BISHO STUART UNIVERSITY

FACULTY OF LAW

MUKAMATUKWATSE LEVIS
Brief facts.
Ocean Trawlers Express is a cargo ship owned by Nakamoto Shipping Ltd. Mr. Takuma is the
owner and CEO of this company. He undertakes two marine insurance policies in respect of the
ship for its route from Nagoya port to Mombasa port for 30 days two insurers from AIG
Insurance Company and AHA Marine Insurance Company for the ship and cargo on board. The
ship was attacked by pirates while on way to Mombasa who diverted it to Somali coast and are
demanding a ransom of USD 4 million. Some cargo was destroyed and some containers were
alighted away from the ship at the time of attack by the said pirates.
Legal Issues.
i) Whether there was a valid Marine insurance contract between Mr. Takuma and AIG
Insurance Co. and AHA Marine Insurance Co.? If so, does he have an insurable interest
in the insured property?
ii) What are the chances of his claim being paid by his insurer?
Law Applicable.
1. The Marine Insurance Act, 2002
2. Case Law.
Resolution.
Issue i): Whether there was a valid Marine insurance contract between Mr. Takuma and
AIG Insurance Co. and AHA Marine Insurance Co.? If so, does he have an insurable
interest in the insured property?
A marine insurance contract is whereby the insurer undertakes to compensate the assured in the
manner and to the extent agreed in the same against the losses incidental to a marine adventure
according to s.3(1) of the Act. Whereas this definition makes a reference to a ‘marine adventure’,
the same is said to exist where any insurable property is exposed to maritime perils and that any
marine adventure may be the subject of a marine insurance contract according to s.4(1)&(2)(a).
An insurable property includes any ship or movables capable of being insured against maritime
perils. Furthermore, Maritime perils include perils consequent on or incidental to the navigation
of the sea and inland waters, namely, perils of the seas and inland waters, fire, war, pirates,
rovers, thieves, captures, seizures, restraints and detainment of foreign governments and peoples,
jettisons and barratry, and any other perils of the like kind or which may be designated by the
policy and perils of land incidental to sea voyage according to s.2 of the Act.
It is clear from these statutory definitions that a marine insurance contract exists if the insurer
undertakes to identify the assured in the event of occurrence of loss resulting from a marine
adventure and thus a marine adventure being the subject of the contract. I am therefore
convinced that in the facts at hand the ship and cargo for which Mr. Takuma took out marine
insurance policies are capable of being exposed to maritime risks and this amounts to a marine
adventure. Consequently, there is a valid contract of marine insurance between the parties.
Having resolved that in the affirmative, I now turn to whether Mr. Takuma has an insurable
interest in the insured property. The law relating to insurable interest in marine insurance is
envisaged in s.5 & s.6 of the Act. S.5(1)&(2) provide that, every person that is interested in a
marine adventure has an insurable interest and that a person is interested in a marine adventure
where he or she stands in any legal or equitable relation to the adventure or to any insurable
property at risk in it, in consequence of which he or she may benefit by the safety or due arrival
of the insurable property, or may be prejudiced by its loss, or by damage to it, or by the detention
of it, or may incur liability in respect of it. Whereas this provision is not exhaustive regarding
property owned by a company, it at least raises the point of equitable interests in relation to the
adventure. Therefore Mr.Takuma can argue that he has an equitable interest in the ship by virtue
of being the owner of the company owning this ship.
The position held by Macaura v Northern Assurance 1925 AC 619 was that a company is a
separate legal entity so Macaura a shareholder could not have an insurable interest in the timber
owned by the company. However in a recent south African decision of Lorcom Thirteen (Pty)
Ltd v Zurich Insurance Company South Africa Ltd 2013 (5) SA 42 (WCC) court enhanced this
position to permit a sole shareholder owning 100% shares to have an insurable interest in the
company property. It held that and there was a direct correlation between the company’s
financial welfare and the shareholder’s financial welfare. I feel strong to be guided by the
holding of court in this case and I am of the view that if court found a shareholder of 100%
shares to have an insurable interest in the company property, then what in the instant case where
assured in question is the owner and CEO of the company owning the ship! In the result, Mr.
Takuma has an insurable interest in the insured property moreover even under s.5(2) of the Act
he had the same.
Issue ii): What are the chances of his claim being paid by his insurer?
Where there is a contract of marine insurance and the assured has suffered loss, the insurer is
bound to indemnify the former as per s.3(1) which is the definition. S. 55(1) of the Act also
provides that the insurer is liable for any loss proximately caused by a peril insured against’
unless the policy provides otherwise.
But before I get to answering whether Mr. Takuma has chances to be paid by his insurers, it is
important to first determine whether the claimant suffered any losses insured against.
