International Cargo Insurance 9781843119470

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INTERNATIONAL CARGO INSURANCE

LLOYD’S SHIPPING LAW LIBRARY

Series editors: Andrew W. Baker Q.C. and Hatty Sumption

LLOYD’S SHIPPING LAW LIBRARY

The Ratification of Maritime Conventions edited by The Institute of Maritime Law University of Southampton (looseleaf) The Law of Shipbuilding Contracts fourth edition by Simon Curtis (2012)

Marine Cargo Insurance by John Dunt (2009) Shipping and the Environment second edition by Colin de la Rue and Charles B. Anderson (2009)

Marine Insurance Law and Practice second edition by Francis Rose (2012)

Ship Registration: Law and Practice second edition by Richard Coles and Edward Watt (2009)

Ship Sale & Purchase sixth edition by Iain Goldrein, Q.C., Matt Hannaford and Paul Turner (2012)

Time Charters sixth edition by Terrence Coghlin, Andrew W. Baker, Julian Kenny and John D. Kimball (2008)

Admiralty Jurisdiction and Practice fourth edition by Nigel Meeson and John A. Kimbell (2011)

Voyage Charters third edition by Julian Cooke, Timothy Young, Q.C., Andrew Taylor, John D. Kimball, David Martowski and LeRoy Lambert (2007)

Berlingieri on Arrest of Ships fifth edition by Francesco Berlingieri (2011) The Law of Tug and Tow and Offshore Contracts third edition by Simon Rainey (2011) Laytime and Demurrage sixth edition by John Schofiled (2011) Marine Insurance Legislation fourth edition by Robert Merkin (2010) P&I Clubs Law and Prace fourth edition by Steven J. Hazelwood and David Semark (2010) The York-Antwerp Rules third edition by N. Geoffery Hudson and Michael D. Harvey (2009) London Maritime Arbitration third edition by Clare Ambrose and Karen Maxwell (2009)

Bills of Lading by Richard Aikens, Richard Lord and Michael Bools (2006) Bareboat Charters second edition by Mark Davis (2005) Enforcement of Maritime Claims fourth edition by D. C. Jackson (2005) Limitation of Liability for Maritime Claims fourth edition by Patrick Griggs, Richard Williams and Jeremy Farr (2005) Marine War Risks third edition by Michael D. Miller (2005) Merchant Shipping Legislation second edition by Aengus R. M. Fogarty (2004) The Law of Ship Mortgages by Graeme Bowtle and Kevin McGuinness (2001)

INTERNATIONAL CARGO INSURANCE EDITED BY

JOHN DUNT Consultant Clyde & Co LLP Visiting Senior Research Fellow Institute of Maritime Law, University of Southampton

)LUVWHGLWLRQSXEOLVKHG E\,QIRUPD/DZIURP5RXWOHGJH 3DUN6TXDUH0LOWRQ3DUN$ELQJGRQ2[RQ2;51 Informa Law from Routledge is an imprint of the Taylor & Francis Group, an Informa business

© 2012 John Dunt and Contributors, except as otherwise indicated

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library ISBN: 978–1–84311–947–0

Reprinted material is quoted with permission. Although every effort has been made to ensure that all owners of copyright material have been acknowledged in this publication, we would be glad to acknowledge in subsequent reprints or editions any omissions brought to our attention. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of Informa Law. Copyright is held by the authors and contributors. This edition published by Informa Law. For reprints and permissions contact the Informa Law. Product or corporate names may be trademarks or registered trademarks and are used only for identification and explanation without intent to infringe. This book contains information from reputable sources, and although reasonable efforts have been made to publish accurate information, the publisher makes no warranties (either express or implied) as to the accuracy or fitness for a particular purpose of the information or advice contained herein. The publisher wishes to make it clear that any views or opinions expressed in this book by individual authors or contributors are their personal views and opinions and do not necessarily reflect the views/opinions of the publisher.

Lloyd’s is the registered trade mark of the Society incorporated by the Lloyd’s Act 1871 by the name of Lloyd’s.

PREFACE

The purpose of this book reflects the aim of Michael Wilford in the first edition of Time Charters, the founding volume of the Lloyd's Shipping Law Library, which is to provide the busy practitioner with the legal authorities relevant to issues they may encounter with regard to international cargo insurance. With this in mind each chapter of the book is structured similarly. In particular, the English and United States chapters adopt a parallel approach to the issues. So far as the jurisdictions based on the 1906 Act are concerned (as well as South Africa), the law is the same in many respects to English law so a strict approach would be repetitive but these chapters nevertheless follow the general structure of the English and United States chapters while concentrating on the differences, particularly differences with English law. The approach of the civil lawyers to some problems varies from that of the common lawyers and, indeed, the way that the civil lawyers categorise some issues is not the same, so a slightly different structure is needed. Nevertheless, in general the civil law chapters follow the overall scheme. The book is a companion volume to Marine Cargo Insurance and, in part, seeks to achieve the goal suggested by Professor JP Van Niekerk, in his review of that book, where he proposed that there could have been more reference to decisions in jurisdictions (other than English) involving marine cargo insurance. In view of the pivotal role which marine cargo insurance plays in international trade it is particularly important that there should be harmony in the approach adopted in different countries to the insurance cover provided, particularly where standard insurance terms are involved. A key to harmony is the ability to compare the same issues which arise in marine cargo insurance in different jurisdictions. The role of the London market in the business of marine insurance has, for some, amongst whom I count myself, disguised the fact that marine insurance as we know it today was developed in Italy and owes its origins as much to the civil law as to the common law. The need for harmony in mercantile and commercial law was recognised by Lord Mansfield. The same applies with as much force today. Developments in both law and practice pass from one jurisdiction to another. For example, the decision in the Supreme Court in England in The Cendor MOPU, that inherent vice is only excluded where it is the sole cause of the loss, had already been anticipated in other jurisdictions. One of the most significant revisions in the Institute Cargo Clauses 2009 was the extension of the duration of the risk to the time when the goods were “first moved”, to include forklift damage inside warehouses, but this cover had already been provided by the Norwegian Cargo Clauses. An international Convention to harmonise marine insurance law is not a realistic possibility, but each system has much to learn from the others and a degree of harmonisation may be achieved through a greater understanding of the differences in each jurisdiction. Ideally, the

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PREFACE

insurance cover for the cargo should be determined and assessed in the same way by the law and practice in each jurisdiction. As Lord Mansfield said, “… from the same premises, the sound conclusions of reason and justice must necessarily be the same”. I would like to thank Professor Yvonne Baatz of the Institute of Maritime Law, Southampton University, for reading Chapter 2 and making numerous important suggestions on the issues of jurisdiction and applicable law, as well as for kindly reading the introductory chapter. My colleague William Melbourne of Clyde & Co read Chapter 3, English law, and made many telling suggestions for improvement. Avv. Francesco Siccardi guided me to as the common origins of the civil law and answered my queries arising on the civil law chapters. Any errors or omissions, of course, remain mine. My thanks also to the research assistants at the Institute of Maritime Law, University of Southampton, for all their help throughout the work. Miss Adebowale Awofeso of the Institute kindly prepared the List of Abbreviations so necessary to a work of this kind even though I have attempted to ensure that the reader is not burdened with two many acronyms in the text. The team at Informa including, in particular, Chris Betney and Nicola Whyke have been particularly patient and supportive in the concluding part of the production of the book. I would also like to thank Eira Robertson for typing the book with her usual speed and unerring accuracy. It remains to thank the contributing authors for their generosity in the provision of their time, their knowledge and their expertise, without which the book could never have been written. Finally, I must thank my family for their patience and support. The law is stated as at the early summer of 2012. John Dunt Guildford October 2012

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OUTLINE CONTENTS

Page v xxxiii xxxix xlvii lxiii

Preface Authors’ Biographies Abbreviations Table of Cases Table of Legislation 1 History and Harmonisation 2 Jurisdiction and Applicable Law 3 English Law and Practice 4 Hong Kong Law and Practice 5 Singapore Law and Practice 6 Japan: The Insurance of International Cargo Business 7 Australian Law and Practice 8 United States Law and Practice 9 Italian Law and Practice 10 German Law and Practice 11 French Law and Practice 12 Norwegian Cargo Insurance 13 The People’s Republic of China Law and Practice 14 South African Law of Cargo Insurance 15 Comparative Analysis

1 13 49 111 129 145 171 205 257 311 371 405 441 465 513

APPENDICES

553

Index

705

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DETAILED CONTENTS

Preface Authors’ biographies Abbreviations Table of Cases Table of Legislation

v xxxiii xxxix xlvii lxiii

1

HISTORY AND HARMONISATION John Dunt The history of Marine Cargo Insurance Origins in European mercantile and civil law The common European form of policy: the SG Form The development of insurance markets Substantive law and contract terms The harmonisation of Marine Cargo Insurance Attempts to harmonise marine insurance law Interpretation and construction: civil and common law

1 1 4 4 5 6 6 10

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13

JURISDICTION AND APPLICABLE LAW John Dunt Introduction Scope and structure of the chapter Jurisdiction European law The Judgments Regulation Absence of choice Extent of freedom of choice: formalities Goods in transit by seagoing ships and connected risks “Large risks” The exclusive and mandatory effect of a jurisdiction clause The court “first seised” English domestic law When does English domestic law apply rather than European law? Summary of the general rules Defendant within the jurisdiction Service outside the jurisdiction The most appropriate or convenient forum A choice of English law The effect of a choice of English jurisdiction The US Service of Suit Clause

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13 13 14 14 14 15 15 16 17 18 19 20 20 20 21 21 22 22 23 24

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Singapore law Service of process within or outside the jurisdiction Discretion to stay: the proper forum Hong Kong law Service on the defendant within the jurisdiction Service outside the jurisdiction Challenging jurisdiction Australian law Jurisdiction of the Australian courts The appropriate forum Circumstances where jurisdiction clauses are void Japanese law Defendant within the jurisdiction; service out United States law Jurisdiction of the federal and state courts “Minimum contacts” with the forum state or the US nation The appropriate forum Law of the PRC Persons resident and other cases South African law Instituting proceedings; jurisdiction and the special position of Lloyd’s Maritime claims: actions in personam and in rem in the Admiralty Courts Applicable Law European law The Rome I Regulation Freedom of choice for “large risks”: limitations for other risks Express or implied choices of law Absence of choice English domestic law Singapore law Hong Kong law Australian law Freedom of choice of law for ocean voyages Circumstances where applicable law clauses are void: goods in store etc Choice of law clauses in practice in Australia Japanese law United States law Law of the PRC South African law Express or implied choices of law Arbitration Introduction European law English law South African law

25 25 26 27 27 28 29 30 30 30 31 31 31 32 32 33 34 34 34 35 35 36 37 37 37 38 39 40 40 41 42 42 42 43 43 43 44 45 45 45 47 47 47 47 47

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ENGLISH LAW AND PRACTICE John Dunt Introduction Scope and structure of the chapter Marine insurance defined

49 49 50

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Formation of a Contract of Marine Cargo Insurance Utmost good faith: non-disclosure and misrepresentation Utmost good faith: timing of the duty Materiality and inducement The remedy of avoidance Examples of non-disclosure Misrepresentation in practice Formalities, insurable interest and illegality Formalities Insurable interest Illegality and public policy Open covers, policies and certificates Open covers Modern open covers Policies The Market Reform Contract Certificates of insurance Certificates described The certificate holder as assured What terms bind the certificate holder? Warranties, exclusions and other terms Warranties Warranties defined Exact compliance: effect of breach Waiver of warranties Exclusions The nature of exclusions Exclusions and causation Causation under the Institute Cargo Clauses Conditions All risks All risks All risks defined Burden of proof Limitations and exclusions on all risks Wilful misconduct Ordinary wear and tear Inherent vice Insufficiency of packing Delay Insolvency Unseaworthiness and unfitness War, Strikes and Terrorism The limitations on cover for war and strikes risks War risks War, civil war, revolution, rebellion and insurrection Capture, seizure, arrest, restraint and detainment Strikes, riots and civil commotions Strikes and strikers Riots and civil commotions

xi

51 51 51 52 52 53 54 54 54 55 57 59 59 59 59 59 60 60 60 61 61 61 61 62 63 63 63 64 65 66 67 67 67 68 68 68 69 70 74 76 76 77 77 77 79 79 80 81 81 81

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Terrorism The cover for terrorism Weapons of mass destruction Duration of the Insurance How the duration of the insurance is regulated The Transit Clause Attachment of risk “Ordinary course of transit” Termination of risk Forwarding to another destination Delay, deviation and variations of the adventure Termination of carriage and change of voyage Held covered and analogous provisions Termination of Contract Carriage Clause Change of Voyage Clause Claims and Losses Claims Notification of loss: limitation of action Proof of loss Interest and costs Good faith and fraudulent claims Total loss of cargo: actual and constructive The categorisation of losses Loss of possession of the cargo: actual total loss Loss of possession: constructive total loss Damage to the cargo: actual total loss Damage to the cargo: constructive total loss What constitutes “damage” to cargo? Loss of the adventure The general principle The Forwarding Charges Clause Partial loss: measure of indemnity Valued and unvalued policies Cargo delivered damaged at destination: salvage losses Underinsurance Recoverable expenses Sue and labour Salvage General average Subrogation, Double Insurance and Rights of Contribution Subrogation Nature of the right compared to assignment Exercise of subrogation rights in practice Double insurance and contribution Double insurance: when does it occur? Contribution between insurers

82 82 83 84 84 84 84 85 86 88 88 89 89 89 90 91 91 91 91 92 92 93 93 93 95 97 97 97 98 98 99 100 100 101 102 103 103 104 104 106 106 106 107 108 108 109

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HONG KONG LAW AND PRACTICE Colin Wright and Caroline Thomas Introduction The Hong Kong legal system

111 111

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The constitutional framework Application of the common law Sources of Hong Kong law Language Court structure Practice and procedure Marine insurance in Hong Kong Marine insurance practice in Hong Kong Formation of a Contract of Marine Cargo Insurance Utmost good faith: non-disclosure and misrepresentation Utmost good faith Materiality and inducement Formalities, insurable interest and illegality Formalities Insurable interest Illegality and public policy Open Covers, Policies and Certificates Open covers Modern open covers Warranties, Exclusions and Other Conditions Warranties All Risks The meaning of “all risks” Limitations and exclusions on all risks Unseaworthiness and unfitness The Institute Classification Clause Duration of The Insurance The Transit Clause Change of voyage The Change of Voyage Clause Claims and Losses Claims Notification of loss: limitation of action Proof of loss Interest Costs Recoverable expenses Sue and labour Partial loss: measure of indemnity Valued and unvalued policies Subrogation, Double Insurance and Rights of Contribution Subrogation Exercise of subrogation rights in practice Contribution Contribution between insurers

111 111 112 112 112 112 113 113 113 113 113 114 115 115 116 118 118 118 118 119 119 120 120 121 121 121 123 123 123 123 124 124 124 125 125 125 125 125 127 127 127 127 127 128 128

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SINGAPORE LAW AND PRACTICE Corina Song Introduction Scope and structure of the chapter Sources of Singapore law

129 129 129

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Judicial system Costs Legal profession Formation of a contract of Insurance Utmost good faith: non-disclosure and misrepresentation Utmost good faith: timing of the duty Formalities, insurable interest and illegality Insurable interest Illegality and public policy Open Covers, Policies and Certificates Open covers Certificates of insurance Warranties, Exclusions and other conditions Warranties Warranties defined Exact compliance: effect of breach All Risks Limitations and exclusions on all risks Wilful misconduct Deck cargo Inherent vice Duration of insurance The transit clause Attachment of risk “Ordinary course of transit” Claims and Losses Claims Good faith and fraudulent claims Total loss of cargo: actual and constructive Damage to the cargo: actual total loss Damage to the cargo: constructive total loss What constitutes “damage” to cargo? Recoverable expenses Sue and labour Subrogation, double insurance and rights of contribution Subrogation JAPAN: THE INSURANCE OF INTERNATIONAL CARGO BUSINESS Shuji Yamaguchi and John Dunt Introduction Historical background: use of English policies Scope and structure of the chapter The limits to the application of English law The limited choice of English law The limited choice of English law in a typical Japanese policy The choice of law clause in the Institute Clauses The sources of Japanese law Statute law Other sources of Japanese law

130 131 131 131 131 131 132 132 133 135 135 136 137 137 137 137 138 138 138 138 139 139 139 139 140 141 141 141 142 142 142 143 143 143 144 144

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145 145 145 145 146 146 146 149 150 150 150

DETAILED CONTENTS

Formation of a Contract of Marine Cargo Insurance Utmost good faith: nondisclosure and misrepresentation No general duty of nondisclosure or not to misrepresent the risk Wilful misconduct and gross negligence Formalities, insurable interest and illegality Formalities Insurable interest The implied warranty of legality Illegality and public policy: piracy and ransom Open covers, policies and certificates Open covers, policies and certificates of insurance Warranties, exclusions and other terms Warranties Exclusions Statutory exclusions in Japan Duration of the insurance How duration of the insurance is regulated Duration of the insurance: transit Attachment and termination of the insurance Deviation, change of voyage, change of master and change of ship Claims and losses Claims Notification of loss Limitation of action: time bar Proof of loss Interest and costs Good faith and fraudulent claims Total loss of cargo: abandonment Loss of the adventure Partial loss: measure of indemnity Valued and unvalued policies Under-insurance Recoverable expenses Sue and labour: mitigation of loss Salvage General average Subrogation The right to subrogate The exercise of subrogation rights in practice Total loss and salvage Double insurance and contribution

151 151 151 152 152 152 153 153 155 155 155 156 156 157 157 158 158 159 159 159 160 160 160 161 161 161 162 162 164 164 164 165 165 165 166 166 167 167 167 168 168

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AUSTRALIAN LAW AND PRACTICE Derek Luxford Introduction Scope and structure of the chapter Sources of Australian law and practice The Australian legal system The Marine Insurance Act 1909 The Insurance Contracts Act 1984

171 171 172 172 172 172

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The common law The Australian court system Market practice Application of the Insurance Contracts Act 1984 Importance of the issue Maritime perils Con-Stan Industries v. Norwich Winterthur “Perils which may be designated by the policy” Market practice: demarcation between the legislative regimes Proposals of Australian Law Reform Commission Formation of a Contract of Marine Cargo Insurance Utmost good faith: non-disclosure and misrepresentation Disclosure under the Marine Insurance Act 1909 The remedy of avoidance Examples of non-disclosure Misrepresentation in practice Utmost good faith under the Insurance Contracts Act 1984 Disclosure under the Insurance Contracts Act 1984 Formalities, insurable interest and illegality Formalities Insurable interest Policies and the Institute Cargo Clauses Policies The policy form: the law applicable The Institute Cargo Clauses When do the Institute Cargo Clauses 2009 apply? Warranties, Exclusions and Causation Warranties Warranties under the Marine Insurance Act 1909 Warranties under the Insurance Contracts Act 1984 Exclusions Proximate cause, burden of proof and causation Conditions All Risks All Risks The approach of the Australian courts to all risks Burden of proof: concurrent causes Limitations and exclusions on all risks Ordinary wear and tear Inherent vice Insufficiency of packing Rats and vermin Unseaworthiness and unfitness War and Terrorism The cover for war and strikes risks Application of the Insurance Contracts Act 1984 Duration of the Insurance The Transit Clause Claims and Losses Claims

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173 173 174 174 174 176 176 177 178 179 181 181 181 181 182 183 183 183 184 184 185 187 187 187 188 188 189 189 189 190 190 190 191 191 191 191 192 193 193 193 194 195 195 196 196 196 197 197 197 197

DETAILED CONTENTS

Limitation of action Interest Good faith and fraudulent claims Total loss of cargo: actual and constructive Damage to the cargo: constructive total loss Partial losses: what constitutes “damage” to cargo? Partial loss: measure of indemnity Valued and unvalued policies Prime cost Underinsurance Recoverable expenses Sue and labour Salvage and general average Subrogation, Double Insurance and Rights of Contribution Subrogation Nature of the right Exercise of subrogation rights in practice Double insurance and contribution Double insurance Contribution between insurers

197 197 198 198 198 199 199 199 199 200 200 200 202 202 202 202 202 202 202 203

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UNITED STATES LAW AND PRACTICE Stephen V. Rible Introduction Scope and structure of the chapter Marine insurance defined Formation of a Contract of Marine Cargo Insurance Utmost good faith: non-disclosure and misrepresentation Utmost good faith: timing of the duty Materiality and reliance The remedy of avoidance Examples of non-disclosure Knowledge of the broker Misrepresentation and non-disclosure in practice Formalities, insurable interest and illegality Formalities Insurable interest Illegality and public policy Open Covers, Policies and Certificates Open covers Modern open covers Policies Various forms of open cargo policies Certificates of insurance Certificates described The certificate holder as assured What terms bind the certificate holder? Warranties, Exclusions and Other Terms Warranties Warranties defined

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205 205 206 206 206 206 207 208 209 209 210 210 210 211 212 213 213 213 214 214 214 214 215 215 215 215 215

DETAILED CONTENTS

Exact compliance: effect of breach Waiver of warranties Exclusions The nature of exclusions Exclusions and causation Causation under the American Institute Clauses and the SR&CC Endorsement Conditions All Risks All risks All risks defined Fortuity Burden of proof Limitations and exclusions on all risks Wilful misconduct Ordinary wear and tear Inherent vice Insufficiency of packing Delay Loss of market Insolvency War, Strikes and Terrorism The limitations on cover for war risks War risks War, warlike operations, military or usurped power, civil war, revolution, rebellion and insurrection Capture, seizure, arrest, restraint and detainment Strikes, riots and civil commotions Strikes and strikers Riots and civil commotions Terrorism The cover for terrorism Weapons of mass destruction Duration of the Insurance How the duration of the insurance is regulated The Transit Clause Attachment of risk “Ordinary course of transit” Termination of risk Forwarding to another destination Delay, deviation and variations of the adventure Termination of carriage and change of voyage Held covered and analogous provisions Termination of transit held covered provision Change of voyage clause Consolidation/Deconsolidation Claims and Losses Claims Notification of loss: limitation of action Interest Costs; award of attorneys’ fees

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216 217 218 218 218 219 220 220 220 220 221 222 222 222 223 223 224 225 225 225 226 226 226 226 227 228 228 229 230 230 231 232 232 233 233 234 235 236 236 237 237 237 238 238 239 239 239 240 241

DETAILED CONTENTS

Consequential and punitive damages Good faith and fraudulent claims Total loss of cargo: actual and constructive The categorization of losses Loss of possession of the cargo: actual total loss Loss of possession: constructive total loss Damage to the cargo: actual total loss Damage to the cargo: constructive total loss Physical loss or damage: what constitutes “damage”? Loss of the adventure The general principle The Forwarding Charges Clause Partial loss: measure of indemnity Valued and unvalued policies Cargo delivered damaged at destination: salvage losses Underinsurance Recoverable expenses Sue and labor Salvage General average Subrogation, Double Insurance and Rights of Contribution Subrogation Nature of the right compared to assignment Exercise of subrogation rights in practice Double insurance and contribution Double insurance: when does it occur? Contribution between insurers

241 242 242 242 242 243 244 244 244 245 245 247 247 247 248 249 249 249 251 252 253 253 253 254 255 255 255

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ITALIAN LAW AND PRACTICE Francesco Siccardi Introduction Foreword History Legal sources Civil code Code of navigation Forms of contract Subject Matter of Insurance: Insurable Interest Subject-matter of insurance General Goods Expected profits (increased value) Freight Assured’s liability (general average and salvage charges) Other pecuniary interests Insurable interest and the indemnity principle Interest defined Indemnity principle in general Indemnity principle rules Valued policies

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257 257 257 259 259 259 259 260 260 260 260 260 261 261 262 262 262 263 264 265

DETAILED CONTENTS

The property must be exposed to risk of loss Apprehended risk (lost or not lost) Duty of Good Faith and Disclosure Misrepresentation and non-disclosure Variation of risk during contract Formation of the Contract Of Insurance Formation of the contract – general Formalities Policies and certificates Parties to the contract of insurance Double insurance Assignment of insurance Types of policies in use Contract models The Cargo Policy 2006 edn Governing law and jurisdiction Specific cover for storage risks Liability to cargo and other property covers Duration of the Insurance When does the insurance take effect? Statutory rules on duration Warehouse to warehouse and transit clauses Duration of the insurance for war risks Scope of Cover Preliminary issues Risks covered and exclusions – statutory rules Causation Burden of proof Risks covered General All risks Named risks Deck cargo General average and salvage Forwarding charges – loss of adventure Exclusions Wilful misconduct (“dolo”) and gross negligence (“colpa grave”) Inherent vice Insufficiency of packing Other exclusions in clause 1 (all risks) Exclusions in clause 2 (named risks) Exclusions in clause 3 (goods carried by truck or rail) Exclusions in clause number 4 (strikes risks) Exclusion in clause 5 (war risks) Terms, Warranties and Conditions Terms Warranties – conditions precedent to insurance Premium Payment of premiums Claims, Losses and Settlement

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266 266 266 266 268 270 270 270 271 272 273 274 275 275 276 276 278 278 279 279 279 280 282 283 283 283 283 284 285 285 286 286 286 286 287 288 288 290 290 291 292 292 292 293 293 293 294 294 294 296

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Loss and damage to cargo Damage defined Claims Total loss Successive losses Notice of loss Sue and labour Duty to minimize loss Assured’s duties in the Cargo Policy Breach of duty Settlement procedures General Investigating the claim Evidence of claim Measure of indemnity Payment of claims Abandonment Subrogation General Extent of subrogation Breach of duty to safeguard subrogation Waiver Damages and limitation Damages for delay in payment Limitation

296 296 296 296 297 297 297 297 298 299 300 300 300 300 301 302 302 305 305 306 307 307 307 307 308

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GERMAN LAW AND PRACTICE Joachim F. Bartels Legal Sources History The DTV-Cargo Conditions Present statutory provisions Subject Matter of Insurance General Insurable interest: property; similar interests Other economic insurable interests Anticipated profit Increased value Freight Illegality Relevant point in time Insurable Interest and the Indemnity Principle Insurable interest Definition Monetary interest Indemnity principle Sum insured Valued policies Lodging of the claim Time bar

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311 311 312 313 315 315 315 316 316 317 318 318 319 320 320 320 320 321 321 321 322 322

DETAILED CONTENTS

Description of the Risk: Disclosure Duty of disclosure Material facts Point in time for fulfilment of the duty Circumstances relevant to the risk Incorrect statements Legal consequence Fraudulent deception Legal consequences of the insurer’s right to avoid Extra premium Change of risk Change or increase of risk Duty to inform the insurer Legal consequences Extra premium Fundamental change The Contract of Insurance Formation of the contract Formal requirements Parties to the insurance: insurer and insured Assignment of insurance to beneficiary Payment of Premiums Payable by whom Due date Sale of the insured goods Contractual Terms Warranties Conditions Contractually agreed conditions Causation The principles of “adequacy” Causa proxima Types of Policy In Use Policies and open covers Legal significance of the policy Certificate Risks Covered Risks insured All risks Exclusions Introduction Exclusions Delay in the voyage Inherent vice or the nature of the subject-matter insured Customary differences in quantity, measure and weight Ordinary air humidity or ordinary fluctuations in temperature Inappropriate or inadequate packing Indirect loss/damage Fault of the assured: wilful misconduct/gross negligence

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323 323 323 323 323 324 324 325 325 326 326 326 327 328 328 328 329 329 329 330 330 330 330 331 331 331 331 332 333 333 333 334 335 335 335 337 337 337 337 338 338 339 339 339 340 341 341 342 343

DETAILED CONTENTS

War, Strikes, Terrorism and Insolvency Perils not covered under all risks War, civil war and warlike events Existence of derelict weapons of war Strikes, lockouts etc Confiscation, deprivation of possession or other acts of [the] authorities Chemical, biological, biochemical substances etc Nuclear energy and ionising radiation Cover for war, strikes and confiscation Insolvency and financial default Duration of the Insurance Transit cover Warehouse to warehouse Commencement Termination Storage risks Pre-carriage goods or returned goods Claims and Settlement Total and partial loss General Loss of cargo Lost goods Loss of possession without prospect of recovery Destruction of the original properties or condition of the goods Disappearance Consequences of the loss or disappearance of goods Damage to the goods General Calculation sound value/damaged value Calculation based on repair costs Used machinery etc Onus of proof for loss or damage Notice of claim and related duties Duty to avert or minimise the loss/damage: sue and labour Safeguarding damaged goods Safeguarding insurers’ recourse claims “Representatives” Costs incurred by the assured Settlement procedure Investigating the claim Evidence of claim Payment of the claim Recovery of sue and labour expenses Contribution in general average Subrogation Damages and Limitation Damages for late payment of claims Time limitation for commencement of proceedings against insurers Jurisdiction

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343 343 344 345 345 346 346 346 346 347 348 348 348 348 349 350 351 351 351 351 352 352 353 354 354 355 356 356 356 357 358 358 358 360 360 361 362 363 363 363 363 364 365 365 366 368 368 368 368

DETAILED CONTENTS

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FRENCH LAW AND PRACTICE Gildas Rostain, Marie Buzulier and Maxime de La Morinerie Introduction History and sources Historical background Sources of French insurance law and practice Marine insurance defined: statutory provisions Formation of the Contract of Marine Cargo Insurance Non-disclosure and misrepresentation Duty of disclosure and misrepresentation Formalities, insurable interest and illegality Formalities Insurable interest: the indemnity principle Insurable interest; cargo “lost or not lost” Illegality Assured, policyholder and insurer Assured and policyholder distinguished The insurer: co-insurance issues Premium Payment of premium Policies, Open Covers and Standard Clauses All Risks and “F.A.P. Sauf” Cover The description of the cargo The “All Risks” policy “All Risks” cover described and defined All Risks and fortuity All Risks; burden of proof The “F.A.P. Sauf” policy “F.A.P. Sauf” cover described and defined Exclusions from All Risks and “F.A.P. Sauf” cover Introduction Wilful misconduct, recklessness and negligence Inherent vice Worms and vermin Ordinary leakage: ordinary loss of weight or volume Insufficiency of packing Deck cargo Unseaworthiness and unfitness War and Piracy War risks War risks in French policy Burden of proof: marine risks and war Piracy, kidnap and ransom Piracy Kidnap and ransom Duration of the Insurance Duration of normal transit The Transit Clause Termination and change of transit Termination of carriage: change of voyage

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371 371 371 371 371 372 374 374 374 376 376 377 378 378 378 378 380 381 381 382 383 383 384 384 385 385 385 385 386 386 388 388 389 390 390 391 391 392 392 392 392 393 393 393 394 394 394 395 395

DETAILED CONTENTS

Claims and Losses Claims Notification and assessment of loss: fraudulent claims Limitation of action: time bar The limitation period Commencement of the period Interruption of time bar Suspension of time bar Loss of cargo, partial and total loss Categorisation of losses covered Partial loss Total loss and abandonment Recoverable expenses Duty of the assured after loss: sue and labour Subrogation and Double Insurance Subrogation Introduction Legal subrogation Conventional subrogation Exercise of subrogation rights in practice Double insurance Jurisdiction and Choice of Law Jurisdiction Choice of law

396 396 396 396 396 397 397 398 398 398 398 399 399 399 400 400 400 400 401 402 402 403 403 403

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NORWEGIAN CARGO INSURANCE Trine-Lise Wilhelmsen and Hans Jacob Bull The Legal Sources The legislation The Norwegian Cargo Clauses Additional sources The Subject Matter of Insurance Goods Physical loss and damage Profit on goods Coverage for freight Other pecuniary interests Insurable Interest and the Indemnity Principle Insurable interest defined Insurance against the law – unlawful enterprises The interest must have an economic value; gambling Indemnity principle Agreed value policies Description of the Risk Pre-contractual representation of the risk The content of the duty of disclosure To whom is the duty addressed? The time of the duty of disclosure The sanctioning system Alteration of risk

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DETAILED CONTENTS

The Contract of Insurance Formation of the contract: general The parties to the insurance contract Insurance of third-party interests Types of Policies in Use Terms used locally Type of contract: policies/open covers Period of Insurance Introduction The commencement of the period of insurance The termination of the period of insurance Abandonment or completion of the transit on the insurer’s demand Scope of Cover Introduction The risks covered Coverage on A clauses Transport accidents – C clauses Extended transport accidents – B clauses Exclusions, general Exclusion for deck cargo, Cargo Clauses section 17 Risks excluded, Cargo Clauses section 18 Overview Inherent vice and similar risks War and similar risks Loss caused by delay Condensation, Cargo Clauses section 19 Causation Duty of Care Safety regulations: what constitutes a safety regulation in the Cargo Clauses? Issued by public authorities Special rules in the Cargo Clauses “Laid down by the insurer” Safety regulations: breach The assured causes the casualty Identification of the “assured” The problem Identification between the assured and his helpers The assured and the person effecting the insurance/former owner Extended identification in case of certain safety regulations Premium Claims and Settlement Total loss Damage Notice of claim: duty to minimise loss Salvage charges and general average Settlement Procedures Investigating the claim Evidence of claim Abandonment of goods Subrogation

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414 414 414 414 415 415 416 416 416 416 417 418 418 418 419 419 419 420 421 421 422 422 422 423 424 425 425 427 427 427 428 428 429 429 429 429 430 430 431 431 432 432 433 435 435 436 436 436 437 437

DETAILED CONTENTS

Subrogated recoveries Insurer’s right to assistance and cooperation from the assured In whose name are recovery proceedings taken? Damages and Limitation Damages for delay in payment by insurers Time limitation for commencement of proceedings against insurers

437 437 438 438 438 438

13

441

THE PEOPLE’S REPUBLIC OF CHINA LAW AND PRACTICE Liu Guiming, Liang Jian and Cai Dongdong Introduction: Legal Sources Sources of Chinese law Statutory law Judicial interpretations Judgments and arbitral awards Administrative regulations, rules and orders Formation of a Contract of Marine Cargo Insurance Utmost good faith: non-disclosure and misrepresentation Pre-contractual disclosure Increase in risk during the contract Formalities and insurable interest Formation and effectiveness Payment of premium Parties to the insurance Termination of the contract Insurable interest Definition of insurable interest Recent developments: timing of the interest The “lost or not lost” clause: retrospective insurance Open Covers, Policies, Certificates and Clauses Open covers and certificates The certificate holder as assured: assignment of marine cargo contracts Do the terms of an open cover bind the certificate holder? Clauses in use in the Chinese insurance market Types of clauses used in practice Ocean Marine Cargo Clauses Warranties and Exclusions Warranties Exclusions Insurer must bring exclusions to the attention of the assured All Risks, Free of Particular Average and With Average All risks cover All risks defined: external causes Burden of proof in all risks insurance Named perils cover: free of particular average and with average Free of particular average With average Burden of proof in FPA and WA insurances Limitations and exclusions on cover Intentional act or fault and negligence Liability of the shipper and improper packing

xxvii

441 441 441 441 442 442 443 443 443 444 445 445 445 446 446 447 447 448 448 449 449 449 449 450 450 451 451 451 452 452 452 452 452 453 454 454 455 455 456 456 456

DETAILED CONTENTS

Delay in transit Duration of the Insurance “Ordinary course of transit” Meaning of “ordinary course of transit” Cover where cargo is not in the “ordinary course of transit” Claims and Losses Claims Notice of claim Proof of loss: documentation of claims Proof of loss: verification of claims Time limitation for actions Losses: recoverable expenses Duty to minimise losses: sue and labour Subrogation Subrogation in practice Nature of the right: statutory assignment What rights are assigned? In whose name is the right exercised? Based upon what cause of action? The assured’s duty of assistance Can the insurer subrogate against the assured?

