Universal Marine Insurance Co (1882) 9 QBD 192 (Lindley J); Steamship Salmoral subtracted from the market value the vessel would have had at that time if
Co Ltd v Marten (1902J AC 511, 521; Elcock v Thomson (1949J 2 KB 755; Kusel v Atkin (The Catariba)
undamaged. This does not vary if the vessel is sold unrepaired before
[1997J 2 Lloyd's Rep 749, 755-6. See also Compania Maritime Astra SA v Archdale (TheArmar) (1954J 2
Lloyd's Rep 95, 101-2 (Supreme Court of New York). That the measure of indemnity should reflect the agreed
value was also upheld in Irvin v Hine [1950) 1 KB 555, although it was left open whether that should be
by the proportion method or by subtraction of the damaged value from the agreed value, The latter
was, however, expressly rejected in Elcock v Thomson, For full discussion ofthe case law, see H
[1949J 2 KB 755.
Bennett, 'Valued Policies' irfD Thomas (ed) The
See also Institute Voyage Clauses Hulls (1110/83 and 1/11/95). el16.
Modern Law ofMarine Insumnce. Volume 2 (2002) Cb 3, 109-14.
736 737
Measures ofIndemnity Loss ofor Damage to I'r,oh"''',
the policy was otherwise due to expire, since such a sale automatically termin- partial and not total'. This provision codifies the decision in Spence v Union
ates the policy." Marine I~surance Co Ltd,39 in which a cargo of cotton was shipped in 2,493
bales specIfically marked to indicate the ownership of each bale. In the course of
The rejection of the common law by the market clauses avoids the inflation in the measure
the :,oyage, the ship was wrecked, 231 bales were lost or so damaged as to
of indemnity caused by the tendency for agreed values to exceed actual values.
require sale and the remainder were conveyed to the destination in another
Thus, on the facts of Elcock v Thomson, for example, the assured's loss in terms
;es.'e1. Th~ marks on many of the bales were obliterated by sea water, rendering
of market value was £5,400. This, however, represented a 30 per cent fall in
It ImpraCtIcable to identifY their owners by any reasonable means. Of the
market value and incorporating the agreed value by the proportion method
assured's forty-three bales, two remained identifiable and were delivered. The
produced a measure of indemnity of £32,055. Although the estimated cost of
market in cotron having fallen materially, the assured then claimed as for a
reinstatement presumably placed a ceiling of just over £40,000 on the measure of
total loss of the remaining forty-one. It was held, however, that while the loss
indemnity regardless of the proportion of market value lost, the common law
and sal~ of 231 bales constituted a total loss of a part of each owner's goods,
approach inflated rhe insurets liability considerably. Since
the vanous owners should be tteated as tenants in common of the unidentifi-
high agreed values for vessels are common, a substantial level' of inflation in able delivered cotton which could be regarded as subject only to a partial loss.
the measure of indemnity would not be untypical in hull insurance and is
Each owner, including the assured, was accordingly held entitled to a ptopor-
unacceptable to hull insurers. 35 tlon of the value of the cotton lost and of the damage to the unidentifiable
cotton. The share for each owner of this compensation was determined by
Partialloss ofgoods
the proportion of the quantity shipped by that owner to rhe whole quantity
A partial loss of goods may take anyone or a combination of three different forms: shipped. .
total loss of a part, delivery at destination in a damaged condition, and
damage preventing some of the goods from completion of transit. Where g~ods are delivered in a damaged condition, as opposed to a part of the 23.31
goods being totally lost, computation of the measure of indemnity is set out in
It is convenient to commence with a total loss of a part of the insured goods, 'capable
slightly more complicated terms. By virtue of section 71 (3) of the 1906 Act:
of several and distinct valuation at rhe outset'. 36 Where the policy is unvalued,
'Where the whole or any part of the goods or merchandise insured has been
the measure of indemnity is the insurable value of the part lost. 37 Where the
delivered damaged ar its destination, the measure of indemnity is such propor-
policy is valued, section 7l(l) of the Marine Insurance Act 1906 provides for
tion of the sum fixed by the policy in the case of a valued policy, or of the
the assured to receive an appropriate proportion of the agreed vallie, namely
insurable value in the case of an unvalued policy, as the difference between the
the proportion the insurable value of the part (IVP) lost bears to the insurable
gross sound and damaged values at the place of arrival bears to the gross sound
value of the whole (IVW)." This may be represented as follows:
value.'
IVP
AVx-- This subsection reflects the fundamental principle laid down by Lord Mansfield 23.32
IVW
that .the insurance contract indemnifies only against the perils of the voyage and
A total loss of a part requires the severable part of the insured goods to be rendered an the Insurer IS concerned solely with the safety of the subject-matter insured, not
actual or constructive total loss. A mere loss of identification does not suffice. with fluctuations in the market price of the commodity in question. 40 Consequently,
According to section 56(5) of the Marine Insurance Act 1906, the basis of the measure of indemnity is provided, not by any market value of the
'Where goods reach their destination in specie, but by reason of obliteration of goods, but by their agreed or insurable value (AV or IV). The appropriate
marks, or otherwise, they are incapable of identification, the loss, if any, is proportion thereof is then calculated by reference to values of the goods at the place
of arrival where all relevant information will be avail-able. The loss to the assured
is initially represented by the difference between the gross sound value (GSV) and
34 Institute Time Clauses Hulls (1/10/83), cI 4; (1111/95), d 5; International Hull Clauses
the gross damaged value (GDV) of the goods at
(01/11/03), cl14.
See D O'May, Marine Insurance Law and Policy (1993) 446-8.
Lewis v Rucker (1761) 2 Burr 1167, 1170 per Lord Mansfield.
37 MIA 1906, s 71(2). For the insurable value of goods, see s 16(3), 23.04'above.
38 See, eg Anstey v Ocean Marine Insurance Co Ltd(1913) 19 Coin-Cas 8. " (1868) LR 3 CP 427. " Lewis v Rucker (176l) 2 Butr 1167,1170.
738 739
Measures ofIndemnity Thresholds to Recovery
the place of arrivaL41 However, this figure is unsatisfactory "" a me""ure of paid in advance and was earned on shipment. The vessel subsequently being a total
indemnity because it is affected by the state of the market in the goods. loss, the measure of indemnity reflected a reduction in the agreed valuation to take
Consequently, that figure is then expressed as a proportion of the gross sound accounr of rhe advance freight not at risk, giving the following equation:
arrived value and the assured is entitled to rhat proporrion of the agreed or (£3250 - £925)
insurable value. The resulring measure of indemniry, encapsulated in section 71 £5500 x £3250 = £3,889
(3), may be expressed"" follows:
(GSV -GOY) Consequently, a true loss of £2,325 generated a measure of indemnity, after
AVorlVx GSV factoring in rhe agreed value, of £3,889. However, the Institute freight clauses
impose a ceiling on recovety of the gross freight actually lost in order to avoid such
This is, of course, the same equation as favoured ar common law for calculating inflation.45
the measure of indemniry for depreciarion loss in rhe case of damaged bur
unrepaired vessels, discussed at paragraph 23.23 above. The gross damaged value (d) One agreed value covering several species ofproperty
does not include the cost of any necessary conditioning of the goods prior to sale In a valued policy, a single valuation may cover different species of property, 23.37 in
in their damaged state. Such expenses are recoverable separarely as suing and which case, unless a casualty results in a total loss of all the insured property, it will be
42
labouring charges. necessaty to apportion the valuarion berween rhe different
species before adjusring parriallosses. According to rhe Marine Insurance Act 1906,
The thitd form of partial loss of goods occurs where part is necessarily sold at an
such apportionment is effecred by reference to the insurable values of the whole
intermediate port because of unfitness to continue to the destination by virtue ofa
property and of the various differenr species. Where absence of relevant
casualry caused by a covered peril. The 1906 Act is silent with respect to this information prevents determinarion of rhe insurable values, the Act provides for
situation. Logically the insurer should pay as for a total loss of a parr less rhe apportionment to follow net sound arrived values, qualities, or descriptions of
proceeds of sale. Expenses incurred in the sale will again be recoverable as suing 46
goods. However, the practice of average adjusters is to appor-tion different
and labouring charges.
qualities or descriptions of cargo on invoice values wherever possible and
47
Should different parts of rhe same insured cargo suffer different forms of partial loss, the otherwise, bur only in default, to rely upon net arrived sound values.
appropriate measures of indemnity will require separare calculation.
Partial loss offreight