Loss arise from maritime perils/risks which may be consequent on or incidental to the navigation
of the sea and inland waters, namely, perils of the seas and inland waters, fire, war, pirates,
rovers, thieves, captures, seizures, restraints and detainment of foreign governments and peoples,
jettisons and barratry, and any other perils of the like kind or which may be designated by the
policy and perils of land incidental to sea voyage as seen in s.2. According to the facts at hand,
there is piracy and destruction of the cargo.
Our Marine Insurance Act does not have sufficient provisions on piracy apart from referring to it
in definitions of maritime perils. However, case law has been able to give some guidance on the
perils of piracy and the loss accruing thereof. And thus according to Masefield AG v Amlin
Corporate Members ltd [2010] 1 Lloyds Rep 509, court adopted the definition piracy given by
Art. 101 of the UNCLOS that, “…piracy consists of any illegal acts of violence or detention, or
any act of depradation, committed for private ends by the crew or the passengers of a private
ship or a private aircraft, and directed…” there is no doubt that piracy occurred in the facts at
hand because it is stated that the ship while on its route to Mombasa port was attacked by pirates.
I therefore turn if this piracy caused any loss to Mr. Takuma.
S.56 provides that loss may be total or partial and where the loss is not total then it’s a partial
one. In particular, there is an actual total loss where the subject-matter insured is destroyed, or so
damaged as to cease to be a thing of the kind insured, or where the assured is irretrievably
deprived of it under s.57(1) of the Act. This implies the entire subject matter insured against
should be destroyed or the assured cannot retrieve it whatsoever. The facts at hand seem not to
support this type of loss.
On the other hand, there is a constructive total loss where the subject-matter insured is
reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because
it could not be preserved from actual total loss without an expenditure which would exceed its
value when the expenditure had been incurred under s.60(1) of the Act. This implies that the
insured subject matter is believed to have actually been lost and thus abandoned/left by the
assured or it cannot be saved from actual loss with incurring in more expenditure than its value.
S. 60(2) further provides that there is a constructive total loss where the assured is deprived of
the possession of a ship or goods by a peril insured against and it is unlikely that he or she can
recover the ship or goods, as the case may be or the cost of recovering the ship or goods, as the
case may be, would exceed their value when recovered. This provision talks about losing
possession of the insured property (in this case by piracy) and that Mr. Takuma is unlikely to
recover the same or may recover but expenditure for recovery is exceeding its value. I must note
that the facts at hand are silent about value of the ship and cargo but at least they disclose that he
is committed to pay the USD 4 million. This in my opinion means that the ship so far is likely to
be recovered. Therefore this cannot be a constructive total loss.
What loss then has he suffered? Inference can be made to the fact that some cargo was destroyed
and other containers alighted from the ship during the attack and automatically brings me to a
conclusion that there is a partial loss suffered.
In the Masefield AG case [supra], the trial court rejected the claimants claim holding that
piratical seizure in the circumstances of this case where there was not only a chance, but a strong
likelihood, that payment of a comparatively small sum, relative to the value of vessel and cargo,
would secure recovery of both, was not an actual loss. It was not an irretrievable deprivation of
property but a typical ‘wait and see situation’. And on appeal the Appellate Court affirmed this
decision. It should be noted that on case court relied on the likelihood of recovery of the both the
ship and the cargo which was very possible upon payment of the ransom.
In the present case whose facts are closely related to those in of Masefield AG, the difference
being that some cargo was destroyed and other containers alight away from the ship, I am
completely convinced that there was a partial loss resulting from the piracy. Even though he is
likely to recover the ship, he has been irretrievably deprived of the other cargo that was
destroyed.
Since I have found that Mr. Takuma suffered a partial loss, I can now ably turn to resolving
whether he has chances for payment of his claim by his insurers. S.55 already gave us a starting
point that the insurer is liable for any loss proximately caused by a peril insured against’ unless
the policy provides otherwise. S.67(2) provides where there is a loss recoverable under the
policy, the insurer, or each insurer if there is more than one, is liable for such proportion of the
measure of indemnity as the amount of his or her subscription bears to the value fixed by the
policy in the case of a valued policy, or to the insurable value in the case of an unvalued policy.
Since the facts are not clear on whether policies taken out from AIG and AHA are valued or
unvalued, I can presume that they unvalued policies within the meaning of s.28 of the Act and
thus the insurers are liable to the insurable value.
Therefore Mr. Takuma’s chances for his claim to be paid by his insurers are possible and present.
And he is entitle to his indemnity. However, since he is over insured by double insurance, s.80(1)
directs that each insurer is bound, as between that insurer and the other insurers, to contribute
rateably to the loss in proportion to the amount for which he or she is liable under his or her
contract. Finally, Mr. Takuma’s claim can be paid by AIG Insurance Company and AHA Marine
Insurance Company.