457 457 457 457 458 459 459 459 459 459 460 461 461 462 462 462 462 463 463 463 464

14

465

SOUTH AFRICAN LAW OF CARGO INSURANCE Andrew Robinson Introduction Scope and structure of the chapter Sources of South African law Roman-Dutch law Judicial precedent Statutory sources of law The application of English law The practice: incorporation of English law Will the South African courts uphold a choice of English law? Consumer protection The position of Lloyd’s underwriters Formation of a Contract of Marine Cargo Insurance Utmost good faith and good faith The good faith requirement Non-disclosure and section 53 of the Short-term Insurance Act 1998 The remedy of avoidance Formalities, insurable interest and illegality Formalities Insurable interest Problem issues of insurable interest Insurance “lost or not lost” Illegality and public policy Open Covers, Policies and Certificates Open covers, policies and certificates of insurance Policies and clauses in use Interpretation and construction of policies generally

xxviii

465 465 466 466 468 468 469 469 469 470 471 472 473 473 475 477 477 477 478 481 482 483 483 483 483 484

DETAILED CONTENTS

Warranties, Exclusions Conditions and Other Terms Warranties Warranties defined Exclusions The nature of exclusions Causation Conditions All Risks All risks defined Burden of proof Limitations and exclusions on all risks Wilful misconduct Ordinary wear and tear Inherent vice: insufficiency of packing Delay and insolvency Unseaworthiness and unfitness War, Strikes and Terrorism The limitations on cover for war and strikes risks War, civil war, revolution, rebellion, insurrection and civil commotion Terrorism The cover for terrorism Duration of the Insurance The Transit Clause Attachment of risk: “ordinary course of transit” Termination of risk; election to store Held Covered, termination of carriage and change of voyage Held covered and analogous provisions Termination of Contract of Carriage Clause Change of Voyage Clause Claims and Losses Claims Limitation of action Proof of loss Interest and costs Good faith and fraudulent claims Total loss of cargo and abandonment The categorisation of losses: real and presumed loss Abandonment Loss of the adventure Partial loss: measure of indemnity Valued and unvalued policies Cargo delivered damaged at destination: salvage losses Underinsurance Recoverable expenses Sue and labour Salvage General average Subrogation, Double Insurance and Rights of Contribution Subrogation Reception of doctrine into South African law

xxix

485 485 485 486 486 487 489 489 489 490 491 491 492 492 493 493 494 494 494 494 494 495 495 495 496 497 497 497 497 498 498 498 499 499 501 502 502 503 504 504 504 504 505 505 505 505 505 506 506 506

DETAILED CONTENTS

Exercise of subrogation rights in practice Excess or first loss clauses Double insurance and contribution Double insurance: when does it occur? Contribution between insurers

508 510 510 510 511

15

COMPARATIVE ANALYSIS John Dunt Introduction Scope and structure of the chapter Marine and non-marine risks distinguished Marine insurance defined The importance of the distinction between marine and non-marine Storage risks Formation of a Contract of Marine Cargo Insurance Non-disclosure and misrepresentation The issues The timing of the duty Materiality and inducement Variation of the risk during the insurance period Remedies for non-disclosure and misrepresentation Formalities, insurable interest and illegality Formalities Insurable interest Illegality and public policy The Use Internationally of Standard Terms and Clauses Standard terms and clauses in use Identification and conflict between clauses Warranties and Other Conditions Warranties, conditions precedent and alteration of risk The nature of warranties Warranties in marine cargo insurance Alteration of risk All Risks Limitations and exclusions on all risks Inherent vice and insufficiency of packing Terrorism The cover for terrorism Duration of the Insurance Scope of this section “Ordinary course of transit” A self-standing requirement Meaning of “transit”; the collateral purpose test Avoidance of delay Termination of cover by election to store the goods Election to store out of the ordinary course of transit Election to store for allocation or distribution Election: the intention of the assured Cover for cargo carried on deck: deviation

xxx

513 513 513 513 513 514 514 515 515 515 515 516 517 519 520 520 520 522 523 523 524 525 525 525 527 528 529 529 529 531 531 531 531 532 532 533 535 538 538 541 542 542

DETAILED CONTENTS

Deck cargo must be insured specifically Impact of the liberties in the bill of lading Deck cargo covered against major casualties only The approach in practice in the civil law jurisdictions Claims and Losses Total loss of cargo: actual and constructive Constructive total loss Subrogation and Rights of Contribution Subrogation Exercise of subrogation rights in practice Contribution between insurers Which law applies? Contribution: voluntary payments

542 544 546 547 547 547 547 548 548 548 550 550 550

APPENDICES

553

ENGLAND Legislation 1 Marine Insurance Act 1906 (UK) Clauses 2 Institute Cargo Clauses (A) 1/1/82 3 Institute Cargo Clauses (A) 1/1/09

555 576 580

JAPAN Legislation 4 Commercial Code (Japan) 5 Insurance Law (Japan)

584 588

AUSTRALIA Legislation 6 Insurance Contracts Act 1984 (Australia)

594

UNITED STATES Clauses 7 American Institute (AIMU) Cargo Clauses 2004 (All Risks) 8 American Institute (AIMU) War Risk and Strikes Forms AIMU War Risk Open Policy (Cargo) (December 2, 1993) AIMU Strikes, Riots and Civil Commotions (Form 12A) (January 1, 2008)

602 609 609 612

ITALY Clauses 9 Cargo Policy Clause N.1/Cargo 2006 Cargo Insurance (All Risks) Clause N.2/Cargo 2006 Cargo Insurance II (Named Risks) Clause N.3/Cargo 2006 Goods Carried by Truck or Rail Clause N.4/Cargo 2006 Cargo Insurance Strike Risks Clause N.5/Cargo 2006 Cargo Insurance War Risks Additional Terms N.1/Cargo 2006 Goods Carried in Refrigerated Conditions

613 623 625 627 628 630 633

GERMANY Clauses 10 DTV-Cargo Conditions 2000/2011 (All Risks)

635

xxxi

DETAILED CONTENTS

FRANCE Legislation 11 Insurance Code (France) Clauses 12 French Marine Cargo Insurance Policy: “All Risks” Cover 1/7/2009 13 French Marine Cargo Insurance Policy: “F.A.P. Sauf …” Cover 1/7/2009 14 Additional Clauses 26 (Theft etc) and 27 (Disappearance) 15 Certificate of Insurance NORWAY Legislation 16 Insurance Contracts Act (Norway) Clauses 17 Norwegian Cargo Clauses: Conditions relating to Insurance for the Carriage of Goods 1995: Version 2004 and Appendices PEOPLE’S REPUBLIC OF CHINA Legislation 18 Maritime Code (PRC) Clauses 19 PICC Property and Casualty Company Limited Ocean Marine Cargo Clauses (2009)

643 653 655 657 658

660

666

684 695

SOUTH AFRICA Legislation 20 Admiralty Jurisdiction Act/Short-term Insurance Act (South Africa)

698

Index

705

xxxii

AUTHORS’ BIOGRAPHIES

JOACHIM F. BARTELS is a partner at Blaum Dettmers Rabstein. He studied law at the University of Hamburg where he also obtained his doctorate in law. After being admitted to the bar he was head of the legal department of a shipping and trading company for some years focusing on chartering and Gafta matters. In 1977 he joined the law firm of Blaum Dettmers Rabstein in Bremen and became a partner in 1979. From 1979 to 1996 he was also a notary public. In 1996 he and another partner opened the Hamburg office of Blaum Dettmers Rabstein. His main legal work concentrates on chartering, cargo and cargo insurance matters. He is the author of a commentary of the Gencon-C/P clauses in an article in Münchener Vertragshandbuch, vol. III, 7th edn, 2012. PROFESSOR HANS JACOB BULL was Professor of Law 1989–2011 at the Scandinavian Institute of Maritime and Energy Law, University of Oslo. He has written several books and articles in Norwegian and English on insurance, marine insurance, maritime law, road transport and petroleum, including Forsikringsrett (Insurance Law, 2008), Scandinavian Maritime Law (3rd edn, 2011, together with T. Falkanger and L. Brautaset) and Handbook in Hull Insurance (2007, together with T.-L. Wilhelmsen). He was chairman of the committees drafting the Norwegian Marine Insurance Plan 1996 (last version 2010) and the Norwegian Cargo Clauses 1995/2004. He also chaired the committee preparing a new Ship Safety Act (2007) and is presently chairman of the committee preparing a new Seamen Act. MARIE BUZULIER is a French lawyer in the Paris office of Clyde & Co LLP where she has worked since 2009. Marie holds a Master’s degree in law (Master in Maritime law: Nantes University) and specialises in maritime law, transport law and insurance. CAI DONGDONG is an associate with GL & Co Law Firm, Shanghai, which he joined in 2008. Before that, he spent about six months doing an internship in a regional maritime court of China. He has a bachelor’s degree in law at Hangzhou Normal University and a master’s degree in maritime law at the University of Southampton. His main practice areas include insurance, reinsurance, maritime, ship financing, international trade and related dispute resolution. JOHN DUNT is a consultant with the international law firm Clyde & Co LLP and Senior Research Fellow at the Institute of Maritime Law University of Southampton. He qualified as a solicitor in 1972 and joined Clyde & Co in 1975. He was a partner from 1977 to 2007 specialising in marine insurance, with particular reference to cargo insurance. John was ex-officio legal advisor to the Joint Cargo Committee xxxiii

AUTHORS’ BIOGRAPHIES

from December 1999 to April 2007 and was involved in drafting the clauses used in marine cargo insurance policies worldwide to control terrorism risks. He was also a member of the Joint Cargo Working party responsible for updating and revising the Institute Cargo Clauses 2009. He currently sits with the Lloyd’s Market Association Steering Group overseeing the revisions to the Institute Trade and Commodity Clauses. John’s book Marine Cargo Insurance (Informa, 2009) won the 2010 British Insurance Law Association’s book prize. LIANG JIAN is a senior associate with GL & Co Law Firm, Shanghai, which he joined in October 2006, becoming the head of the insurance department of the firm. From May 2005 to September 2006, he worked for another Chinese law firm in Tianjin as a paralegal and associate. He has a bachelor’s degree in Chinese language and literature at Jiangxi Normal University and a juris master’s degree at Nankai University, Tianjin. His main practice areas include insurance, reinsurance, finance, international trade, commerce, IPR, transportation, corporate, labour, other legal matters and related dispute resolution. LIU GUIMING is the founder and the managing partner of GL & Co Law Firm, Shanghai with an office in Guangzhou which was established at the end of 2005. He focuses on advising on insurance and re-insurance, shipping and admiralty, financing and banking, investment, corporate and labour matters and handling any related litigation and arbitration proceedings in the PRC. Before he founded GL & Co Law Firm, he joined Wang Jing & Co Law Firm, Guangzhou, in early 1999 and then founded and worked for its Shanghai branch office for about seven years during which he acted as paralegal, associate, senior associate and local superintendent. From 1995 to 1999, he was employed by the Guangzhou Maritime Rescue and Salvage Bureau of the Ministry of Communications (Guangzhou Salvage) to handle chartering, salvage, towage, offshore projects, insurance and claims matters, and gained seafaring experience on board a bulk carrier and tugs over a total period of one year. He has a bachelor’s degree in maritime law at Shanghai Maritime University and has passed the master’s degree course in insurance and banking law at Shanghai University of Finance & Economics. DEREK LUXFORD is a partner at Sydney law firm, Hicksons, where he heads the Transport Trade & Energy Group. He has specialised in shipping and marine insurance for over three decades since he acquired a liking for this area of law during a five-year stint with several leading City law firms in London in the late 1970s and early 1980s. Prior to joining Hicksons in 2004 Derek was a partner with Phillips Fox for many years following his return from London. He is actively involved in the marine insurance industry in Australia and abroad and he is the only Australian subscribing member of the Average Adjusters Association in London. Derek has a diverse practice involving Australian and overseas clients including the London market. He has been involved in many leading marine insurance and shipping cases in Australia. In 2001 he was a member of the Advisory Committee to the Australian Law Reform Commission’s Review of the Marine Insurance Act 1909. Derek contributes to many industry and professional publications in Australia and abroad and is a frequent speaker at international conferences on shipping, trade and marine insurance.

xxxiv

AUTHORS’ BIOGRAPHIES

MAXIME DE LA MORINERIE is a French lawyer in the Paris office of Clyde & Co LLP. He holds a degree in law (Master in English law: Paris II Panthéon-Assas and University College London; and Master in business law - post graduate, Paris I Panthéon-Sorbonne) and in corporate finance (Master of science in Management, EM Lyon). Maxime specialises in maritime law, insurance and reinsurance as well as international trade, energy and corporate law. STEPHEN V. RIBLE is a partner at Mendes & Mount, LLP in New York City. He is a senior insurance coverage attorney concerning various lines of marine and energy insurance and is an experienced federal and state trial lawyer handling complex litigation involving insurance coverage and defence of assureds. He is a frequent lecturer on issues regarding insurance coverage, litigation procedures, centralized management of mass litigation, and risk management. Mr Rible is an instructor at the American Institute of Marine Insurance and St. John’s University School of Risk Management, Insurance and Actuarial Science. He is admitted to the New York, New Jersey and Pennsylvania State Bars. ANDREW ROBINSON is a director with Norton Rose of South Africa and is the regional head of transport. He read law at UCT and completed a masters in maritime law at the University of Wales, Institute of Science and Technology. He joined Deneys Reitz in 1998 and qualified as an attorney of the High Court of South Africa in 1991. He specialises in admiralty, marine insurance and general transport law and is a past president of the Maritime Law Association of South Africa. He is a member of the International Working Group that is preparing a draft instrument on the recognition and enforcement of judicial sales, and he has written many articles on marine insurance and transport related topics and has prepared and presented papers on marine insurance in many different fora. GILDAS ROSTAIN is Senior Partner of Clyde & Co LLP, Paris office, which he opened in 1992. He has been a member of the Paris Bar since that time and is a member of the Association Française de Droit Maritime (French Association of Maritime Law). He deals mainly with insurance litigation including, marine, non-marine, product liability, energy, shipbuilding and builders all risks liabilities. He has extensive experience of litigating disputes before all levels and types of Courts in France as well as ICC Arbitration. He is also involved in all the major casualties involving the French market. Avv. FRANCESCO SICCARDI is senior partner of the firm Studio Legale Siccardi Bregante & C. He obtained his degree in law (hons) at the University of Genoa in 1964, with a dissertation on Marine Insurance, and started to practice in 1965 qualifying as a lawyer in 1966. He acts as consultant in non contentious matters for shipyards, shipowners, banks and other interested parties in large cross-border transactions and provides legal assistance in high profile litigation for marine and aviation underwriters, shipowners, charterers, Class Societies, international organizations, traders and other shipping operators. He is frequently appointed as single or panel member arbitrator in shipping disputes by private litigants or Arbitration Associations. He is a regular lecturer/ speaker/panelist at shipping law conferences, seminars, workshops in Italy and abroad and

xxxv

AUTHORS’ BIOGRAPHIES

has published several articles in various shipping law journals. He is a Titulary Member of the Comité Maritime International (CMI), a Member of the London Shipping Law Center, a member of the Board of the Italian Maritime Law Association (AIDIM), and of the Editorial Board of the Journal “Il Diritto Marittimo”. CORINA SONG is a partner in the maritime and aviation practice of Allen & Gledhill LLP. Her practice includes all areas of contentious shipping and admiralty matters, as well as both contentious and non-contentious aspects of insurance. She is recommended for her litigation work in The Asia Pacific Legal 500 and for insurance in PLC Which Lawyer? She obtained her LL.B. from the University of Hull in 1988 and an LL.M. from University College London in 1992. She was admitted as a solicitor of the Supreme Court of England and Wales in January 1992 and called to the Singapore Bar in March 1993. She is actively involved as a committee member of the Maritime Law Association of Singapore and is the immediate past Vice President of the Women’s International Shipping & Trading Association Singapore. CAROLINE THOMAS is a solicitor at Holman Fenwick Willan in Hong Kong where she specialises in maritime and insurance law. Caroline holds a Master’s degree in Economics and History from Trinity College Dublin as well as a Diplôme du Programme International from Science Po, Paris. She qualified to practice in England in 2008 and in Hong Kong in 2010. She is a director and seminar officer of the Hong Kong Insurance Law Association (HILA). She has written chapters on Insurance Law in Taiwan (with Mark Hearty and Dean Chiang, Center for International Legal Studies); Competition Law in Taiwan (Taiwan’s Fair Trade Act: Achieving The “Right” Balance?, with Dr. P.J. Wu, 2006 Northwestern University Press) and Time Bars in Insurance and Reinsurance in Hong Kong: An International Comparison, 2011, Clyde & Co LLP (the chapter on the law of Hong Kong law, with Simon Baker). PROFESSOR TRINE-LISE WILHELMSEN is the director of the Scandinavian Institute of Maritime Law. She qualified as a lawyer in 1983 and took her doctoral degree in 1989. She has been a professor since 1995 and has worked at the Scandinavian Institute of Maritime Law since 1989, as part-time lawyer during 1997 and 1998 and, since July 2006 as director. She was the secretary of the Committee drafting the Norwegian Marine Insurance Plan 1996 and is now chairman of the Standing Revision Committee for the Plan. This Committee is now making a draft of a Nordic Marine Insurance Plan 2013. She has written numerous books and articles on insurance and marine insurance law, tort law, maritime law, contract law and law and economics. These include several books and articles written in English: “The Norwegian Marine Insurance Plan and Substandard Ships”, Marine Insurance at the turn of the Millennium, edited by M. Huybrechts (1999, Intersentia); “Issues of marine insurance, duty of disclosure, duty of good faith, alteration of risk and warranties”, SIMPLY, Scandinavian Institute Maritime Law Yearbook 2001, CMI Yearbook 2000 Singapore I; “Hull insurance of ‘latent defects’ – i.e. error in design, material or workmanship”, Scandinavian Studies in Law, No. 46 (2001, Stockholm University); “Developments of Norwegian and Scandinavian Maritime Law”, Il Diritto Marittimo Fasc I-2007; Handbook in Hull Insurance, co-author with H.J. Bull (2007, Gyldendal Akademisk), “Marine insurance regimes and their impact on shipping competition”, Competition and Regulation in Shipping

xxxvi

AUTHORS’ BIOGRAPHIES

and Shipping Related Industries, ed by Antapassis/Athanassiou/Rosaeg (2009, Martinus Nijhoff). “When pirates capture the cargo ... CICG § 35 in the light of Masefield AG v. Amlin Corporate Member Ltd”, SIMPLY, Scandinavian Institute Maritime Law Yearbook 2010. “Harmonization of marine insurance – current development in the light of past experience”, Il Diritto Marittimo 2010 (1) and “Transport liability regimes and economic efficiency”, Law and Economics. Essays in honour of Erling Eide (Oslo 2010). COLIN WRIGHT is a barrister practicing in Hong Kong and England. Colin was called to the Bar of England and Wales in 1987 and to the Bar of Hong Kong in 1999. He is a member of Stone Chambers in London and Gilt Chambers in Hong Kong. Colin is an elected member of the Hong Kong Bar Association and is a member of the Executive Committee of the Hong Kong Maritime Law Association. He has been a Fellow of the Chartered Institute of Arbitrators since 1988. SHUJI YAMAGUCHI is a partner of Okabe & Yamaguchi, a firm of specialised shipping and marine insurance lawyers based in Tokyo, which he founded in 1990, becoming a partner at the same time. He studied law at Kyoto University where he was awarded the degree of Bachelor of Law before qualifying as an attorney-at-law in 1982. He specialises in shipping and marine issuance and was chair of the Maritime Law Committee of the Inter-Pacific Bar Association from 2009 to 2011. He is an arbitrator of the Tokyo Maritime Arbitration Commission and has written extensively on shipping and marine insurance issues. He is co-author of Maritime Law Handbook, 2006, Kluwer, Shipping in 36 Jurisdictions Worldwide, 2012, Law Business Research, Guidebook to International MultiModal Transport Business, JIFFA, and Judgment Commentary of Civil Law I, Seirin Shoin.

xxxvii

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ABBREVIATIONS

Bibliographical Abbreviations The ALRC Report

Australian Law Reform Commission Review of the Marine Insurance Act 1909, Report 91, April 2001

Arnould

J. Gilman, Arnould’s Law of Marine Insurance and Average, 17th edn, 2008, Sweet & Maxwell

Arnould’s First Supplement

J. Gilman, R. Merkin, Arnould’s Law of Marine Insurance and Average, First Supplement to the Seventeenth Edition, 2011, Sweet & Maxwell

Bennett

H. Bennett, The Law of Marine Insurance, 2nd edn, 2006, Oxford University Press

Brussels I

Council Regulation (EC) No 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters

Buglass

Leslie J. Buglass, Marine Insurance and General Average in the United States, 10 (2nd edn, 1981).

Bull

Hans Jacob Bull, Forsikringsrett, Oslo 2008

Calamari

John D. Calamari & Joseph M. Perillo, The Law of Contracts §11-2 (3rd edn, 1987).

CMI Review 2004

John Hare, CMI Review of Marine Insurance Report of the 38th Conference of the CMI Vancouver, 2004, CMI Yearbook 2004

Davis

Charles M. Davis, Maritime Law Deskbook (2005)

De Gregorio-Fanelli

De Gregorio-Fanelli-La Torre “Il Contratto di Assicurazio- ne” Milano 1982, Cedam

xxxix

ABBREVIATIONS

Donati

A. Donati “Trattato del diritto delle Assicurazioni Private”, Milano 1956, Giuffré

Dunt

Dunt, Marine Cargo Insurance, 2009, Informa

Dunt and Melbourne

Dunt & Melbourne “Insuring Cargoes in the New Millennium: The Institute Cargo Clauses 2009”, in R. Thomas (ed.), The Modern Law of Marine Insurance, Vol 3, 2009, Informa

Ferrarini

S. Ferrarini “Le Assicurazioni Marittime” 3rd edn, Milano 1991, Giuffré

Gilmore

Grant Gilmore and Charles L. Black, Jr., The Law of Admiralty 59-62 (2nd edn, 1975).

Gordon & Getz

Davis, DM (ed), Gordon and Getz: The South African Law of Insurance, 4th edn, 1993

Guerrero

Jose A. Guerrero, Jr., Marine Cargo Insurance, 148-49 (2003).

Hare

John Hare, Shipping Law and Admiralty Jurisdiction in South Africa, 2nd edn

Hofmeyr

Hofmeyr, Admiralty Jurisdiction Law and Practice in South Africa

Interpretation I

Interpretation I of the Supreme People’s Court on Several Issues concerning the Application of the Insurance Law of the People’s Republic of China 2009

Johansson

Svante Johansson, Varuförsäkringsrätt, Stockholm 2004

Judgments Regulation

Council Regulation (EC) No. 44/2001 of 22nd December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters

La Torre

A. La Torre “Le Assicurazioni” 2nd edn, Milano 2007, Giuffré

Law Comm. Consultation Paper, 2007

Joint Consultation Paper of the Law Commission and the Scottish Law Commission, Insurance Contract Law : Misrepresentation, Non-Disclosure and Breach of Warranty by the Insured (LCCP 182/SLCDP 134), July 2007

xl

ABBREVIATIONS

Law Comm. Consultation Paper, 2011

Joint Consultation Paper entitled, “Insurance Contract Law: Post Contract Duties and Other Issues” LCCP 201/SLCPD 152, December 2011

LAWSA: Insurance

W.A. Joubert, ed. “The Law of South Africa”, 2002, Butterworths, Durban, First Reissue, Vol 12: Insurance by M.F.B. Reineke et al

Marine Insurance Provisions

Provisions of the Supreme People’s Court on Several Issues about the Trial of Cases concerning Marine Insurance Disputes 2006 (People’s Republic of China)

NMIP Commentary

Commentary to the Norwegian Marine Insurance Plan 1996, version 2010

O’May

D.R. O’May, Marine Insurance, 1993, Sweet & Maxwell

Ostrager

Barry R. Ostrager, Insurance Coverage Disputes, 900-915 (14th edn, 2008)

Parks

Alex L. Parks, The Law And Practice of Marine Insurance And Average, 32, n. 38 (1987)

Persico

G. Persico “Assicurazioni Marittime delle Merci” Genova 1932, Bozzi

Rave

Donald T. Rave and Stacey Tranchina, “Marine Cargo Insurance: An Overview”, 66 Tul.L.Rev. 371 (1991)

Reinecke et al

M.F.B. Reinecke, Schalk van der Merwe, JP van Niekerk and Peter Havenga, General Principles of Insurance Law, LexisNexis Butterworths, 2002

Revised Lugano Convention

Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters

Righetti

G. Righetti “Trattato di Diritto Marittimo” vol. IV, Milano 1994, Giuffré

Robertson

David W. Robertson, “The Outer Continental Shelf Lands Act’s Provisions on Jurisdiction, Remedies and Choice of Law; Correcting the Fifth Circuit’s Mistakes”, 27 Mar. L. Com. 507, 566 (1996).

xli

ABBREVIATIONS

Rome Convention

Convention on the law applicable to contractual obligations

Rome I

Regulation (EC) No. 593/2008 of the European Parliament and the Council on the Law Applicable to Contractual Obligations

Selmer

Knut Selmer, Forsikringsrett, Oslo 1982

Siccardi

F. Siccardi “Le Nuove Assicurazioni Marittime Merci” Assicurazioni 2009

The UNCTAD Report

United Nations Conference on Trade and Development (UNCTAD Report on the Legal and documentary aspects of the insurance contract, Report TD/B/C. 4/ISL/27 dated November 20, 1978, revised 1992 as 4/ISL/27 Rev.1)

Volpe P.

G. Volpe Putzolu “Commentario breve al Diritto delle Assicurazioni”, Milano 2010, Cedam

Wilhelmsen and Bull

Trine-Lise Wilhelmsen and Hans Jacob Bull, Handbook on Hull Insurance, Oslo 2007

Wille

Du Bois et al, Wille’s Principles of South African Law, 9th edn

Wilhelmsen, CMI Analysis

Trine-Lise Wilhelmsen, Duty of Disclosure, Duty of Good Faith, Alteration of Risk and Warranties. An Analysis of Replies to the CMI Questionnaire, CMI Yearbook 2000

Other Abbreviations ADP ADS ADS AFB AGC AIMU AJA ALRC App. Ass. BGB BGH Bghz

Acting Deputy President (South Africa) Allgemeine Deutsche Seeversicherungsbedingungen Cargo Insurance English translation for: ADS Güterversicherung 1973 (Besondere Bestimmungen für die Güterversicherung) Allgemeine Bedingungen für die Feuerversicherung (Standard Conditions for the Insurance against Risks of Fire) Archivio Giuridico Circolazione (Law Journal) American Institute of Marine Underwriters Acting Judge of Appeal (South Africa) Australian Law Reform Commission Corte di Appello – Appellate Court sitting in regional Districts (Italy) Assicurazioni (Law Journal) Bürgerlilches Gesetzbuch (Civil Code) Bundesgerichtshof (Federal Supreme Court) Entscheidungen des Bundesgerichtshofs in Zivilsachen (Decisions of the Federal Supreme Court in civil matters; volume, page) xlii

ABBREVIATIONS

BOS BOV CA Cargo Policy Cass. CBE Clause C.C. CDG CESAM C&F/CFR CICG CIF CJ CMI C.N. COGSA CPR Dir. Econ. Ass. Dir. Mar. Dir. Prat. Ass. Dir. Trasp. DJP DTV-Cargo DV ECJ EFTA F.A.P. Sauf FC&S FDA FFSA F.I. FOB FPA G.D. G.I. Giur. Lig. Giust. Civ. HGB HL IACS ICA

Basis of Settlement Basis of Valuation Court of Appeal Cargo Policy 2006 Ed. (Italian) Corte di Cassazione – Supreme Court in Rome Chemical, Biological, Bio-Chemical and Electromagnetic Exclusion Clause Italian Civil Code Control of Damage Goods Clause Comité d’Etudes et de Services des Assureurs Maritimes et Transports de France Cost and Freight Norwegian Cargo Clauses: Conditions relating to Insurance for the Carriage of Goods Cost, Insurance and Freight Chief Justice (South Africa) Comite Maritime International Italian Code of Navigation Carriage of Goods by Sea Act Civil Procedure Rules Diritto Economia Assicurazioni (Law Journal) Diritto Marittimo (Law Journal) Diritto Pratica Assicurazioni (Law Journal) Diritto dei Trasporti (Law Journal) Deputy Judge President (South Africa) English translation for: DTV-Güterversicherungsbedingungen 2000, in der Fassung 2008, volle Deckung Damaged Market Value European Court of Justice European Free Trade Association Franc d’Avarie Particulière, Sauf (free of particular average, unless) Free of Capture and Seizure Food and Drug Administration Fédération Française des Sociétés d’Assurances (French Federation of Insurance Companies) Foro Italiano (Law Journal) Free on Board Free of Particular Average Guida al Diritto (Law Journal) Giurisprudenza Italiana (Law Journal) Giurisprudenza Ligure (Law Journal) Giustizia Civile (Law Journal) Handelsgesetzbuch (Commercial Code) House of Lords International Association of Classification Societies Insurance Contracts Act

xliii

ABBREVIATIONS

ICC IID IGI ILU INCOTERMS ISLWG ISM ISO ITC ITTF IUA IWCC IWG JA JC56 KC LG LJ Lloyd’s LMA LOF MAR Form Mass. F.I. Mass. Giust. Civ. MAT MIA MLAANZ MRC NA ND NJW NMIP NOU NSC NVOCC OFAC OLG Ot. prp P P&C P&I PICC Clauses PRC RACE Clause RDC Rep. F.I.

Institute Cargo Clauses, edn. 1/1/2009 unless otherwise indicated Insurer Issued Documentation Incorporated General Insurances (case) Institute of London Underwriters International Commercial Terms Working Group on International Shipping Legislation International Safety Management Insurance Services Offices Institute Time Clauses Institute Timber Trade Federation International Underwriting Association Institute War Clauses (Cargo) 1/1/2009 International Working Group on Issues of Marine Insurance Judge of Appeal (South Africa) Termination of Transit Clause (Terrorism) 2009 (JC2009/056) King’s Counsel Landgericht (Regional Court) Lord Justice Lloyd’s of London Lloyd’s Market Association Lloyd’s Open Form Marine Policy Form Massimario Foro Italiano (Law Journal) Massimario Giustizia Civile (Law Journal) Marine Aviation, and Transport Marine Insurance Act 1906 Maritime Law Association of Australia and New Zealand Market Reform Contract Norwegian Arbitral Court Nordiske Domme i Sjøfartsanliggender (Law Reports) Neue Juristische Wochenschrift (Weekly Law Review; year, page) Norwegian Marine Insurance Plan Norges Offentlige Utredninger (Norwegian Official Reports) Norwegian Supreme Court Non-Vessel Operating Common Carrier U.S. Treasury Department’s Office of Foreign Assets Control Oberlandesgericht (Court of Appeal) Odelstingsproposisjon (Proposition written by the Ministry of Justice) Percentage of Deterioration Property and Casualty Protection & Indemnity People’s Insurance Company of China Clauses People’s Republic of China Radioactive Contamination Exclusion Clause Rules of the District Court Repertorio Foro Italiano (Law Journal)

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ABBREVIATIONS

RG R.GIUR. CIR. R.G.L. RGZ RHC RSC SASRIA SC SCA SG Form/Policy SMV SOLAS SR&CC Strl. Ikrl T. Temi Gen. T-Plate TranspR TRIA UCP UNCTAD USDA VAT VersR WA

Reichsgericht (Supreme Court of the German Reich) Rivista Giuridica Circolazione e Trasporto (Law Journal) Rivista Giuridica del Lavoro (Law Journal) Entscheidungen des Reichsgerichts in Zivilsachen (Decisions of the Supreme Court of the German Reich in civil matters; volume, page) Rules of the High Court Rules of the Supreme Court South African Special Risk Insurance Association Limited Supreme Court Supreme Court of Appeal of South Africa Ship and Goods Form/Policy Sound Market Value Safety of Life at Sea Strikes, Riots & Civil Commotions Straffelovens Ikrafttredelseslov/ Straffelovs Ikrafttræden Tribunale - Court of First Instance sitting in provincial Districts (Italian Chapter) Temi Genovese (Law Journal) Trade Registration Number Plate Transportrecht (Monthly Law Review on Transport Law; year, page) Terrorism Risk Insurance Act Uniform Customs and Practice for Documentary Credits United Nations Conference on Trade and Development United States Department of Agriculture Value Added Tax Versicherungsrecht (Law Review on Insurance Law; year, page) With Average

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TABLE OF CASES

20th Century Foods PTE Ltd v. Home Insurance Co, 1989 U.S. Dist. LEXIS 9843 (SDNY 1989) ............