In the case of a partial loss of fteight, the measure of indemnity is such propor-tion of the B. Thresholds to Recovery
agreed or insutable value as the proporrion of freighr lost by rhe assured (FL)
bears to the total freight at the risk of the assured under the policy (TF).43 This An insurer may be unwilling to accept liability for the full extent of losses and 23.38 for all
may be represented as follows: losses no matter how trivial for three reasons. First, the administrative
FL costs of investigation and adjustment are not economically viable in the context of
AVorIVx- small claims. Secondly, where a portion of the risk remains with the assured, it
TF
provides an added incentive to avoid and minimize losses. Thirdly, the nature of
23.36 The Main" concerned a policy on return freight with an agreed value of £5,500. A certain goods may render it difficult to determine whether the true cause of damage
casualty on the ourward voyage delayed the return voyage, the freight rates fell is a covered peril or inherent vice. Accordingly, a variery of clauses have evolved
and the vessel ultimately sailed with a total freight of £3,250, ofwhich £925 was excluding or limiting an insurer's liabiliry.
41 That gross rather than net values should be used was established in Johnson v Sheddon 4S InStitute Time Clauses Fteight (lf8189), cI 13.1; (1111195), cI 14.1; InStitute Voyage Clauses
(1802) 2 East 581, where it is shown that use of net values would permit the state of the market Freight (118189), cI 11.1; (1!l1195), cI 10.1. Compare the approach of the hull clauses to the measure
to affect the measure of indemnity. For the meaning of gross value, see MIA 1906, s of indemnity for depreciation, see 23.23-23.24 above.
71(4). MIA 1906, s 72.
42 Francis v Boulton (I 895) 65 LJQB 153. 43 MIA 1906, s70. . Rules of Practice of the Association of Average Adjusters 1986 (amended 1992), r E3 .
.. [1894] P 320.
741
740
Measures ofIndemnity Thresholds to Recovery
6 (including, if applicable. Clause 6 as amended by Clauses 37 or 38), Clauses 8

Particular Average Warranties and 9 and, if applicable, Clause 41) exceeds the deductible amount agreed in
A warranty that insurance is free from particular average confines ~e insurels liability to total whIch case thIS sum shall be deducted. Neverrheless the expense of sighting the
losses together with certain expendi:ure ~ndcharges ill~~rred by botrom after stranding, if reasonably incurred specially for that putpose, shall be
the assured in connection with the avoidance or mlllimizlllg of losses. Where paid even if no damage is found.
. I ded such a clause affords added significance to the correct classification of
lllCU , . . f
The essence of the clause is that the value of all claims under the policy of any 23.41
a loss as total or partial and, where appropriate, the proper ~e,:,,:ceof a notIce 0
nature whatsoever should be aggregated and the total subject to the agreed deductible.
abandonment. Flexibility is, however, provided by the possIbility of warrantlllg
Thus, suppose the insured vessel is responsible for colliding with another vessel, as a result
free from particular average below a percentage approptiate to the commodity
~ h h' of which the ins.ured vessel requires the assistance of a salvage tug and has to put into a
in question, such as three or five per cent. Moreover, were t e Insurance port of refuge for emergency repairs before completing its voyage. The insured shipowner
contract is apportionable, the assured may recover for a to.tal loss of any will have claims under clause 2
apportionable part. 50 The contract is apportionable .where It .covers either for damage to the insured vessel, clause 6 for collision liability (as extended if
different species of property, even if not llldlVldually IdentIfied III the policy, or applicable by clause 38 to four-fourths liability), clause 8 for the vessel's share of
separate parcels of the same species separately valued or otherwise sep-
any salvage award under Article 13 of the International Convention on Salvage
arately insured.51 General insurance of goods shipped ill bulk IS nor rendered
1989 and also for general average losses (as extended if applicable by the general
apportionable by rhe mere facr rhat rhe goods. are packed in a n~mber of
average absorption provision in clause 40) and clause 9 for any suing and labouring
separate containers. 52 Particular average warranties ha~e not fallen lllto tOtal
expenses. The measure of indemnity for each of these claims is calcu-lated and the
obsolescence, 53 bur have been discarded III the InstItute and International clauses
measures are then aggregated. The deductible falls to be subtracted from the total so
in favour of deductibles and franchise clauses.
generated.
Deductibles" Clause 15.2 provides for the possibility of a separate 'machinety damage 23.42 deductible'''
applicable to claims fot 'loss of or damage to any machinery, shaft, electrical equipment or
By virtue of a deductible, rhe assured retains a specified proportion of the risk. The
insurer's liability is limited to the amount, If any, by whiCh the measure of wiring, boiler, condenser, heating coil or associated pipework' where, first, the claim either
indemnity exceeds the stipulated amount. In the International Hull Clauses arises under the Inchmaree clause" or
(01111/03), clause IS provides for a deductible. Clause 15.1 provIdes as from a fire or explosion that has originated in a machinery space and, secondly, the
follows:" policy incorporates the additional perils clause 58 and no claim arises under it.
Subject to Clause 15.2, no claim arising from a peril insured under, this i~~urance Where such a machinery damage deductible has been agreed, it is applied to the
shall be payable under this insurance unless the aggregate of all claIms ansmg out of aggregate valLle of all eligible machinety damage claims arising out of the same
each separate accident or occurrence (including claims under: Clauses 2, 3, 4, 5, 'separate accident or occurrence' and the balance, if any, is then brought into
account under clause 15.1 and subject to the main policy deductible.
Both the main policy deductible under clause 15.1 and the machinety damage 23.43
48 The expenditure and charges fall into three cate~ori.e~, n.amely general average,
salvage deductible under clause 15.2 provide for aggregation of claims 'arising out of
charges and particular charges (including contractual habIltty 10 salvage) and other expens~s each separate accident or occurrence'. Otherwise, whether a new accident or
recover~ble under a sue and labour clause. These are discussed in Ch 24 below. For thelr occurrence has arisen, requiring application of a second deductible, depends upon
recoverabiliry notwithstanding a particular average warranty, see MIA 1906, s 76(1), (2).
whether there has been a break in the chain of causation so that the claim can no
49 On calculating whether such percentages have been reached, see MIA 1906, s 76(3), (4).
so ibid s 76(1). . . longer be said to arise from (in the sense, presumably, of being proximately caused
" Ralti v janson (1856) 6 El & B1422; Duffv Mackenzie (1857) 3 CB(NS) 16; Wilk,mon v by) the first accident or occurrence.S9
Hyde(1858) 3 CB(NS) 30. .'
52 Ralli vJamon (1856) 6 EI & B1422. Despite consIderable ove.dap, ~ ~otalloss of a part under
MIA 1906, s 71 (1), (2) is nOt, therefore, synonymous with apport10nabI~Ityunder s 76(1). ,
53 For an example of a particular average warranty i~ a ,modern pohcy, ~ee Bank ofAmenca
56 There is no corresponding provision in the Institute hull clauses.
National Trust dr Savings Association v (nri!mas .(Thef(yrtakiJ (1993J / L1oy~ s ,~ep 1.37. 57 d 2.2, discussed in eh 11 above. 58 d 44, discussed at 11.28 above.
54 Termed an 'excess clause' in non~manne direct Insurance and a retentIon In reinsurance.
59 For the views of the Committee of the Association of Average Adjusters, see N Hudson and
55 See also Institute Time Clauses Hulls (1/10/83 and 1111195); cI 12.1. T Madge, Marine Insurance Clauses (4th edn, 2005) 133-5.
742 743
Measures ofIndemnity Under-insurance
In order ro provide a measure of cerrainry, clause 15 expressly addresses two 'This insurance does not cover partial loss, other than general average loss, under
readily foreseeable areas of porential difficulry in applying rhe norian of a separ- 3% unless caused by fire, sinking, stranding or collision with another vessel. Each
are accident or occurrence. First, clause 15.460 addresses 'heavy wearher', an craft and/or lighter ro be deemed a separate insurance if required by the assured.'
expression stated to include conracr with floating ice. All claims for heavy wea- The franchise restriction does not apply, thetefore, in cases of total loss, to claims
rher damage incurred 'during a single sea passage between two successive ports' in respect of general average, and ro parriallosses where the cause of the loss is fire,
are deemed ro arise from one and rhe same accident. Purting inro any parr for any sinking, stranding, or collision with another vessel. The second sentence of the
ordinary purpose, wherher for bunkering or cargo handling, will rerminate rhe sea clause permits the assured to apply the franchise clause severally where the
passage with a new such passage commencing on departure for another port. insurance covers freight to be earned by a number of craft and/or lighters and the
Where, however, a vessel mal,es an extraordinary, unscheduled srop, for example loss amounrs to three per cent in respect of one or more individual craft and/or
for emergency medical assistance for a crew member, it is unclear whether the lighter bur not with respect ro the whole freight insured.
scheduled single sea passage would be divided.
Should the policy expire in the course of such a voyage, clause 15.4 provides for the C. Under-insurance
aggregated claims for which the insurer is liable to be subject ro a reduced
deductible. This is calculated on a proportionate basis according ro the propor-tion There is no obligation to insure properry for its full value. In order to obtain a 23.49
that the number of heavy weather days falling within the period of cover bears to lower premium or to spread cover among a number of differenr insurers, the
the rotal number of heavy weather days during the single sea passage in question. assured may decide to insure for only a proporrion of the properry's value. In
such a case, section 81 of the Marine Insurance Acr 1906 provides as follows:
'Where the assured is insured for an amounr less than the insurable value or, in
Further assistance on aggregation is provided, secondly, in the conrext of oper-ations to
the case of a valued policy, for an amount less than rhe policy valuation, he is
lighten the insured vessel or to load or discharge cargo from or to another vessel
deemed to be his own insurer in respect of rhe uninsured balance.' For its parr,
while at sea. Clause 15.5 provides that claims fat damage during any such separate
the insurer is, accordingly, liable only for such proportion of the loss as the
operation are ro be treated as due to one accident.
amounr of its subscription bears ro the agreed value in a valued policy (AV) or
The deductibles do not apply ro all claims. By virtue of clause 15.3, neither the main the insurable value in an unvalued policy (IV)." This is known as the principle
policy deductible under clause 15.1 nor any machinery damage deducrible under of average.
clause 15.2 applies to a claim for an actual or constructive total loss of the insured
Assume, therefore, a valued policy under which properry is valued at £100 and 23.50
vessel, nor to any claim for suing and labouring expenses unde~ clause 9 arising
from the same accident or occurrence thar gives rise ro a roralloss. 61 In addition, insured for £80. By virrue of section 27(3), the contractual value of the insured
clause 15.! itself provides thar ir does not apply to claims for reason-able expenses properry at £100 will be presumed conclusive. A toralloss under a valued policy
in sighting the botrom after a stranding regardless of whether the prima ficie enrides the assured ro indemnification in the sum of the agreed value,
srtanding has occasioned the vessel any damage. namely £100. However, section 81 renders the assured its own insurer for the 20
per cenr under-insurance and it must, therefore, carry one-fifth of the loss itself.
The insurer's liabiliry is limited to £80. The result of section 81 is that the measure
Franchise Clauses
of indemniry, whether for a total or parrial loss, is derived as follows:
The difference between a deductible and a franchise clause is rhat, whereas under a
deducrible the assured always bears a proporrion of the risk, under a franchise Sum insured
clause the insurer pays the loss in full once the designated threshold has been Measure of indemniry where fully insured X -----
achieved. The Institute freight clauses conrain the following franchise clause:" AV/IV
In cases of total loss, this will give the assured the sum for which the properry is
insured. The real effect of average, therefore, is felt in cases of parrialloss.
See also Institute Time Clauses Hulls (1110/83 and 1/11/95), cI 12.2.
See also Institute Time Clauses Hulls (1/10/83 and 1/11/95), cI 12.1.
Institute Time Clauses Freight (1/8/89 and 1111/95), cl12; Institute Voyage Clauses Freight
(1/8/89 and 1/11/95), clIO. 63 MIA 1906. s 67(2).
744 745
The principle of average does not generally apply to liability insurance. Where a policy
ot a section of a policy covers the thitd patty liability of the assured, if covet is
limited by a sum insuted and liability on the facts exceeds that figure, the
assured is entitled to a measute of indemnity equal to the sum insured and not
metely such ptoportion of that figure as the sum insured beats to the 24
liability incurred. 64 Average does apply, however, to liability in genetal
average contn'b'uttonand salvage. 65
AVERTING AND MINIMIZING LOSS