8.110

ABB Power T&D Co v. Gothaer Versicherungsbank VVAG, 939 F. Supp. 1568 (S.D. Fla. 1996) ............. 8.19 Ackerman v. Loubser [1918] OPD 31 ................................................................................................14.143, 14.144 Adams v. Indemnity Marine Assurance Co Ltd, 220 F.3d 659 (5th Cir. 2000) ............................................ 2.38 Adams v. Unione Mediterranea di Securta, 364 F.3d 646 (5th Cir. 2004) .................................................... 2.38 Adrian Shipping (Bermuda) Ltd v. Allstate Insurance Co, 1987 U.S. Dist. LEXIS 5225 (E.D. La. 1987).. 8.122 Advani Enterprises Inc v. Underwriters at Lloyd’s, 1997 AMC 1851 (SDNY 1997); 140 F.3d 157 (2d Cir. 1998) .................................................................................................................................................2.65, 8.30 Aetna Insurance Co v. United Fruit Co, 304 U.S. 430 (1938) ...................................................................... 8.119 Agapitos v. Agnew (The Aegeon) [2002] EWCA Civ 247; [2002] 2 Lloyd’s Rep. 42 ................................ 3.92 Agapitos v. Agnew (No. 2) [2002] EWHC 1558 (Comm); [2003] 1 Lloyd’s Rep. 54 ..............................3.28, 3.92 AGF v. Pominter [2011] 1 Lloyd’s Rep. 560 (SC) ........................................................................................ 15.33 AIG Europe SA v. QBE International Insurance Ltd [2001] 2 Lloyd’s Rep. 268 ........................................ 2.9 Ajiba Coussa v. Westchester Fire Insurance Co, 1962 AMC 1805 (SDNY 1961) ....................................... 8.44 Akai Pty Ltd v. The People’s Insurance Co Ltd [1996] 188 CLR 418; [1996] 141 ALR 374; [1997] ALR 141; [1996] 188 CLR 418 ...............................................................................................2.19, 2.35, 2.61, 7.11 Akedian Co Ltd v. Royal Insurance Australia Ltd and Others [1997] 148 ALR 480 ................................... 7.22 Al Wahab, The. Amin Rasheed Shipping Corp v. Kuwait Insurance Co [1984] AC 50; [1983] 2 Lloyd’s Rep. 365 (HL)....................................................................................................................................... 6.3 Alamo Chemical Transp Co v. M/V Overseas Valdes, 469 F. Supp. 203 (E.D. La., 1979) .......................... 8.116 Albacora SRL v. Westcott & Laurance Line Ltd [1966] 2 Lloyd’s Rep. 53 ................................................. 3.42 Albert J. Schiff Assoc., Inc. v. Flack, 51 N.Y.2d 692; 435 N.Y.S.2d 972; 417 N.E.2d 84 (1980) .............8.35, 8.81 Albion Insurance Co Ltd v. Government Insurance Office of New South Wales [1969] 121 CLR 342....... 3.124 Ali AH Saleh v. Falcon Insurance Co (Hong Kong) Ltd, 24/01/2003 DCCJ 6261/2002 ............................. 4.25 Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v. West Tankers Inc (The Front Comor) (Case C-185/07) [2009] 1 AC 1138 (EJC); [2009] ECR I-663; [2009] 1 Lloyd’s Rep. 413 ............1.14, 2.72 Allison Pty Ltd v. Lumley General Insurance Ltd [2006] WASC 104.......................................................... 7.40 Alluvials Mining Machinery Co v. Stowe (1922) 10 Ll. L. Rep. 96......................................................15.52, 15.55 American Dredging Co v. Federal Insurance Co, 1970 AMC 1163 ......................................................3.123, 8.123 American Home Assurance Co v. Fore River Dock & Dredge Inc, 321 F. Supp. 2d 209 (D. Mass. 2004) . 8.111 American Home Assurance Co v. Masters’ Ships Management SA, 423 F. Supp. 2d 193 (SDNY 2006); aff’d 2007 U.S. App. LEXIS 12928 (2d Cir. 2007) ............................................................................. 8.6 American Home Assurance Co v. Merck & Co Inc, 386 F. Supp. 2d 501 (SDNY 2005) .........................8.25, 8.93 American Home Assurance Co v. Merck & Co, 2005 U.S. Dist. LEXIS 7951 (SDNY 2005) .................... 8.104 American Marine Insurance Group v. Neptunia Insurance Co, 775 F. Supp. 703 (SDNY 1991) ................ 8.95 American National Fire Insurance Co v. Mirasco Inc, 249 F. Supp. 2d 303 (SDNY 2003) .............8.36, 8.52, 8.58 American National Fire Insurance Co v. Kenealy, 72 F.3d 264 (2d Cir. 1995) .........................................8.13, 8.85 American Surety Co of New York v. Wrightson (1910) 16 Com Cas 37 ..................................................... 15.62 Amin Rasheed Shipping Corporation v. Kuwait Insurance Co (The Al Wahab) [1983] 2 Lloyd’s Rep. 365 (HL); [1984] AC 50 .............................................................................................................2.52, 2.63, 3.4, 6.3 Amoi Electronics Co Ltd v. Kin Cheung Transportation (Hong Kong) Co Ltd, 18 February 2010, DCCJ 3993/2008 ............................................................................................................................................. 4.49 Amsterdam Bulb BV v. Produktschap voor Siergewassen, Case C-50/76 [1977] ECR 137 (ECJ) .............. 2.47 Anbest Electronic Ltd v. CGU International Insurance plc [2009] HKEC 6; [2009] HKEC 573 (CA); [2009] WL 1669 (CA) .....................................................................................................................4.37, 15.37 Anchor Line v. Jackson, 9 F.2d 543 (2d Cir. 1925)....................................................................................... 8.105 Anderson v. Morice (1875) LR 10 CP 609 ................................................................................................... 7.32 Anderson v. Wallis (1813) 2 M&S 240 ......................................................................................................... 3.104

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TABLE OF CASES

Angela Maria Dias t/a Crowden Trading Corporation v. National Insurance Co Ltd [1973] HKCFI 113; HCA 2474/1972 ................................................................................................................................... 4.46 Anne Quinn Corp v. American Mfrs Mutual Insurance Co, 369 F. Supp. 1312 (SDNY 1973) ................... 8.12 Archer-Daniels-Midland Co v. Phoenix Assur Co, 975 F. Supp. 1129 (S.D. Ill. 1997) ...................8.38, 8.47, 8.50 Argo Corp v. Greater NY Mutual Insurance Co, 4 N.Y.3d 332 (2005) ........................................................ 8.81 Arkwright Mut Insurance Co v. Warner-Lambert Co, 2001 AMC 1433 (3rd Cir. 2000) ............................. 8.105 Armada Supply Inc v. Wright, 858 F.2d 842 (2d Cir. 1988); 665 F. Supp. 1047 (SDNY 1987) .............8.20, 8.107 Asfar & Co v. Blundell [1896] 1QB 123 ...................................................................................................... 3.101 Assicurazioni Generali SpA v. Arab Insurance Group (BSC) [2002] EWCA Civ 1642; [2003] Lloyd’s Rep. IR 131 (CA) .......................................................................................................................................... 3.7 Athens Maritime Enterprises Corporation v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Andreas Lemos) [1982] 2 Lloyd’s Rep. 483 ........................................................................................ 3.64 Atlantic Lines Ltd v. American Motorists Insurance Co; 547 F.2d 11 (2d Cir. 1976) .................................. 8.43 Atlantic Sounding Co v. Townsend, 557 U.S. 404; 129 S. Ct. 2561; 174 L. Ed. 2d 382 (2009) .................. 8.86 Atlas Assurance Co v. Harper Robinson Shipping Co, 508 F.2d 1381 (9th Cir. 1975) ................................ 8.19 Aunt Jemima Mills Co v. Lloyd Royal Belge, 34 F.2d 120 (2d Cir. 1929) ................................................... 8.123 Australia and New Zealand Bank Ltd v. Colonial and Eagle Wharves Ltd [1960] 2 Lloyd’s Rep. 241....... 3.95 Australian Agricultural Co v. Saunders (1874-75) LR 10 CP 668................................................................ 3.123 Auto Protection Insurance Co Ltd v. Hanmer-Strudwick , 1964 (1) SA 349 (A) ......................................... 14.67 Avemco Insurance Co v. Mock, 44 Wash. App. 327, 329; 721 P.2d 34 (1986) ............................................ 8.39 Axis Reinsurance Co v. Resmondo, 2009 U.S. Dist. LEXIS 122778; 2009 AMC 2597 (M.D. Fla. 2009) . 8.46 Bacchus Assoc v. Hartford Fire Insurance Co, 766 F. Supp. 104 (SDNY 1991).......................................... 8.26 Baker Castor Oil Co v. Insurance Co of North America, 1945 AMC 168 (SDNY 1944) ............................ 8.100 Banco Nacional de Nicaragua v. Argonaut Insurance Co, 681 F.2d 1337 (11th Cir. 1982) ......................... 8.48 Bank of East Asia Ltd v. Tsien Wui Marble Factory Ltd (1999) 2 HKCFAR 349 ....................................... 4.4 Bank of New York Mellon v. GV Films Ltd [2010] 1 Lloyd’s Rep. 365 ...................................................2.19, 2.52 Barnard v. Adams, 51 U.S. 270 (1850) ......................................................................................................... 8.117 Barnard v. Protea Assurance Co Ltd t/a Protea Assurance [1998] (3) SA 1063 (C) .................................... 14.67 Baumhauer v. Groves, 844 F. Supp. 719 (S.D. Ala. 1993)............................................................................ 2.38 Bayview Motors Ltd v. Mitsui Fire & Marine Insurance Co Ltd [2002] 1 Lloyd’s Rep. 652; [2002] EWHC 21 (Comm); aff’d [2002] EWCA Civ 1605 (CA); [2003] 1 Lloyd’s Rep. 131 ......................3.78, 3.96, 3.100 BC Enterprise Sdn Bhd v. Bank of China Group Insurance Co Ltd [2004] 1 HKLRD 20........................4.27, 4.29 Beazley Underwriting Ltd v. The Travelers Companies Incorporated [2011] EWHC 1520 (Comm); [2012] Lloyd’s Rep. IR 78 ............................................................................................................................... 3.31 Bee v. Jenson (No. 2) [2007] EWCA Civ 923; [2008] Lloyd’s Rep. IR 221 ................................................ 3.120 Beley v. Penn Mutual Life Insurance Co, 373 Pa. 231 (1953) ...................................................................... 8.55 Bell v. Lothiansure Ltd [1993] SLT 421 ....................................................................................................... 3.31 Ben Pulitzer Creations Inc v. Phoenix Insurance Co, 47 Misc. 2d 801, 263 N.Y.S.2d 373 (N.Y. Civ. Ct. 1965) ..................................................................................................................................................... 8.72 Berger and Light Diffusers Ltd v. Pollock [1973] 2 Lloyd’s Rep. 442 ........................................................3.7, 3.19 Beston Chemical Corp v. PICC P&C Beijing (2005) Jin Gao Min Si Zhong Zi 160 ................................... 13.44 Bethlehem Export Co (Pty) Ltd v. Incorporated General Insurance [1984] (3) SA 449 (W) ....................... 14.115 Big Lift v. Bellefonte Insurance Co, 594 F. Supp. 701 (SDNY 1984) .......................................................... 8.81 Blackshaws (Pty) Ltd v. British Engine Insurance Co of SA Ltd and Another [1981] (4) SA 659 (C).....14.94, 15.33 Blackshaws (Pty) Ltd v. Constantia Insurance Co Ltd [1983] (1) SA 120 (A)......................................14.75, 14.96 Blaine Richards & Co v. Marine Indemnity Insurance Co of America, 635 F.2d 1051 (2d Cir. 1980) ........ 8.37 Blasser Brothers v. Northern Pan-American Line, 628 F.2d 376 (5th Cir. 1980) ......................................... 8.111 Boag v. Economic Insurance Co Ltd [1954] 2 Lloyd’s Rep. 581 ................................................................. 3.124 Boag v. Standard Marine Insurance Co Ltd (1937) 57 Ll. L. Rep. 83 (CA) ..........................................3.121, 3.122 Bolands Ltd v. London & Lancashire Fire Insurance Co Ltd (1924) 19 Ll. L. Rep. 1 (HL); [1973] 1 MLJ 101 ..............................................................................................................................3.64, 5.41 Boon & Cheah Steel Pipes Snd. Bhd. v. Asia Insurance Co Ltd [1975] 1 Lloyd’s Rep. 452 ................3.102, 3.103 Boonton Handbag Co Inc v. Home Insurance Co, 125 N.J. Super. 287, 310 A.2d 510 (1973) .................... 8.73 Borton & Sons Inc v. Travelers Insurance Co, 2000 Wash. App. LEXIS 93 (2000) .................................... 8.97 Bovis Construction Ltd and Another v. Commercial Union Assurance Co plc [2001] 1 Lloyd’s Rep. 416 ......... 3.124 Bowring (C. T.) & Co Ltd v. Amsterdam London Insurance Co Ltd (1930) 36 Ll. L. Rep. 309 ..............3.42, 3.43 Boyd Motors v. Employers Insurance of Warsaw, 880 F.2d 270 (10th Cir. 1989) ........................................ 8.52 BP Exploration Co (Libya) Ltd v. Hunt (No. 2) [1979] 1 WLR 783 ............................................................ 3.91 Brammer Corp v. Holland-America Insurance, 34 Misc. 2d 337 (1962); 228 N.Y.S.2d 512 (1962) ........... 8.70 Bremen, The v. Zapata Off-Shore Co, 407 U.S. 1 (1972) ..........................................................................2.40, 2.65

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Brightside Enterprises v. Zimnat Insurance Co [2003] (1) SA 318 (ZHC)................................................... 14.55 Brinkerhoff Maritime Drilling Corp and Another v. PT Airfast Services Indonesia and Another Appeal [1992] 2 SLR(R) 345. ........................................................................................................................... 2.24 British & Foreign Marine Insurance Co Ltd v. Gaunt [1920] 1 KB 903 (CA); [1921] 1 AC 41 (HL)..............................................................3.35–3.37, 3.71, 3.90, 5.34, 14.86, 14.87, 15.52, 15.54 British & Foreign Marine Insurance Co Ltd v. Samuel Sanday [1916] 1 AC 650............................3.4, 3.58, 3.104 British Waterways v. Royal & Sun Alliance Insurance plc [2012] EWHC 460 ........................................... 3.31 Brownsville Holdings Ltd and Another v. Adamjee Insurance Co Ltd (The Milasan) [2000] 2 Lloyd’s Rep. 458 ........................................................................................................................................................ 3.27 Bruwer v. Nova Risk Partners Ltd [2011] (1) SA 234 (GSJ); [2010] ZAGPJHC 96; [2011] SA Merc LJ 135 .................................................................................................................14.33, 14.34, 14.38 Btesh v. Royal Insurance Co, 49 F.2d 720 (2d Cir. 1931) ............................................................................. 8.9 Bubble Up International Ltd v. Transpacific Carriers Corp, 458 F. Supp. 1100 (SDNY 1978) ................... 8.117 Buckeye Cellulose Corp v. Atlantic Mutual Insurance Co, 643 F. Supp. 1030 (SDNY 1986) ..................... 8.89 Campbell v. Hartford Fire Inc Co, 533 F.2d 496 (9th Cir. 1976) .................................................................. 8.77 Canada Rice Mills Ltd v. Union Marine & General Marine Insurance Co Ltd (1940) 67 Ll. L. Rep. 549 .... 3.30 Canadian Co-Operative Wheat Producers Ltd v. Barge John Russell, 68 F.2d 901 (2d Cir. 1934) .............. 8.16 Captain Panagos DP, The. Continental Illinois National Bank and Trust Co of Chicago v. Bathurst [1985] 1 Lloyd’s Rep. 625 ............................................................................................................................... 7.15 Cargill Inc v. Commercial Union Insurance Co, 889 F.2d 174 (8th Cir. 1989) ............................................ 8.127 Carnival Cruise Lines Inc v. Shute, 499 U.S. 585 (1991) ............................................................................. 2.38 Carter v. Boehm [1766] 3 Burr 1905............................................................................................................. 3.6 Castellain v. Preston [1883] 11 QBD 380 (CA) ...................................................................................14.45, 14.143 Castle Insurance Co Ltd v. Hong Kong Islands Shipping Co Ltd [1983] 2 Lloyd’s Rep. 376; [1984] AC 226 (PC) ........................................................................................................................3.19, 3.110 Casualty and General Insurance Ltd v. Waterwell Shipping Inc and Another [1998] 43 NSWLR 601 .............7.42 Catlin Syndicate Ltd and Others v. Adams Land & Cattle Co [2006] EWHC 2065 (Comm); [2007] Lloyd’s Rep. IR 96............................................................................................................................................. 2.20 Cementation Piling and Foundations Ltd v. Aegon Insurance Co Ltd [1993] 1 Lloyd’s Rep. 526 .............. 3.103 Cendor MOPU, The. Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad [2011] UKSC 5; [2011] 1 Lloyd’s Rep. 560 (SC) ..................................................................................................3.36, 7.42, 30 Centennial Insurance Co v. Lithotech Sales LLC, 187 F. Supp. 2d 214 (D. N.J. 2001); aff’d 29 Fed. App’x. 835 (3rd Cir. 2002) ............................................................................................................................... 8.44 Central Insurance Co Ltd v. Seacalf Shipping Corporation (The Aiolos) [1983] 2 Lloyd’s Rep. 25 ........... 3.120 Century Insurance Co of Canada v. Case Existological Laboratories Ltd (The Bamcell II) [1984] 1 WWR 97 ............................................................................................................................................ 15.27 Certain Underwriters at Lloyd’s v. Montford, 52 F.3d 219 (9th Cir. 1995) .................................................. 8.87 Champion International Corp v. Arkwright-Boston Manufacturers Mutual Insurance Co, 1982 AMC 2496 (SDNY 1982); aff’d 714 F.2d 112 (2d Cir. 1982) ................................................................................ 8.91 Chandris v. Argo Insurance Co Ltd [1963] 2 Lloyd’s Rep. 65 ................................................................3.89, 3.110 Charman v. WOC Offshore [1993] 2 Lloyd’s Rep. 551 (CA) ...................................................................... 2.7 Chartis v. Mingyang Logistics (2010) Hu Er Zhong Min Liu (Shang) Zhong Zi 174 .................................. 13.51 Chemical Bank v. Affiliated FM Insurance Co, 815 F. Supp. 115 (SDNY 1993) ........................................ 8.97 China Union Lines Ltd v. American Marine Underwriters Inc, 1984 U.S. Dist. LEXIS 18719 (SDNY 1984) ....................................................................................................................................... 8.18 City of Burlington v. Indemnity Insurance Co of North America, 332 F.3d 38, 48 (2d Cir. 2003) .............. 8.43 City of Milwaukee v. National Gypsum Co, 515 U.S. 189 (1995) ............................................................... 8.83 City Stores Co v. Sun Insurance Co of New York, 357 F. Supp. 1113 (SDNY 1972) ...............................8.17, 8.70 Clark v. Manufacturers’ Insurance Co, 49 U.S. 235 (1850).......................................................................... 8.12 Clothing Management Technology Ltd v. Beazley Solutions Ltd t/a Beazley Marine UK [2012] EWHC 727 (QB) ................................................................................................3.62, 3.94, 3.98, 3.108, 3.113 Coast to Coast Seafood Inc v. Assurances Generales De France, 2002 AMC 2553 (Wash. App. 2002) ..... 8.25 Coexport International v. New Hampshire Insurance Co, 1991 U.S. Dist. LEXIS 6743 (N.D. Ill. 1991) ... 8.50 Cofacredit SA v. Windsor Plumbing Supply Co Inc, 187 F.3d 229 (2d Cir. 1999) ...................................... 8.87 Colonial Mutual Life Assurance Society Ltd v. de Bruyn [1911] CPD 103................................................. 14.69 Columbia Knit Inc v. Affiliated FM Insurance Co, 1999 U.S. Dist. LEXIS 11873 (D. Or. 1999) ............... 8.97 Columbus-America Group v. Atlantic Mutual Insurance Co, 974 F.2d 450 (4th Cir. 1992) ........................ 8.121 Commercial Union Assurance Co v. The Niger Co Ltd (1922) 13 Ll. L. Rep. 75 ....................................... 15.39 Commercial Union Insurance Co v. Flagship Marine Services, 2000 AMC 1 (2d Cir. 2000)...................... 8.29 Commercial Union Insurance Co v. Pesante, 459 F.3d 34 (1st Cir. 2006) .................................................... 8.10

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Commercial Union Insurance Co v. Spanish American Stainless Corp, 1985 U.S. Dist. LEXIS 18456 (SDNY 1985) ....................................................................................................................................... 8.110 Commercial Union Insurance Co of SA Ltd v. Lotter [1999] (2) SA 147 (SCA) ........................................ 14.144 Commodities Reserve Co v. St Paul Fire & Marine Insurance Co, 879 F.2d 640 (9th Cir. 1989) ...........8.37, 8.102 Compagnie de Reassurance d’lle de France v. New England Reins Corp, 944 F. Supp. 986 (D. Mass. 1996) .................................................................................................................................... 8.7 Compagnie des Bauxites de Guinee v. Insurance Co of North America, 724 F.2d 369 (3rd Cir. 1983)....... 8.42 Compania Columbiana v. Pacific Steam Navigation Co [1965] 1 QB 101; [1963] 2 Lloyd’s Rep. 479 ...... 3.120 Con-Stan Industries of Australia Pty Ltd v. Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; [1986] 160 CLR 226............................................................................................................................. 7.13 Connor v. Nippon Fire & Marine Insurance Co Ltd [1998] Hanrei Jiho No. 1675 ...................................... 6.5 Container Transport International Inc v. Oceanus Mutual Underwriting Association Ltd [1984] 1 Lloyd’s Rep. 476................................................................................................................................................ 3.7 Continental Casualty Co v. Rapid-American Corp, 80 N.Y.2d 640; 593 N.Y.S.2d 966; 609 N.E.2d 506 (1993) ................................................................................................................................................... 8.36 Continental Casualty Co v. Skully, 2010 AMC 1959 (S.D. Cal. 2010) ........................................................ 8.87 Continental Illinois National Bank and Trust Co of Chicago v. Bathurst (The Captain Panagos DP) [1985] 1 Lloyd’s Rep. 625 ............................................................................................................................7.15, 15.2 Continental Insurance Co v. Arkwright Mutual Insurance Co, 102 F.3d 30 (1st Cir. 1996)......................... 8.37 Continental Insurance Co v. Clayton Hardtop Skiff, 367 F.2d 230 (3rd Cir. 1966) ...................................... 8.121 Continental Mark Ltd v. Verkehrs-Club de Schweiz [2001] 4 HKC 469 ..................................................... 2.27 Continental Seafoods v. New Hampshire Fire Insurance Co, 1964 AMC 196 (SDNY 1963) ..................... 8.30 Contract Marine Carriers Inc v. Abbott Lab Int, 1993 U.S. Dist. LEXIS 4260 (SDNY 1993) .................... 8.124 Contractors Realty Co v. Insurance Co of North America, 469 F. Supp. 1287 (SDNY 1979) ..................8.12, 8.46 Coven SpA v. Hong Kong Chinese Insurance Co [1999] Lloyd’s Rep. IR 565 (CA) .................................. 3.39 Coxe v. Employers Liability Assurance Corporation Ltd [1916] 2 KB 629 ................................................. 3.31 CPH International Inc v. Phoenix Assurance Co, 1994 U.S. Dist. LEXIS 7751 (SDNY 1994)..............8.49, 8.104 CPIC Shanghai v. Hanwen (2007) Hu Yi Zhong Min San Shang (Zhong) Zi 290 ....................................... 13.15 Craft Enterprises (International) Ltd v. Axa Insurance Co [2004] EWCA Civ 171; [2005] 1 Lloyd’s Rep. 14.................................................................................................................................................. 3.23 Craftware Products Ltd v. Commercial Union General Insurance Co Ltd [1987] 4 ANZ Ins Cas 60-819 .......................................................................................................................................7.50, 15.51 Credit Suisse Financial Products v. Société Generale D’Enterprises [1997] CLC 168. ............................... 2.9 Crow’s Transport Ltd v. Phoenix Assurance Co Ltd [1965] 1 Lloyd’s Rep. 139 ......................................... 3.37 Curacao Trading Co v. Federal Insurance Co, 50 F. Supp. 441 (SDNY 1942)..........................................8.19, 8.20 Customized Distribution Services v. Zurich Insurance Co, 373 N.J. Super. 480; 862 A.2d 560 (N.J. Sup. Ct. App. Div. 2004) .............................................................................................................................. 8.98 CXY Chemicals USA v. Gerling Global General Insurance Co, 991 F. Supp. 770 (E.D. La. 1998) ........... 8.42 D&L Marine Transport Inc v. Suard Barge Service Inc, 2003 U.S. Dist. LEXIS 18177 (E.D. La. 2003) ... 8.81 D’Oz International Pte Ltd v. PSB Corp Pte Ltd [2010] 3 SLR 267; [2010] SGHC 88 ............................... 2.55 David Hlywiak v. Marc Hlywiak, In re, 573 F. Supp. 2d 871 (D. N.J. 2008) ............................................... 8.121 Davis Yarn Co v. Brooklyn Yarn Dye Co, 293 N.Y.236; 56 N.E.2d 564 (1944) .......................................... 8.124 De Monchy v. Phoenix Insurance Co of Hartford and Another (1929) 34 Ll. L. Rep. 201 (HL) ........3.22, 3.23, 3.89 Deak v. Deak Perera Far East Lt [1990] 2 HKC 198 .................................................................................... 2.27 Dean v. Hornby (1854) 3 El & Bl 180 .......................................................................................................3.94, 6.33 Den Gre Plastics Co v. Travelers Indemnity Co, 107 N.J. Super. 535; 259 A.2d 485 (Law Div. 1969) ...... 8.70 Derry v. Peek (1889) LR 14 App. Cas. 337 .................................................................................................. 3.37 Diamond Alkali Export Corporation v. Fl. Bourgeois (1921) 8 Ll. L. Rep. 282 .......................................... 3.21 Dickenson v. Jardine (1867–68) LR 3 CP 639 .............................................................................................. 3.117 Dinallo v. Dunav Insurance Co, 672 F. Supp. 2d. 368 (SDNY 2009)........................................................... 2.38 DiSanto v. Safeco Insurance Co of America, 861 N.E.2d 573 (2006) .......................................................... 8.87 Doak v. Weekes [1986] 82 FLR 334 ............................................................................................................. 7.40 Dodwell & Co Ltd v. British Dominions General Insurance Co Ltd [1955] 2 Lloyd’s Rep. 391................. 3.39 Dole v. Merchants’ Mutual Insurance Co, 51 Me 465 (Me. 1863) ............................................................... 8.55 Dominican Import Co Inc v. Lloyd’s of London, 1981 AMC 2979 (4th Cir. 1981) ..................................... 8.101 Donohue v. Armco Inc [2002] 1 Lloyd’s Rep. 425 ....................................................................................... 2.19 Dornoch Ltd v. Mauritius Union Assurance Co Ltd [2006] EWCA Civ 389; [2006] 2 Lloyd’s Rep. 475 .... 2.9 Dornoch Ltd v. Westminster International BV (The WD Fairway No 2) [2009] EWHC 889; [2009] Lloyd’s Rep. IR 573........................................................................................................................................... 3.120

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Dow Chemical Co v. Royal Indemnity Co, 635 F.2d 379 (5th Cir. 1981) .................................................8.42, 8.44 Drake Insurance plc v. Provincial Insurance plc [2004] QB 610; [2004] Lloyd’s Rep. IR 277 ................... 15.63 Duan Qi Gui v. Upper Like Investments Ltd, CACV 320/2007 ................................................................... 2.29 Dudgeon v. Pembroke (1877) 2 App. Cas. 284 ............................................................................................. 15.25 Dunthorne v. Bentley [1999] Lloyd’s Rep. IR 560 (CA) .............................................................................. 3.31 Duus Brown v. Binning (1906) 11 Com. Cas. 190........................................................................................ 3.121 Eagle Star Insurance Co Ltd v. Games Video Co (GVC) SA (The Game Boy) [2004] EWHC 15 (Comm); [2004] 1 Lloyd’s Rep. 238 .................................................................................................................... 3.12 Eagle Star Insurance Co Ltd v. Willey [1956] (1) SA 330 (A) ..................................................................... 14.113 Eagle Terminal Tankers Inc v. Insurance Co of USSR (Ingosstrakh) Ltd, 637 F.2d 890 (2d Cir. 1980) ...... 8.117 Econ Corp International Ltd v. Ballast-Nedam International BV [2003] 2 SLR(R) 15................................ 2.22 Economides v. Commercial Union Assurance Co plc [1998] QB 587; [1998] Lloyd’s Rep. IR 9 (CA) ..... 3.12 ELAZ International Co v. Hong Kong & Shanghai Insurance Co Ltd [2006] HKEC 825; [2006] WL 496756 (CFI); [2006] HKEC 825; [2006] HCCL 16; [2006] HKFCI 469 ..........3.79, 4.26, 4.31, 4.37, 15.48 Elefanten Schuh GmbH v. Jacqmain, Case 150/80 [1981] ECR 1671 ......................................................... 2.6 Employers Insurance of Wausau v. Trotter Towing Corp, 834 F.2d 1206 (5th Cir. 1988) ............................ 8.33 Employers Insurance v. Banco de Seguros del Estado, 199 F.3d 937 (7th Cir. 1999) .................................. 2.38 Eng Liat Kiang v. Eng Bak Hern [1995] 2 SLR(R) 851 ............................................................................... 2.24 Entec Services Ltd v. Neuchatel Swiss General Insurance Co Ltd [1989] 6 Anz Ins Cas 60-969 ............... 7.64 Equitas Ltd v. Allstate Insurance Co [2009] Lloyd’s Rep. IR 227................................................................ 2.10 Escambia Treating Co v. Aetna Casualty and Surety Co, 1977 AMC 1285 (N.D. Fla. 1976) ..................... 8.31 Estasis Salottidi Colzani Aimo et Gianmario Colzani v. RUWA Polstereimaschinen GmbH, Case 24/76 [1976] ECR 1831.................................................................................................................................. 2.9 Estee Lauder International Inc v. Worldwide Marine Service, 923 F.2d 238 (2d Cir. 1991) ...................... 8.6, 8.28 Eurodale Manufacturing Ltd v. Ecclesiastical Insurance Office plc [2003] Lloyd’s Rep. IR 444 ................ 14.101 Eurospark Industries Inc v. Underwriters at Lloyd’s, 567 F. Supp. 2d 345 (EDNY 2008) ........................... 8.106 Everbright Commercial Enterprises Pte Ltd v. AXA Insurance Singapore Pte Ltd (The Sirena I) [2000] 4 SLR 226; [2001] 2 SLR 316.......................................................................................3.87, 4.36, 5.16, 15.28 Evialis SA v. S.I.A.T. and Another [2003] EWHC 863 (Comm); [2003] 2 Lloyd’s Rep. 377; [2003] 2 Lloyd’s Rep. 337 ......................................................................................................2.18, 2.49, 3.23, 6.7, 9.51 Excess Insurance Co v. Allendale Mutual Insurance Co [2001] 1 Lloyd’s Rep. IR 524 .............................. 2.20 Berk (F. W.) & Co Ltd v. Style [1956] 1 QB 180; [1955] 2 Lloyd’s Rep. 382 ...............................3.35, 3.47, 3.113 Fabozzi v. Lexington Insurance Co, 601 F.3d 88 (2d Cir. 2010) .................................................................. 8.82 Farr Man Coffee Inc v. Arthur Henry Chester and Underwriter at Lloyd’s of London, 1993 U.S. Dist. LEXIS 8992 (SDNY 1993) ...............................................................................................................8.25, 8.69 Fashionwear (PVT) Ltd v. Regatta (USA) LLC, 2004 U.S. Dist. LEXIS 19769 (SDNY 2006) .................. 8.85 Feasey v. Sun Life Assurance Company of Canada [2003] EWCA Civ 885; [2003] 1 Lloyd’s Rep. 637 ... 3.14 Federation Insurance Company of Canada v. Coret Accessories Inc & Hirsch [1968] 2 Lloyd’s Rep. 109 ... 3.51 Fedgen Insurance Ltd v. Leyds, 1995 (3) SA 33(A) ..................................................................................... 14.67 Fedsure General Insurance Ltd v. Carefree Investments (Pty) Ltd (477/99) [2001] ZASCA 88 ..........................................................................................................................3.79, 14.101, 15.47 Fenby v. M/V Three D of Guernsey, 217 F. App’x 846 (11th Cir. 2007) ..................................................... 8.77 Fender v. St John Mildmay [1938] AC 1 ...................................................................................................... 3.17 Fenghai v. PICC Hainan (1996) Hai Shang Chu Zi 096 ............................................................................... 13.29 Ferrexpo AG v. Gilson Investment Ltd and Others [2012] EWHC 721 (Comm) ......................................... 1.12 Fireman’s Fund Insurance Co v. Service Transp Co, 466 F. Supp. 934 (D.C. Md. 1979) ............................ 8.74 Firemen’s Fund Insurance Co v. Trojan Powder Co, 253 F. 305 (9th Cir. 1918) .......................................... 8.100 Fireman’s Fund Insurance Co v. Videfreeze Corp, 540 F.2d 1171 (3rd Cir. 1976)....................................... 8.44 Firma C-Trade SA v. The Newcastle Protection and Indemnity Association (The Fanti) [1990] 2 Lloyd’s Rep. 191................................................................................................................................................ 3.110 First American Artificial Flowers Inc v. AFIA Worldwide Insurance, 1977 AMC 376 (N.Y. Sup. Ct. 1976) ..................................................................................................................................................... 8.73 First Art Investments Ltd v. Guardian Insurance Ltd, Central London County Court, 14 February 2002, unreported ............................................................................................................................................. 15.48 Flexi-Van Leasing Inc v. Through Transport Mutual Insurance Assoc Ltd, 108 F. App’x 35 (3rd Cir. 2004) .............................................................................................................................................. 8.15 Folksamerica Reinsurance Co v. Clean Water of New York Inc, 413 F.3d 307 (2d Cir. 2005) .................... 8.4 Forestal Land, Timber & Railways Co Ltd v. Rickards (The Minden); sub nom Middows Ltd v. Robertson The Wangoni) (1941) 70 Ll. L. Rep. 173; (1940) 68 Ll. L. Rep. 45 (CA) ...................1.2, 1.10, 3.1, 3.58, 3.104, 15.18