" Joyce v Kennard (l 87 I} LR 7 QB 78; Cunard Steamship Co Ltd v Marten [1902J 2 KB 624.
65 See 24.73-24.74 below.
Sue and Labour Expenses of cover and the sue and
Comractual wordings 24.03 labour doctrine 24.33
Required standard of conduct (11) Expenses recoverable under a
Persons falling within the sue reimbursement undertaking 24.37
and labour doctrine 24.09 B. General Average 24.41
OUt)' or liberty? Consequences of (1) General average losses
non~compliance with section 78(4) and liabilities 24.44
Joint and composite insurance (2) Insurance of general average
Negligence cover and the sue and 24.18 losses and liabilities 24.48
labour doctrine C. Salvage 24.56
24.19 (1) Salvors' remuneration 24.58
Entitlement to reimbursement
of expenses (2) Insurance of liability for salvage
24.25 remuneration 24.62
Supplementary nature of the sue
and labour reimbursement D. Under-insurance 24.70
undertaking (1) Sue and labour 24.71
Suing and labouring in
24.29 (2) General average and salvage 24.73
anticipation of a peri! (3) Insutance against a shortfall
24.30 24.75
Relationship between the period by reason of under-insurance
This chapter is concerned with ancillary heads of cover undet which an assured 24.01
can recovet in tespect of losses and liabilities incuned voluntatily Ot by law in
order to avert or minimize loss. It addresses the tecoverability of sue and labour
expenses, of losses and liabilities arising in general avetage, and of liability for
the diffetent awards that may be made at law and undet conttact to salvors. A
final section then considets the issue of undet-insutance in respect of each of
these heads of ancillary loss.
A. Sue and Labour Expenses
It is clearly in the intetest of the insutet that an assured should take all reason- 24.02
able measures to minimize Ot, prefetably, avoid entirely any loss falling within
746 747
Averting and Minimizing Loss Sue and Labour Expenses
the tetms of the policy. Most modern marine policies follow in the tradition of the 16.1 to take such measures as may be reasonable for the purpose of averting or
SG policy and address this interest through express contractual terms. Sec-tion 78 minimising such
loss) and
of the Marine Insurance Act 1906 contains three presumptive rules of
16.2 to ensure that all rights against carriers, bailees or other third parties are
intetpretation of such so-called 'sue and labour clauses', but subsection (4) provides properly preserved and exercised
that: 'lt is the duty of the assured and his agents, in all cases, to talce such measures
and the Underwriters will, in addition to any loss recoverable hereunder,
as may be reasonable for the purpose of averting or minimizing a loss.' This reimburse the Assured for any charges properly and reasonably incurred in
statut0ty duty to sue and labour appears to exist alongside any express pursuance of these duties.
1
contractual term.
This clause amalgamates the traditional sue and labour clause with the so-called
'bailee clause', designed to protect insurers' subrogation rights.4
Contractual Wordings
The rules of mutual insurance associations contain similar provisions requiring 24.06
The SG policy contained the following 'sue and labour' clause:
the taking of reasonable measures to avoid insured losses. No such clause is,
And in case of any loss or misfortune it shall be lawful to the assured, their 5
however, found in the Institute fteight clauses.
factors, servants and assigns, to sue, labour, and travel for, in and about the defence,
safeguards, and recovery of the said goods and merchandises, and ship, &c, or any
(2) Required Standard of Conduct
part thereof, without prejudice to this insurance: to the charges whereof we, the
assurers, will contribute each one according to the rate and quantity of his sum As indicated by the reference to 'reasonable' measures in section 78(4) of the 24.07
herein assured. 1906 Act and the express sue and labour clauses, a plea of failure to sue and
The Institute and International hull clauses contain rhe following clause entirled 'Duty of labour requires proof of negligence by a televant person, negligence being
the Assured (Sue and Labour)':' 'In case of any loss or misfortune it is the duty of assessed by reference to the conduct that might reasonably be expected of a
the Assured and their servants and agents to talce such measures as may be person of normal competence in the circumstances of the peril that occurred. In
reasonable for the purpose of avetting or minimising a loss which would be The Talisman: the assuted was required to 'use all reasonable endeavours to save
recoverable under this insurance.' This is complemented by an express prom-ise to his vessel' from loss or damage. The master found a quantity of water in the
contribute to charges 'properly and reasonably incurred' in connection with such engine room bilge. Believing he had a choice berween closing the seacocks or
measures. leaving them open and allowing the pumps to eject the water, he took the latter
course. The vessel, however, sank. The insurets contended that expert evidence
In the Institute Cargo Clauses (A), (B), and (C), clause 16 is termed in the margin a 'Duty
demonsttated that the loss could have been averted by opening the seacocks.
ofAssured Clause', is entitled 'Minimising Losses', and provides as follows:'
The House of Lords held that this evidence failed to address the relevant issue,
It is the duty of the Assured and their servants and agents in respect of loss namely whether 'an ordinary competent skipper, in citcumstances in which
recoverable hereunder the pursuet was placed, would teasonably be expected to attempt to close the
seacocks'. It proved only that 'a more knowledgeable individual, viewing the
situation dispassionately' might have realized that closing the seacocks would
1 Strive Shipping Corp v Hellenic Mutual W'ar Risks Association (Bermuda) Ltd (The Grecia have offeted a significant prospect of saving the vessel. 7
Express) [2002] Lloyd's Rep IR 669, paras 481-501. In Cunard Steamship Co Ltd v Marten
[1903J 2 KB 511, the sue and labour clause was held inapplicable on its wording to the policy in In Bayview Motors Ltd v Mitsui Marine'& Fire Insurance Co Ltd,' insurets argued 24.08
question, but no possibility was mentioned of recovery instead at common law. The case, however, pre- that the assureds had failed to sue and labour in failing to institute ptoceedings
dates the 1906 Act and the generality of the sue and labour doctrine as subsequently articulated by s
78(4} may not have been appreciated. Assuming the dual analysis is correct, the true interpretation of
an express sue and labour clause may, of course, be to exclude any residual
statutory duty. "
, Institute Time Clauses Hulls (1IIO/83), cl 13.1; (1/11/95), cl 11.1; International Hull See 25.20 below.
Clauses (01111103), cl9. L The sue and labour clauses in the Institute hull clauses are See also the loss of hire policy in Ikerigi Campania Naviera SA v Palmer (The WOndrous)
incorporated by reference into the corresponding war and strikes clauses. . " [1992] 2 Lloyd's Rep 566, 576.
3 Also the Institute War Clauses (Cargo}, Strikes Clauses (Cargo), d 11. 6 Stephen v Scottish Boatowners Mutual Insurance Association (The Talisman) [1989J 1 Lloyd's
Rep 535.
, ibid 540 per Lord Keith. 8 [2002] EWHC 21 (Comm), [2002] 1 Lloyd's Rep 652.
748
749
for the recovery of insured property stolen by local customs officials. However, charge the defendant by way of damages with any greater sum than that which he
the insurers' own agents had stated that such proceedings would be 'lengthy and reasonably needs to expend for the purpose of making good the loss. In short, he is
fruitless' and the argument was duly rejected. fully entitled to be as extravagant as he pleases bur not at the expense of the
defendant'. Accordingly, whereas the victim of a breach of contract owes no
Persons Falling within the Sue and Labour Doctrine genuine duty to take reasonable steps to minimize the consequences of the breach,
any loss that would have been averted by such steps is not recoverable from the
The staturory sue and labour doctrine requires the taking of reasonable meas-ures to avert
perpetrator of the breach. Mitigation is not a duty bur a liberty or privilege, and the
or minimize a loss by the assured and its agents. Contractual sue and labour
innocent party enjoys rhe freedom not to mitigate, albeit not at the expense of the
clauses commonly refer also to the assured's servants. Such formulae do not
contract breaker."
embrace, or are at least unlikely to embrace, independent contractors. In State
o/the Netherlands v Youell' insurers sought to resist a claim brought by the Dutch In Currie (MR) & Co v Bombay Native Insurance CO,15 the master of a wrecked 24.12
navy in respect of the defective painting of rwo submarines built by a shipyard, on and aground vessel gave notice of abandonment of the cargo and sold it by
the basis that the deficiency was occasioned by negligence on the part of the yard auction. He had, however, unjustifiably taken no steps whatever to save the
amounting to a breach of section 78(4). It was held, however, rhar the yard could cargo, a large portion of which was subsequently saved. The cargo was insured
not be regarded as the navy's agent for the purposes ofsection against toralloss only. The Privy Council held that under such circumstances
78(4), or even at all. According to Rix J, in a passage approved on appeal: 10 there was no total loss and the notice of abandonment was invalid. However, it
was stared obiter that the omission of the master to attempt to save the cargo 'at
.. . the yard was dealing with the submarines not as the navy's agent but as the
submarines' builder under a building contract. It would in my judgment be a a time when it was probable that his endeavours would be successful, in their
misuse of language to call the yard in such a case an 'agent'. The navy was not Lordships' judgment, precludes the Assured from claiming for a total loss of the
delegating anything to the yatd, let alone a duty to sue and labour. Under that cargo into whatever condition it might have been brought afterwards', 16 dicta
building contract the yard was responsible for building the submarines without that constitute the basis of section 78(4) of the 1906 Act. Such dicta are entirely
defects and thus for repairing any defects prior to delivery: the latter was part of its
consistent with a doctrine analogous to mitigation and with the permissive
obligations as builder, both in common sense and under the express terms of the
language of the traditional suing and labouring clause."
policy.
A further difficulty with regarding section 7S(4) as imposing a genuine duty lies 24.13
Duty or Liberty? Consequences of Non-compliance with Secrion 7S(oi) in the inclusion in the subsection of the assured's agents.'s In the absence of any
Section 78(4) of the Marine Insurance Act 1906 is concerned with avoiding and clear legislative intent, it would, it is suggested, be unsatisfacrory for the dicta in
Currie v Bombay to be transfotmed into a statutory duty owed to the insuter by
minimizing losses otherwise falling on the insurer, which is viewed ~as having
persons who are not patty ro the insurance contracr and sounding in damages
broken a contractual obligation to keep the assured free from the specified loss or
expense." The general law of contract recognizes a doctrine of mitigation of loss, for breach. 19 Its derivation suggests that section 78(4) is intended to render the
under which the victim of a breach of contract is often said to be under a 'duty' to assured's right to recover under the contract subjecr to the taking of reasonable
miuimize losses flowing from the breach. However, it is well estab-lished that 'the
duty to mitigate is not in any sense an obligation, contractual or otherwise. It is a
condition attached to the right to claim damages'. " 14 Similarly, ownership of a vessel imports the privilege of deliberate destruction. The law on
wilful misconduct and fraudulent claims in no way detracts from the privileges of ownership, but
In Darbishire v WtZrran,13 Pearson LJ observed that a claimant 'is not entitled to ensures that such privilege cannot be exercised at the expense of the insurer. The fraud lies not in
the destruction of the vessel but in the basing of a claim against the insurer upon such a loss.
,s (1869) LR 3 PC 72. " ibid 82-3.
See also Lord Blackburn in Aitchison v Lohre (1879) 4 App Cas 755, 765 (object of the
9 [1998J 1 Lloyd's Rep 236. sue and labour clause was 'to encourage exertion' by the assured).
" [1997J 2 Lloyd's Rep 440, 459. approved [1998J 1 Lloyd's Rep 236, 246, 247. F Rose, 'Failure to Sue and Labour' [1990J ]BL 190.
11 See 22.65 above. ' It is no answer to say thar damages will not in practice be recoverable since the indemnity
12 Soriros Shipping Inc v Sameiet Solhoit (The Soihoit) [J9811 2 Lloyd's Rep 574, 580 per payable to the assured will simply be pro tanto reduced. Damages payable by X to Y cannot
Staughton]. affd [1983J 1 Lloyd's Rep 605, 608. be set off against a sum payable by Y to Z. It is conceivable, moreover, that the insurer might
13 [1963] 1WLR 1067, 1075, applied Koch Marine Inc v D'Amica Societl,rDi NavigazioneARL pay the assured by mistake and then seek reimbursement from the agent for breach of duty,
(The Elena D'Amico) [1980J 1 Lloyd's Rep 75, 88. the assured having become insolvent: ibid 197.
750 751
steps to avert or minimize loss by both the assured and the assured's agents. The Interpretation of section 78(4) as imposing a condition on recovery rather than 24.16
subsection might perhaps be interpreted as rendering the assured, but only the a genuine duty does not, of course, prevent an express sue and labour clause
assured, answerable for any failure to sue and labour on the part of either itself or from imposing a genuine duty if such is its true interpreration. In The Vasso,24
its agents, with the insurer entitled to set off damages for breach against the clause 16 of the Institute Cargo Clauses (A) was regarded as imposing a con-
indemnity payable under the policy. It is, however, suggested rhat analysis of tractual duty sounding in damages for breach. There was, however, no con-
section 78(4) as creating a condition to recovery analogous to the doctrine of sideration of how the reference to persons other than the assured was to be
mitigation in general contract law is a more natural way of achieving this result. accommodated in terms oflegal principle."
Such an analysis was indeed adopted by Colman J in National Oilwell (UK) Ltd A sue and labour provision may, of course, address the consequences of non- 24.17
Davy Offihore Ltd,20 where it was specifically held that damages are not avail- compliance. Such provisions in the rules of mutual insurance associations
able for a breach of section 78(4). Focusing on the reference to 'duty' in section often state that non-compliance entitles, at the discretion of the association's
78(4), Colman J reasoned as follows:" directors, rejection of the claim in its entirety or reduction in the measure of
indemnity.
On the construction of this provision which I consider to be correct the assured is
certainly under a duty in the sense that in cases where an omission to act as a
prudent uninsured might be the proximate cause of an insured loss, he fails to act at (5) Joint and Composite Insurance
his peril. However, the consequence of his omission to act is that no insured loss
The unity of interest insured under a joint policy means that a failure by one 24.18
occurs. Ex hypothesi no such loss can occur because the proximate cause of any such
loss would not be an insured peril but rather the uninsured peril of the assured's or this joint assured to sue and labour as required by statute or contract is opposable
agent's omission to act. In such a case the insurers would have a defence to the claim, against all joint assureds. In contrast, the severable or separate interests of co-
but they would have no set-off or counterclaim unless they had already paid on the assureds under composite policies means that a failure to sue and labour by one
assured's claim and were seeking to recover what they co-assured does not prejudice the cover of other co-assured interests.
had paid.
A causation-based approach to section 78(4) was adopted also at first instance (6) Negligence Cover and the Sue and Labour Doctrine
by Rix J, drawing a parallel with the doctrine of mitigation, and on appeal by
Section 55(2)(a) of the Marine Insurance Act 1906 provides that the assured is 24.19
Phillips LJ in State ofthe Netherlands v Youell." On this approach, therefore,
not to be denied recovery because the loss would not have occurred but for the
failure to sue and labour confers on the insurer no cause of action by way"of
negligence of the master or crew. This requires reconciling with section 78(4),
primary or cross-claim. Instead, the insurer is simply not liable in respect of losses
which denies recovery or reduces the measure of indemnity where the assured
it can prove" were caused by the failure to take reasonable steps by any of the
has negligently failed to avoid or minimize loss.
specified parties. Where the effect of a failure to take reasonable steps is to
aggravate damage thar would inevitably have been incutred, the measure of It is clear that section 78(4) cannot be read as undermining section 55(2)(a). 24.20 In
indemnity is pro tanto reduced to the extent that the insurer can prove the extent British & Foreign Marine Insurance Co v Gaunt," Lord Sumner dismissed a contrary
of the aggravation. argument as follows:
There remains an argument based on a reading of s 78 sub-s 4, of the Act which is very
novel. It is one of the disadvantages of codification that new terms used or even
unfamiliar sequences of propositions suggest that the law has been changed, where
[199312 Lloyd's Rep 582.
those familiar with the old decisions would not have suspected it. The argument affords
ibid 619. Also 623. Colman J thereby declined to follow the dicta of Mocatta J, apparently
recognizing an actionable duty, in Astrovlanis Compania Naviera SA v Linard (The Gold Sky)
a striking instance of this. The secrion obviously refers to suing
[197212 Lloyd's Rep 187, 221. A contractual dury approach to MIA 1906, s 78(4) was indicated and labouring. It cannot possibly be read as meaning that if the agems of the
obiter by Hobhouse J in Noble Resources Ltd v Greenwood (The VdS.io) [19931 2 Lloyd's Rep 309,
314, but Colman] reiterated and applied his analysis in Strive Shipping Corp v Hellenic Mutual Wilr
Risks Association (Bermuda) ltd (The Grecia Express) [2002J Lloyd's Rep IR 669, paras 484,
499-501. 20 Noble Resources Ltd v Greenwood (The Vasso) [199312 Lloyd's Rep 309, 314. See also Strive
[199712 Lloyd's Rep 440, 458, [199811 Lloyd's Rep 236, 245. Shipping Corp v Hellenic Mutua! \Vtzr Risks Association (Bermuda) Ltd (The Grecia Express) [2002J
Roper vJohnson (1873) LR 8 CP 167 (the contract breaker carries the o~rden of proving a Lloyd's Rep IR 669, para 489.
failure to mitigate). 2S See 24.13 above. 25 [192l]2AC41,65.
752 753
Averting and Minimizing Loss Sue and Labour Expemes
assured are not reasonably careful throughout the transit he cannot recover for The complete solution to the apparent conflict lies in the causation-based 24.24
anything to which their want of care contributes. The point therefore fails. analysis of the sue and labour doctrine as a condition upon recovety.35 On
this analysis, rhe assured will be denied recovery by a failure to sue and labour
24.21 Moreover, in the leading case of Lind v Mitchel4 27 section 55(2)(a) was held to
only where the negligent failure to avert or minimize loss constitutes the
prevail over secrion 78(4) where a master, in response to an insured peril,
unreasonably and negligently abandoned the vessel. Scrutton LJ quoted the proximate cause of the 10ss.36 Where the chain of causation is broken, the
above statement of Lord Sumner, expressed his agreement, and held that insurer is not liable simply because the cause of the loss is not a covered peril
section 78(4) was therefore excluded from the case.'s The insurers were, (thus accommodating section 55(2)(a), which does not make negligence a
accordingly, liable as the proximare cause of the loss was the insured peril. covered peril) unless under the wording of the particular policy the negligence
itself constitutes a covered peril. Thus, in Lind v Mitchel4 37 Scrutton LJ
One possible basis for reconciling cover in respect of negligence and requirements to considered that, if the master's conduct broke the chain of causation, the
exercise reasonable care to avoid loss lies in the rule that a contract is not to be insurers remained liable because negligence was also a covered peril under the
construed in a manner repugnant to its commercial purpose. In order to avoid the Inchmaree clause. The net result is that section 78(4) will rarely afford
effecrive deletion of cover, requirements of 'reasonable care' have been
insurers a defence to a claim. It is highly unlikely that negligent conduct of
interpreted as infringed by subjective recklessness rather than the objective neg-
the assured, its agents, or some other party specified under a sue and labour
ligence traditionally associated with failure to act reasonably.29 In Lane (W & J) clause will be held to break the chain of causation so as to constitute the
v Spratt,30 this approach was adopted by Roskill J with respect to a due diligence proximate cause of the loss and highly likely that the negligence of any such
clause in a Lloyd's goods in transit policy thar required the assured to take 'all
person that does achieve proximate cause status will be a covered peril under
reasonable precautions for the protection and safeguarding of the goods'. How-
the Inchmaree clause. 38
ever, while this remains a possible interpretation of a particular express sue and
labour clause, the endorsement by the House of Lords of a negligence standard in
(7) Entitlement to Reimbursement of Expenses
the sue and labour conrext in The Talisman" would appear to exclude the
repugnancy rule ftom providing a general solution to the conflict between The sue and labour provisions in the Institute and International clauses 24.25
negligence cover and the sue and labour doctrine in marine insurance law. contain express undertakings to reimburse expenses reasonably incurred in
averting or minimizing a loss. In default of such a reimbursement undertaking
It is also not possible to draw a temporal distinction between negligence cover and suing
in an express sue and labour clause, an entitlement to recover is implied by
and labouring on the basis that the former is concerned with how a loss
statute. 39 In contrast, the Marine Insurance Act 1906 is silent as to whether
is caused while the latter addresses the aftermath ofand response to a loss. The sue
an assured that has incurred expenditure pursuant to section 78(4) in taking
and labour doctrine is not so confined. It is true that one can only sue arid labour
reasonable steps to avert or minimize a loss, or has incurred a liabiliry to
in response to the advent ofa peril or the threat ofa peril. 32 Consequently, certain
reimburse an agent for such expenditure, is entitled to seek reimbursement
negligent conduct that leads to a peril will indeed be too remote from the loss to
from the insurer.
fall within the purview of the sue and labour doctrine. There remains, neverthe-
less, considerable temporal overlap while a peril threatens" or indeed while the In Emperor Goldmining Co Ltd v Switzerland General Insurance Co Ltd,40 the 24.26
insured property is in the grip of a sustained peril. 34 Supreme Court of New South Wales held that expenses can be recovered when
incurred pursuant to section 78(4). Notwithstanding the contrary view adopted
(1928) 34 Com Cas 81.