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TABLE OF CASES

Formosa Plastics Corp v. Sturge, 684 F. Supp. 359; 1988 AMC 333 (SDNY 1987).................................... 8.48 Foster v. Driscoll [1929] 1 KB 470 ............................................................................................................... 15.16 Franco Apparel Group Inc v. National Liability & Fire Insurance Co, 2011 U.S. Dist. LEXIS 72122 (SDNY 2011) ....................................................................................................................................... 8.82 Franklin v. Washington General Insurance Corp, 62 Misc. 2d 965; 310 N.Y.S.2d 648 (Sup. Ct. N.Y. Co. 1970) ..................................................................................................................................................... 8.72 French Hairdressing Saloons Ltd v. National Employers Mutual General Insurance Association Ltd, 1931 AD 60 ................................................................................................................................................... 14.67 Fruehauf Corp v. Royal Exch Assurance of America Inc, 1984 AMC 1194 (9th Cir. 1983) ....................... 8.94 Fruit Dist. Inc v. Boag, 93 F. Supp. 431 (SD Ala. 1950) .............................................................................. 2.38 Frupac International Corp v. Fireman’s Fund Insurance Co, 1990 U.S. Dist. LEXIS 16807 (E.D. Pa. 1990) ............................................................................................................................................... 8.65 G. Simons & Co v. New Bar of North America, 2005 U.S. Dist. LEXIS 9043 (SDNY 2005) .................... 8.20 Gasser v. MISAT, Case C-116/02 [2003] ECR I-14693 ............................................................................... 2.11 GE Frankona Reinsurance Ltd v. CMM Trust No. 1400 (The Newfoundland Explorer) [2006] EWHC 429 (Admlty); [2006] Lloyd’s Rep. IR 704 ................................................................................................. 3.27 Gee & Garnham v. Whittall [1955] 2 Lloyd’s Rep. 652 ............................................................................... 3.47 Geismar v. Sun Alliance & London Insurance Ltd [1978] QB 383; [1977] 2 Lloyd’s Rep. 62 ................... 3.37 General Accident Fire & Life Assurance Corp Ltd v. Peter William Tanter (The Zephyr) [1984] 1 Lloyd’s Rep. 58; [1985] 2 Lloyd’s Rep. 529 (CA) ............................................................................................ 3.6 General Mills Inc v. Gold Medal Insurance, 622 N.W.2d 147 (Minn. Ct. App. 2001) ................................. 8.98 Geofizika DD v. MMB International Ltd (The Green Island) [2010] 2 Lloyd’s Rep. 1 (CA) ....15.51, 15.56, 15.57 George Kallis (Manufacturers) Ltd v. Success Insurance Ltd [1988] 1 HKLR 13 (PC); [1985] 2 Lloyd’s Rep. 8 (PC) ........................................................................................................................................... 4.38 George’s Radio and Television Co v. Insurance Co of North America, 536 F. Supp. 681 (D. Mo. 1982) ... 8.83 Gibbs v. Mercantile Mutual Insurance (Australia) Ltd [2003] HCA 39; [2003] 214 CLR 604.................... 1.1, 1.2 Gilbert Frank Corp v. Federal Insurance Co, 520 N.E.2d 512 (1988) .......................................................... 8.82 Glasgow Assurance Corporation Ltd v. William Symondson & Co (1911) 16 Com. Cas. 109 ................... 3.12 Glencore International AG v. Alpina Insurance Co Ltd [2003] EWHC 2792 (Comm); [2004] 1 Lloyd’s Rep. 111 ...................................................................................................................................3.11, 3.12, 3.95 Glencore International AG v. Ryan (The Beursgracht) [2001] EWCA Civ 2051; [2002] 1 Lloyd’s Rep. 574 ........................................................................................................................................................ 3.19 Glens Falls Insurance Co v. Covert, 526 S.W.2d 222 (Tex. Civ. App. 1975) ................................................ 8.97 Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU) [2011] UKSC 5; [2011] 1 Lloyd’s Rep. 560 (SC) ..........................................................................3.30, 3.36, 3.45, 7.42, 14.97 Godin v. London Assurance Co [1758] 1 Burr 489 ...............................................................................3.123, 3.124 Goh Chok Tong v. Tang Liang Hong [1997] 1 SLR(R) 811 ......................................................................... 2.55 Graham v. Milky Way Barge Inc, 811 F.2d 881 (5th Cir. 1987) ................................................................... 8.33 Grain Processing Corp v. Continental Insurance Co, 726 F.2d 403 (8th Cir. 1984) ..................................... 8.16 Grande v. St Paul Fire & Marine Insurance Co, 436 F.3d 277 (1st Cir. 2006) ............................................. 8.7 Great American Insurance Co v. Maxey, 193 F.2d 151 (5th Cir. 1951) ........................................................ 8.16 Great Lakes Transit Corp v. Interstate SS Co, 301 U.S. 646 (1937) ............................................................. 8.120 Great Northern Insurance Co v. Dayco Corp, 620 F. Supp. 346 (SDNY 1985); 637 F. Supp. 765 (SDNY 1986) ....................................................................................................................................8.39, 8.89 Great Northern Shipping Co Ltd v. American International Assurance Co Ltd (1952) 36 HKLR 267 ....... 4.21 Great Southern Wood Preserving Inc v. American Home Assurance Co 292 F. App’x 8 (11th Cir. 2008) . 8.74 Greene v. Cheetham 293 F.2d 933 (2d Cir. 1961) ......................................................................................... 8.28 Greenock Steamship Co Ltd v. Maritime Insurance Co Ltd [1902] 2 KB 657C) ......................................... 3.84 Grell-Tourel Ltd v. Caribbean Home Insurance Co Ltd [2002] Lloyd’s Rep IR 655 (CA, Trinidad & Tobago) ................................................................................................................................................. 3.60 Griesel NO v. SA Myn en Algemene Assuransie Edms Bpk [1952] (4) SA 473 (T) ................................... 14.113 Groban v. The S.S. Pegu 331 F. Supp. 883 (SDNY 1971) ............................................................................ 8.19 Group Josi Reinsurance Co SA v. Universal General Insurance Co, Case C-412/98 [2001] Lloyd’s Rep. IR 483........................................................................................................................................... 2.4 GTE Corp v. Allendale Mutual Insurance Co, 258 F. Supp. 2d 364 (D. N.J. 2003) ..................................... 8.48 Guangyang v. Tianan Kunshan (2009) Kun Min Er Chu Zi 2348 ................................................................ 13.21 Guilin University of Electronic Technology v. PICC Guilin (1999) Hu Gao Jing Zhong Zi 612................. 13.6 Guilin University of Electronic Technology v. PICC Guilin (2002) Hai Shang Chu Zi 98 .......................... 15.7 Gulfstream Cargo v. Reliance Insurance Co, 409 F.2d 974 (5th Cir. 1969).................................................. 8.7

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TABLE OF CASES

Hagan v. Scottish Insurance Co, 186 U.S. 423; 22 S. Ct. 862; 46 L. Ed. 1229 (1902)................................. 8.27 Haiwai Jinshu v. Ping An Hangzhou (2004) Yong Hai Fa Shang Chu Zi 350.............................................. 13.22 Hamilton & Co v. Eagle Star & British Dominion Insurance Co Ltd (1924) 19 Ll. L. Rep. 242................. 3.12 Hampton Roads Carriers v. Boston Insurance Co, 150 F. Supp. 338 (D. Md. 1957).................................... 8.95 Hansen Development Pty Ltd v. MMI Ltd and Another [1999] NSWCA 186 ............................................. 7.16 Harrison v. Fortlage, 161 U.S. 57 (1896) ...................................................................................................... 8.20 Hartford Accident & Indemnity Co v. Shaw, 273 F.2d 133 (8th Cir. 1959) ................................................. 8.17 Hartford Casualty Insurance Co v. Banker’s Note Inc, 817 F. Supp. 1567 (N.D. Ga. 1993) ........................ 8.70 Hartford Fire Insurance Co v. Mitlof, 123 F. Supp. 2d 762 (SDNY 2000) (New York) ............................... 8.15 Heera Industries Ltd v. AIU Insurance Co, 1998 AMC 1 (SDNY 1997) ..................................................... 2.40 Helicopter Resources Pty Ltd v. Sun Alliance Australia Ltd (The Icebird) [1991] 312 LMLN...7.24, 15.38, 15.53 Hepburn v. A Tomlinson (Hauliers) Ltd; sub nom A Tomlinson (Hauliers) Ltd v. Hepburn [1966] AC 451; [1966] 1 Lloyd’s Rep. 309 (HL) ......................................................................................3.14, 3.77, 3.80, 4.50 Hicks v. Palington [1590] Moore’s (QB) R 297............................................................................................ 3.17 Highlands Insurance Co v. Continental Insurance Co [1987] 1 Lloyd’s Rep. 109 ....................................... 3.12 HIH Casualty and General Insurance Ltd v. Waterwell Shipping Inc and Another [1998] 43 NSWLR 601; [1998] 146 FLR 76 ............................................................................................................................3.30, 7.45 Hillcrea Export & Import Co v. Universal Insurance Co, 110 F. Supp. 204 (SDNY 1953) ......................... 8.70 Hilton Oil Transport v. T. E. Jonas, 75 F.3d 627 (11th Cir. 1996) ................................................................ 8.34 Hip On Insurance Exchange & Loan Co Ltd v. Hang On Marine & Fire Insurance Co Ltd (1906–07) 2 HKLR 182 (SC).................................................................................................................................... 15.41 Hitz v. Allied American Mutual Insurance Co, 2 Conn. Cir. Ct. 112 (1963)................................................ 8.124 Holiday Inns Inc v. Aetna Insurance Co, 571 F. Supp. 1460 (SDNY 1983) ................................................. 8.55 Hollard Insurance Co Ltd v. Wagenaar t/a Race Designs (2011) 23 SA Merc LJ 300 ................................. 14.132 Home Insurance Co v. Vernon Holdings, 1995 AMC 369 (S.D. Fla. 1994) ................................................. 8.33 Hong Kong Nylon Enterprises Ltd v. QBE Insurance (Hong Kong) Ltd [2003] HKEC 199 ...........4.17, 4.23, 4.30 Hongkong & Shanghai Insurance Co Ltd v. Hong Sun Chun Josiah, HCMP 1893/2000; HKEC 696 ........ 4.18 Hood v. West End Motor Co Ltd [1917] 2 KB 38 (CA) ........................................................................15.52, 15.57 Hooper v. Robinson, 98 U.S. 528; 25 L. Ed. 219 (1878) .............................................................................. 8.19 Horwood v. Land of Leather Ltd [2010] EWHC 546 (Comm); [2010] Lloyd’s Rep. IR 453 ...............3.113, 3.121 Hua Seng Sawmill Co Bhd v. QBE Insurance (Malaysia) Bhd [2003] 4 SLR 449 ...................................... 5.14 Hui Kao Chu v. Wu Chi Cheung [1984] HKC 273 ....................................................................................... 2.29 Icebird, The. See Helicopter Resources Pty Ltd v. Sun Alliance Australia Ltd (The Icebird) IF P&C Insurance Ltd (Publ) v. Silversea Cruises Ltd [2004] EWCA Civ 769; [2004] Lloyd’s Rep. IR 696 (CA) .......................................................................................................................................3.66 Incorporated General Insurances Ltd v. Shooter’s Fisheries; sub nom Shooter’s Fisheries v. Incorporated General Insurances Ltd, 1984 4 SA 269 (D); 1987 (1) SA 842 (SCA) .................2.43, 14.81, 14.134, 14.139 Independent Bulk Transport Inc v. Morania Abaco, 676 F.2d 23 (2d Cir. 1982).......................................... 8.84 Industrial Waxes Inc v. Brown 258 F.2d 800; 1958 U.S. App. LEXIS 5354 (2d Cir. 1958) ........................ 8.78 Ingersoll Milling Mach Co v. M/V Bodena, 829 F.2d 293 (2d Cir. 1987) .................................................... 8.43 Inglis v. Stock [1884] 12 QBD 564 ............................................................................................................... 3.14 Institute for Shipboard Education v. Cigna Worldwide Insurance Co, 22 F.d 414 (2d Cir. 1994) ................ 8.127 Insurance Co of North America v. Rosenberg, 25 F.2d 635 (2d Cir. 1928) .................................................. 8.61 Insurance Co of North America v. West of England Shipowners Mutual Insurance Assoc, 1995 U.S. Dist. LEXIS 16282 ........................................................................................................................................ 8.127 Insurance Co Ltd v. Hanmer-Strudwick 1964 (1) SA 349 (A) ..................................................................... 14.67 Insurance Corporation of the Channel Islands v. McHugh [1977] LRLR 94 ............................................... 3.91 Integrated Container Service Inc v. British Traders Insurance Co Ltd [1984] 1 Lloyd’s Rep. 154 (CA) ........ 3.96, 3.99, 3.106 Intermetal Mexicana SA v. Insurance Co of North America, 866 F.2d 71 (3rd Cir. 1989) .......................... 8.6 Intermondale Trading Co v. North River Insurance Co of New York, 100 F. Supp. 128 (SDNY 1951) ....................................................................................................................................8.30, 8.57 International Commodities Export Corp v. American Home Assurance Co, 701 F. Supp. 448 (SDNY 1988) ..................................................................................................................................................... 8.111 International Multifoods Corp v. Commercial Union Insurance Co, 309 F.3d 76 (2d Cir. 2002) ................ 8.44 International School Services v. Northwestern National Insurance Co, 710 F. Supp. 86 (SDNY 1989)...... 8.82 Interpetrol Bermuda Ltd v. Lloyd’s Underwriters, 588 F. Supp. 1199 (SDNY 1984) .................................. 8.52 Interpool Ltd v. Bernuth Agencies, 129 F.3d 113 (2d Cir. 1997).................................................................. 8.84 Ionides and Another v. Pender (1874) LR 9 QB 531 .................................................................................... 3.10 Ionides v. Pacific Fire & Marine Insurance Co Ltd (1871) LR 6 QB 674 .................................................... 3.6

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TABLE OF CASES

Islamic Arab Insurance Co v. Saudi Egyptian American Reinsurance Co [1987] 1 Lloyd’s Rep. 315 ........ 2.52 Ispahani v. Bank Melli Iran [1998] Lloyd’s Rep. Bank 133 ......................................................................... 15.16 Issa v. Reliance Insurance Co of New York, 1989 AMC 1212 (SDNY 1988) ............................................. 8.82 J. A. Jones Construction Co v. Niagara Fire Insurance Co, 170 F.2d 667 (4th Cir. 1948)............................ 8.101 J. J. Lloyd Instruments Ltd v. Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyd’s Rep. 32 (CA) ................................................................................................................................................. 3.30 J. Kirkaldy & Sons Ltd v. Walker [1999] Lloyd’s Rep. IR 410 .................................................................... 3.28 James Buchanan & Co Ltd v. Babco Forwarding & Shipping (UK) Ltd [1977] QB 208 (CA); [1977] 2 WLR 107; [1977] I All ER 518 ............................................................................................................ 1.18 Jiangsu Overseas Group v. Winterthur Insurance Shanghai (2001) Hu Hai Fa Shang Chu Zi 398 .............. 2.66 John Cory & Sons v. Burr (1883) 8 App Cas 393 ......................................................................................... 3.30 John Drew Russell (Transport) Ltd v. (First) Heath Collins Halden (Scotland) Ltd [1996] CLC 423 ......... 3.31 John Martin of London Ltd v. Russell [1960] 1 Lloyd’s Rep. 554 ..........................................................3.78, 15.45 Jomark Textiles Inc v. International Fire and Marine Inc Co Ltd, 771 F. Supp. 577 (SDNY 1989) ............ 8.73 Junior Gallery Ltd v. Neptune Orient Lines Ltd, 1997 U.S. Dist. LEXIS 499 (SDNY 1997)...................... 8.123 Kajima (UK) Engineering Ltd v. The Underwriter Insurance Co [2008] EWHC 83 (TCC); [2008] Lloyd’s Rep. IR 391........................................................................................................................................... 3.31 Kalimian v. Liberty Mutual Fire Insurance Co, 300 F.2d 547 (2d Cir. 1962) ............................................... 8.19 Kallang Shipping SA Panama v. AXA Assurances Senegal (The Kallang) [2008] EWHC 2761 (Comm); [2009] 1 Lloyd’s Rep. 124 .................................................................................................................... 3.121 Kallis (Manufacturers) Ltd v. Success Insurance Ltd [1988] 1 HKLR 13 (PC); [1985] 2 Lloyd’s Rep. 8 (PC) ....................................................................................................................3.83, 4.39, 6.25, 15.56 Kam Hing Trading (Hong Kong) Ltd v. The People’s Insurance Co of China (Hong Kong) Ltd [2010] 4 HKLRD 630 ......................................................................................................................................4.24, 4.34 Kamidian v. Holt and Others [2008] EWHC 1483 (Comm); [2009] Lloyd’s Rep. IR 242 .......................... 3.12 Karimun Granite v. Insurance Co of North America [1992] SGHC 254 ...................................................... 5.46 Kawasaki Kisen Kabushiki v. Bantham Steamship Co Ltd (No. 2) (1939) 63 Ll. R. Rep. 155 ................... 3.59 Keck Seng & Co Ltd v. Royal Exchange Assurance [1964] 1 MLJ 256 ...................................................... 5.34 Kementerian Pertahanan Malaysia and Another v. Malaysian International Shipping Corp Bhd and Others [2007] 5 MLJ 393 ................................................................................................................................. 5.47 Kessler Export Corp v. Reliance Insurance Co of Philadelphia, 1962 AMC 2429; 207 F. Supp. 355 (EDNY 1962) ..................................................................................................................................................... 8.70 Kimta AS v. Royal Insurance Co, 9 P.3d 239 (Wash. App. 2000) ................................................................ 8.37 Kin Yuen Co Pte Ltd v. Lombard Insurance Co Ltd [1994] 1 SLR(R) 964 .................................................. 5.30 King v. Brandywine Reinsurance Co (UK) Ltd [2005] Lloyd’s Rep. IR 509; [2004] EWHC 1033 .........1.17, 3.31 King v. Victoria Insurance Co [1896] AC 250 (PC) ..................................................................................... 15.61 Kipper v. Universal Underwriters Group, 304 A.D.2d 62; 756 N.Y.S.2d 682 .............................................. 8.127 Kishinchand Tiloomal Bhojwani v. Sunil Kishinchand Bhojwani and Another [1997] 1 SLR(R) 518. ...... 2.22 Kliptown Clothing Industries (Pty) Ltd v. Marine and Trade Insurance Co of SA Ltd, 1961 (1) A 103 (A) ....... 14.67 Knight v. US Fire Insurance Co, 804 F.2d 9 (2d Cir. 1986) ................................................................8.5, 8.11, 15.7 Koskas (D & J) v. Standard Marine Insurance Co Ltd (1927) 27 Ll. L. Rep. 59 (CA); (1926) 25 Ll. L. Rep. 363 ...............................................................................................................................3.21, 3.22, 3.88 Kosmar Villa Holidays plc v. Trustees of Syndicate 1243 [2008] EWCA Civ 147; [2008] Lloyd’s Rep. IR 489........................................................................................................................................... 3.33 Kotak Malaysia (KOM) Sdn Bhd v. Perbadanan Nasional Insurans Sdn Bhd [2005] 4 MLJ 402 ............... 5.27 KRS Investments CC [2007] (1) All SA 566 (SCA) .................................................................................... 14.227 Kuwait Airways Corporation v. Kuwait Airways Co SAK [1999] 1 Lloyd’s Rep. 803 (HL) [2000] Lloyd’s Rep. IR 678......................................................................................................................................3.91, 3.113 Kyzuna Investments Ltd v. Ocean Marine Mutual Insurance Association (Europe) [2000] 1 Lloyd’s Rep. 505 ........................................................................................................................................................ 3.108 La Territorial De Seguros v. Shepard SS Co, 124 F. Supp. 287 (EDNY 1954) ............................................ 8.119 Lake v. Reinsurance Corporation Ltd [1967] (3) SA 124 (W)...................................................................... 14.22 Lanasa Fruit Steamship & Importing Co v. Universal Insurance Co, 302 U.S. 556 (1938); [1938] AMC 1 .............................................................................................................................3.52, 8.30, 8.38, 8.65 Larsen v. Insurance Co of North America, 252 F. Supp. 458 (W.D. Wa. 1965) ........................................... 8.46 Lau’s Timber Co v. Pacific & Orient Underwriters Pte Ltd [1972] 2 MLJ 187 ............................................ 5.43 Leaders Shoes (Aust) Pty Ltd v. Liverpool & London & Globe Insurance Co Ltd [1968] 1 NSWR 279 ...........................................................................................................................3.79, 15.48, 15.49

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Lee v. Southern Insurance Co (1869-70) LR 5 CP 397 ................................................................................ 3.113 Legal & General Assurance Society Ltd v. Drake Insurance Co Ltd [1992] 1 All ER 283.......................... 15.63 Leon v. Casey [1932] 2 KB 576 .................................................................................................................... 7.13 Leonard v. Nationwide Mutual Insurance Co, 2007 U.S. App. LEXIS 20947 (5th Cir. 2007) .................... 8.15 Leong Brothers Industries Sdn Bhd v. Jerneh Insurance Corp Sdn Bhd [1991] 1 MLJ 102 ...................5.33, 15.54 Levine v. Aetna Insurance Co, 139 F.2d 217 (2d Cir. 1943) ......................................................................... 8.40 Lewis Ltd v. Norwich Union Fire Insurance [1916] AD 509 ....................................................................... 14.68 Lewis v. Rucker (1761) 2 Burr 1169 ............................................................................................................. 1.3 Leyland Shipping Co Ltd v. Norwich Union Fire Insurance Society Ltd [1917] 1 KB 873 (CA); [1918] AC 350 (HL) ...................................................................................................................................3.30, 3.52, 7.42 Liberian Insurance Agency Inc v. Mosse [1977] 2 Lloyd’s Rep. 560 ..........................................................3.9, 3.84 Lindsay and Pirie v. General Accident Fire & Life Assurance Corporation Ltd [1914] AD 574................. 14.99 Lisbon and South Africa v. De Ornelas [1988] (3) SA 580 (A).................................................................... 14.27 Littlejohn v. Norwich Union Fire Insurance Society [1905] TH 374 ....................................................14.46, 14.56 Lloyds TSB General Insurance Holdings v. Lloyds Bank Group Insurance Co Ltd [2003] UKHL 48; [2003] Lloyd’s Rep. IR 623 .................................................................................................................. 3.31 London & Lancashire Insurance Co Ltd v. Puzyna [1955] (3) SA 240 ........................................................ 14.62 London & Provincial Leather Processes Ltd v. Hudson (1939) 64 Ll. L. Rep. 352 ..................................... 3.106 London and Manchester Plate Glass Company v. Heath [1913] 3 KB 411 (CA) ......................................... 14.99 London Ltd v. Russell [1960] 1 Lloyd’s Rep. 554 ........................................................................................ 15.50 London Steamship Owners Mutual Insurance Association Ltd v. Westdeutsche Landesbank Girozentrale, 1996 1 SA 1 (A) ................................................................................................................................... 2.43 Lucena v. Craufurd [1808] 1 Taunt 325 (HL) ............................................................................................... 14.46 Lumber & Wood Products Inc v. New Hampshire Insurance Co, 807 F.2d 916 (11th Cir. 1987) ................ 8.68 Lynco Plant Hire and Sales v. Univem Versekerings Maakelaars [2002] (5) SA 85 (T) .............................. 14.54 Lysaght Ltd v. Coleman [1895] 1 QB 49 ...................................................................................................... 3.103 Macaura v. Northern Assurance Co Ltd [1925] AC 619 ..........................................................................4.25, 14.48 McBride v. Home Insurance Co, 105 F. Supp. 116 (E.D. La. 1952)............................................................. 8.16 McDermott International v. Lloyd’s Underwriters, 944 F.2d 1199 (5th Cir. 1991) ...................................... 2.38 McLean Enterprises v. Ecclesiastical Insurance Office [1986] 2 Lloyd’s Rep. 416 ..................................... 3.91 MacLeod Ross & Co Ltd v. Compagnie D’Assurances Generales L’Helvetia [1952] 1 Lloyd’s Rep. 12.... 3.23 Malaysia National Insurance Sdn Bhd v. Malaysia Rubber Development Corporation [1986] 2 MLJ 124 . 5.38 Manderson v. Standard General Insurance Co Ltd [1996] (3) SA 434 (D) .................................................. 14.52 Manifest Shipping Co Ltd v. Uni-Polaris Shipping Co Ltd (The Star Sea) [2001] UKHL 1 (HC); [2001] 1 Lloyd’s Rep. 389 ......................................................................................................................3.37, 3.92, 7.59 M. L. Arnold v. Gulf Pacific Lines, 1940 AMC 547 (5th Cir. 1940) ............................................................ 8.59 M’Lanahan v. Universal Insurance Co, 26 U.S. 170; 7 L. Ed. 98 (1828) ..................................................... 8.5 Maratz Ltd v. New India Assurance [1998] 2 SLR(R) 134........................................................................... 5.35 Margo Manuf Corp v. Chamlin, 1978 AMC 1274 (SDNY 1978) ................................................................ 8.110 Marina Offshore Pte Ltd v. China Insurance (Singapore) Pte Ltd and Another [2006] SGCA 28 ............5.29, 5.31 Masefield AG v. Amlin Corporate Member Ltd [2010] EWHC 280 (Comm); [2010] 1 Lloyd’s Rep. 509; [2011] 1 Lloyd’s Rep. 630 .................................3.17, 3.51, 3.94, 3.97, 5.17, 6.17, 6.32, 14.63, 14.129, 15.16 Masters’ Ships, The. State Farm Fire & Casualty v. McDevitt, 2001 U.S. Dist. LEXIS 7529 (N.D. Cal. 2001) ..................................................................................................................................8.9, 8.10 Matco Prods Inc v. Boston Old Colony Insurance Co, 104 A.D.2d 793; 480 N.Y.S.2d 134 (1984) ............ 8.23 Mathie v. The Argonaut Marine Insurance Co Ltd (1924) 18 Ll. L. Rep. 118 ............................................. 3.10 Mayban General Insurance BHD v. Alstom Power Plants Ltd [2004] EWHC 1038 (Comm); [2004] 2 Lloyd’s Rep. 609 ......................................................................................................................3.42, 3.44, 7.48 Medical Malpractice Insurance Assoc v. Medical Liability Mutual Insurance Co, 86 A.D.2d 476; 450 N.Y.S.2d 191 (1st Dept 1982) .............................................................................................................. 8.124 Mentor Insurance Co (UK) Ltd v. Brannkasse, 996 F.2d 506 (2d Cir. 1993) ............................................... 8.84 Mercantile Mutual Insurance (Australia) Ltd v. Gibbs [2001] WASCA 271................................................ 7.15 Meridian Textiles Inc v. Indemnity Insurance Co of North America, 2008 AMC 1411 (C.D. Cal. 2008) ... 8.97 Mersey Marine Insurance Co v. British and Chilean Steamship Co [1915] 2 KB 214 ................................. 3.120 Meseck Towing Lines Inc v. Excess Insurance Co Ltd, 77 F. Supp. 790 (EDNY 1948) .............................. 8.55 Metrich International Trading Ltd & Chaoan Wenci v. PICC P&C Guangzhou (1999) Yue Fa Jing Er Zhong Zi 274 ........................................................................................................................................ 13.14 Middows Ltd v. Robertson (The Wangoni). See Forestal Land Timber & Railways Co Ltd v. Rickards (The Minden) Mieke, The. See Representative of Lloyd’s and Others v. Classic Sailing Adventures (Pty) Ltd (The MV Mieke)

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Miller Marine Services v. Travelers Property Casualty Insurance Co, 2005 U.S. Dist. LEXIS 39906; 2005 AMC 2601 (EDNY 2005) .................................................................................................................... 8.46 Minsheng v. PICC Fujian (2003) Min Jing Zhong Zi 232 ............................................................................ 13.14 Miruvor Ltd v. National Insurance Co Ltd [2002] HKEC 1033; [2003] 3 HKC 208; [2003] HKEC 237 (CA) ..........................................................................................................3.79, 3.113, 4.37, 15.48 Mitsubishi International Corp v. SS Glyfada Spirit, 1978 AMC 480 (SDNY 1978).................................... 8.76 Mitsui & Co v. American Export Lines, 636 F.2d 807 (2d Cir. 1981) .......................................................... 8.83 Moonacre,The. Sharp v. Sphere Drake Insurance plc [1992] 2 Lloyd’s Rep. 50 .......................................... 3.27 Morris v. Northern Assurance Co Ltd [1911] CPD 293 ............................................................................... 14.69 Morrison Grain Co v. Utica Mutual Insurance Co, 632 F.2d 424 (5th Cir. 1980) ........................................ 8.42 Mostert v. Cape Town City Council [2000] 4 All SA 379 (SCA)................................................................. 14.45 Moussi H Issa NV v. Grand Union Insurance Co Ltd [1984] HKLR 137 .................................................... 4.44 Mujur Bakat Sdn Bhd and Others v. Uni. Asia General Insurance Berhad (The Mujur 1) [2011] EWHC 643 (Comm) .............................................................................................................................................2.17, 2.18 Munro Brice & Co v. War Risks Association Ltd and Others [1918] 2 KB 78 .....................................3.29, 14.113 Mutual & Federal Insurance Co Ltd v. Ingram and Others, 2009 (6) SA 53 (E) ...................................14.76, 14.84 Mutual & Federal Insurance Co Ltd v. Municipality of Oudtshoorn, 1985 (1) SA 419 ............................1.1, 14.17 Mutual Benefit Life Insurance Co v. JMR Elecs Corp, 848 F.2d 30 (2d Cir. 1988) ..................................... 8.7 Nam Kwong Medicines & Health Products Co Ltd v. China Insurance Co Ltd [2002] 2 Lloyd’s Rep. 591; 2003 WL 17645 (CFI); [2003] 2 HKLRD 345; [2003] HKEC 248; 13/11/2002, HCCL 27/1999 .........................................................................................................................3.87, 4.33, 4.39 Napier and Ettrick v. Hunter [1993] 1 Lloyd’s Rep. 197; [1993] AC 713 (HL) ........................................... 3.120 National Farmers Union Mutual Insurance Society Ltd v. HSBC [2010] EWHC 773 (Comm); [2011] Lloyd’s Rep. IR 86 ............................................................................................................................... 3.123 National Oil Co of Zimbabwe (Private) Ltd and Others v. Nicholas Collwyn Sturge [1991] 2 Lloyd’s Rep. 281.............................................................................................................................................3.57, 3.60 National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyd’s Rep. 582 .......................3.22, 3.37, 3.120, 5.32 National Union Fire Insurance Co of Pittsburgh, Pa v. Stroh Cos, 265 F.3d 97 (2d Cir. 2001) .................... 8.43 Navegacion Goya SA v. Mutual Boiler & Machinery Insurance Co, 411 F. Supp. 929 (SDNY 1975)........ 8.14 Navigazione Generale Italiana v. Spencer Kellogg & Sons, 92 F.2d 41 (2d Cir. 1937); cert. denied, 302 U.S. 751 (1937) .................................................................................................................................... 8.117 NEC Australia Ltd v. Gamif Pty Ltd and Others [1993] 7 ANZ Ins Cas 61-188; (1993) 42 FCR 410 ........ 15.39 Nelson Marketing International Inc v. Royal and Sun Alliance Insurance Co of Canada (2006) 57 BCLR (4th) 27 ................................................................................................................................................. 3.44 Neville Delmas Theaker v. Sun Hung Kai Insurance Co Ltd, DCCJ 10354/1983........................................ 4.22 New Hampshire Insurance Co v. Martech USA Inc, 993 F.2d 1195 (5th Cir. 1993) .................................... 8.44 New Market Investment Corp v. Fireman’s Fund Insurance Co, 774 F. Supp. 909 (E.D. Pa. 1991) ............ 8.63 New South Wales Leather Co Pty Ltd v. Vanguard Insurance Co Ltd [1990] NSW Lexis 10858; [1991] 25 NSWLR 699; [1991] 105 FLR 381 ...............................................................................3.15, 3.18, 7.31, 15.15 New York Marine & General Insurance Co v. Tradeline, 266 F.3d 112 (2d Cir. 2001)...............................8.6, 8.28 New Zealand Insurance Co v. Earnmoor SS Co, 79 Fed. 368 (9th Cir. 1987) .............................................. 8.83 Nichitani & Co Ltd v. PICC Qingdao (2002) Lu Min Si Zong Zi 45 ........................................................... 15.13 Nieschlag & Co Inc v. Atlantic Mutual Insurance Co, 43 F. Supp. 797 (SDNY 1941) ................................ 8.45 Niger Co Ltd v. The Guardian Assurance Co Ltd (1920) 4 Ll. L. Rep. 320; (1921) 6 Ll. L. Rep. 239 (CA); (1922) 13 Ll. L. Rep. 75 (HL) ................................................................................................3.123, 6.44, 15.6 Nima SARL v. Deves Insurance Public Co Ltd (The Prestrioka) [2002] EWCA Civ 1132 (CA); [2003] 2 Lloyd’s Rep. 327 ...............................................................................................................2.16, 3.87, 6.4, 7.38 Ningbo Liangyou v. PICC P&C Shanghai (1998) Hu Hai Fa Shang Chu Zi 539; (1999) Hu Gao Jing Zhong Zi 612 ..............................................................................................................................................13.9, 15.14 Nishina Trading Co Ltd v. Chiyoda Fire & Marine Insurance Co Ltd (The Mandarin Star) [1969] 1 Lloyd’s Rep. 293 (CA) ...................................................................................................................................... 3.95 Nishitani & Co Ltd v. PICC Qingdao (2002) Lu Min Si Zhong Zi 45 ......................................................... 13.8 Nkosi v. Mbatha [2010] ZAKZPHC 197 ...................................................................................................... 14.149 NM Rothschild & Sons (S) Pte Ltd v. Plaza Rakyat Sdn Pte Ltd v. Plaza Rakyat Sdn Bhd [1995] 2 SLR(R) 565 .......................................................................................................................................... 2.22 Noble Resources Ltd v. George Albert Greenwood (The Vasso) [1993] 2 Lloyd’s Rep. 309 ........3.32, 3.113, 4.45 Nonggongshang Trading Co v. Ping An Shanghai (2000) Gui Jing Zhong Zi 207 ...................................... 13.45 Norfolk Southern Railway Co v. Kirby, 543 U.S. 14 (2004) ........................................................................ 8.4 North American Foreign Trading Corp v. Mitsui Sumitomo Insurance Co, 292 F. App’x 73 (2d Cir. 2008)...... 8.4

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North British & Mercantile Insurance Co v. London, Liverpool and Globe Insurance Co [1877] 5 Ch D 569 .............................................................................................................................................. 3.124 North Star Shipping Ltd v. Sphere Drake Insurance plc [2006] EWCA Civ 378; [2006] 2 Lloyd’s Rep. 183 (CA) ...................................................................................................................................... 3.10 Northern Feather International Inc v. Those Certain London Underwriters, 714 F. Supp. 1352 (D. N.J. 1989) ....................................................................................................................................... 8.57 Northern Insurance Co of New York v. Craig Lamm, 2007 AMC 901 (11th Cir. 2006) .............................. 8.21 Northwest Mutual Life Insurance Co v. Linard, 498 F.2d 556 (2d Cir. 1974) .............................................. 8.44 Northwestern Mutual Life Insurance Co v. Gridley, 100 U.S. 614 (1879) ................................................... 8.30 Noten (T. M.) B.V. v. Paul Charles Harding [1989] 2 Lloyd’s Rep. 527 (Comm); [1990] 2 Lloyd’s Rep. 283 (CA) .......................................................................................................1.16, 3.30, 3.41, 3.44, 3.46 Novus Aviation v. Onur Air Tasimacilik AS [2009] EWCA Civ 122; [2009] 1 Lloyd’s Rep. 576 .............. 2.18 Ntlhabyane v. Black Panther Trucking (Pty) Ltd and Another [2009] ZAGPJHC 46 .......................14.149, 14.150 Nuclear Fuels Corporation of SA (Pty) Ltd v. Orda AG [1997] (1) All SA 11 (A). ..................................... 14.63 Numill Marketing CC v. Sitra Wood Products (Pty) Ltd, 1994 (3) SA 460 (CPD) ...................................... 2.46 O’Kane v. Jones (The Martin P) [2003] EWHC 3470 (Comm); [2004] 1 Lloyd’s Rep. 389 .........3.14, 3.22, 3.124 Ocean Marine Insurance Co v. Lindo, 30 F.2d 782 (9th Cir. 1929) .............................................................. 8.74 Olympo Transport Co of Puerto Rico Inc v. Certain Insurance Companies at the Institute of London Underwriters, 103 F.3d 1 (1st Cir. 1996) .............................................................................................. 8.27 OPE Shipping Ltd v. Allstate Insurance Co, 687 F.2d 639 (2d Cir. 1982) ................................................... 8.56 Ore and Chemical Corp v. Eagle Star Insurance Co, 489 F.2d 455 (2d Cir. 1973) ....................................... 8.72 Orica Australia Pty Ltd v. Limit (No. 2) Ltd [2011] VSC 65 ....................................................................... 7.67 Orient Building Materials Supply America v. PICC Yichang (2001) Wu Hai Fa Shang Zi 8. ..................... 13.28 Overseas Commodities v. Style [1958] 1 Lloyd’s Rep. 546 ...........................................................3.24, 3.78, 15.45 Overseas Union Insurance Ltd v. Turegum Insurance Co [2001] 2 SLR(R) 285 ......................................... 2.53 Owusu v. Jackson, Case C-281/02, [2005] 1 Lloyd’s Rep. 452 .................................................................1.12, 2.10 P. Samuel & Co Ltd v. Dumas [1924] AC 431.............................................................................................. 3.30 Pacific Queen Fisheries v. Symes, 307 F.2d 700 (9th Cir. 1962) .................................................................. 8.21 Pacific Tall Ships Co v. Kuehne & Nagel, 2000 AMC 866 (E.D. Ill. 2000) ................................................. 8.50 Pan Am World Airways Inc v. Aetna Casualty & Surety Co, 368 F. Supp. 1098 (SDNY 1973;, aff’d 505 F.2d 989 (2d Cir. 1974); [1974] 1 Lloyd’s Rep. 207 ............................................................................. .........................................................................................................................................3.64, 8.37, 8.55, 8.90 Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd [1995] 1 AC 501; [1993] 1 Lloyd’s Rep. 496 (CA); aff’d [1994] 2 Lloyd’s Rep. 427 (HL) ............................................................1.12, 3.7, 4.17, 7.22, 15.7 Panama Transport Co v. US, 155 F. Supp. 699 (SDNY 1957); aff’d 253 F.2d 758 (2d Cir. 1958) .............. 8.55 Parkin v. Dick [1809] 11 East 502 ................................................................................................................ 6.16 Paul Marsh Inc v. Edward A. Goodman Co, 612 F. Supp. 635 (SDNY 1985) ............................................. 8.70 Pearson v. Commercial Union Assurance Co (1875–76) LR 1 App Cas 498............................................... 15.40 Pearson v. The Directors of the Commercial Union Assurance Co Ltd [1876] 1 AC 498 (HL) .................. 14.101 Peh Teck Quee v. Bayerische Landesbank Girozentrale [1999] 3 SLR (R) 842 .......................................... 2.54 Pelly v. Royal-Exchange Assurance (1757) 1 Burr 341; 97 ER 342 ...........................................................1.3, 5.31 Penrith City Council v. Government Insurance Office of New South Wales [1991] 24 NSWLR 564 ......... 7.56 Pentecost v. London District Auditor [1951] 2 KB 759................................................................................ 6.21 Pepsico Inc v. Winterthur International American Insurance Co, 24 A.D.3d 743 (N.Y. Sup. Ct., App. Div., 2d Dept 2005) ....................................................................................................................................... 8.98 Perzy v. Intercargo, 827 F. Supp. 1365 (N.D. Ill. 1993) ............................................................................... 8.48 PICC Hebei v. Vysanthi Shipping Co Ltd, Ningbo Maritime (2006) Yong Hai Shang Chu Zi 207............. 13.48 PICC P&C Shanghai v. Stute Verhehrs-Gmbh & COSFRE Shanghai (2003) Hu Hai Fa Shang Chu Zi 539. ........................................................................................................................................... 13.47 PICC Xiamen v. Chipolbrok (2000) Guang Hai Fa Chu Zi 240 ................................................................... 13.47 Pienaar v. Guardian National Insurance Co Ltd [2002] 3 All SA 27 (C) ..................................................... 14.45 Ping An Jinshan v. Hengtong & Jingcheng & Wu Pingjun (2009) Hu Yi Zhong Min San (Shang) Zhong Zi 647 ..................................................................................................................................13.49, 1351 Ping An Shanghai v. Pengyuan (2010) Hu Gao Min Wu (Shang) Shen Zi 1................................................ 13.51 Ping An Shanghai v. Shenzhen TGL Logistics (2009) Hu Er Zhong Min San (Shang) Zhong Zi 219. ....... 13.47 Pink v. Fleming (1890) LR 25 QBD 396 ...................................................................................................... 3.52 Pope’s International (HK) Ltd v. National Insurance Co Ltd [1997] HCCL 194 ..................................15.45, 15.48 Pope’s International (HK) Ltd v. National Insurance Co Ltd [2003] HKEC 237; [2003] WL 17634 (CA). 4.37 Port of Seattle v. Lexington Insurance Co, 111 Wn. App. 901; 48 P.3d 334 (Wash. App. 2002) ................. 8.48 Powell Duffryn plc v. Petereit, Case C-214/89 [1992] ECR I-1745 ............................................................. 2.9

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Pratt v. Aigaion Insurance Co SA (The Resolute) [2008] EWCA Civ 1314; [2009] 1 Lloyd’s Rep. 225 (CA) ...................................................................................................................................... 3.27 Prestrioka, The. Nima SARL v. The Deves Insurance Public Co Ltd. See Nima SARL v. Deves Insurance Public Co Ltd (The Prestrioka) Promet Engineering (Singapore) Pte Ltd v. Sturge (The Nukila) [1997] 2 Lloyd’s Rep. 146 ...................... 3.103 Protection Mutual Insurance Co v. Silgan Plastics Corp, 2000 U.S. Dist. LEXIS 11700 (SDNY 2000) ....8.23, 8.110 Puritan Insurance Co v. Eagle SS Co, 779 F.2d 866 (2d Cir. 1985).............................................................. 8.9 Quattrociocchi v. Albany Insurance Co, 1983 AMC 1152 (N.D. Ca. 1982) ................................................ 8.44 Queens Insurance Co v. Globe & Rutgers Fire Insurance Co, 263 U.S. 487; 1924 AMC 107 (1924) ........1.17, 8.1 Quorum A/S v. Schramm (No. 1) [2002] 1 Lloyd’s Rep. 249 .................................................................3.103, 7.63 Quorum A/S v. Schramm (No. 2) [2002] Lloyd’s Rep. IR 315 .................................................................... 3.91 Ram v. Infinity Select Insurance, 2011 U.S. Dist. LEXIS 83555 (N.D. Cal. 2011) ..................................... 8.87 Ramco (UK) Ltd v. International Insurance Company of Hannover Ltd [2004] EWCA Civ 675; [2004] 2 Lloyd’s Rep. 595 .................................................................................................................................. 3.14 Rand Mutual Assurance Co Ltd v. Road Accident Fund, 2008 (6) SA 511 (SCA); [2008] ZASCA 114 .... 14.143 Randell v. Atlantica Insurance Co Ltd [1985] 80 FLR 253 .......................................................................... 7.26 Ranicar v. Frigmobile Pty Ltd [1983] Tas R 113 .......................................................................................... 7.62 Redna Marine Corp v. Poland, 46 FRD 81 (1969) ........................................................................................ 8.43 Refrigerated Trucking v. Zive, 1996 (2) SA 361 (T) ...........................................................................14.53, 14.158 Regazzoni v. KC Sethia (1944) Ltd [1958] AC 301 (HL) .......................................................................3.17, 15.16 Reliance Insurance Co v. The Escapade, 280 F.2d 482 (5th Cir. 1960) ........................................................ 8.33 Representative of Lloyd’s and Others v. Classic Sailing Adventures (Pty) Ltd (The MV Mieke), 2010 (5) SA 90 (SCA); [2010] ZACSA 89 ................................................................................2.68, 14.9, 14.17, 14.37 Republic of Bolivia v. Indemnity Mutual Assurance Co Ltd [1909] 1 KB 785............................................ 3.59 Resin Coatings Corp v. Fidelity and Casualty Co of New York, 489 F. Supp. 73 (S.D. Fla. 1980) ............. 8.30 Resisto Dairy (Pty) Ltd v. Auto Protection Insurance Co Ltd, 1963 (1) SA 632 (A) ................................... 14.85 Rhesa Shipping Co SA v. Fenton Insurance Co Ltd (The Popi M) [1985] 2 Lloyd’s Rep. 1 ....................... 3.90 Richker v. Lykes Bros-Ripley Steamship Co, 1935 AMC 319 (S.D. Tex. 1935) ......................................... 8.76 Risdale v. Universal Insurance Co, 232 F. Supp. 472 (D. Mass. 1964) ........................................................ 8.120 Robertson v. French (1803) 4 East 130 ......................................................................................................... 15.25 Robinson v. Home Insurance Co, 73 F.2d 3 (5th Cir. 1934) ......................................................................... 8.35 Roby v. Corporation of Lloyd’s, 996 F.2d 1353 (2d Cir. 1993) .................................................................... 2.65 Rocanova v. Equitable Life Assurance Society, 83 N.Y.2d 603; 634 N.E.2d 940; 1994 N.Y. LEXIS 1064; 612 N.Y.S.2d 339 (1994) ...................................................................................................................... 8.86 Rock Transport Properties Corp v. Hartford Fire Insurance Co, 312 F. Supp. 341 (SDNY 1970); aff’d 433F.2d 152 (2d Cir. 1970)................................................................................................................8.81, 8.92 Ronald Stuart Napier v. Barkhuizen [2006] 2 All SA 469 (SCA) ................................................................ 2.42 Rouwkoop Caterers (Pty) Ltd v. Incorporated General Insurance Co Ltd, 1977 (3) SA 941 (C) ................. 14.90 Roux v. Salvador [1836] 3 Bing (NC) 266...............................................................................................3.58, 3.104 Royal & Sun Alliance Insurance (Singapore) Ltd v. Metico Marine Pte Ltd [2006] SGHC 97 ................... 5.30 Royal Boskalis Westminster NV v. Mountain [1999] LRLR 523................................................................. 3.17 Royal Indemnity Co v. Deep Sea International, 2007 U.S. Dist. LEXIS 51151 (SDNY 2007) ................... 8.43 Royal Insurance Co of America v. Commercial Underwriters Insurance Co, 2004 U.S. Dist. LEXIS 23275 (SDNY 2004) ....................................................................................................................................... 8.126 Royal Insurance Co of America v. Deep Sea International, 2004 U.S. Dist. LEXIS 5948 (SDNY 2004) ... 8.86 Royal Insurance Co v. Laurelton Welding Services Inc, 2004 U.S. Dist. LEXIS 18287 (E.D. Pa. 2004).... 8.81 Royal Insurance Co v. Sportswear Group LLC, 2001 AMC 154 (SDNY 2000) .......................................... 8.73 Royal Norwegian Government v. Constant & Constant and Calcutta Marine Engineering Co Ltd [1960] 2 Lloyd’s Rep. 431 .................................................................................................................................. 3.89 Russian Bank for Foreign Trade v. Excess Insurance Co Ltd [1918] 2 KB 123........................................... 3.107 S.C.A. (Freight) Ltd v. Gibson [1974] 2 Lloyd’s Rep. 533......................................................................3.75, 15.37 Sadler Brothers Co v. Meredith [1963] 2 Lloyd’s Rep. 293 ......................................................................... 5.38 Safadi v. Western Assurance Co (1933) 46 Ll. L. Rep. 140 ......................................................................... 3.79 Salem,The. See Shell International Petroleum v. Gibbs (The Salem) San-Nap-Pak Mfg Co v. Firemen’s Insurance Co of Newark NJ, 47 N.Y.S.2d 542 (City Ct. NY 1944) ..... 8.70 Sancheng v. Dubon Insurance Taizhou (2009) Yong Hai Fa Tai Shang Chu Zi 137 .................................... 13.33 Sarrio SA v. Kuwait Investment Authority [1998] 1 Lloyd’s Rep. 129, [1999] 1 AC 32 ............................. 2.11 Sasfin (Pty) Ltd v. Beukus, 1989 (1) SA 1 (A) ............................................................................................. 14.62 Satyam Imports Inc v. Underwriters at Lloyd’s, 2003 U.S. Dist. LEXIS 18350 (SDNY 2003) ................... 8.82 Schloss Brothers v. Stevens [1906] 2 KB 665; [1905] 10 Com. Cas. 224 ...................................................3.4, 7.51

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Schneiderman v. Metropolitan Casualty, 14 A.D.2d 284 (N.Y. App. Div. 1961) ......................................... 8.55 Schoeman v. Constantia Insurance Co Ltd, SCA Case 01/2002, unreported................................................ 14.27 Schoonwinkel v. Galatides, 1974 (4) SA 388 (T) ......................................................................................... 14.143 Scott v. Copenhagen Reinsurance Co (UK) Ltd [2003] EWCA Civ 688; [2003] Lloyd’s Rep. IR 696 ....... 3.31 Scottish Union & National Insurance Co Ltd v. Native Recruiting Corporation Ltd, 1934 AD 458 ........... 14.67 Sears Roebuck & Co v. Hartford Accident & Indemnity Co, 313 P.2d 347 (1957)...................................... 8.81 Sempra Metals Ltd v. Commissioners of Inland Revenue [2008] 1 AC 561. ............................................... 3.91 Shanning International Ltd v. Lloyds TSB Bank plc [2001] UKHL 31; [2001] 1 WLR 14 ......................... 1.18 Sharp v. Sphere Drake Insurance plc (The Moonacre) [1992] 2 Lloyd’s Rep. 50 ........................................ 3.27 Shavers Transport Co v. Travelers Indemnity Co, 481 F. Supp. 892 (D. Or. 1980) ...................................... 8.116 SHC Ltd v. NTUC Income Insurance Cooperative Ltd [2010] SGHC 224 .................................................. 15.63 She Lu Yi Co v. Huatai Insurance & Huatai Insurance Shanghai (2005) Yu Hi Fa Hang Chu Zi 632 ......... 13.14 Shell International Petroleum v. Gibbs (The Salem) [1981] 2 Lloyd’s Rep. 316; rev’d [1982] QB 946; [1982] 1 Lloyd’s Rep. 369 (CA); aff’d [1983] 2 AC 375; [1983] 1 Lloyd’s Rep. 342 (HL) ............3.35, 3.95 Shell UK Ltd (t/a Shell (UK) Exploration & Production) v. CLM Engineering Ltd (formerly Land & Marine Engineering Ltd) [2000] 1 Lloyd’s Rep. 612 ........................................................................... 3.103 Sherdley v. Nordea Life and Pension SA [2012] EWCA Civ 88 .................................................................. 1.14 Shogado Co Ltd v. Nipponkoa Insurance Co Ltd (2002) 26 February 2002 decision, Tokyo District Court..... 6.37 Shooter’s Fisheries v. Incorporated General Insurances Ltd. See Incorporated General Insurances Ltd v. Shooter’s Fisheries Sikweyiya v. Aegis Insurance, 1995 (4) SA 143 (E)..................................................................................... 14.80 Silver Dolphin Products Ltd v. Parcels & General Assurance Association Ltd [1984] 2 Lloyd’s Rep. 404 ..... 3.23 Simon Israel v. Sedgwick [1893] 1 QB 303 .................................................................................................. 4.39 Simpson v. Thomson (1877) LR 3 App. Cas. 279 ........................................................................................ 3.120 Sinotani Pte Ltd v. The People’s Insurance Co Ltd [1998] SGHC 141 ........................................................ 5.32 Sirena I, The. See Everbright Commercial Enterprises Pte Ltd v. AXA Insurance Singapore Pte Ltd Sitra Wood Products Pte Ltd v. Royal and Sun Alliance Insurance (S) Pte Ltd [2001] SGHC 204 ............. 5.13 Skandia Insurance Co Ltd v. Skoljarev [1979] 142 CLR 375 ....................................................................... 7.42 Slay Warehouse Co v. Reliance Insurance Co, 471 F.2d 1364 (8th Cir. 1973) ............................................. 8.112 Smith v. Banjo, 2011 (2) SA 518 (KZP) ....................................................................................................... 14.150 Somersall v. Friedman [2002] (3) SCR 109 .................................................................................................. 14.144 Sotrade Denizcilik Sanayi VE Ticaret AS v. Amadou Lo (The Duden) [2008] EWHC 2762 (Comm); [2009] 1 Lloyd’s Rep. 145 .................................................................................................................... 3.121 Source Food Tech Inc v. US Fidelity & Guaranty Co, 465 F.3d 834 (8th Cir. 2006) ................................... 8.98 South African Eagle Insurance Co Ltd v. KRS Investments, 2005 (2) SA 502 (SCA)................................. 14.31 Soya GmbH Mainz KG v. White [1982] 1 Lloyd’s Rep 136 (CA); [1983] 1 Lloyd’s Rep. 122 (HL).......... 3.42, 3.46, 7.47, 14.86, 15.33 Spentrev Realty Corp v. United National Specialty Insurance Co, 933 N.Y.S.2d 725 (2011)...................... 8.81 Sphere Drake Insurance plc v. J. Shree Corp, 1999 AMC 1480 (SDNY 1999), aff’d 53 F. App’x 175 (2d Cir. 2002) .............................................................................................................................................. 8.9 Spiliada Maritime Corp v. Cansulex Ltd [1987] 1 AC 460........................................................................2.17, 2.18 Spinney’s (1948) Ltd, Spinney’s Centres SAL & Michel Doumet v. Royal Insurance Co Ltd [1980] 1 Lloyd’s Rep. 406 ......................................................................................................................3.31, 3.65, 3.59 SPMP v. China Continent P&C Co Ltd ........................................................................................................ 13.25 Springold Investments (Pty) Ltd v. Guardian National Insurance Co Ltd, 2009 (3) SA 235 (D) ................. 14.227 St Paul Fire & Marine Insurance Co Inc v. Halifax Trawlers Inc, 495 F. Supp. 2d 232 (D. Mass. 2007) .... 8.7 St Paul Fire & Marine Insurance Co Inc v. Novus International Inc, 2011 U.S. Dist. LEXIS 150317 (SDNY 2011) ..................................................................................................................................................... 8.43 St Paul Fire & Marine Insurance Co Inc v. Pure Oil Co, 63 F.2d 771 (2d Cir. 1933) ................................... 8.104 St Paul Fire & Marine Insurance Co Inc v. Sun Micro Systems Inc, 1992 AMC 2403 (N.D. Cal. 1992) .... 8.89 Standard Chartered Bank v. KTS Sdn Bhd [2006] 4 CLJ 79 ........................................................................ 5.15 Standard Marine Insurance Co v. Scottish Metropolitan Assurance Co, 283 U.S. 284; 75 L. Ed. 1037; 51 S. Ct. 371 (1931) .................................................................................................................................. 8.122 Standard Oil Co of New Jersey v. Universal Insurance Co, 1933 AMC 675 (SDNY 1933) ........................ 8.122 State Farm Fire & Casualty Co v. LiMauro, 65 N.Y.2d 369; 492 N.Y.S.2d 534 (1985) ............................... 8.124 State Farm Fire & Casualty Co v. McDevitt (The Masters’ Ships), 2001 U.S. Dist. LEXIS 7529 (N.D. Cal. 2001) ..................................................................................................................................8.9, 8.10 State of New York v. Amro Realty Corp, 936 F.2d 1420 (2d Cir. 1991) ...................................................... 8.81 Steyn v. AA Onderlinge Assuransie Associasie Beperk, 1985 (4) SA 7 (T) ................................................ 14.48 Stony Brook Marine Transport Corp v. Wilton, 1997 U.S. Dist. LEXIS 23146 (SDNY 1997) ................... 8.10 Stouffer & Knight v. Continental Co, 96 Wash. App. 747, 982 P.2d 105 (1999) ......................................... 8.39

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TABLE OF CASES

Strive Shipping Corporation and Another v. Hellenic Mutual War Risks Association (The Grecia Express) [2002] 2 Lloyd’s Rep. 88 ...................................................................................................................... 4.45 Sumpiles Investments Pte Ltd v. AXA Insurance Singapore Pte Ltd [2006] 3 SLR(R) 12 .......................... 5.40 Sutherland v. Pratt [1843] 11 M&W 296; 152 ER 815 ..................................................................3.15, 7.31, 15.15 Suydam v. Reed Stenhouse of Washington Inc, 820 F.2d 1506 .................................................................... 8.13 Switzerland Insurance Co v. Hualey Knitwears, 1992 AMC 1394 (SDNY 1992) ....................................... 8.72 Tai Ping Insurance Co Ltd v. Tugu Insurance Co Ltd and Another [2001] HKEC 506 ............................... 4.50 Tai Sun Insurance & Banking Co Ltd, Re (1920) 15 HKLR 80 ................................................................... 4.48 Talbot Underwriting v. Nausch Hogan & Murray (The Jascon 5) [2006] EWCA Civ 889; [2006] Lloyd’s Rep. IR 531........................................................................................................................................... 3.22 Tampa Port Authority v. M/V Duchess, 65 F. Supp. 2d 1299 (M.D. Fla. 1997)........................................... 8.122 Tappoo Holdings Ltd v. Stuchbery [2008] Lloyd’s Rep. IR 34 .................................................................... 3.60 Tate & Sons v. Hyslop (1885) LR 15 QBD 368............................................................................................ 3.10 Tension Overhead Electric (Pty) Ltd v. National Employers General Insurance Co Ltd, 1990 (4) SA 190 ..............................................................................................................................14.101, 15.40, 15.50 Thames & Mersey Marine Insurance Co Ltd v. H. T. Van Laun & Co [1917] 2 KB 48............................... 3.84 Thebes Shipping Inc v. Assicurazioni Ausonia SpA, 599 F. Supp. 405 (SDNY 1984) ................................ 8.7 Theodorou v. Chester [1951] 1 Lloyd’s Rep. 204 ......................................................................................... 3.36 Thomas v. NASL Corp, 2000 U.S. Dist. LEXIS 16761 (SDNY 2000) ........................................................ 8.4 Thor Navigation Inc. v. Ingosstrakh Insurance [2005] EWHC 19 (Comm); [2005] 1 Lloyd’s Rep. 547 ..... 3.108 Toll Bridge Authority v. Aetna Insurance Co, 54 Wash. App. 400; 773 P.2d 906 (1989) ............................ 8.39 Tomlinson (Hauliers) Ltd v. Hepburn [1966] 1 Lloyd’s Rep. 309; [1966] AC 451 ..........................3.14, 3.77, 3.80 Tomlinson (A) (Hauliers) Ltd v. Hepburn. See Hepburn v. A Tomlinson (Hauliers) Ltd Toulmin v. Inglis (1808) 1 Camp 421 ........................................................................................................... 15.31 Tradigrain SA v. S.I.A.T. SpA [2002] EWHC 106 (Comm); [2002] 2 Lloyd’s Rep. 553 .........................3.23, 15.4 Tramp Shipping Corporation v. Greenwich Marine Inc (The New Horizon) [1975] 2 Lloyd’s Rep. 314 .... 3.62 Transamerica Leasing Inc v. Institute of London Underwriters, 267 F.3d 1303 (11th Cir. 2001) ................ 8.14 Transniko Pte Ltd v. Communication Technology Sdn Bhd [1995] 3 SLR(R) 941...................................... 2.22 Transway Shipping Ltd v. Underwriters at Lloyd’s, 717 F. Supp. 82 (SDNY 1989).................................... 2.40 Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd [1987] 4 ANZ Ins Cas 74-674; [1987] 8 NSWLR 270 (NSWCA); [1988] 165 CLR 107 (HC) .......................................................................... 7.6 Trinder, Anderson & Co v. Thames & Mersey Marine Insurance Co [1898] 2 QB 114 ...........................3.31, 3.37 Trucking v. Zive, 1996 (2) SA 361................................................................................................................ 14.160 Turner v. Grovit, Case C-159/02 [2004] ECR............................................................................................... 2.11 UDL Contracting Ltd v. Apple Daily Printing Ltd, HCA 1209/2007 ........................................................... 2.25 Ultramar Canada Inc v. Mutual Marine Office Inc, 1994 AMC 2409 (1994)............................................... 8.115 UMCI Ltd v. Tokio Marine & Fire Insurance Co (Singapore) Pte Ltd [2008] SGHC 188........................... 5.12 United States Fidelity & Guaranty Co v. Slifkin, 200 F. Supp. 563 (N.D. Ala. 1961) ................................. 8.124 US v. Standard Oil Co of New Jersey, 178 F.2d 488 (2d Cir. 1949); aff’d 340 U.S. 54 (1950) ................... 8.55 US v. Water Quality Insurance Syndicate, 2005 U.S. Dist. LEXIS 7128 (D. Me. 2005) ............................. 8.43 US v. Wessel Duval & Co, 1954 AMC 2070, 123 F. Supp. 318 (SDNY 1954) ........................................... 8.117 US Surgical Corp v. US Fire Insurance Co, 1990 Conn. Super. LEXIS 1361 (Conn. Sup. 1990) ............... 8.98 US Underwriters Insurance Co v. Zeugma Corp, 1998 U.S. Dist. LEXIS 14448 (SDNY 1998) ................. 8.39 Van Zyl NO v. Kiln, 2003 (2) SA 440 (SCA) ............................................................................................... 14.67 Vardinoyannis v. The Egyptian General Petroleum Corporation (The Evaggelos Th) [1971] 2 Lloyd’s Rep. 200................................................................................................................................................ 3.31 Vasso, The. See Noble Resources Ltd v. George Albert Greenwood (The Vasso) Ventouris v. Mountain (The Italia Express) (No. 2) [1992] 2 Lloyd’s Rep. 281......................................3.91, 3.110 Verna Trading Pty Ltd v. New India Assurance Co Ltd [1991] 1 VR 129...................3.75, 5.36, 7.2, 15.37, 15.41, 15.44, 15.46 Videtsky v. Liberty Life Insurance Association, 1990 (1) SA 386 (W). ..............................................14.103, 14.27 Vienna Insurance Group v. Bilas, Case C-111/09; [2010] 1 Lloyd’s Rep. IR 734 ....................................... 2.5 Village of Constantine v. Home Insurance Co, 427 F.2d 1338 (6th Cir. 1970)............................................. 8.18 Vita Food Products Inc v. Unus Shipping Co Ltd [1939] AC 277 ................................................................ 2.54 VOF Bouwcombinatie Egmond v. Oceanteam Power & Umbilical BV, 644 F. Supp. 2d 411 (SDNY 2009) ..................................................................................................................................................... 8.21 Vogt Power International Inc v. M/V Beluga Constellation, 2011 U.S. Dist. LEXIS 100470 (SDNY 2011) ..................................................................................................................................................... 8.119 Voth v. Manildra Flour Mills Pty Ltd [1990] 171 CLR 538 ......................................................................... 2.34

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Wadsworth Lighterage & Coaling Co Ltd v. Sea Insurance Co Ltd (1929) 34 Ll. L. Rep. 285 (CA) .......... 3.40 Walker v. Santam Ltd and Others, 2009 (6) SA 224 (SCA) ......................................................................... 14.77 Waters v. Monarch Fire & Life Assurance Co [1856] 5 E&B 870 ............................................................3.14, 3.15 Wayne Tank & Pump Co Ltd v. Employers’ Liability Assurance Corporation Ltd [1974] QB 57; [1973] 2 Lloyd’s Rep. 237 ....................................................................................................................3.30, 7.42, 14.84 Webster v. General Accident Fire & Life Assurance Corporation Ltd [1953] 1 Lloyd’s Rep. 123; [1953] 1 QB 520 ................................................................................................................................................. 3.95 Weddell v. Road Transport and General Insurance Co Ltd [1932] 2 KB 563..........................................3.123, 6.44 Welded Tube Co of America v. Hartford Fire Insurance Co, 1973 AMC 555 (ED Pa. 1973)...................... 8.83 West Tankers Inc. v. Allianz SpA and Another [2012] EWHC 854 (Comm) ............................................1.14, 2.72 Westminster Fire Office v. Reliance Marine Insurance Co [1903] 19 TLR 668 ........................................... 3.78 Westview Assocs v. Guaranty National Insurance Co, 95 N.Y.2d 334; 717 N.Y.S.2d 75; 740 N.E.2d 220 (2000) ................................................................................................................................ 8.36 Wexler Knitting Mills v. Atlantic Mutual Insurance Co, 382 Pa. Super. 405 (1989).................................... 8.89 Whalen v. W. Assurance Co of Toronto, 185 F. 490 (2d Cir. 1911).............................................................. 8.81 Wichter Construction Co v. St Paul Fire and Marine Insurance Co, 550 N.W.2d 1 (Minn. App. 1996) ...... 8.97 Wickham Contracting Co v. Local Union No. 3, IBEW, 955 F.2d 831 (2d Cir. 1992) ................................. 8.84 Wiggins Teape Australia Pty Ltd v. Baltica Insurance Co Ltd [1970] 2 NSWR 77 ...............................3.79, 15.43 Wilburn Boat Co v. Fireman’s Fund Insurance Co, 348 U.S. 310 (1955); [1955] AMC 467 ..........2.65, 8.1, 15.3, 15.27 Wilker Bros Co v. Lumbermans Mutual Casualty Co, 529 F. Supp. 113 (SDNY 1981) .............................. 8.60 Willamette-Western Corp v. Columbia Pacific Towing Corp, 466 F.2d 1390 (9th Cir. 1972) ...................... 8.123 Wiltrading (WA) Pty Ltd v. Lumley General Insurance Ltd [2005] WASCA 106 ....................................... 7.59 WISE (Underwriting Agency) Ltd v. Grupo Nacional Provincial SA [2004] EWCA Civ 962; [2004] 2 Lloyd’s Rep. 483 .................................................................................................................................3.9, 3.10 Wolstein v. Yorkshire Insurance Co, 97 Wash. App. 201; 985 P.2d 400 (1999) ........................................... 8.41 Wood v. Associated National Insurance Co Ltd [1985] 1 Qd R 297 ............................................................ 7.42 Woodside Petroleum Development Pty Ltd v. H&R-E&W Pty Ltd [1997] 10 ANZ Ins Cas 61-395; [1999] 20 WAR 380 (WA Full Court) .............................................................................................................. 7.70 Wünsche Handelsgesellschaft International mbH v. General Accident Insurance Asia Ltd [1994] HCCL 73 .......................................................................................................................................................... 15.36 Wünsche Handelsgesellschaft International mbH v. Tai Ping Insurance Co Ltd [1998] 2 Lloyd’s Rep. 8 (CA) ...................................................................................................................................................... 3.14 Wünsche Handelsgesellschaft International GmbH v. General Accident Insurance Asia Ltd [2002] WL 2729 (CFI) 423 ..................................................................................................................................... 4.37 Xie Kent Cheng Yi v. UMS Generali Marine SpA (2001) Hu Hai Fa Shang Chu Zi 445 ............................

13.35

Yeung Kong Yung The Young Shing Insurance and Investment Co Ltd (1921) WL 18908 (SC), (1921) 16 HKLR 34 .............................................................................................................................................. 4.32.1 Yorkshire Dale Steamship Co Ltd v. Minister of War Transport (The Coxwold) (1942) 73 Ll. L. Rep. 1 (HL) ...................................................................................................................................................... 3.30 Yorkshire Insurance Co Ltd v. Nisbet Shipping Co Ltd [1961] 2 All ER 487; [1961] 1 Lloyd’s Rep. 479; [1962] 2 QB 330 ..........................................................................................................................3.120, 14.152 Yorkshire Water Services Ltd v. Sun Alliance & London Insurance plc [1997] 2 Lloyd’s Rep. 21 ............. 1.17 Youell v. Exxon Corp, 48 F.3d 105; 1995 AMC 1147 (2d Cir. 1995); 74 F.3d 373 (2d Cir. 1996)...........8.42, 8.43 Zephyr, The. See General Accident Fire & Life Assurance Corp Ltd v. Peter William Tanter Zhejiang Sinochem v. Huatai Insurance Ningbo (2011) Yong Hai Fa Shang Chu Zi 47.............................. Zheshen v. Dazhong Insurance & Dazhong Insurance Suzhou (2005) Wu Hai Fa Shang Zi 229 ................

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TA B L E O F L E G I S L AT I O N

AUSTRALIA Commonwealth Admiralty Act 1988 ................ 7.7 Commonwealth Judiciary Act 1903.................. 7.7 Commonwealth Service and Execution of Process Act 1992 ...................................... 2.33 Federal Court Rules 2011 r. 10.42 .......................................................... 2.33 Insurance Contracts Act 1984 .............2.33, 2.61, 2.62, 7.1, 7.3–7.4, 7.10–7.11, 7.14–7.15, 7.17–7.21, 7.23, 7.27–7.28, 7.33, 7.35, 7.37, 7.41, 7.43–7.44, 7.48, 7.58–7.61, 7.71–7.73, App 6 s. 9 .............................................................. 7.15 s. 9A .............................................................. 7.19 s. 13 ..........................................................7.23, 7.27 s. 14 .............................................................. 7.27 s. 16 .............................................................. 7.33 s. 17 .............................................................. 7.33 s. 37 .............................................................. 7.27 s. 44 .............................................................. 7.65 s. 52 .................................................2.34, 2.35, 7.11 s. 53 .............................................................. 7.54 s. 54 ..........................................................7.41, 7.66 s. 63 .............................................................. 7.54 s. 76(3) .......................................................... 7.73 Marine Insurance Act 1909 .................2.33, 2.34, 2.60, 2.62, 7.3–7.6, 7.10–7.13, 7.15–7.23, 7.25–7.31, 7.31, 7.33–7.34, 7.36–7.37, 7.40–7.42, 7.44 7.47, 7.51, 7.56–7.57, 7.59, 7.61, 7.65, 7.72, 15.2, 15.27 s. 7 ............................................................7.4, 7.15 s. 8 ...................................................7.4, 7.15, 7.19 s. 8(1) ............................................................ 7.16 s. 8(2) ........................................................7.19, 7.36 s. 9 ............................................................7.4, 7.13 s. 9 (1) ........................................................... 7.15 s. 9(2) ............................................................ 7.15 s. 10 .............................................................. 7.33 s. 11 .............................................................. 7.33 s. 12 .............................................................. 7.33 s. 12(1) ......................................................7.31, 7.34 s. 22(3) .......................................................... 7.64 s. 39(3) .......................................................... 7.40 s. 45 .............................................................. 7.10 s. 46(2) .......................................................... 7.52

Marine Insurance Act 1909—cont. s. 54 .............................................................. 15.41 s. 55(2) .......................................................... 15.41 s. 61 ..........................................................7.42, 7.45 s. 61(2) .......................................................... 7.46 s. 61(2)(c) ...................................................... 7.51 s. 84(4) .......................................................... 7.66

C A NA DA Marine Insurance Act 1993— s. 6(1) ............................................................