Lawrence L] agreed and Sankey L] delivered a shorr concurring judgment.
" See 8.21 above. 30 [197012 QB 480. 3S See 24.14-24.15 above.
31 Stephen v Scottish Boatowners Mutual Insurance Association (The Jalisman) [1989J 1 Lloyd's State ofthe Netherlands v Youell [1997J 2 Lloyd's Rep 440, 458, [199811 Lloyd's Rep
Rep 535, discussed at 24.07 above. 236, 244-5.
State ofthe Netherlands v Youell [19981 1 Lloyd's Rep 236, 249. (I928) 34 Com Cas 81.
.A:; in Integrated Container Services Inc v British Traders Insurance Co [1984] 1 Lloyd's For negligence cover under the Inchmaree clause, see 11.37~11.42 above.
Rep 154, discussed at 23.31 above. MIA 1906, S 78(1). The rules of mutual insurance associations often contain provisions
34 As in Stephen v Scottish Boatowners Mutual Insurance Association (The" Talisman) [1989J requiring the taking of reasonable measures to avert or minimize losses without any express
1 Lloyd's Rep 535, discussed at 24.07 above. corresponding reimbursement undertaking.
[19641 1 Lloyd's Rep 348.
754
755
obiter by Neill J in Integrated Container Service Inc v British Traders Insurance Co is partial under a policy that covers only totallosses,48 where the cause of the loss
Ltd,41 mis, it is suggested, must be correct.42 First, if the law denied the assured is a peril excluded or simply not covered by the policy,49 or where the insurer has a
recovery in the event of failure to exercise reasonable care to avoid or minimize defence to any claim in respect of the avoided 10ss.50 Where expenses
an insured loss yet required the assured to carry the cost of reasonable steps are incurred in parr to avert or minimize an insured loss and in part to avert or
taken, the net effect would be to deny the assured full indemnification minimize an uninsured loss, liability for such expenses is apportioned pro-
wherever reasonable steps involving some coSt could be taken. This is hard to portionately between assured and insurer. 51 Provided, however, expenses are
justifY or to accept as a sensible commercial interpretation. Secondly, law that incurred to avert a covered loss, no apportionment is required by the fact that
is prepared to imply an entitlement to reimbursement of expenses into any the same expenses serve also to avert another loss that is not covered. 52
exptess sue and labour clause, should not deny a similar entitlement where the
underraking of reasonable steps is not expressly agreed but implied by law. A particular example of expenses for mixed purposes arises where an insured 24.28
Thirdly, in The Mammoth Pine,4' the Privy Council held that a 'bailee clause' that vessel toget~er with other property on board are in a position of grave peril
required the assured to ensure that all third party rights were ptoperly preserved such that successful salvage is unlikely and the only basis on which a
gave rise to an implied undertaking to reimburse expenses reasonably incurred by contractor will endeavour to save the property at risk is payment for work
the assured in so acting for the insurers' benefit. Fourthly, further suppOrt, if irrespective of result rather than the salvage basis of 'no cure-no pay'. Assume
needed, may be found in the analogy with mitigation. In return for exercising then that the effons to save the property fail in that the vessel is a total loss and
reasonable care in mitigating the consequences of a breach of contract, the such property as is recovered possesses a lower collective value than the cost of
innocent party benefits from an implied correlative right of reimbursement of the services. For the shipowner, recovering the cost of the services is
reasonable expenses incurred.
44 problematic. There is a gap in insurance cover. The contributory values in
general average are zero or inadequate to meet the cost. The contractual basis
Any right to reimbursement is triggered by the taking of reasonable steps within of the work denies the cost status as a salvage charge. Viewed as sue and
the scope of the relevant contractual or Statutory sue and labour duty, not by labour expenses, the contractor's services were engaged for the benefit of both
45 vessel and other property on board so that a hull insurer's liability is confined to
success in averting or minimizing an insured 1085. Where, however, the cir-
cumstances are such that insurers cannot derive any benefit in that the insured loss an appropriate proportion of the expenses and the sue and labour clauses in the
cannot be averted or minimized, it is ex hypothesi not reasonable for the assured to Institute and International hull clauses so provide. 53 However, although P&I
seek to avert or minimize the loss at the insurers' expense and any club rules do not specifically cover the resulting shortfall, it would be eligible
expense incurred is irrecoverable by way of the sue and labour doctrine." for consideration under the omnibus rule.
Consequently, an undertaking to reimburse sue and labour expenses is confined
to expenses incurred in order to avert or minimize a loss for which the insurer
Supplementary Nature of me Sue and Labour Reimbursemenr
would otherwise be liable.47 Expenses are irrecoverable where me threatened loss Undertaking
The undertaking to teimburse sue and labour expenses, whether implicit in 24.29
section 78(4) or express or implied in an express sue and labour clause, is
" [198112 Lloyd's Rep 460, 465.
In non-marine insurance, it has been held that sue and labour expenses are irrecoverable unless the
contract expressly or by necessary implication provides for recovery: YOrkshire \\?titer Services Ltd v
Great Indian Peninsuhr Co v Saunders (1861) 2 B & S 266; Booth v Gair (1863) 15 CB(NS)
Sun Alliance & Lontlan Insurance pic [1997J 2 Lloyd's Rep 21; King v Brandywine 291.
Reinsurance Co (UK) Ltd (20041 EWHC 1033 (Comm), (20041 Lloyd's Rep lR 554, para 143. In Weissherg v Lamh (1950) 84 LlLRep 509; Berk (FW) & Co Ltd v Style (19551 2 Lloyd',
insurance, however, there is no equivalent to MIA 1906, s 78(4).
non~marine Rep 382; Ikerigi Compania Naviera SA v Palmer (The Wondrous) (19921 2 Lloyd', Rep 566, 576.
Netherlands Insurance Co Est 1845 Ltd v Karl Lijungberg & Co AB (The Mammoth Pine) 50 Fraser Shipping Ltd v Colton (19971 1 Lloyd's Rep 586, 598. .. .
(198613 All ER 767. Royal Boskalis Westminster BV v Mountain [1997] LRLR 523, 602. LikeWise In cases of
'" Lloyd) & Scottish Finance Ltd v Modern Cars & Caravans (Kingston) Ltd (196611 QB 764, under~insurance,at least at common law: see 24.71-24.72 below.
782-3; Andros Springs (Owners) v World Beauty (Owners) (The World Beauty) [19701 P 144, 156. Royal Boskalis Westminster BV v Mountain (1999) QB 674, 738 (expenses incurred both to
45KuwaitAirways Corp v Kuwait Insurance Co SAK (No 1) (199911 Lloyd's Rep 803, 816. save insured vessels and to gain the freedom and safety of their crew).
Kuwait Airways Corp v Kuwait Insurance Co SAK (No I) (19961 1 Lloyd's Rep 664, 698, 53 Institute Time Clauses Hulls (1/10/83), cl 13.5; (1/11/95), cl 11.5; International Hull
(199712 Lloyd's Rep 687, 697. Clauses (01/11/03), cl 9.4. Under the Institute hull clauses, para 5 provides for
MIA 1906, s 78(3).
proportionate reduction of the measure of indemnity in case of under-insurance.
756 757
supplementary to the main insurance cover. This has a number ofconsequences. activiry by the [assureds] under the sue and labour clause' and that the requisite
First, expenses incurred are recoverable on top of the measure of indemniry degree of risk was one of high probabiliry. The assured had to inrervene to averr or
payable in respecr of losses sustained by the insured properry or liabilities covered minimize a loss that otherwise would 'very probably' fallon the insurers. The Court
by the policy. 54 Under the Institute and Inrernational hull clauses, however, the of Appeal held that the expendirure was recoverable. Dillon L] did not specifically
amount recoverable is limited to the amount for which the vessel is insured under address the level of probabiliry required. While rhere was no 'immediate danger' of
the policy. 55 Secondly, where recovery in respect of damage to the subject-matter the conrainers being losr, ir was 'inevitable' that the assureds would lose the
insured is subject to the loss achieving a threshold figure, the recovery of sue and conrainers if rhey did nothing. 60 Eveleigh L], however, held that a stringenr rest of
labour expenses is not subject to that threshold. 5' Thirdly, in litigation a claim for likelihood of covered loss was in principle inappropriate:"
sue and labour expenses must be specifically pleaded and particulars must be
given of the measures carried, the basis on which such measures are alleged to be
Whether or not the assured can recover should depend upon the reasonableness of his
reasonable, and the COStS incurred in connection with
assessment of the situation and the action taken by him. It should not be possible
each measure. 57 for insurers to be able to contend that, upon an ultimate investigation and analysis·· of
the facts, a loss, while possible or even probable, was not 'very probable'. As the right to
Suing and Labouring in Anticipation of a Peri! recover expenses is a corollary to the duty to act, in my opinion the assured should be
entitled to recover all extraordinary expenses reasonably incurred by him where he can
An injunction to sue and labour, whether statutory or contractual is not con- demonstrate that a prudent assured
fined to the aftermath of rhe peril. It makes no commercial sense to tempt an person, mindful of an obligation to prevent a loss, would incur expense of an
assured to sustain a recoverable loss rather than incur irrecoverable expend-iture in unusual kind.
endeavouring to avoid it. The question arises, however, of rhe degree of likelihood It sufficed that there was'a risk' of an insured loss materializing, although the level
of loss by a covered peri! thar musr be present before expend-iture incurred iu of risk would affect the reasonableness of measures raken by the assured in
successfully averting it will be recoverable as sue and labour expenses. 62
response.
Undeniably commercially reasonable, the effect of the decision in Integrated 24.32

In Integrated Container Servia Inc v British Traders Insurance Co Ltd, 58 a lessee of 1,016 Container Services was to render insolvency of the lessee an insured peril, the assured
containers became insolvent and the lessor incurred almost US$54,000 being permitted indirectly to recover in respect of the consequences
expenditure in tracing and recovering all but rwo of rhe containers. Insolvency of of that insolvency, arguably subverting the scope of the primary cover. The insurer
the lessee was not a covered peril under the assured lessor's all risks policy, but it agreed to cover damage to or loss of the containers, not the assured's costs of
entitled the lessor to resume possession of the containers. The containers were in administering rhe leasing contract. It is also curious that expenditure incurred nor
the possession of port authorities and agents of the lessee. There was, accordingly, in response to a peril but in apprehension thereof is recoverable, whereas a loss of
a danger of insured losses ensuing through the containers being sold in satisfaction insured properry reasonably incurred under the same circum-stances is not. It is
of unpaid charges or appropriated as abandoned. It was accepted that no dury to well established in marine insurance law thar a loss from fear or in anticipation of
sue and labour arose 'until the assured is faced by the incidence of a peril'.59 The an insured peril is not proximarely caused by that peril. 63 Admittedly, rhe sue and
insurers, however, argued inter alia that 'the risk of loss was too remote at the labour clause embodies a separate contracr'4 and the causarion rule might itself be
time the expense was incurred to warrant questioned, but the distinction appears paradoxical.
54 MIA 1906, S 78(1). Subject, of course, to the policy otherwise providing: Kuwait Airways
Corp v Kuwait Insurance Co SAK(No 1) [19991 I Lloyd's Rep 803, 816. .
55 Institute Time Clauses Hulls (1110/83), cl 13.6; (1111195), cl 11.6; Intetnatlonal Hull
Clauses (01/11/03). cl9.5.
" MIA 1906, s 78(1); Kimton v Empire Marine1murance Co (1866) LR 1 CP 535, 544-7. 50 ibid 161.
57 North Star Shipping Ltd v Sphere Drakefmurance pk: (The North Star) [2004J EWHC 2457 61 ibid 158. Followed, Royal Boskalis Westminster NV v Mountain [1997] LRLR 523, 607.
(Comm), [2005J Lloyd's Rep IR 404. • 62 ibid. 63 See 9.46-9.54 above.
58 [1984J I Lloyd's Rep 154. " ibid 249 per Buxton LJ. 64 Royal Roskalis Westminster NV v Mountain [1997] LRLR 523, 607.
758 759
a factual proposition, avoid the loss cannot break the chain of causation' and
Relationship between the Period of Cover and the Sue and Labour
Doctrine me~ures taken by the assured cannot benefit the insurer so that
(c)
exp~nses thereby lllcurred cannot be for the insurer's account. For example,
Insurers are liable only in respect oflosses that occur during the period of cover. The once it is too late for the assured ro adeem a rotalloss, it is ex hypothesi impossible
question arises of the relationship between the duration of cover and the sue and
labour doctrine. Three situations may be distinguished. in law to avoid the loss. It cannot then be reasonable to expect rhe assured to take
any ~easures.even if they would, as a factual proposition, reduce the loss and any
First, loss may occur after the period of cover has commenced bur it could have been intervention on the part of rhe assured cannot, in default ofcontrary agreement,
avoided in whole or in parr by reasonable measures taken before inception of risk. be at the insurer's expense.
Tbe insurer is not liable for the loss that could have been avoided because such
loss is not proximately caused by an insured peril. Where, however, the assured (11) Expenses Recoverable under a Reimbursement Undertaking
does avoid loss by taking reasonable steps before inception of risk, expenses
thereby incurred cannot be recoverable, despite the benefit to the insurer, since The existence and precise extent of the assured's entitlement to indemnification 24.37
there is no basis for the obligation to reimburse sue and labour expenses ro attach under a p~rticular sue and labour clause depends, naturally, upon the true
retrospectively. interpretation of the clause and the policy in question. The usual reference
Secondly, expenses may be incurred during the period of cover that avoid loss occurring to averting and minimizing a loss does not include ascertaining its existence
once the policy has expired. The question here is whether the expenses were ~r e~tent.70 The SG policy sue and labour clause, referring to suing and labour-
incurred for the benefit of the insurer. If the loss, although perfected after the ~ng in connection with ships and goods, has been held inapplicable when
expiry of tisk, would nevertheless be regarded as falling within the period of cover in~orporatedwithout modification into liabiliry insurance, denying the insured
by reason of the grip of the peril doctrine,65 the expenses are recoverable. reimbursement of expenses incurred." The three-fourths collision liabiliry
Moreover, while the grip of the peril doctrine renders insurers liable for total clause in the Institute and International hull clauses has been held ro be
losses that mature after expiry of risk, the impact of the peril during the period of
self-contained and independent of the remainder of the contract so that legal
cover will often occasion an immediate partial loss for which insurers are liable
expenses incurred in denying liabiliry are recoverable only ro the extent that the
and in respect of which the assured may legitimately sue and labour." An insurer
is not, however, liable for expenses incurred/in avoiding loss that is not itself collision liabiliry clause so provides and not under the sue and labour clause."
recoverable under the policy because it occurs after risk has expired, or indeed for This is now express in the sue and labour provisions of the Institute and Inter-
any other reason." national hull clauses." Moreover, as already seen, it is express or alternatively
ImplIed In the absence of contrary intention that the expenses should have been
Thirdly, expenses may be incutted after expiry of risk that avoid a loss caused by an incurred in order ro prevent a loss for which insurers would otherwise have been
insured peril. Although it has been said that such expenses are 'clearly within' a
sue and labour clause,68 it is suggested that a distinction should be drawn liable. 74
according, again, ro whether the expenses inure ro the benefit of the insurer. Once Th~ ~~ncept of sue and labour expense is broad enough ro embrace not only 24.38
insurance contract law considers the loss ro be final, so that a change of
lIabI1mes for. servIces but also payments by way of ransom and the relinquishing
circumstance cannot alter the insurer's liability for that 10ss:69 (a) the sue and
labour doctrine musr expire; (b) a failure ro take reasonable steps that would, as ofvaluable rIghts. In the latter context, however, the assured will suffer no loss if
the agreement to abandon rights is unenforceable. In Royal Boskalis Westminster
BVv M~untain,75the assureds owned a fleet of dredgers contracted to a dredging
project In Iraq. In response ro sanctions imposed by the United Nations on the Iraqi
6S Or, possibly, the likelihood of a loss maturing that would fall within the policy by virtue of
invasion of Kuwait, the Iraqi authorities seized properry including the
the grip of the peril doctrine wo~ld be such as to render intervention by the assured
reasonable, see 24.30-24.32 above. For discussion of the grip of the peril
doctrine, see 21.22-21.28 above.
66 Integrated Container Services Inc v British Traders Insurance Co [1984] 1 Lloyd's Rep 154,
70 Dixon v Whitworth (1879) 4 CPD 371; Irvin v Hine [19501 1 KB 555 571-2
160, 162-3.
" [1984J 1 Lloyd's Rep 154, 162 per Dillon LJ. ;; Cunard Steamship Co Ltd v Marten [190212 KB 624, affd [190312 KB 51!. .
67 See 24.27 above.
73 Xenos v Fox (1869) LR 4 CP 655. On recovery of costs, see 12.22 above.
69 For discussion of finality of losses, see 21.98ff above.
Institute Time Clauses Hulls (1110/83), cl 13.2; (1 II 1/95), cl I1.2; International Hull
Clauses (OIII 1/03), cl9.2.
760 74 See 24.27 above. 75 [1999) QB 674.
761
Averting and Minimizing Loss General Average
dredgers. In order to obtain the release of the vessels, the assureds concluded a B. General Average79
'finalisation agreement', under which they agreed to relinquish all claims under the
dredging contracr and return a sum held in the Netherlands by way of security for The essential concept of general average is both ancient and simple, namely that 24.41
payments due under the contract. Once the agreement had been implemented, the loss sustained or expenditure incurred in time of peril and fot the common good
fleet was allowed ro leave Iraq. The assureds then claimed the value of the of all interests embarked upon a common maritime adventure should be shared
relinquished claims as sue and labour expenses. The Courr of Appeal held thar a between those interests in proportion according ro the benefit derived from that
ransom payment was in principle recoverable as a sue and labour expense, loss or expenditure.
rejecting the argument that such an expense had ro be capable of assessment on a
The law of general average developed on a national basis, with resulting 24.42
quantum meruit basis. 76 It was also irrelevant whether the ranSom rook the form divergences in the losses and expenses that were admissible in general average. A
of a payment or the relinquishing of a valuable right. However, the assureds were uniform approach was promoted through the promulgation by the Comite
unable to show thar the finalization agreement occasioned them a loss. The Maritime International of a set of rules, known as the York-Antwerp Rules.
dredging contract provided for disputes to be tesolved by arbitration in Paris and These rules apply by virrue of incorporation into a contract for the carriage of
the assureds could pursue their claims by arbitration after the finalization goods and have gained widespread acceptance. They are revised periodically,
agreement just as they could have done before-hand. The finalization agreement with the degree of uniformity that operates in practice being diminished by
caused the assureds a loss only if the agree-ment ro relinquish claims would be the possibility of contractual incorporation of any revision. Since the Rules are
upheld in such arbitration. On the facts, no arbitral tribunal would uphold the creatures of contract, it is not possible to repeal an earlier revision. After their
agreement because of the duress under which it had been concluded and because it initial promulgation in 1877,80 the Rules were revised in 1890, 1924, 1950,
was illegal in circumventing the sanctions
1974,1994, and most recently in 2004. Modern marine policies refer currently
legislation. to either the 1974 or 1994 revisions.
24.39 The reimbursement of expenses under the sue and labour doctrine is confined to Although general average does not form part of marine insurance law, section 66 24.43
expenses reasonably incurred, reasonableness necessarily being a quesrion of fact of the Marine Insurance Act 1906 codifies basic concepts of general average for
that is judged by reference ro the exigencies of the situarion. Where the the purposes of English law. It does so in terms that do not differ materially
expenditure incurred by rhe assured exceeds that which would have been rea- from the York-Antwerp Rules. The section also considers issues relating ro the
sonable the assured is limited ro the latrer figure. Lee v Southern Insurance Co" insurance of general average liabilities.
concer~ed a claim against freight underwriters in respect of £213, being"the
costs incurred in forwarding a cargo of palm oil by rail to its destination, the (1) General Average Losses and Liabilities
carrying vessel having stranded. However, although it had been necessary to
unload rhe cargo, it could reasonably have been stored locally and, once the vessel Rule A of the York-Antwerp Rules 1974 and 1994 provides as follows:" 'There 24.44
had been repaired, re-shipped at an extra cost of only £70. Only this laner sum is a general average act when, and only when, any extraordinary sacrifice or
was recoverable under rhe sue and labour clause. expenditure is intentionally and reasonably made or incurred in time for the
common safety for the purpose of preserving from peril the property involved in
The indemnity payable under the sue and labour clause in the Institute and International a common maritime adventure.}
hull clauses is subject to the deductible incorporated therein, unless the sue and
labour claim is associated with a claim for an actual or constructive A loss directly consequential on a general average act, whether in the form of 24.45
78 expenditure or sacrifice, is termed a general average loss.82 The party on whom
total loss of the vessel arising from the same accident or occurrence.
such a loss falls is entitled ro general average contribution from all other parries
76 Not following the dictum of Lord Cairns LC in- Aitchison v Lohre (1879) 4 App Cas 79 For discussion of the law of general average, see Lowndes and Rudo[f, General Average &
755.766. }Ork Antwerp Rules D Wilson and JCooke (eds) (12th edn, 1997); F Rose, Genera/Average: Law
(1870) LR 5 CP 397. See also Wiuon Bros Bobbin Co Ltd v Green [191711 KB 860; Promet & Practice (2nd edn, 2005); Arnauld, Law ofMarine Insurance &Average Sir Michael MustiIl and
Engineering (Singapore) Pte Ltd v Sturge (The Nukila) [19961 1 Lloyd's Rep 85. ) Gilman (eds) (16th edn, 1981) Ch 26; D O'May, Marine Imurance Law 6- Policy (l993) Ch 12.
Institute Time Clauses Hulls (1/10183), ell 132, 12.1: (1111195), ell 11.2, 12.1: Inter- so Succeeding the York Rules of 1864. 81 In similar terms, see MIA 1906, S 66(2).
national Hull Clauses (01111103), ell 9.2, 15.3. 82 Yotk-Antwerp Rules 1974 and 1994. rule C; MIA 1906, s 66(1).
762 763