C H I NA , P E O P L E ’ S R E P U B L I C

15.2

OF

Criminal Law— Art. 198 ......................................................... 13.34 Insurance Law 1995 .......................................... 13.1 Insurance Law 2002 ......................................13.1, 13.9 Art. 12 ........................................................... 13.16 Insurance Law 2009 ......................................13.1–13.2 Art. 10 ........................................................... 13.12 Art. 12 ........................................................... 13.16 Art. 12(5)....................................................... 13.12 Art. 12(6)....................................................... 13.14 Art. 13 ........................................................... 13.10 Art. 13(1)....................................................... 13.9 Art. 13(3)....................................................... 13.11 Art. 14 ........................................................... 13.37 Art. 16 ........................................................... 13.13 Art. 17 ........................................................... 13.26 Art. 21 ........................................................... 13.40 Art. 22(2)....................................................... 13.42 Art. 23 ........................................................... 13.42 Art. 24 ........................................................... 13.42 Art. 26(1)....................................................... 13.43 Art. 27 ........................................................... 13.34 Art. 27(1)....................................................... 13.34 Art. 27(3)....................................................... 13.34 Art. 50 ........................................................... 13.13 Art. 60(1)....................................................... 13.46 Art. 62 ........................................................... 13.51 Art. 63 ........................................................... 13.50 Art. 184 ......................................................... 13.1

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Maritime Code .....................13.9, 13.40, 13.43, 13.45, 13.50, App 18 Art. 50 ........................................................... 13.36 Arts. 216–256 (Ch 12) .................................. 13.12 Art. 216(2)..................................................... 13.1 Art. 222(1).................................................13.5, 13.6 Art. 222(2)..................................................... 13.6 Art. 223 ......................................................... 13.7 Art. 224 ......................................................... 13.17 Art. 226 ......................................................... 13.13 Art. 227(1)..................................................... 13.13 Art. 228 ......................................................... 13.13 Art. 229 ......................................................... 13.18 Art. 232(2).............................................13.21, 13.22 Art. 235 ......................................................... 13.25 Art. 236 ......................................................... 13.45 Art. 240(2)..................................................... 13.45 Art. 242 .................................................13.26, 13.34 Art. 243 .................................................13.26, 13.35 Art. 246(2)..................................................... 13.31 Art. 249 ......................................................... 13.31 Art. 252(1)..................................................... 13.46 Art. 252(2)..................................................... 13.50 Art. 253 ......................................................... 13.50 Art. 264 ......................................................... 13.43 Art. 267 ......................................................... 13.44 Marine Insurance Provisions (Provisions of the Supreme People’s Court on Several Issues about the Trial of Cases concerning Marine Insurance Disputes)................ 13.2 Art. 5 ............................................................. 13.13 Art. 10 ........................................................... 13.17 Art. 12 ........................................................... 13.45 Special Maritime Procedure Law Art. 94 ........................................................... 13.48 Art. 95(1)....................................................... 13.48 Art. 96 ........................................................... 13.46

ENGLAND Act of Elizabeth I 1601 (43, Elizabeth c. 12) ... 1.2 Arbitration Act 1996 .....................................2.73, 2.74 Civil Procedure Rules ...................................2.16, 2.18 Pt. 6 .............................................................. 2.16 r. 6.36 ............................................................ 2.16 r. 6.37(2) ........................................................ 2.16 r. 6.37(3) ....................................................2.16, 2.17 PD6B 3.1 ....................................................... 2.16 PD6B 3.1(6) .................................................. 2.16 PD6B 3.1(7) .................................................. 2.16 PD6B 3.1(8) .................................................. 2.16 Consumer Insurance (Disclosure and Representations) Act 2012— s. 1(a)...........................................................3.4, 15.3 Contracts (Applicable Law) Act 1990 .............. 2.56 Gaming Act 1845 .............................................. 14.43 Finance Act 1959 .............................................. 7.29 Finance Act 1970— s. 30 .............................................................. 15.14

Financial Services and Markets Act 2009 (Law Applicable to Contracts of Insurance) Regulations 2001 ..................................2.49, 2.50 Gambling Act 2005 ........................................... 3.14 s. 335 ............................................................. 3.14 Limitation Act 1980— s. 5 ............................................................... 3.89 Marine Insurance (Gambling Policies) Act 1909 ......................................................3.14, 4.13 Marine Insurance Act 1906 ............1.3, 1.6, 1.12–1.13, 3.1, 3.4, 5.0, 5.4, 5.32, 6.4, 6.14, 6.16, 7.4–7.5, 7.13, 7.18, 7.20, 7.29, 7.36, 7.44, 8.17, 8.99, 9.4, 11.5, 13.16, 13.25, 13.31, 14.6, 14.8, 14.10, 14.12, 14.14, 14.37, 14.68, 14.229, 15.4, 15.18, 15.59, App 1 s. 2(1) ........................................................13.1, 15.2 s. 3(2)(c) ........................................................ 11.5 s. 5 and 6 ....................................................... 15.15 s. 5(1) ............................................................ 11.15 s. 6(1) ......................................................15.2, 15.15 s. 17 ...............................3.5, 3.92, 5.40, 6.30, 15.27 s. 18(1) ....................................................11.11, 15.6 s. 18(2) ........................................................3.7, 15.7 s. 18(3)(b)...........................................................4.35 s. 20 ........................................................15.6, 15.27 s. 20(1) .......................................................... 4.15 s. 20(2) .......................................................... 15.7 s. 22 ..........................................................3.13, 4.22 s. 23 .............................................................. 4.19 s. 23(1) ...........................................3.13, 4.19, 15.14 s. 24 .............................................................. 4.19 s. 24(1) ...........................................3.13, 4.19, 15.14 s. 26 .............................................................. 4.19 s. 26(1) ......................................................3.13, 4.19 s. 27(3) .......................................3.109, 3.110, 3.120 s. 32 .............................................................. 15.63 s. 32(1) .......................................................... 3.123 s. 32(2) .......................................................... 3.123 s. 33 .................................................4.29, 4.44, 6.20 s. 33(1) .......................................................... 4.28 s. 33(3) ....................................................4.30, 9.102 s. 39(1) .............................................1.11, 3.11, 4.34 s. 40(2) ......................................................1.11, 3.11 s. 41 ...........3.16, 4.26, 5.16, 6.16, 6.17, 9.92, 15.16 s. 42 .............................................................. 15.29 s. 44 .............................................3.87, 4.39, 14.111 s. 44 and 45 ................................................... 15.29 s. 45 .............................................................. 3.86 s. 46(1) .......................................................... 3.83 s. 48 ........................................................3.82, 15.29 s. 50 .............................................................. 4.25 s. 53 .............................................................. 11.26 s. 53(1) .......................................................... 11.26 s. 55 ..........................................................3.31, 3.40 s. 55(1) .......................................................... 3.30 s. 55(2) .......................................................... 5.32 s. 55(2)(a) ...................................................... 6.21 s. 55(2)(c) .......................................3.35, 6.21, 11.45 s. 57 ..........................................................3.94–3.95 s. 57(1) ....................................................3.101, 5.41

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Marine Insurance Act 1906—cont. s. 60(1) .......................................................... 3.97 s. 60(2) .......................................................... 9.133 s. 60(2)(i)(a) .................................................. 3.97 s. 60(2)(i)(b) .................................................. 3.97 s. 60(2)(iii) .................................................... 3.106 s. 62(1) .......................................................... 3.100 s. 62(7) .......................................................... 3.100 s. 65 .............................................................. 3.115 s. 65(2) .......................................................... 3.116 s. 67 .............................................................. 3.91 s. 67 to 75 ...................................................... 3.111 s. 67(1) .......................................................... 3.110 s. 69 .................................................................3.112 s. 71(3) .........................................3.111, 6.36, 11.71 s. 73 .................................................................3.119 s. 73(1) .......................................................... 6.40 s. 77(1) ......................................................... 9.110 s. 78 .............................................................. 5.46 s. 78(1) ...................................................3.113, 6.38 s. 78(3) ......................................................... 5.45 s. 78(4) ..........................................3.113, 4.45, 5.46 s. 80(1) ......................................................... 3.124 s. 80(2) ......................................................... 3.124 s. 81 ........................................................3.112, 6.36 s. 90 .............................................................. 4.12 s. 92 .............................................................. 4.12 Sched 1 ......................................................... 11.42 Sched 1, r. 17 ........................................15.52, 15.54 Prize Act 1782 (see Ransom Act 1781) ........... 3.17 Public Order Act 1986— s. 1 .............................................................. 3.64 Ransom Act 1782 .........................................3.17, 5.17 Senior Courts Act 1981 .................................... 3.17 s. 35A ........................................................... 3.91 Sched. 7 ........................................................ 3.17

E U RO P E A N U N I O N Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968— Art. 17 .......................................................... 9.56 Council Reg. (EU) No. 356/2010 ..................... 3.17 Council Reg. (EC) No. 44/2001 (Judgments Regulation/Brussels I) ............1.18, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 2.12, 2.13, 10.203 Art. 1.2(d) ..................................................... 2.72 Art. 4.1 ......................................................... 2.10 Art. 9.1(a) .....................................................2.4, 2.6 Art. 9.1(b) ..............................................2.4, 2.5, 2.6 Art. 9.1(c) ..................................................... 2.5 Art. 9.2 ......................................................... 2.4 Art. 12 .......................................................... 2.6 Art. 12.1 ....................................................... 2.5 Art. 13.1, 13.2, 13.3 ..................................... 2.6 Art. 13.5 ....................................................... 2.6 Art. 14.1 to 14.4 ............................................ 2.7 Art. 14.1(b) ................................................... 2.6 Art. 14.4 .......................................................2.6, 2.7 Art. 14.5 .......................................................2.6, 2.8

Council Reg. (EC) No. 44/2001 (Judgments Regulation/Brussels I)—cont. Art. 17 .......................................................... 9.56 Art. 23 .......................................................... 9.56 Art. 23.1(a) ................................................... 2.9 Art. 23.1(b) ................................................... 2.9 Art. 23.1(c) ................................................... 2.9 Art. 27 ......................................................1.14, 2.11 Art. 28 ......................................................1.14, 2.11 Art. 28.3 ....................................................... 2.11 EU Insurance Directives— 72/239/EEC (freedom of establishment) ...1.9, 1.14 88/357/EEC (freedom to provide services)....1.9, 1.14 92/49/EEC (establishing exclusive control) ...1.9, 1.14 13/1993/EC (unfair terms in consumer contracts) .............................................. 9.39 First Non-Life Directive 73/239/EEC— Art. 5(d) .........................................2.8, 2.48, 9.54 Second Non-Life Directive 88/357/EEC ......... 2.8 Art. 2(d) ........................................................ 2.48 Reg. (EC) No. 593/2008 (Rome I) ...............1.18, 2.47, 2.51, 9.55 Recital 9 ....................................................... 2.51 Recital 11 ..................................................... 2.48 Recital 45 ..................................................... 2.47 Recital 46 ..................................................... 2.47 Art. 1.2(d) ..................................................... 2.51 Art. 1.2(e) ..................................................... 2.51 Art. 3 ...............................................2.48, 2.49, 9.54 Art. 3.1 ......................................................... 2.48 Art. 4 ............................................................ 2.48 Art. 4.5 ......................................................... 2.50 Art. 7 ............................................................ 9.55 Art. 7.1 ......................................................... 2.47 Art. 7.2 .....................................................2.48, 2.50 Art. 7.3 ......................................................... 2.48 Art. 7.4 ......................................................... 2.48 Art. 7.6 ......................................................... 2.48 Art. 29 .......................................................... 2.47 Treaty on the Functioning of the European Union (TFEU) .......................................... 2.47

FRANCE Civil Code ........................................................ 11.2 Art. 6 ............................................................ 11.19 Art. 1108 ...................................................... 11.19 Art. 1133 ...................................................... 11.19 Art. 1149(1) .................................................. 11.79 Art. 1250(1) .................................................. 11.79 Art. 1275 ...................................................... 11.25 Art. 2230 ...................................................... 11.68 Art. 2231 ...................................................... 11.65 Art. 2240 ...................................................... 11.65 Decree no 68-44 dated 19 January 1968 .......... 11.1 Commercial Insurance Code 1807 ................... 11.1 Insurance Code .........................11.1, 11.2, 11.7, 11.71 Art. L.112-3 ................................................. 11.13 Art. L.121-7 ................................................. 11.43 Art. L.131-1 ................................................. 11.6 Art. L.171-1 to L.174-6 .......................11.1, App 11

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Insurance Code—cont. Art. L.171-1 ..............................................11.4, 11.6 Art. L.171-2 ...................11.28, 11.53, 11.61, 11.63 Art. L.171-3 .........................................11.14–11.16 Art. L.171-4 .........................................11.20, 11.22 Art. L.171-5 ................................................. 11.4 Art. L.172-1 ................................................. 11.13 Art. L.172-2 ...........................................11.8, 11.55 Art. L.172-3 ................................................. 11.10 Art. L.172-4 ................................................. 11.18 Art. L.172-5 ................................................. 11.18 Art. L.172-6 ................................................. 11.62 Art. L.172-7 ................................................. 11.16 Art. L.172-8 ................................................. 11.83 Art. L.172-9 ................................................. 11.83 Art. L.172-10 ............................................... 11.71 Art. L.172-11 .........................................11.5, 11.69 Art. L.172-13 ............................11.41, 11.42, 11.48 Art. L.172-14 ............................................... 11.42 Art. L.172-15 ............................................... 11.61 Art. L.172-16 .......................................11.41, 11.55 Art. L.172-17 ............................................... 11.53 Art. L.172-18 ............................................... 11.43 Art. L.172-18(a) ........................................... 11.43 Art. L.172-19 .......................................11.42, 11.48 Art. L.172-20 ............................................... 11.27 Art. L.172-21 ............................................... 11.28 Art. L.172-23 ............................11.73, 11.74, 11.75 Art. L.172-24 ............................................... 11.70 Art. L.172-28 ............................................... 11.62 Art. L.172-29 .......................................11.75–11.77 Art. L.172-30 ............................................... 11.23 Art. L.172-31 .......................................11.63, 11.66 Art. L.173-4 ................................................. 11.43 Art. L.173-5 ................................................. 11.42 Art. L.173-9 ................................................. 11.25 Art. L.173-10 ............................................... 11.25 Art. L.173-17 ............................................... 11.25 Art. L.173-19 ............................................... 11.4 Art. L.174-5 ..............................11.41, 11.45–11.47 Art. R.114-1 ................................................. 11.84 Art. R.112-1 ................................................. 11.67 Art. R.172-1 ................................................. 11.13 Art. R.172-2 ................................................. 11.13 Art. R.172-6 ................................................. 11.64 Law no 67-522 dated 3 July 1967 ..................... 11.1

GERMANY Allgemeine Deutsche SeeversicherungsBedingungen (the ADS General Rules of Marine Insurance) of 1919 ....................... 10.4 HGB (Commercial Code) s. 424 ............................................................ 10.151 s. 819 ............................................................ 10.171 s. 820(1) ....................................................... 10.90 s. 821 ..................................................10.93, 10.103 Insurance Contracts Act 1908 ..........10.3–10.4, 10.202 s. 1(2) ............................................................ 10.22 s. 6 .............................................................. 10.169 s. 53 .............................................................. 10.22

Insurance Contracts Act 1908—cont. s. 62(1) ......................................................... 10.171 s. 76 .............................................................. 10.22 s. 131(2) .............................................10.93, 10.103 s. 186 ............................................................ 10.3 s. 793 ............................................................ 10.22 s. 808 ............................................................ 10.22 Insurance Contracts Act 2008 ....................10.3, 10.85 s. 1 to 87 ....................................................... 10.31 s. 1 to 99 ....................................................... 10.13 s. 3 .............................................................. 10.63 s. 3(1) ........................................................... 10.63 s. 5(1) ........................................................... 10.86 s. 5(2) ........................................................... 10.86 s. 19(1) ......................................................... 10.43 s. 19(2) ......................................................... 10.47 s. 19(3) ......................................................... 10.47 s. 23 .............................................................. 10.52 s. 23(1) ......................................................... 10.52 s. 39(1) ......................................................... 10.50 s. 63(1) ......................................................... 14.82 s. 76 .............................................................. 10.39 s. 82(1) ......................................................... 10.071 s. 82(3) ......................................................... 10.169 s. 83(1) ......................................................... 10.190 s. 83(3) ......................................................... 10.190 s. 83, 85 ........................................................ 10.190 s. 85(1) ......................................................... 10.191 s. 130 to 141 ................................................. 10.7 s. 130(1) ....................................................... 10.90 s. 137 ............................................................ 10.108 s. 141(1) ....................................................... 10.34 s. 186 ............................................................ 10.202 s. 187 ............................................................ 10.202 s. 209 ......................................................10.6, 10.10 s. 215(1) ....................................................... 10.202 s. 778 to 900 ................................................. 10.10 s. 905 ............................................................ 10.10

HONG KONG Companies Ordinance (Cap. 356) .................... 2.25 s. 92 .............................................................. 2.25 s. 356 ............................................................ 2.25 Pt XI ............................................................. 2.25 Limitation Ordinance (Cap. 347) ..................... 4.40 Marine Insurance Ordinance (Cap. 329) ........4.7, 4.12 s. 1 .............................................................. 4.12 s. 4 .............................................................. 4.23 s. 5 .............................................................. 4.25 s. 17 .............................................................. 4.15 s. 18(1) ......................................................... 4.15 s. 18(3)(b) ..................................................... 4.35 s. 20(1) ......................................................... 4.15 s. 22 ..........................................................4.20, 4.22 s. 23 .............................................................. 4.22 s. 23(1) ......................................................... 4.19 s. 24 .............................................................. 4.22 s. 24(1) ......................................................... 4.19 s. 26 .............................................................. 4.22 s. 26(1) ......................................................... 4.19

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Marine Insurance Ordinance—cont. s. 33 .............................................................. 4.44 s. 33(1) ......................................................... 4.28 s. 33(3) ......................................................... 4.30 s. 39(1) ..................................................4.28, 4.32.1 s. 41 .............................................................. 4.26 s. 44 .............................................................. 4.39 s. 50 .............................................................. 4.25 s. 90 .............................................................. 4.12 s. 92 .............................................................. 4.12 Rules of the High Court (Cap. 4A) Ord. 11 ......................................................... 2.26 Ord. 11 r. 1(1) ............................................... 2.28 Ord. 11 r. 1(1)(d) .......................................... 2.28 Ord. 11 r. 4(2) ............................................... 2.27 Ord. 11 r. 9 ................................................... 2.26 Ord. 11 r. 4(2) ............................................... 2.29 Ord. 12 r. 8 ................................................... 2.30 Ord. 11 r. 8(1)(a) .......................................... 2.30 Ord. 12 r. 8(2) ............................................... 2.31 Ord. 65 r. 3(1) ............................................... 2.25 Rules of the District Court (Cap. 336H) Ord. 11 ......................................................... 2.26 Ord. 11 r. 4(2) ...........................................2.27, 2.29 Ord. 11 r. 8(1)(a) .......................................... 2.30 Ord. 11 r. 9 ................................................... 2.26 Ord. 12 r. 8 ................................................... 2.30

I N T E R N AT I O N A L CLC 1992 (International Convention on Civil Liability for Oil Pollution Damage, 1992) ...9.85 LLMC 1976 (Convention on Limitation of Liability for Maritime Claims, 1976) ...... 9.85 Lugano 1988 .................................................... 2.7 Arts. 12 and 12(a) ........................................ 2.7 Lugano 2007. See European Union, Council Reg (EU) No. 44/2001 ............................. 2.3 SOLAS 1974 .................................................... 11.51 York-Antwerp Rules ........................................ 1.15 York-Antwerp Rules 1994 ............................... 8.114 York-Antwerp Rules 2004 .....................8.114, 10.193 Rule X .......................................................... 3.118 Rule XIV ...................................................... 3.118

I TA LY Civil Code— Art. 1182 ...................................................... 9.147 Art. 1183 ...................................................... 9.147 Art. 1341 .......................................9.39, 9.84, 9.101 Art. 1411 ...................................................... 9.41 Art. 1696 ...................................................... 9.9 Arts. 1882 to 1932 ........................................ 9.5 Art. 1887 ...................................................... 9.37 Art. 1885 ..................................................9.5, 9.104 Art. 1888 ...................................................... 9.38 Art. 1890 ...................................................... 9.41 Art. 1891 .......................................9.41, 9.48, 9.105 Art. 1892 ..................9.5, 9.7, 9.24, 9.25, 9.27, 9.87

Civil Code—cont. Art. 1893 ..................9.5, 9.7, 9.24, 9.26, 9.27, 9.87 Art. 1894 ..................................................9.27, 9.42 Art. 1895 ...................................................... 9.22 Art. 1896 ...................................................... 9.31 Art. 1897 .........................................9.31, 9.32, 9.36 Art. 1898 .......................9.31, 9.33, 9.34, 9.35, 9.36 Art. 1899 ..................................................9.48, 9.59 Art. 1900 .....................9.59, 9.83, 9.84, 9.85, 9.101 Art. 1901 ............9.5, 9.7, 9.59, 9.104, 9.105, 9.106 Art. 1904 ...........................................9.5, 9.14, 9.22 Art. 1905 ..................................9.5, 9.10, 9.16, 9.68 Art. 1906 ..................................................9.68, 9.87 Art. 1907 ..................................9.5, 9.17, 9.18, 9.21 Art. 1908 .............................................9.5, 9.9, 9.18 Art. 1909 ..................................9.5, 9.17, 9.18, 9.19 Art. 1910 .........................................9.5, 9.46, 9.126 Art. 1911 ....................................................9.5, 9.44 Art. 1912 ...........................................................9.68 Art. 1913 ..................................................9.5, 9.111 Art. 1914 .................9.80, 9.82, 9.113, 9.115, 9.117 Art. 1915 .....................9.5, 9.7, 9.118, 9.119, 9.145 Art. 1916 ............................9.5, 9.116, 9.119, 9.139 Art. 1916(3) .................................................. 9.145 Art. 1917 ...................................................... 9.5 Art. 1918 .........................................9.47, 9.48, 9.49 Art. 1932 ...........................................9.5, 9.26, 9.35 Art. 2697 ................................................9.74, 9.122 Art. 2724 ...................................................... 9.38 Art. 2952 ...................................................... 9.148 Art. 2964 ...................................................... 9.149 Art. 2966 ...................................................... 9.149 Art. 2965 ...................................................... 9.149 Art. 2968 ...................................................... 9.149

J A PA N Commercial Code ............................................. App 4 Art. 90 .......................................................... 6.17 Art. 514 ........................................................ 6.29 Arts. 815 to 841 ............................................ 6.9 Art. 817 ........................................................ 6.40 Art. 822 ........................................................ 6.24 Art. 823 ........................................................ 6.14 Art. 824 ........................................................ 6.25 Art. 824(2) .................................................... 6.25 Art. 825 ........................................................ 6.25 Art. 826 ........................................................ 6.25 Art. 827 ........................................................ 6.25 Art. 829 ........................................................ 6.21 Art. 833 ........................................................ 6.31 Art. 833(4) .................................................... 6.32 Art. 834(1) .................................................... 6.31 Insurance Law ................................................... App 5 Art. 3 ............................................................ 6.15 Art. 4 ............................................................ 6.12 Art. 6(1) ........................................................ 6.14 Art. 6(2) ........................................................ 6.14 Art. 13 ......................................................6.37, 6.38 Art. 14 ......................................................6.20, 6.26 Art. 17 ......................................................6.21, 6.22

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Insurance Law—cont. Art. 17(1) ...................................................... Art. 18 .......................................................... Art. 19 .......................................................... Art. 20 .......................................................... Art. 21(2) ...................................................... Art. 23(1) ...................................................... Art. 24 .......................................................... Art. 25 .......................................................... Art. 28(1) ...................................................... Art. 29(1)(i) .................................................. Art. 30 .......................................................... Art. 31(1) ...................................................... Art. 95 ..........................................................

6.21 6.35 6.36 6.45 6.29 6.38 6.43 6.41 6.13 6.14 6.30 6.30 6.27

M A L AY S I A Civil Law Act 1956 ....................................15.2, 15.60 Kidnapping Act 1961 ...................................5.17–5.18 s. 5(2) ............................................................ 5.17 Specific Relief Act 1950 .................................. 5.28 s. 35(2) ......................................................... 5.29 s. 48 and 49(2) .............................................. 15.41

Insurance Contracts Act 1989—cont. s. 2-2. ....................................................12.35–12.37 s. 4-1 ............................................................. 12.21 s. 4-2 ............................................................. 12.24 s. 4-3 .....................................................12.24, 12.25 s. 4-9 ............................................................. 12.80 s. 4-9(1) ........................................................ 12.80 s. 4-9(3) ........................................................ 12.80 s. 4-10(1) ...................................................... 12.99 s. 4-10(3) ...................................................... 12.99 s. 4-10(4) ...................................................... 12.99 s. 4-11(3) ...................................................... 12.81 s. 5-1 ............................................................. 12.85 s. 5-2(1) ........................................................ 12.85 s. 6-1 ............................................................. 12.2 s. 6-2 ............................................................. 12.19 s. 6-4 ............................................................. 12.100 s. 8-4 ............................................................. 12.109 s. 8-5 .................................................12.110, 12.111 s. 8-5(2) ........................................................ 12.110 s. 8-6 .................................................12.110, 12.111 s. 8-6(1) ........................................................ 12.111 s. 20-1 ........................................................... 12.9 Sale of Goods Act 1988 s. 7(2) ........................................................... 12.42 s. 13 .............................................................. 12.42

NEW ZEALAND Marine Insurance Act 1908 ..............................

15.2

N O RWAY Act 17 December 1976 no. 100 relating to Interest on Delayed Payment— s. 3(3) ...............................................12.109, 12.110 Act 18 May 1979 no. 18 relating to Limitation Periods for Claims ................................... 12.110 Act 8 June 1984 no. 59 relating to Creditors Rights to Satisfaction of Claims— s. 7-2 ............................................................. 12.31 Act 13 May 1988 no. 27 relating to the Sale of Goods— ss. 61 and 62 ................................................. 12.31 Act 16 June 1989 no. 70 relating to Insurance for Damage Caused by Natural Disasters— s. 1 .............................................................. 12.55 Act 25 March 1994 no. 7 relating to Damage Caused by Natural Disasters— s. 4 .............................................................. 12.55 Contract Act 1918 ............................................ 12.28 para. 12.35 .................................................... 12.28 para. 12.36 .................................................... 12.28 Insurance Contracts Act 1989 .....................12.1, 12.7, 12.15, 12.18, 12.20, 12.35, 12.80, 12.108, App 16 s. 1-2(a) ........................................................ 12.29 s. 1-2(b) ........................................................ 12.1 s. 1-2(c) ........................................................ 12.1 s. 1-3(1) ........................................................ 12.1 s. 1-3(2)(c) .................................................... 12.1

SINGAPORE Application of English law Act 1993 .............5.3, 15.2 s. 3 .............................................................. 5.4 s. 4 .............................................................. 5.4 Civil Law Act (Cap. 43) ................................... 5.2 s. 5 .............................................................. 5.2 Maritime Offences Act (Cap. 170B, 2004 rev. edn) s.3–6 ............................................................. 5.22 Sale of Goods Act s. 19(2) ......................................................... 5.14 Companies Act— s. 387 ............................................................. 2.21 District Court, Subordinate Courts Act (Cap. 321) s. 19(2) ......................................................... 2.21 s. 19(4) ......................................................... 2.21 s. 52(1) ......................................................... 2.21 Supreme Court of Judicature Act (Cap. 322)— s. 16 .............................................................. 2.21 Rules of Court— Ord. 10 r. 2 ................................................... 2.21 Ord. 11 ......................................................... 2.22 Ord. 11 r. 1 ................................................... 2.21 Ord. 11 r. 1 (a) to (s) .................................... 2.21 Ord. 11 r. 1(d)(i) ........................................... 2.22 Ord. 11 r. 1(d)(iii) ......................................... 2.22 Ord. 11 r. 1(p) ............................................... 2.22 Ord. 11 r. 2(1)(b) .......................................... 2.22 Ord. 11 r. 4 ................................................... 2.23 Terrorism (Suppression of Financing) Act (Cap. 325, 2003 rev. edn), ...................5.21, 5.22 s. 4 .............................................................. 5.21 s. 35 .............................................................. 5.21

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SOUTH AFRICA Admiralty Jurisdiction Regulation Act [No. 105 of 1983] .........................................2.42, 2.69, 14.1, 14.4, 14.5, 14.8, 14.11, 14.118, App 20 s. 1(1)(p)(ii) .................................................. 2.43 s. 1(1)(u) ....................................................... 2.43 s. 2(1) ........................................................... 2.43 s. 3(3) .......................................................2.42, 2.44 s. 3(3)(a) ....................................................... 2.44 s. 3(5)(c) ....................................................... 2.43 s. 4(4) ........................................................... 2.45 s. 5(2)(f) ....................................................... 14.117 s. 5(2)(g) ....................................................... 14.223 s. 6(1)(b) .................................................14.4, 14.82 s. 6(5) ........................................................... 14.6 s. 7(1)(a) ....................................................... 2.43 Arbitration Act, [No. 42 of 1965] ................2.74, 2.75 Consumer Protection Act [No. 68 of 2008] ..... 14.15, 14.16, 14.17 General Law Amendment Act, [No. 8 of 1879] ...14.6, 14.143 Insurance Act [No. 22 of 1943] ....................... 2.42 Insurance Act [No. 27 of 1943] ....................... 2.42 Pre-Union Statute Revision Act [No. 43 of 1977] ........................................................ 14.143 Prescribed Rate of Interest Act [No. 55 of 1975] ............................................14.118, 14.119 Prescription Act [No. 68 of 1969] .................... 14.112

Renaming of High Courts Act, 2008 ................ 2.43 Short-term Insurance Act [No. 53 of 1998] ........ 2.42, 2.68, 14.7, 14.13, 14.16, 14.17, 14.18, 14.31, App 20 s. 53 ......................................................14.38, 14.71 s. 53(1) ......................................................... 14.35 s. 53(1)(b) ..................................................... 14.35 s. 54 .............................................................. 14.42 ss. 56 to 63 ................................................... 2.42 s. 56(4) .................................................14.18, 14.19 s. 57(1) ......................................................... 2.42 s. 57(7) ......................................................... 2.42 s. 59(1) ......................................................... 2.42 s. 61(a) .......................................................... 14.20

U N I T E D S TAT E S Carriage of Goods by Sea Act ......................... 8.119 Civil Procedure Law— Art. 3-2(iii) ................................................... 2.36 Art. 3-3(i) .................................................2.36, 2.37 Art. 3-3(iii) ................................................... 2.36 Art. 3-7 ......................................................... 2.36 Arts. 241, 242 ............................................... 2.41 Executive Order No. 13536, 75 Fed— Reg. 19869 ................................................... 8.22 New York Law 2008 (ch. 388) ......................... 8.81 Terrorism Risk Insurance Act (TRIA) ............. 8.63

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CHAPTER 1

H I S T O RY A N D H A R M O N I S AT I O N John Dunt1

THE HISTORY OF MARINE CARGO INSURANCE Origins in European mercantile and civil law 1.1 A system of maritime loans apparently existed in the ancient civilisations of Babylon,2 Phoenicia, Greece3 and Rome,4 but marine insurance, as such, originated in Genoa where research has recently established that a cargo policy was underwritten on 18 March 1343, some three years earlier than was previously thought to be the case.5 This first policy insured 10 bales of cloth for a voyage from Porto Pisano to an unnamed Sicilian port, but history does not record whether any claim arose for loss of or damage to the cargo.6 In the fourteenth century, this system of marine insurance was practiced in all the Italian city states,7 from where the word “policy” or, in Italian “police”, meaning loan,8 originated, and it was there that marine insurance first gained statutory recognition.9 1.2 This book considers the law of marine insurance in two main sections, the common law jurisdictions and the civil law jurisdictions.10 The law of marine insurance originally formed part of the law merchant,11 a body of international European law generated by 1. Consultant, Clyde & Co LLP, Senior Research Fellow, Institute of Maritime Law, University of Southampton. 2. W. A. Joubert (ed.), The Law of South Africa, 2002, Butterworths, Durban, First Reissue, volume 12: Insurance by M. F. B. Reineke et al. (LAWSA: Insurance) at para. 20 citing Trenerry Origin and Early History of Insurance 52 et seq. 3. Ibid., citing Demosthenes Orations, volume 4. 4. H. Bennett, The Law of Marine Insurance, 2nd edn, 2006, Oxford University Press (Bennett) at para. 1.01 and the texts there cited. The Australian courts have recently been called on to consider the history of marine insurance, see the judgment of McHugh J in the High Court of Australia in Gibbs v. Mercantile Mutual Insurance (Australia) Ltd [2003] HCA 39, at paras 47–53, [2003] 214 CLR 604, and see the judgment of Kennedy J, in the same case, in the Supreme Court of Western Australia [2001] WASCA 271. In South Africa, see Mutual & Federal Insurance Co Ltd v. Municipality of Oudtshoorn, [1985] 1 SA 419 (A) 427F–428G for historical background. 5. See Chapter 9 (Italian law) para. 9.2 below for details of this policy and of the recent research which dates it 1343, three years before the earliest existing policy referred to by Vance, “The Early History of Insurance Law”, in Select Essays of Anglo-American Legal History, 1909, volume 2, 98, at p. 105. See also, LAWSA: Insurance para. 22, which dates the first policies later in Pisa with documents dated 24 April 1384 and 11 July 1385, respectively. 6. See para. 9.2 below, for a detailed description of this cargo insurance policy which was “dressed” as a loan, which was the form in which marine insurance originated. The risk was transferred from the cargo owners to those prepared to lend, for a premium rate of interest, on the successful outcome of the voyage, see Chapter 9 (Italian law) at paras 9.1–9.4, below. 7. Ibid., Bennett at para. 1.01. 8. A modified system of loans on ship, known as bottomry, and on cargo, known as respondentia, continued in cases of unforeseen necessity, or in case of distress, to enable money to be raised on ship or cargo for the completion of the voyage, The Atlas (1827) 2 Hag Ad 48. 9. Chapter 9, paras 9.1–9.4. 10. The law of South Africa, Chapter 14, is a hybrid system that spans both originating systems. 11. LAWSA: Insurance at para. 532.

1

1.2

HISTORY AND HARMONISATION

the medieval mercantile community, which was practised by civil lawyers.12 This body of law included some notable texts, in particular, “Le Guidon de la Mer”, written in the late sixteenth century, which had a major influence on the codification of marine insurance law in France in the Ordonnance de la Mer of 1861.13 In Middows v. Robertson; and other Cases,14 “Le Guidon de la Mer” was treated by the House of Lords as a valuable potential source of English law, in recognition of the common source of the law merchant in medieval European tradition.15 In England, an Act of Parliament of 160116 established a special mercantile court to be known as the “Court of Policies of Insurance” to consist of the admiralty judge, the recorder of London, two doctors of civil law, two common lawyers, and eight merchants, five of whom were entitled to sit and decide the cases arising in London.17 The involvement of civil lawyers is of note because the development of commercial insurance law in England was retarded by reason of the division of the legal profession between the members of the Inns of Court, who practised in the courts of common law, and the civil lawyers, who were members of Doctors Commons and practised the law merchant.18 The common law rules as to venue prevented the common law courts having jurisdiction over actions arising outside the realm.19 Maritime law being of an international nature was practised in the Admiralty Court where the procedures were based on the civil law and were more intelligible to foreigners than the common law rules.20 In the High Court of Australia in Gibbs v. Mercantile Mutual Insurance (Australia) Ltd,21 McHugh J, quoting Holdsworth,22 summarised the position, saying23: “The Admiralty Court retained this jurisdiction for several centuries. But it is almost certain that the law applied was foreign law. As late as the 16th Century, a petition to the Council asserted that insurance ‘is not grounded upon the laws of the realm, but is rather a civil and maritime cause, to be determined and decided by civilians, or else in the higher Court of the Admiralty’”.

In The Gas Float Whitton No. 2,24 it was said, following the same theme, that the jurisdiction of the Admiralty Court must be ascertained from the judgments of the Courts of Westminster using the law of the Rhodians, of Wisbey, the Hanse Towns, of Oleron (incorporated in the fifteenth-century Black Book of Admiralty), the Digest and French and 12. Bennett at para. 1.34 citing Holdsworth and Scrutton, and see the U.S. Supreme Court decision in New England Marine Ins Co v. Dunham, 78 U.S. (11 Wall) 1, 31–32, 1997 AMC 2394, 2405 (1871), which recognised that “the first appearance of any code or system of laws was in the law maritime as promulgated by the marine states and cities of Europe”. 13. See Chapter 11 (French law) at para. 11.1 below. 14. (1941) 70 Ll. L. Rep. 173 (HL) at p. 183, per Lord Maughan, who also discussed a number of other European texts referred to by Holdsworth’s A History of English Law, volume VIII, p. 274 et seq., including Bursa’s Histoire du Contract d’Assurance au Moyen Age, translated from the Italian by Valéry, para 1897. 15. See The Gas Float Whitton No. 2 [1896] P 42. 16. 43, Elizabeth c. 12. 17. O’May on Marine Insurance, 1993, Sweet & Maxwell, at p. 2 citing William Gow, Marine Insurance, 4th edn, 1910 at p. 1. 18. Bennett at para. 1.38. 19. Gibbs v. Mercantile Mutual Insurance (Australia) Ltd [2003] HCA 39, [2003] 199 ALR 497, [2003] 77 ALJR 1396, per McHugh J at para. 49 citing his own judgment in Commonwealth v. Yarmirr (2001) 208 CLR 1 at 92–93 [182]–[186]. 20. At para. 49. 21. Supra, fn. 19. 22. Holdsworth, A History of English Law, 2nd edn, 1937, volume 8 at p. 283. 23. Ibid., at para. 49. 24. [1896] P 42 at p. 48, 8 Asp MLC 110 at p. 111, CA, per Lord Esher, MR, quoting Abbott’s Law of Merchant Ships and Seamen, 5th edn, Preface to the first edition, p. xi.