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I am also extremely grateful to Lord Mance, whose judgments have contributed

← Measures ofIndemnity 729

1. Introduction to the Law of Marine Insurance

(5) Negating Inducement 4.64 M. Co-insurance 4.184

C. Modern Cover 7.07 C. Rectification 8.77

expropriation under quarantine regulations or by (b) Causarion 15.57

17. Duration of Cover

(I) Change ofVoyage 18.31 (3) Stowage 19.14

D. Loss ofFreight 21.90 E. Limitation 22.62

(2) Liability Insurance 22.68 24. Averring and Minimizing Loss

Zamora, The [1916] 2 AC 75 11.69, 13.66

20.80 (2) ............ 20.40

Civil Procedure Rules 25.13 Lloyd's Delegated Underwriting Byelaw

Institute Additional Expenses Clauses d 9.2 18.111

International Hull Clauses (1111102) (cont.) el 42.1 .. .. .. .. .. . .. 22.03

1 G Clayton, British Insurance (1971) Ch 1; V Dover, A Handbook to Marine Insurance (8th

← The lifting in 1824 of the restrictions on corporate participation in marine

A. Contract Formation in a (3) Legal nature of a leader's power 2,57

In general, the formation of a contract of marine insurance is governed by 2.01 the

either an invitation to treat or an offer. The likely interpret-ation is as an invitation

15.27-15.28,18.102,22.100 (defences), 25.27-25.35 (subrogation) below.

129 [19841 QB 127. 136.

157 [199911 Lloyd's Rep 262.

Lucena v Crauftrd(1803) 2 Bas & Pul (NR) 269, 302.

73 The insurability of the buyer's defeasible interest is confirmed by MIA 1906, s 7.

[1969] 1 WLR 357.

Secondly, by way of corollaty:

v vtgors (1887) LR I2 App Cas 531, 540.

4.132 The truth or falsity of a representation is judged by reference to the time of

324 See ibid 70, judgment of Grove]. 325 (!87l) LR 6 QB 674.

m [1995J 1 AC 501, esp 544-5, 570-1. Lloyd s Rep 109, 113.

(d) Post-ftrmation revelations

cou:t. by w~y of judicial legislation to create a new tort, effectively of absolute

Ie mlsreprese?tatl?llS whICh the representee cannot prove to be fraudulent or a breach of a

also supports, expressly or implicitly, albeit withour

442 K/S Mere-Scandia XXXXII v Certain Lloyd's Underwriters (The Mercandian

A. Agency 5.02 (3) The broker's duty in placing the

The broker's duty to exercise a professional standard of care in obraining cover

commercial advisability of subscribing to the proposed reinsurance.

Malfough v Barber(1815) 4 Camp 150; Lewis v Tressider AndrewsAssociates Pty Ltd[1985J 2

Ltd [19631 2 Lloyd's Rep 130, discussed at 5.26 above.

A. Whether and When Premium is Earned

49 "Where, in contrast, the insurance is cancelled by mutual agreement, International Hull

26 See 19.30ff below.

n (1864) 33 LJQB 220. [1949J 2 KB 755. [20001 Lloyd's Rep IR 513.

99 [19981 QB 587, discussed ar 4. 139ffabove. 2 Lloyd's Rep 542, para 19.

issues through a decision on substance. In an exceptional case whete that is not

addressed' This excludes knowledge of circumstances surrounding rhe for-

See 8.78-8.80 below.

clause capable of either a broad or narrow interpretation, rhe clause will be

Where, in conrrasr, the ambiguity resides in an amendmenr ro the slip inrro-duced

the policy adopted rhe insurer's standard

W Jaglom v Excess Insurance Co Ltd [1972J 2 QB 250, 261.

(I) Estoppel by convention

" [1924] AC 431. 22 See 10.16 below. 23 [1924J AC 431, 448.

78ibid 392. 79 ibid. 80 ibid 393. 81 ibid.