2

THE HISTORY OF MARINE CARGO INSURANCE

1.4

other ordinances, which, though not part of the law of England, contained many valuable principles and statements of marine practice. 1.3 The unfortunate divide between civil law and common law was resolved in England by Lord Mansfield, who became Chief Justice in 1756, and heard commercial cases, including marine insurance cases, for the next 32 years.25 He was assisted by special jurors drawn from the ranks of leading merchants. In Lewis v. Rucker,26 for example, Lord Mansfield was advised on the practice as to average under a marine cargo policy by “a special jury, among whom were many knowing and considerable merchants”,27 who, according to his lordship, “understood the question very well and knew more of the subject of it than anybody else present”.28 Citations of “foreign writers” were used in argument before Lord Mansfield,29 who took the view that “the mercantile law, in this respect, is the same all over the world”,30 adding, “For the same premises, the sound conclusion of reason and justice must necessarily be the same”.31 This approach encouraged the harmonisation of English marine insurance law with European civil and mercantile law. Accordingly, the Marine Insurance Act 1906, as a codifying statute, was developed from both English and continental civilian judgments and writings, yet its influence has been divisive32 as the very structure of this book, which is divided into civil law and common law systems, recognises.33 In particular, the Comité Maritime International (“CMI”) recognised that the influence of the Marine Insurance Act 1906 was divisive in relation to the duty of good faith; the duty of disclosure; alteration of risk and in respect of warranties.34 1.4 Professor Malcolm Clarke has suggested35 a breakdown of the common law countries as including England, Australia, Hong Kong, New Zealand and Japan, an arrangement which accords with that adopted in this book. Similarly, the United States is treated in a separate category as being a common law jurisdiction but without a statutory code. The civil law countries are then considered, followed by South Africa, which is a hybrid jurisdiction based on Roman-Dutch law but strongly influenced by the common law, particularly in marine insurance matters.36

25. Bennett at para. 1.41. 26. (1761) 2 Burr 1169. 27. At p. 1169. 28. At p. 1168. 29. See, e.g. Pelly v. Royal Exchange Assurance Co 97 ER 342, (1757) 1 Burr 341 KB at p. 344. 30. At p. 346. 31. This judgment precedes the comments of Emerigon who, in 1783, said “Marine insurance is a law not peculiar to one, but common to all commercial nations. Whence it is derived but from natural reason, existing in all men, and reaching the same results in all countries alike”. 32. See J. Hare, “Report of the CMI Standing Committee on Marine Insurance”, CMI Yearbook 2005–2006 at p. 387. 33. The call for a CMI study of marine insurance initiated by Lord Mustill at the CMI Antwerp Conference in 1998 led on to the Marine Insurance Symposium held in Oslo in June of that year in which Professor Malcolm Clarke suggested this breakdown between the common law and the civil law approach. 34. Op. cit. J. Hare at p. 388. The rules as to what amounts to a failure to disclose, including the prudent underwriter test, have a common thread, but only the common law systems appear to apply the draconian remedy of avoidance, see as to Italian law paras 9.24–9.29 below, German law paras 10.42–10.51, French law paras 11.8–11.12 and Norwegian law paras 12.20–12.25. 35. At a Marine Insurance Symposium held in Oslo in June 1998 following the call by Lord Mustill at the CMI Antwerp Conference that year for a CMI study of marine insurance. 36. See Chapter 14 (South African law) at para. 14.2, below.

3

1.5

HISTORY AND HARMONISATION

The common European form of policy: the SG Form 1.5 Marine insurance, after being established in the Italian city states,37 moved north, particularly to Bruges and Antwerp. After the sacking of Antwerp in 1576, the business moved to London. The policy forms used for the insurance of ship and goods throughout Europe remained in similar form and the positive law used to judge the validity of claims under that form had its origins in the same medieval commercial tradition.38 1.6 The policies evidencing medieval marine insurance were in similar form to that appended to the Marine Insurance Act 1906 known as the “SG Form” which covered ship and goods.39 The terms of the SG Form, formally adopted by Lloyd’s in London in 1779,40 and later appended to the Marine Insurance Act 1906, dated back to the middle ages,41 or at least the sixteenth century.42 In the eighteenth century, it was the case in England that the policy terms were prescribed by statute and could not seemingly be departed from.43 Today, the opposite is the case as competition law demands that there be freedom of contract.44 The development of insurance markets 1.7 The development of Lloyd’s of London (“Lloyd’s”) can be traced back to the coffee house of Edward Lloyd founded in about 1689,45 but it was not until the early 1770s that Lloyd’s became an organisation of underwriters under John Julius Angerstein (the “Father of Lloyd’s”).46 Lloyd’s had long been in competition with marine insurance companies. In the early days, from 1720 onwards, the only two insurance companies authorised to conduct marine insurance business were the Royal Exchange Assurance and the London Assurance. In 1824, marine business was open to other companies,47 though it was not until 1884 that the Institute of London Underwriters (“ILU”) was incorporated. 1.8 Whilst Lloyd’s and the ILU were developing in London, insurance businesses were also developing worldwide in the common law countries. For example, in Canton in 1835, a group of British traders engaged in exporting cargoes from China formed a mutual association to pool the hazards of marine cargo adventures.48 In Japan, which for our purposes will be considered a common law country,49 in August 1879, the Tokio Marine 37. See paras 9.1–9.4 below. 38. See para. 1.2 above. 39. Wright & Fayle, A History of Lloyd’s, 1928, Macmillan, at p. 134. 40. J. K. Goodacre, Goodbye to the Memorandum, 1988, Witherby & Co Ltd, at p. 1. 41. Forestal Land, Timber & Railways Co Ltd v. Rickards; Middows Ltd v. Robertson & Other Cases (1941) 70 Ll. L. Rep. 173 (HL) at p. 187 per Lord Wright. 42. Middows Ltd v. Robertson (1940) 69 Ll. L. Rep. 45 (CA) at p. 63 per MacKinnon LJ. 43. In 1795, Parliament standardised the SG Form in an Act granting stamp duties on “sea insurance”, 35 Geo III, c. 63. 44. Competition Act 1998 s. 2(1) and see, e.g., the notice printed at the head of the Institute Clauses emphasising that they can be varied and negotiated as the assured requires. 45. Wright & Fayle, A History of Lloyd’s, 1928, MacMillan, see also Gibbs v. Mercantile Mutual (Australia) Ltd [2003] HCA 39 at paras 54–63, [2003] 199 ALR 497, [2003] 77 ALJR 1396, per McHugh J. 46. Wright & Fayle at pp. 12–13. 47. By the Marine Insurance Act 1824. 48. That association, the Union Insurance Society of Canton Ltd, later moved to Hong Kong, see Dunt, Marine Cargo Insurance, at para. 1.5 fn. 22. For a summary of the development of mutual insurance see LAWSA: Insurance paras 18–19, which traces the history through the medieval guilds to the “Hamburg Fire Contracts” where 100 householders in that city clubbed together for fire protection. 49. As Japanese international cargo insurance is carried out in accordance with English forms and English law and practice, see Chapter 6 (Japanese law) at para. 6.3 below.

4

THE HISTORY OF MARINE CARGO INSURANCE

1.10

50

& Fire Insurance Co Ltd was founded. By the 1890s, this company was using an English form of policy, similar to the traditional English SG Form. The oldest example of such a policy still in existence was issued in 1892 by Tokio Marine for the insurance of bullion for carriage from San Francisco to Yokohama and/or Kobe, with the cargo held covered in the event of its being carried to Hong Kong.51 1.9 In the civil law systems, Antwerp appears to have been dominant initially as it was there that marine insurance first came from Genoa and Florence and the other Italian city states. In Bremen, Dutch policies were in use for marine insurance risks.52 Paris developed its own bourse, as did other great trading cities of France, such as Bordeaux. In Italy, Genoa predominated as it does today, whilst in Germany a common system of underwriting marine insurance was delayed until the unification of the German state.53 In 1978, when the United Nations Conference on Trade and Development (“UNCTAD”) issued its report on the legal and documentary aspects of the insurance contract,54 it identified the British market as traditionally considered the main insurance market in the world,55 saying that there were also a few other large markets, such as the United States, and some smaller ones, such as that in the Netherlands, which had become strongly international in orientation. France, Japan and Norway were included in the markets that were developing the capacity to handle international direct business.56 The liberalisation of insurance activities across Europe57 as a result of the EU Insurance Directives58 has given insurance companies established and authorised in one EU Member State the widest possible freedom to provide services across the Union. Substantive law and contract terms 1.10 The practice of marine insurance depends on a combination of positive law and contractual terms, so the extent of insurance coverage in any particular case will depend on a consideration of the wording of the insurance policy construed and applied in the light of the legal rules applicable to that policy.59 Accordingly, legal writings on marine insurance, such as “Le Guidon de la Mer”,60 have from early times contained both forms of marine policies then in use as well as an account of the law applying to those policies. This tradition continues in Arnould61 itself, to the extent that English marine insurance law remains 50. Now the Tokio Marine & Nichido Fire Insurance Co Ltd. 51. See Chapter 6 (Japanese law) at para. 6.1, below, for further details of this first policy. 52. See Chapter 10 (German law) at para. 10.2 below. 53. See Chapter 10 (German law) at para. 10.3 below. 54. Report TD/B/C. 4/ISL/27 dated 20 November 1978, revised 1992 as 4/ISL/27 Rev. 1 (the UNCTAD Report). 55. Ibid., para. 36. 56. Ibid., para. 40 57. See, Handbook of International Insurance: Between Global Dynamics and Local Contingencies, D. Cummins and B. Vernard (eds), 2007, Springer, for an analysis of the internationalisation of the insurance industry in recent decades, including, in particular, chapters examining developments in Italy, France and Germany. 58. There are three Non-Life Directives: 72/239/EEC (freedom of establishment), 88/357/EEC (freedom to provide services) and 92/49/EEC (establishing exclusive control of the insurer from the EU Member State where that insurer is domiciled). 59. This has been called “A Unique Conflation of Contract and ‘Law’”, see “CMI Looks at ‘Marine Insurance Law’” by Graydon S. Starling, 2001, available on the CMI website at www.comitemaritime.org. 60. See, Forestal Land, Timber & Railways Co Ltd v. Rickards; Middows Ltd v. Robertson & Other Cases (1941) 70 Ll. L. Rep. 173 (HL) at p. 183 per Viscount Maugham. 61. Arnould’s Law of Marine Insurance and Average, the first edition of which was published 1848, by Sir Joseph Arnould, now in its 17th edition, the foremost work in England on marine insurance.

5

1.10

HISTORY AND HARMONISATION

at heart, “a collection of rules for the construction of the ancient form of policy, and such additions as are from time to time annexed to it”.62 Although the ancient form of SG policy in no longer in use in England,63 the “additions” today include the Institute Cargo Clauses, which can only be construed in the light of the law developed in relation to the earlier form of policy from which they directly derive. 1.11 The Marine Insurance Act 1906 itself has few provisions that are compulsorily applicable, many of the sections being qualified by the words “unless the policy otherwise provides”. Even the strict rules as to warranties64 are subject to agreement, and the parties have always been free to agree, for example, that any breach of warranty must be causative. The implied warranties65 may be waived and, indeed, it has long been the practice in marine cargo insurance for underwriters to modify or waive the implied warranties of seaworthiness and cargo-worthiness in sections 39(1) and 40(2) of the Marine Insurance Act 1906.66 The approach of this book is to explore the extent of insurance cover provided to the assured by reference to the standard terms commonly in use in each jurisdiction, which are then examined in the light of local legal rules.

THE HARMONISATION OF MARINE CARGO INSURANCE Attempts to harmonise marine insurance law 1.12 Internationally, there have been a number of attempts to harmonise basic issues of marine insurance law, starting with the Buffalo Conference of the International Law Association of 1899, which in turn led to the adoption of the Glasgow Marine Insurance Rules in 1901.67 In exchanges before the adoption of the rules, the chairman emphasised the “desire to achieve some uniformity” so that if there was objection to one particular rule, because it did not work in, say, Belgium or France, those countries could adopt the Rules except that particular rule.68 The Glasgow Rules were drafted principally by Mr Carver KC.69 The issues with which the rules were concerned included total loss, actual and constructive, notice of abandonment and the effect of abandonment, as well as the effect of unseaworthiness and inherent vice.70 The Rules for actual total loss reflect those that were to become part of the Marine Insurance Act 1906.71 However, in respect of constructive 62. Middows v. Robertson; and other Cases (1940) 69 Ll. L. Rep. 45, per MacKinnon LJ at p. 63 talking of the “two massive volumes of Arnould which purport to deal with The Law of Marine Insurance”. 63. It was replaced by the MAR Form in England 1982, and while United States cargo policies still used the SG policy form until at least 1993 (see O’May at p. 15), the practice now is to underwrite cargo insurance on various terms including all risks, see Chapter 8 (United States law) at para. 8.25, below, and see Appendix 7, the AIMU Cargo Clauses 2004 (All Risks). 64. MIA 1906 ss. 33–36. 65. MIA 1906 ss. 37–41. 66. ICC 1/1/1982 cl. 5.2, which waives the warranties subject to the assured not being privy to the unseaworthiness, and ICC1/1/ 2009 cl. 5.3, which unreservedly waives the implied warranty. 67. As recorded by John Hare in “The CMI Review of Marine Insurance Report” of the 38th Conference of the CMI Vancouver, 2004, CMI Yearbook 2004 at p. 248 (“CMI Review 2004”). 68. “Report of the First Conference: Held at Glasgow August 20th to 23rd 1901”, International Law Association, 2008, p. 211. 69. Who, in introducing the rules for adoption, said that, “The work that I have done has been entirely a work of love”, ibid., at p. 212. 70. Glasgow Rules, Rule 18. 71. See, e.g., MIA 1906 s. 57(1) which reflects Rule 2 of the Glasgow Rules.

6

THE HARMONISATION OF MARINE CARGO INSURANCE

1.13

total loss, it was agreed that there was a constructive total loss if the cost of repair would exceed three fourths of the insurable value of the cargo, a rule that was not adopted in the 1906 Act but reflects the position today in France.72 The rule regarding inherent vice, the definition of which still causes difficulties today,73 provided that, “An insurer is not liable for any loss or damage caused proximately by any inherent vice, weakness or nature, or unsoundness in condition of the subject insured”.74 Although some of these rules were absorbed into the Marine Insurance Act 1906, others were not and the effect of the 1906 Act was to create diversity as between those jurisdictions that adopted the Act and those civil law jurisdictions that did not.75 To this extent, the 1906 Act, despite the accuracy and comprehensiveness in its re-statement of the common law; the exceptional quality and clarity of its language; and the demanding logic of its structure, resulted in the ossification of English marine insurance law. There grew out of this an unbalanced approach in favour of insurers in respect of many issues, particularly, non-disclosure, misrepresentation76 and warranties.77 The very existence of the 1906 Act and the rejection by civil lawyers of its unbalanced approach in favour of insurers brought attempts at harmonisation to an end for the next half-century. 1.13 In the twentieth century, there are three strands to the efforts to harmonise marine insurance law. First, in May 1964, the United Nations Conference on Trade and Development (UNCTAD) adopted a draft recommendation on insurance, which included a proposal that the competent international organisations should examine the question of the adoption of “uniform clauses for marine, land and air transport insurance”.78 In October 1966, that recommendation was, in turn, adopted and subsequently a Working Group on International Shipping Legislation (“ISLWG”) was established. This began work with a consideration of the clauses used in policy forms in different countries and, nearly 10 years later, the report by the UNCTAD Secretariat entitled “Marine Insurance, Legal and Documentary Aspects of the Marine Insurance Contract” was issued.79 The UK made known its views that it was opposed to any international convention on marine insurance and stressed the ability of the London market to adapt to any necessary changes. The report was highly critical of the SG Form80 and also made a number of recommendations for improvements to 72. Glasgow Rules, Rule 6(2), compare Chapter 11 (French law) at para. 11.72, where the rule is that the damage must exceed at least three quarters of the value. 73. Global Process Systems Inc v. Berhad (The Cendor Mopu) [2011] UKSC 5, [2011] 1 Lloyd’s Rep. 560, [2011] 1 All ER 869. 74. Glasgow Rules, Rule 18. 75. See para. 1.3 above. 76. Lord Mustill rediscovered the need for the actual underwriter to be induced in Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd [1994] 2 Lloyd’s Rep. 427 (HL) at p. 444 by going back to the earlier authorities (see Chapter 3 (English law) at para. 3.7, below). However, this use of the common law to fill the gaps, and current attempts to ameliorate the harsh rules as to warranties, by construing them with a more purposeful approach (see para. 3.27) are two-edged developments and, it is submitted, too little too late. Moreover, this solution gives rise to its own risks: that the Act will be abused and that the words of policies will be misconstrued to avoid the harsh or draconian remedies the Act provides, thus adding to uncertainty. 77. For a recent speech, again making the powerful case for reform, which has not been taken up by the Law Commissions to any serious extent, see R. Merkin “Australia: Still a Nation of Chalmers?”, Richard Cooper Memorial Lecture delivered at the Federal Court of Brisbane on 13 October 2011. 78. See, O’May, Marine Insurance, 1993, Sweet & Maxwell (O’May) at pp. 10–15. The authors of O’May were involved directly in the UNCTAD process and meetings, and the summary in the text above owes much to their record of UNCTAD’s proceedings. 79. Report TD/B/C. 4/ISL/27 dated 20 November 1978, revised 1992 as 4/ISL/27 Rev. 1 (the UNCTAD Report). 80. UNCTAD Report at para. 191(4).

7

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HISTORY AND HARMONISATION 81

both hull and cargo insurance. With regard to cargo insurance, in particular, there was a recommendation that the market develop standard clauses granting coverage for physical damage resulting from delay caused by an insured peril,82 but this suggestion was not acted upon, in the English market at least.83 There was some movement initially towards revising the Marine Insurance Act 1906 and the possibility of introducing international uniformity in marine insurance contracts in a similar way that the York/Antwerp Rules govern general average and the Hague-Visby Rules and allied conventions apply to carriers’ liabilities.84 However, parallel with the developments at UNCTAD, in London the Technical & Clauses Committee was already heavily involved in reviewing and re-drafting new clauses, in particular the Institute Cargo Clauses. By 1982, a new set of Cargo Clauses had been issued, which did away with the SG Form and rationalised the arrangements for marine cargo insurance in the Institute Cargo Clauses (A), (B) and (C) 1/1/82. The London market, having put its house in order, remained “implacably opposed”85 to any attempts to legislate internationally, or by convention, in order to harmonise marine insurance clauses, seeing legislative uniformity in insurance terms as, no doubt, a threat to its perception of its position as the leading market for marine insurance. 1.14 The second area in which harmonisation has in fact been carried through, albeit to a limited extent, is within the Member States of the European Union. Indeed, the European Union intends to harmonise insurance in which respect the Non-Life Directives86 have played an initial role, though these have been concerned principally with regulating insurance companies.87 However, it should not be overlooked that there has been harmonisation of European law in respect of jurisdiction and choice of law as examined in Chapter 2 of this book.88 The introduction of the same clear and certain89 rules right across the EU Member States giving freedom of choice in respect of “large” marine cargo risks,90 as to both jurisdiction and choice of law, can only be welcomed, even if the strict application of some rules leads to problems that have yet to be resolved.91 Equally, rules designed to prevent conflicting judgments in EU Member States on the same issue arising between the same parties,92 or where there are related issues,93 must surely be in the interests of justice even if the operation of these rules in particular cases may have wide-ranging consequences that have yet to be resolved.94 81. Ibid., para. 191. 82. Ibid., para. 191(19), and for the trenchant criticisms of the standard delay exclusion, in so far as it excludes physical loss or damage caused by delay, see para. 188, where this is described as, “the most blatant illustration of the inadequacy of the standardised coverage for such losses offered by the Institute Clauses”. 83. Attempts to amend the standard exclusion were made in 2008 but the exclusion in cl. 4.5 of the Institute Cargo Clauses remains materially the same in the ICC 1/1/2009. 84. K. Goodacre, “The UNCTAD Report on an international legal base for marine insurance contracts, as related to hull claims”, [1979] LMCLQ 315. 85. O’May at p. 14. 86. 72/239/EEC (freedom of establishment), 88/357/EEC (freedom to provide services) and 92/49/EEC. 87. See para. 1.9 above. 88. European law on jurisdiction is considered at paras 2.4–2.12 and choice of law at paras 2.47–2.50. 89. It has been said that Rome I puts certainty before flexibility, see Chapter 2, para. 2.50. 90. Most international marine cargo transit risks will qualify as “large risks”, see paras 2.8 and 2.48 below. 91. See, for a recent example of unintended consequences arising from the Judgments Regulation, Sherdley v. Nordea Life and Pension SA [2012] EWCA Civ 88. 92. Judgments Regulation, Art. 27, and see Chapter 2 (Jurisdiction and Applicable Law) at paras 2.11 and 2.12 below. 93. Judgments Regulation, Art. 28, and see Chapter 2 (Jurisdiction and Applicable Law) at para. 2.11 below. 94. For example, as in the consequences of the decision in Owusu v. Jackson (Case C-281/02) [2002] IL Pr 45, [2005] QB 801 and, so far as arbitration is concerned, Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v. West Tankers Inc (The Front Comor) (Case C-185/07) [2009] 1 AC 1138 (EJC) and West Tankers Inc. v. Allianz SpA & Another [2012] EWHC 854 (Comm).

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THE HARMONISATION OF MARINE CARGO INSURANCE

1.15

1.15 The work of the Comité Maritime International (“CMI”) represents the third strand of the harmonisation process. It started at the CMI Conference in Antwerp in 1998 when Lord Mustill offered the suggestion that the CMI initiate a comprehensive study of the laws of marine insurance. A colloquium on marine insurance was rapidly convened in Oslo that same year, where the CMI formed an International Working Group on Issues of Marine Insurance (the “IWG”). At the end of the colloquium, Patrick Griggs of the CMI concluded that a convention on marine insurance law would be inappropriate and would receive minimal support, a Model Law might share the same fate as the UNCTAD Model Clauses and that voluntary codes and rules might fail for the same reason. It was proposed instead that the CMI concentrate their efforts initially on researching those aspects of marine insurance that are important in most jurisdictions and the IWG then identified the issues that appeared to warrant a comparative study.95 Work began with a questionnaire, which was prepared and sent out to the various national associations on these issues. In November 1999, as a result of the CMI’s initiative, delegates from 34 countries attended a conference entitled “Marine Insurance at the Turn of the Millennium”, which was convened by Professor Marc Huybrechts and the European Institute of Maritime and Transport Law at the University of Antwerp.96 Subsequently, the responses to the questionnaire sent out in 1999 were evaluated by Professor Trine-Lise Wilhelmsen,97 who delivered papers in London, Toledo and Singapore in 2000 and 2001 summarising those responses.98 At this stage, marine insurance rules, operating contractually in a similar way to the York-Antwerp Rules, were considered to be a possible option.99 Following the CMI Conference in Singapore in 2001, it was agreed to continue the review of marine insurance law with a view, in due course, to a tangible result, such as CMI approved guidelines to assist governments to re-write their marine insurance laws, or a set of Rules on Marine Insurance, but a formal convention was still not considered feasible or desirable.100 A resolution was passed that included a consideration of the difference between the civil and common law legal systems as part of the further ongoing investigations by the IWG. In the following years, a number of important studies of the major topics were carried out by IWG members.101 At the Vancouver Conference of the CMI in 2004, Professor John Hare brought the work of the IWG to its culmination with the publication of CMI guidelines for the formulation of marine insurance law providing a draft for discussion in relation to good faith, disclosure, alteration of risk and essential terms.102 It is submitted that the harmonisation work of the CMI, though not taking any concrete form, such as a 95. Background to the CMI’s work is summarised by Professor John Hare following the subsequent Singapore CMI Conference in 2001. The reports and papers referred to in this section are available from the CMI website at www.comitemaritime.org. 96. The conference papers, which contain a great deal of research material on marine insurance, were published by Intersentia, www.intersentia.be. 97. Co-author of Chapter 12 (Norwegian law). 98. The written papers appear in the CMI Yearbook for 2000, available on the CMI website at www. comitemaritime.org. 99. See Discussion Paper for the CMI Singapore Conference of 2001, this recalls the views expressed at the Glasgow Conference of 1901, see para. 1.12 above. 100. Summary of the CMI Singapore Conference 2001, by Professor John Hare. 101. “An Interim Discussion Paper on Alteration of Risk”, Professor Malcolm Clarke; “Harmonisation of Warranties and Conditions: Study and Proposals”, Graydon S. Staring; “Utmost Good Faith” by Andrew Tulloch; and “Misconduct of the Assured and Identification”, by Professor Trine-Lise Wilhelmsen, available on the CMI website at www.comitemaritime.org. 102. CMI Yearbook for 2004, appended to the CMI review of marine insurance and the report to the conference of the work of the IWG.

9

1.15

HISTORY AND HARMONISATION

convention or model clauses, undoubtedly had an important influence on the development of marine insurance law, both in terms of clauses adopted for use, such as the International Hull Clauses, and in indirectly influencing the views of commercial judges in such matters as, for example, their approach to warranties under English law. Additionally, the tradition of the study of marine insurance topics continues, for example, in the work of Professor Rhidian Thomas whose initial volume, “The Law in Transition”,103 was a development of the CMI’s work which still continues with three subsequent volumes on “The Modern Law of Marine Insurance”.104 The IWG was disbanded after the Vancouver Conference of 2004 and replaced by a standing committee to monitor marine insurance laws and national reform initiatives.105 Interpretation and construction: civil and common law 1.16 In terms of harmonisation, the civil law recognises case law as persuasive rather than authoritative; nevertheless, in a specialised field such as marine cargo insurance it is submitted that courts in different countries will respect the decisions of judges in other jurisdictions on the same issue and will follow those decisions if possible. Certainly, this is the approach of the English court. In T. M. Noten B.V. v. Paul Charles Harding,106 an issue arose as to inherent vice in relation to the carriage of a cargo of gloves in a container, when the gloves suffered moisture damage. It was held that this was inherent vice107 and, in the English Court of Appeal, Bingham LJ, after referring to English cases of doubtful relevance, continued108: “It is perhaps of more significance that in Bantle & Preiss B.V. v. N.V. Schadeverzekering Maatschappij UAP-Nederland109 the District Court of Rotterdam, on facts analogous to the present, found the cause of the damage to fall within the excepted peril of inherent vice. I am reassured that that very experienced Court reached what seems to me to be the right conclusion, since the result of a commercial dispute of this kind should not depend on the forum of trial”.

One of the purposes of this book is to enable practitioners to bring before the courts of the various jurisdictions, cases that may therefore be persuasive following this principle that the result of a commercial dispute concerning marine cargo insurance should not depend on the forum of trial.110 1.17 A caveat may, however, be entered regarding the United States, insofar as the English courts have said that English insurance law is not the same as United States law.111 Arnould suggests that the reluctance to accept that English law is the same as United States 103. D. R. Thomas (ed.), Marine Insurance; Law in Transition, 2006, Informa. 104. D. R. Thomas (ed.), The Modern Law of Marine Insurance, 1996, volume 1, LLP Ltd; D. R. Thomas (ed.), The Modern Law of Marine Insurance, 2002, volume 2, Informa; D. R. Thomas (ed.), The Modern Law of Marine Insurance, 2009, volume 3, Informa. 105. “Report of the CMI Standing Committee”, by John Hare, CMI Yearbook 2005–2006 at p. 386. 106. [1989] 2 Lloyd’s Rep. 527 (Comm), [1990] 2 Lloyd’s Rep. 283 (CA). 107. For a discussion of this case, see Chapter 3 (English law) at para. 3.44 below. 108. At p. 288. 109. Decision of the District Court of Rotterdam (9 February 1990), confirmed on appeal, Hof’s Gravenhage 19 September 1992, S&S 1993, 17. 110. As to the principle that, as Lord Mansfield put it, “the mercantile law … is the same all over the world” see further para. 1.3 above. 111. See Yorkshire Water Services Ltd v. Sun Alliance & London Insurance Plc [1997] 2 Lloyd’s Rep. 21 and the cases cited in J. Gilman, Arnould’s Law of Marine Insurance and Average, 17th edn, 2008, Sweet & Maxwell (Arnould) at para. 3-02, p. 45.

10

THE HARMONISATION OF MARINE CARGO INSURANCE

1.18

insurance law is because of the “pro-consumer approach of the Courts of that jurisdiction”.112 However, many courts might be said to be more pro-consumer, or at least pro-assured, than the English courts, so United States decisions may well be of guidance to the courts in many of the jurisdictions dealt with in this book. In any event, the Federal New York Court for the Southern District Court of New York is widely recognised for its expertise in commercial and insurance matters and the English courts have acknowledged that it would be presumed that the English and New York courts would come to the same conclusion on the meaning of a commercial policy document, such as a marine cargo insurance contract.113 In matters of construction, both systems of law are seeking to identify what the parties agreed and both systems use similar pointers to ascertaining that intention.114 The English court would expect that legal authorities that were persuasive in one court would also be persuasive in the other.115 Similarly, the United States courts have repeatedly acknowledged the importance of English authorities and, in particular, that “there are special reasons for keeping in harmony with the marine insurance laws of England”.116 1.18 Insofar as the civil law jurisdictions base the law of marine cargo insurance on a code, rather than upon authorities, albeit that authorities interpreting the code may be persuasive, it may be noted that the approach to construction of statutes or codes is potentially different in the civil law jurisdictions. Although there has been some harmonisation, to the extent that the English courts are obliged to construe international treaties and EU law in accordance with European methods of construction,117 the European approach may be noted. Lord Denning said of this European method of interpretation that it was to be applied as follows118: “We must … put on one side our traditional rules of interpretation … we ought, interpreting this convention, to adopt the European method … they adopt a method which they call … the ‘schematic and teleological’ method of interpretation. It is not really so alarming as it sounds. All it means is that the Judges do not go by the literal meaning of the words or by the grammatical structure of the sentence. They go by the design and purpose which lies behind it. When they come across a situation which is to their minds within the spirit - but not the letter - of the legislation, they solve the problem by looking at the design and purpose of the legislature - at the effect which it was sought to achieve. They then interpret the legislation so as to produce the desired effect”.

The emphasis is on a purposeful approach to interpretation. This has been summarised as follows119: “You have to start with the wording (ordinary or special meaning). The Court can take into account the subjective intention of the legislature and the function of a rule at the time it was adopted. The provision has to be interpreted in its context and having regard to its schematic relationship with other provisions in such a way that it has a reasonable and effective meaning. The rule must be 112. At para. 3-02 p. 45. 113. King v. Brandywine Reinsurance Co (UK) Ltd [2005] Lloyd’s Rep. IR 509. 114. Ibid., at para. 116, per Waller LJ. 115. Ibid., para. 34. 116. Queens Ins Co v. Globe & Rutgers Fire Ins Co, 263 U.S. 487, 1924 AMC 107 (1924) for a learned summary of the history of the recognition by the United States Courts of the importance of English authorities, see D. R. O’May, Marine Insurance, 1993, Sweet & Maxwell, at pp. 15–18. 117. Malcolm A. Clarke, The Law of Insurance Contracts, 4th edn, Service Issue 24, 2012, Informa, at para. 2-10A1. 118. James Buchanan & Co Ltd v. Babco Forwarding & Shipping (UK) Ltd [1977] QB 208 (CA) at p. 213, [1977] 2 WLR 107, [1977] I All ER 518. 119. Cross: Statutory Interpretation, 3rd edn, 1995, at pp. 105–112, cited with approval by Lord Steyn in Shanning International Ltd v. Lloyds TSB Bank plc [2001] UKHL 31, at para. 24, [2001] 1 WLR 14.

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understood in connection with the economic and social situation in which it is to take effect. Its purpose, either considered separately or within the system of rules of which it is a part, may be taken into consideration”.

The English courts are now familiar with this system of interpretation. The area of law in which it particularly applies in relation to marine cargo insurance is jurisdiction and choice of law where, in certain respects, English and European law combine. The English courts must construe the Judgments Regulation120 and Rome I,121 in accordance with the European methods of construction. These Regulations are considered in the next chapter.

120. Council Regulation (EC) No. 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (“Brussels I”), OJ L 12, 16.1.2001 (as amended by Council Regulation (EC) No. 1791/2006 of 20 November 2006 and Council Regulation (EC) No. 1103/2008 of 22 October 2008). 121. Regulation (EC) No. 593/2008 of the European Parliament and the Council on the Law Applicable to Contractual Obligations (Rome I), OJ L 177 of 4.7.2008.

12

CHAPTER 2

J U R I S D I C T I O N A N D A P P L I C A B L E L AW John Dunt1

INTRODUCTION Scope and structure of the chapter 2.1 It is necessary to distinguish between jurisdiction, that is to say, the place where any court or arbitration hearing will be held, and the applicable law, being the law governing the contract of insurance whatever the venue of the hearing. A contract of marine cargo insurance may or may not have a jurisdiction clause, identifying the courts of the country in which any dispute is to be resolved, though it is now a mandatory requirement of the London Market Reform Contract (“MRC”) that the jurisdiction for disputes be agreed and identified.2 By current practice, the contract is likely to include a choice of law, such as, for example, the choice of English law and practice in the Institute Cargo Clauses.3 This chapter considers how both jurisdiction and choice of law clauses have been construed, concentrating on the standard forms of clauses used in practice in international marine cargo insurance.4 Questions of validity also arise because European Union5 law and, for example, Australian law, contain provisions designed to protect the assured who may be entitled to sue his insurer (or to be sued) in his own country of domicile, effectively his home ground. Similarly, insurers may not be entitled to impose the choice of a foreign law on an assured. Although there are generally exceptions to these restrictions in the case of insurances of cargo in seagoing ships, the extent of the freedom to choose will be examined as party autonomy may be restricted particularly in relation to cargo storage risks and inland transits. 1. Consultant, Clyde & Co LLP, Senior Research Fellow, Institute of Maritime Law, University of Southampton, author of the European and English law sections of this chapter. The authors of the sections on laws other than European and English are identified at the beginning of each section. 2. See Dunt, Marine Cargo Insurance, 2009, Informa, Appendix 5, for an example MRC, and see the London Market Reform Group website for the latest MRC at www.londonmarketgroup.co.uk. Occasionally, there may be an arbitration clause, though this is not the common practice in relation to marine cargo insurance. 3. ICC, cl. 19 provides, “This insurance is subject to English law and practice”. 4. For a discussion of the wider issues in relation to marine insurance, rather than cargo insurance, see J. Gilman and R. Merkin, Arnould’s Law of Marine Insurance and Average, first supplement to the 17th edn, 2011, Sweet & Maxwell (Arnould’s First Supplement), where Chapter 5 of the main work, the 17th edn of Arnould’s Law of Marine Insurance and Average, is entirely recast and effectively rewritten as a self-standing chapter. For the issues of jurisdiction and applicable law more generally regarding insurance (i.e., not limited to marine insurance) see R. Cox, L. Merrett and M. Smith, Private International Law of Reinsurance and Insurance, 2006, Informa; M. C. Clarke, The Law of Insurance Contracts, 5th edn, 2006, Informa, Chapter 2, “The Conflicts of Laws” by R. Purves; and also Mance, Goldrein, Merkin (eds), Insurance Disputes, 2011, Informa, Chapter 14, “Jurisdiction and Arbitration” by David Bailey QC and Kier Howie, and Chapter 15, “Applicable Law” by Christopher Butcher QC. 5. References in this chapter to an EU Member State are to a Member State of the European Union, which succeeded and replaced the European Community (EC) on entry into force of the Treaty of Lisbon on 1 December 2009.

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2.2 Where there is no choice of jurisdiction or law, this chapter considers which court or courts may have jurisdiction and which law will apply. Finally, there is an analysis of the problems that occur where the same dispute is being heard, or has the potential to be heard, in two courts in different countries. Arbitration is rarely encountered in marine cargo insurance, but is touched upon in a short section at the end of the chapter.6 2.3 Initially, the issues are approached first of all with regard to the European position, which applies to the EU Member States dealt with in this book, that is to say, England, France, Germany and Italy. The rules in Norway, which is a European Free Trade Association (“EFTA”) Member State, are the same as EU law in respect of jurisdiction in relation to international marine cargo insurance.7 The domestic position in English law, applying broadly to persons who are not domiciled in Europe, is then reviewed, followed by the position in Singapore, Hong Kong and Australia, where the law reflects the position under English domestic law. Subsequently, there is a brief discussion of the position in the other jurisdictions dealt with in this book and this chapter cross-refers, so far as appropriate, to the particular country chapters.

JURISDICTION European law The Judgments Regulation 2.4 The Judgments Regulation8 (“the Regulation”) applies to an action by an assured9 (whether or not domiciled in an EU Member State10) against an insurer who is domiciled in an EU Member State.11 An insurer who has a branch, agency or other establishment 6. Although arbitration is rare in most jurisdictions, there is a growing trend among South African insurers to include arbitration clauses in their policies, see para. 2.74 below. 7. With respect to the jurisdiction issues dealt with in the chapter, the revised Lugano Convention, which came into force in Norway on 1 January 2001, is materially the same as the Judgments Regulation, which applies in the EU Member States. So far as the applicable law is concerned, the general principle, in common with other European countries, is that the parties are free to choose the applicable law and, in the absence of choice, the contract is governed by the law of the country with which it has its closest connection, see T. Falkanger, Scandinavian Maritime Law: The Norwegian Perspective, 3rd edn, 2011, Universitetsforlaget, “Jurisdiction and Choice of Law” at pp. 37–38. 8. Council Regulation (EC) No. 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, known historically in England as the “Brussels Regulation” as it developed from the Brussels Convention 1968, with the result that the Regulation is sometimes referred to as the “Brussels Regulation”, but here referred to as the “Judgments Regulation”. The revised Lugano Convention (Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters signed by the EC, Denmark and the three EFTA States on 30 October 2007), which came into force on 1 January 2010 in Norway and Denmark (1 January 2011 in Iceland and Switzerland) brings the former Lugano Convention into line with the Judgments Regulation so that the articles of each are the same in respect of the matters considered in this chapter. Any reference to an article in the Judgments Regulation can therefore be taken as a reference to the same article in the revised Lugano Convention. 9. An assured is defined in the Regulation to include “the policyholder, the insured or a beneficiary”, see, e.g., Art. 9.1(b), and the term “assured” encompasses all these parties when used in this chapter. 10. The Regulation is in principle applicable where the defendant insurer has its domicile or seat in a Member State, even if the claimant assured is domiciled in a non-Member country, Group Josi Reinsurance Co SA v. Universal General Insurance Co, Case C-412/98 [2001] Lloyd’s Rep. IR 483. 11. Judgments Regulation, Art. 9.1(a). The Regulation does not apply where an insurer domiciled in an EU Member State sues, in a non-EU Member State, an assured not domiciled in an EU Member State, as where a UK insurer sues a Japanese assured in Japan. However, if a UK insurer sues a French assured in Japan because, for example, the loss occurred there, the assured, being from another Member State, can sue in France, or in England, as it prefers.

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2.6

in one of the Member States is deemed to be domiciled in that Member State in disputes arising out of the operation of that branch, agency or establishment.12 Where the claimant policyholder, insured or beneficiary is domiciled in another EU Member State, he can sue insurers domiciled in an EU Member State either in his own State or in the insurer’s State.13 The Regulation also applies where the parties, at least one of whom is domiciled in an EU Member State, have agreed that the courts of a Member State are to have jurisdiction.14 Absence of choice 2.5 In the absence of a jurisdiction clause, the Judgments Regulation has a mandatory regime that allows an assured,15 also domiciled in an EU Member State, to sue his insurer in his own Member State, that is, on the assured’s home ground.16 If the assured prefers, the insurer may also be sued in his, the insurer’s, EU Member State.17 In the absence of a jurisdiction clause, an insurer, wherever domiciled, may only bring proceedings against an assured domiciled in an EU Member State in the courts of the Member State in which the assured is domiciled, irrespective of whether the defendant is the assured himself, the policyholder or a beneficiary of the insurance.18 However, where the assured enters a voluntary appearance to contest the issues, and not merely to contest jurisdiction, the court thus seised has jurisdiction by virtue of the appearance, even though the court does not have jurisdiction within the terms of the Regulation as set out above.19 Extent of freedom of choice: formalities 2.6 There are restrictions on the freedom of the insurers to choose a jurisdiction.20 These restrictions protect the rights of an assured domiciled in an EU Member State21 to be sued in his own jurisdiction22 and to sue in his own jurisdiction23 or, at the assured’s choice, to sue his insurer in the EU Member State in which the insurer is domiciled.24 However, these restrictions do not apply to most international marine cargo insurances25 because it was 12. Ibid., Art. 9.2. 13. Judgments Regulation, Art. 9.1(b) and see para. 2.5 below. 14. Ibid., Art. 23. The parallel revised Lugano Convention will apply if the parties, one or more of whom is domiciled in an EU or EFTA Member State, have agreed a jurisdiction clause giving jurisdiction to the courts of such states, see, e.g., Tradigrain SA v. S.I.A.T. SpA & Others [2002] EWHC 106 (Comm), [2002] 2 Lloyd’s Rep. 553 and, more generally, Dunt, Marine Cargo Insurance, at para. 2.23. 15. The assured includes the “policyholder, the insured, or the beneficiary” of the insurance, Judgments Regulation, Art. 9.1(b). 16. Ibid., Art. 9.1(b). 17. Ibid., Art. 9.1(a). If he is a co-insurer, the co-insurer may be sued in the courts of a Member State in which proceedings are brought against the leading insurer, Art. 9.1(c). 18. Ibid., Art. 12.1, subject to third-party direct action, which is not relevant in respect to marine cargo insurance. 19. Vienna Insurance Group v. Bilas Case C-111/09 [2010] 1 Lloyd’s Rep. IR 734. 20. Judgments Regulation s. 3 dealing with jurisdiction and matters relating to insurance. The restrictions do not apply to agreements which allow the assured (including the policyholder or a beneficiary) to bring proceedings in courts other than those indicated in s. 3, Art. 13.2. Further, the restrictions do not apply to any agreement entered into after the dispute has arisen, Art. 13.1. 21. Ibid., Art. 13.3, which permits the restrictions to be departed from in an agreement that is concluded with a policyholder who is not domiciled in an EU Member State. 22. Ibid., Art. 12. 23. Ibid., Art. 9.1(b). 24. Ibid., Art. 9.1(a). 25. Ibid., Art. 13.5 and, in relation to cargo insurance, Arts 14.1(b), 14.4 and 14.5.

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JURISDICTION AND APPLICABLE LAW

considered that assureds under such risks were not in need of consumer protection.26 The circumstances where the parties to a marine cargo insurance are free to agree jurisdiction are as follows: (1) where the risk relates to goods in transit, as long as the transit includes carriage by seagoing ships or commercial aircraft27; (2) risks “connected with” carriage by such seagoing ships and commercial aircraft28; and (3) “large risks”, as defined in the European Non-Life Directive, which includes “damage to, or loss of goods in transit”, irrespective of the form of transport.29 Where the parties are free to choose a jurisdiction, Article 23 of the Judgments Regulation30 provides that an agreement conferring jurisdiction shall comply with certain formalities, for example, that it is in writing. These formalities are considered after an examination of the exceptions to the general principle that the assured should have the right to sue or be sued on his home ground, that is to say, the EU Member State where he is domiciled, which are now considered. Goods in transit by seagoing ships and connected risks 2.7 The risk to goods in transit, as long as the transit includes carriage by seagoing ships or commercial aircraft, will normally include a typical international marine cargo insurance transit contract. Jurisdiction agreements varying the otherwise mandatory rule of the Judgments Regulation in favour of the assured are also permitted if the transit includes “any risk or interest connected with” carriage by “seagoing ships … or aircraft”.31 The question whether a risk is a “connected risk” and, in particular, whether a storage risk is sufficiently “connected with” the risk to goods in transit, is of particular importance in practice because of the amount of storage cover provided under modern cargo open covers. In Tradigrain SA v. S.I.A.T. SpA32 there was a separate insurance under the Institute Cargo Clauses (A) for cargo in store in India, following on from transit by seagoing ships. It was held that, although the goods were not in transit, the parties were entitled to depart from the mandatory jurisdiction regime and to agree a Hamburg jurisdiction clause. Colman J, following the approach adopted by Staughton LJ in Charman v. WOC Offshore,33 held that a generous interpretation should be adopted with regard to the words “connected with” and that the storage risk, albeit separate, was therefore sufficiently “connected with” the prior sea transit.34 The judge also considered it pertinent to note that the coverage in store was on the terms of the Institute Cargo Clauses (A), which are transit clauses and had been used for the transit in question. However, no matter how generous an interpretation is adopted, there

26. See Schlosser Report, Official Journal of European Communities No. C59/112. 27. Judgments Regulation, Art. 14.1(b). This exception to the mandatory rules regarding jurisdiction clauses does not extend to passengers’ baggage. 28. Judgments Regulation, Arts 13.5 and 14.4 and see para. 2.7 below. 29. Ibid., Arts 13.5 and 14.5, see para. 2.8 below. 30. Article 23 of the revised Lugano Convention is to the same effect. Where a party submits to the jurisdiction of an EU Member State by entering an appearance to contest the issues, and not merely jurisdiction, the court thus seised will have jurisdiction on the basis that the submission amounts to a variation of the jurisdiction agreement, see Elefanten Schuh GmbH v. Jacqmain, Case 150/80 [1981] ECR 1671. 31. Judgments Regulation, Art. 14.4. 32. [2002] EWHC 106 (Comm), [2002] 2 Lloyd’s Rep. 553. A case decided under the former Lugano Convention, Arts 12 and 12(a) which were the same as Arts 14.1 to 14.4 of the Judgments Regulation and the revised Lugano Convention. 33. [1993] 2 Lloyd’s Rep. 551 (CA) at 557. 34. At para. 42.

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must be some “connection” with transit by sea. Accordingly, pure storage cover, unless it constitutes a “large risk”, as discussed next, would be subject to the mandatory provisions of section 3 of the Regulation, which generally permits the assured to sue his insurers in his own jurisdiction, and does not permit jurisdiction clauses to vary this provision.35 “Large risks” 2.8 The Judgments Regulation36 contains a further exception and allows freedom of choice with regard to jurisdiction in relation to “large risks”,37 as defined by reference to the NonLife Directive.38 This Directive defines “large risks” as including “damage to, or loss of goods in transit”, irrespective of the form of transport.39 In the context of jurisdiction clauses, the “large risks” exception partially duplicates the exception in Articles 14.1 to 14.4 with which it sits rather uneasily, its application being “notwithstanding” those exceptions. However, for cargo insurance, the definition of “large risks” significantly broadens the exception to the mandatory regime to cover not only goods carried by seagoing ships but also goods in transit by any method including road and rail. The “large risks” exception may also include storage risks, insofar as these may qualify as a class of property insurance against the perils of fire, explosion, storm and theft and the policyholder qualifies as a “substantial concern”.40 2.9 In all cases, the freedom to choose a jurisdiction is subject to the formalities designed to protect the assured provided for by Article 23 of the Judgments Regulation, and the agreement to jurisdiction must therefore be41: “(a) in writing or evidenced in writing; or (b) in a form which accords with practices which the parties have established between themselves; or (c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.”

The English courts have accepted that they will apply autonomous community law, EU law, in order to decide whether Article 23 of the Regulation is satisfied.42 There is little 35. Section 3 of the Jurisdiction Regulation, and Art. 9.1(b). See also the revised Lugano Convention Art. 9.1(b). 36. The revised Lugano Convention now extends to “large risks” which are included in the amended Art. 14.5 (the former Lugano Convention did not include the “large risks” exception, see Dunt, Marine Cargo Insurance at para. 2.28 fn. 92). Although there is no definition of “large risks” in the revised Lugano Convention, that term will no doubt be construed like the Judgments Regulation in accordance with the definition in the Non-Life Directive as described in the above text. 37. Judgments Regulation, Art. 14.5. 38. Council Directive 73/239/EEC and the subsequent amendments thereto. 39. A “large risk” has the meaning given by Art. 5(d) of the First Non-Life Insurance Directive (73/239/EEC) as amended by the Second Non-Life Insurance Directive 88/357/EC. This defines large risks as, inter alia, risks classified under a class that includes “all damage to or loss of goods in transit … irrespective of the form of transport”, Class 7 of Annex A. 40. The issue of when a storage risk constitutes a “large risk” is dealt with in Dunt, Marine Cargo Insurance, at paras 2.12 to 2.13. Dunt concludes that if cargo insurance constitutes “property insurance”, then, in respect of the limited risks referred to in the text above, the exception may apply as long as the assured is what that author calls a “substantial concern”, that is, in general terms, not a consumer who is in need of protection but a commercial enterprise of some significant size. 41. Ibid., Art. 23.1(a), (b) and (c). 42. Evialis SA v. S.I.A.T. & Others [2003] EWHC 863 (Comm), [2003] 2 Lloyd’s Rep. 377, per Andrew Smith J, at para. 60, citing Powell Duffryn plc v. Petereit, Case C-214/89 [1992] ECR I-1745 and Estasis Salotti di Colzani Aimo et Gianmario Colzani v. RUWA Polstereimaschinen GmbH, Case 24/76 [1976] ECR 1831.

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difficulty where the jurisdiction agreement is part of an open cover or policy, such as the jurisdiction clause in the MRC, which provides that the contract is subject to the jurisdiction of the courts of England and Wales. However, the position may not be so clear where the assured is a holder of a certificate of insurance that was negotiated to him as, for example, a “CIF” buyer, and refers indirectly to an open cover, which the certificate holder may not have seen and to which he was not a party. For example, in the Tradigrain case,43 certificates of insurance held by the claimants made no express reference to the jurisdiction provisions in an open cover, the only reference to the open cover being no more than a cross-reference to the open cover policy number. It was held that this crossreference did not incorporate the jurisdiction clause in the open cover because there was no evidence that could support a course of dealing under Article 23.1(b) nor was this a form adopted by trade usage under Article 23.1(c) and, further, the cross-reference did not amount to an agreement “in writing” under Article 23.1(a).44 Colman J followed the approach adopted in previous authorities,45 as well as the English jurisdiction decisions on incorporation of jurisdiction clauses into contracts of reinsurance46 and concluded that, whereas under Article 23.1(a) general words of incorporation might be effective to incorporate a jurisdiction clause, they would do so only if they clearly and precisely demonstrated the existence of a consensus to that effect in relation to jurisdiction. The mere cross-reference on the certificate of insurance to the policy number on the open cover did not qualify under that test.47 In Evialis SA v. S.I.A.T.,48 a service of suit clause in common form, providing the address of the insurers’ representatives (W. K. Webster & Co) in London as the “address for legal proceedings in London”, was sufficient to comply with the Article 23 formalities.49 The exclusive and mandatory effect of a jurisdiction clause 2.10 Where there is an agreement to jurisdiction, the effect of Articles 4(1) and 23 of the Judgments Regulation is that, where one or more of the parties to the agreement is domiciled in an EU Member State, the jurisdiction of the chosen court of the Member State is exclusive. Moreover, the clause has mandatory effect, and the court is unable to stay the proceedings in favour of another court, as an English court would have been able to on grounds of convenience by the common law.50 For example, in Equitas Ltd v. Allstate Insurance Co,51 a commutation agreement made between Equitas in London and reinsurers 43. [2002] EWHC 106 (Comm), [2002] 2 Lloyd’s Rep. 553, a case decided under Art. 17 of the former Lugano Convention, the equivalent of Art. 23 of the Judgments Regulation and Art. 23 of the revised Lugano Convention. In the circumstances, the text refers to Art. 23 rather than Art. 17. 44. At para. 34. 45. See Credit Suisse Financial Products v. Société Generale D’Enterprises [1997] CLC 168. 46. AIG Europe SA v. QBE International Insurance Ltd [2001] 2 Lloyd’s Rep. 268 and Dornoch Ltd v. Mauritius Union Assurance Co Ltd [2006] EWCA Civ 389, [2006] 2 Lloyd’s Rep. 475. 47. However, if there had been a specific reference in the insurance certificate expressly incorporating the jurisdiction clause in the open cover, it would have bound a third party to whom the certificate of insurance was negotiated. 48. [2003] EWHC 863 (Comm), [2003] 2 Lloyd’s Rep. 377. 49. Ibid., at para. 59. There was no dispute that such an agreement complied with the formalities in Art. 23. 50. Equitas Ltd v. Allstate Insurance Co [2009] Lloyd’s Rep. IR 227 per Beatson J at para. 64, following the “weight of the authorities”, in particular, Owusu v. Jackson, Case C-281/02 [2005] 1 Lloyd’s Rep. 452. For the common law position as to convenience, see para. 2.17 below. 51. Supra.

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in the United States included an English jurisdiction clause. The application of the American reinsurers for a stay of the English proceedings was refused, among other reasons, on the ground that the English court had no power to grant such a stay. Accordingly, if a contract of marine cargo insurance includes an English jurisdiction clause, as is commonly the case in respect of contracts made in the London market,52 the English court will have exclusive jurisdiction and is unable to stay the matter in favour of a more appropriate court, say in Singapore, where the loss may have occurred, and where the evidence may be more readily available. The court “first seised” 2.11 Articles 27 and 28 of the Judgments Regulation are intended to prevent multiple proceedings and conflicting judgments. Article 27 provides that: “1. Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. 2. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court.” Article 28 deals with related proceedings and, so far as material, provides: “1. Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings.”

Article 28(3) goes on to define “related actions” for these purposes as follows: “For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.”

In the Evialis case,53 these provisions were considered in the context of a claim under a marine cargo insurance policy where proceedings had been commenced by the insurers in Italy, and the assured, on the basis of an English jurisdiction clause, applied for an interim injunction restraining the insurers from prosecuting the Italian proceedings. It was held that Article 27 applied to the insurance provisions under section 3 and that the proceedings were sufficiently related under Article 28. The case held that a broad commonsense approach is to be adopted, and an over-sophisticated analysis to be discouraged.54 According to the principle of mutual trust between the courts of EU Member States, the English court cannot make an order restraining the parties from challenging an English jurisdiction clause where the courts of another EU Member State are first seised of the case.55

52. See, e.g., the MRC referred to in fn. 2 above. 53. [2003] EWHC 863 (Comm), [2003] 2 Lloyd’s Rep. 377. 54. At para. 123, following Sarrio SA v. Kuwait Investment Authority [1998] 1 Lloyd’s Rep. 129 at 135, [1999] 1 AC 32. 55. Gasser v. MISAT, Case C-116/02 [2003] ECR I-14693 and Turner v. Grovit, Case C-159/02 [2004] ECR I-3565.

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2.12 Where the English court is seised of the proceedings and the defendant is domiciled in England, the English court has no power to stay the proceedings in favour of any foreign court on grounds that it would be more appropriate for the case to be tried there. The overriding principle of the Judgments Regulation is that the defendant has an absolute right to be sued in his own jurisdiction.56 English domestic law When does English domestic law apply rather than European law? 2.13 The rules of English law as to jurisdiction depend on the domicile of the defendant in the proceedings. In most proceedings in England involving insurers, the defendant is likely to be domiciled in an EU Member State, in which case the Judgments Regulation57 applies as a matter of EU law as discussed in the European law section above.58 This section deals only with English domestic law where, exceptionally, the defendant is not domiciled in an EU Member State, for example, where a Japanese insurer is sued in England by a Japanese assured. The summary of the law concentrates on the practice applicable to the standard form of English marine policy with the Institute Cargo Clauses attached, which will cover the majority of cases encountered in practice. Summary of the general rules 2.14 In practice, the most important cases in which the English court has jurisdiction under domestic law in relation to a marine cargo insurance contract are where: (1) The defendant is physically present within the jurisdiction.59 (2) The defendant voluntarily submits to the jurisdiction.60 (3) The contract of insurance is governed by English law, there is a good case and England is the proper forum.61 (4) The contract of insurance includes a jurisdiction clause that provides for English jurisdiction, there is a good case and there are no exceptional reasons that would lead the English court to decline jurisdiction.62 (5) The contract was made within the jurisdiction, or through an agent trading or residing in England, or the claim is a result of a breach of contract within the jurisdiction,63 there is a good case and England is the proper forum.

56. Owusu v. Jackson, Case C-281/02 [2005] 1 Lloyd’s Rep. 452. The court may, however, exercise its discretion to grant a stay when proceedings have been commenced in a non-Member State, such as Ukraine, see Ferrexpo AG v. Gilson Investment Ltd & Others [2012] EWHC 721 (Comm). 57. Council Regulation (EC) No. 44/2001 of 22 December 2000, see further fn. 8 above, particularly as to the operation of the parallel revised Lugano Convention which includes the EFTA and EU Member States. 58. See para. 2.4 et seq. 59. See para. 2.15 below. 60. See para. 2.15 below. 61. See para. 2.18 below. 62. See para. 2.19 below. 63. There is also jurisdiction where a claim is made for a declaration that no contract exists where, if the contract was found to exist, it would have been subject to English jurisdiction, see para. 2.16 below.

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These cases are now considered in turn with the emphasis being on those where English law applies as this, in practice, gives rise to the most difficulties. Under domestic law, the English court has a discretion to stay the proceedings if England is not the most appropriate forum for the resolution of the dispute.64 Defendant within the jurisdiction 2.15 The trigger for jurisdiction under English domestic law is the ability to serve the defendant with legal proceedings, normally a claim form. A defendant who is physically present, such as an insurance company with a registered office in England, can be served at that office. An overseas insurance company carrying on business in England, registered as an overseas company, can likewise be served.65 This jurisdiction is also subject to England being the appropriate forum,66 though the burden will be on the defendant to show that England is not the appropriate forum where that defendant is served within the jurisdiction. A defendant who voluntarily submits to English jurisdiction in practice appoints solicitors who agree, on his behalf, to accept service of the claim form.67 Service outside the jurisdiction 2.16 Where the defendant is not physically present in England, permission may nevertheless be granted by the court to serve the claim form outside the jurisdiction in certain defined cases under Part 6 of the English Civil Procedure Rules (“CPR”). So far as marine cargo insurance contracts are concerned, under Part 6 rule 6.36 of the CPR and paragraph 3.1(6) of Practice Direction 6B, permission may be granted for service of the claim form out of the jurisdiction where: “(6)

A claim is made in respect of a contract where the contract (a) was made within the jurisdiction; (b) was made by or through an agent trading or residing within the jurisdiction; (c) is governed by English law; or (d) contains a term to the effect that the court shall have jurisdiction to determine any claim in respect of the contract.”

Permission may also be granted under paragraph 3.1(7) where “a claim is made in respect of a breach of contract committed within the jurisdiction”, for example, no payment is made of an insurance claim due to be paid within the jurisdiction. Finally, under paragraph 3.1(8) there is jurisdiction where the claim is made for a declaration that no contract exists where, if the contract was found to exist, it would comply with the conditions set out above in clause (6) of Practice Direction 6B (e.g., the contract was made within the jurisdiction or was governed by English law). The above categories significantly extend the jurisdiction of the English court, not only to cases where the parties have agreed that the English court shall have jurisdiction to determine any claim, when it would be expected that the English 64. The rules as the forum non conveniens are discussed at para. 2.17 below. Where the defendant is domiciled in England and the English court is seised of the proceedings before any other court, the English court has no power to stay the proceedings, see further the section on European law at para. 2.12 above. 65. The current rules are summarised in more detail in Arnould’s First Supplement, Chapter 5 at para. 5-02. 66. See para. 2.17 below. 67. If service is accepted to contest jurisdiction that does not amount to a voluntary submission to the jurisdiction.

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court would have jurisdiction, but also to cases where the contract is governed by English law. In light of this, there are three requirements (or safeguards) which the applicant must overcome in order to obtain permission to serve the claim form out of the jurisdiction. These three requirements are that: (1) There is a good arguable case that the case falls within the listed categories set out in paragraph 3.1 of the Practice Direction, as set out above. (2) There is a serious question to be tried with a reasonable prospect of success.68 (3) England is the forum in which the case should properly be tried.69 This chapter now considers the third requirement, or safeguard, the proper forum, and then looks more closely at the issues that arise in the construction and application of clauses that incorporate English law and practice, particularly the choice of law clause in the Institute Cargo Clauses. The most appropriate or convenient forum 2.17 In deciding whether England is the proper forum, that is, “the proper place in which to bring the claim”,70 the court will look to the principles set down in the landmark decision of the House of Lords in Spiliada Maritime Corp v. Cansulex Ltd.71 In particular72: “(a) ‘The court will only grant permission to serve out where England is the most appropriate forum to try the action.’73 (b) ‘The burden of proof rests on the claimant to persuade the Court that England is the most appropriate forum for the trial of the action and the claimant has to show this is clearly so.’74 (c) ‘The question is to identify the forum in which the case can be suitably tried for the interests of all parties and for the ends of justice.’75 (d) ‘The natural forum is the one with which the action has the most real and substantial connection, including factors affecting convenience or expense (such as availability of witnesses), but also other factors such as the law governing the transaction and the places where the parties carry on business.’”76

A choice of English law 2.18 In practice, a choice of English law may be the key to establishing English jurisdiction. Clause 19 of the Institute Cargo Clauses provides as follows: “This insurance is subject to English law and practice.” 68. CPR Part 6 rr. 37(1)(b) and 6.37(2). See Nima Sarl v. Deves Insurance Public Co Ltd (The Prestrioka) [2002] EWCA Civ 1132, for a marine cargo case where the application would have succeeded on the other grounds, but failed because the assured claimant had no reasonable prospect of success in their claim. 69. CPR Part 6.37(3). 70. Part 6 r. 6.37(3) of the CPR. 71. [1987] 1 AC 460. 72. The summary in the text is taken from the judgment of Eder J in Mujur Bakat Sdn Bhd and Others v. Uni. Asia General Insurance Berhad and Others (The Mujur 1) [2011] EWHC 643 (Comm). 73. [1987] 1 AC 460, at pp. 464–465 per Lord Templeman. 74. Per Lord Goff at p. 481. 75. Per Lord Goff at p. 480. 76. At p. 478 per Lord Goff.

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These words will, in most cases, be a strong indication that English law applies to the contract of insurance itself and not merely to the Institute Cargo Clauses.77 Where a policy is issued in the London market, in addition to the above provision, the Market Reform Contract (MRC)78 contains a mandatory requirement that there must be a choice of law, for example, “This contract shall be governed by and construed in accordance with the law of England and Wales”. Where the law governing the transaction is English law, the first requirement of the CPR is fulfilled, and the possibility of service out of the jurisdiction arises. If there is a good case to be tried with a reasonable prospect of success, the second requirement is fulfilled also. The critical factor then becomes the third requirement, that is to say, the issue of whether England is the proper forum in terms of convenience. In relation to this requirement, the choice of English law is, in practice, particularly important as the English courts take the view that difficult questions of English law are best decided in England. However, it has been said that the fact that a contract is governed by English law is not necessarily a predominating factor,79 and may be of very great importance or of very little importance, depending upon the issues in the case.80 For example, in Mujur Bakat Sdn Bhd & Others v. Uni. Asia General Insurance Berhad (The Mujur 1)81 there was a claim for constructive total loss under a hull policy, and one issue initially raised by the insurers was whether there had been a misrepresentation in the broking slip that the vessel would be classed with Bureau Veritas within three months. This raised difficult issues of English law and, if pursued, the judge would have concluded that England was the appropriate forum for the claim,82 but when the insurers undertook not to pursue the issue, the court concluded that the case was not suitable for England. The effect of a choice of English jurisdiction 2.19 Where a jurisdiction agreement has been included in the contract of marine cargo insurance, the court will uphold that agreement and therefore allow the claim form to be served on the defendant outside the jurisdiction. For example, the MRC83 includes a mandatory requirement for a jurisdiction clause and suggests a jurisdiction clause in the following terms: “… each party agrees to submit to the jurisdiction of the Courts of England and Wales … .”

English jurisdiction may still occasionally be agreed for cargo business by reference to the MAR91 form, which contains an exclusive jurisdiction clause in the following terms: 77. However, it is unclear whether the words “This insurance” are a reference to the contract of insurance contained in an open cover or policy, or only to the “insurance” cover contained within the Institute Cargo Clauses themselves. If the latter is the case, the contract would not necessarily be governed by English law, particularly if the open cover or policy had another choice of law or if it had a closer connection with another system of law, see, e.g., Evialis SA v. S.I.A.T. [2003] 2 Lloyd’s Rep. 337, discussed at para. 2.49 below, where the contract was governed by Italian law even though it incorporated the ICC which were subject to English law. 78. For an example of the MRC, see Dunt, Marine Cargo Insurance, Appendix 5, and see the London Market Reform Group website for the latest MRC at www.londonmarketgroup.co.uk. 79. Novus Aviation v. Onur Air Tasimacilik AS [2009] EWCA Civ 122, [2009] 1 Lloyd’s Rep. 576, per Lawrence Collins LJ at paras 74 to 80. 80. Spiliada v. Cansulex [1987] 1 AC 460, per Lord Goff at p. 481, and see Novus Aviation v. Onur Air (supra). 81. [2011] EWHC 643 (Comm). 82. At para. 10, Eder J. 83. See Dunt, Marine Cargo Insurance, Appendix 5, and see the London Market Reform Group website for the latest MRC at www.londonmarketgroup.co.uk.

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“This insurance shall be subject to the exclusive jurisdiction of the English Courts, except as may be expressly provided herein to the contrary.”

Where there is such a jurisdiction clause in the contract, the English court will normally hold the parties to their bargain and will allow service of the claim form out of the jurisdiction. In principle, a party can object to jurisdiction on grounds that England is not the proper forum, but in practice this argument is only likely to succeed if there are strong reasons why the clause should not be enforced.84 Even where the assured is protected by legislation in a foreign jurisdiction, the English court will still hold the parties to their jurisdiction agreement. For example, in Akai Pty Ltd v. People’s Insurance Co Ltd,85 a credit insurance was arranged between an Australian company and a Singapore company. The parties could not agree on either Australian or Singapore law and jurisdiction, as each wanted their own law and jurisdiction, so the insurance contract was concluded with English law and jurisdiction being agreed as a neutral law and venue. Following a claim, which was possibly time-barred in England, but probably not in Australia, the assured commenced proceedings in Australia and the Australian High Court, the highest court in Australia, accepted jurisdiction on the basis that the assured was entitled to protection under Australian law. The insurers nevertheless proceeded in England on the basis of the law and jurisdiction clause. In response, the assured applied to have the English proceedings stayed on the basis that the English court should, as a matter of comity, recognise the assured’s rights to protection which had been upheld by the Australian High Court. The English court refused the stay on the basis that the parties had bargained for English law and jurisdiction and the English court should uphold that agreement and should not, as a matter of comity, give effect to the decision of the Australian High Court which overrode that decision and choice.86 The US Service of Suit Clause 2.20 It is the practice and, indeed, a regulatory requirement, that certain marine cargo business for United States assureds, underwritten in the London market, allows those assureds the option of proceeding against their insurers on their home ground in the United States.87 As a consequence, a US Service of Suit Clause88 is commonly used on such marine cargo business. The material parts of this clause provide as follows: “It is agreed that in the event of the failure of the Underwriters hereon to pay any amount claimed to be due hereunder, the Underwriters hereon, at the request of the Assured, will submit to the jurisdiction of the Court of competent jurisdiction within the United States.”

This clause has been considered by the English courts most recently in Catlin Syndicate Ltd & Others v. Adams Land & Cattle Co,89 which followed the Court of Appeal decision in Excess Insurance Co v. Allendale Mutual Insurance Co.90 These cases have decided 84. Bank of New York Mellon v. GV Films Ltd [2010] 1 Lloyd’s Rep. 365; Donohue v. Armco Inc [2002] 1 Lloyd’s Rep. 425. 85. [1998] 1 Lloyd’s Rep. 90. 86. Per Thomas J at p. 100. 87. See the Lloyd’s Market Bulletins referred to in Catlin Syndicate Ltd & Others v. Adams Land & Cattle Co [2006] EWHC 2065 (Comm), [2007] Lloyd’s Rep. IR 96. 88. Service of Suit Clause (USA) NMA. 89. Supra. 90. [2001] 1 Lloyd’s Rep. IR 524.

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that the clause is not an exclusive jurisdiction clause, by which the parties have agreed exclusively to the jurisdiction of an appropriate US court, but gives the assured an option to force insurers to submit to the jurisdiction of an appropriate court. The option only arises where (1) there has been a “failure to pay” by insurers and (2) the assured have exercised that option by calling upon the insurers to pay. For example, in the Catlin case, the insurance contract included the above clause as well as an agreement to “UK law and jurisdiction”. The insurers commenced proceedings in England for a declaration that they were not liable and the assured then exercised their option, pointing out that the insurers had failed to pay an amount due and calling upon them to submit therefore to the jurisdiction of an appropriate US court. At that point, and at that point only, the English insurers then became bound by their promise to submit to a court in the United States. Prior to that time, the English insurers were perfectly entitled to commence proceedings in England and, indeed, in theory, if not likely in practice, the assured could themselves have commenced proceedings in England, or in any other jurisdiction where they could force the insurers to appear.91 Singapore law92 Service of process within or outside the jurisdiction 2.21 The rules that apply in Singapore very much reflect the English domestic position and are conveniently dealt with at this point. The Singapore High Court has the civil jurisdiction to hear and try actions where the defendant is served with a writ or other originating process in Singapore; or outside Singapore in circumstances authorised by and in the manner prescribed by the Rules of Court93; or where the defendant submits to the jurisdiction of the High Court.94 The ability to establish jurisdiction depends on the ability to serve the originating process (i.e., the Writ of Summons or the Originating Summons) on the defendant. Once served, the Singapore court is conferred jurisdiction. In the case of companies incorporated in Singapore, service is effected by simply leaving the originating process at or sending it by registered post to the company’s registered office.95 For a foreign company trading in Singapore, service of the originating process may, on application to the Singapore court, be effected by serving on the foreign company’s Singapore agent or manager.96 2.22 If the defendant is not resident within the jurisdiction, or is not trading in Singapore, an application has to be made under Order 11 of the Rules of Court97 for the 91. Ibid., Catlin v. Adams (supra) following Excess Insurance Co v. Allendale Mutual (supra). 92. Corina Song, Partner, Allen & Gledhill LLP, Singapore. 93. Order 11 r. 1 of the Rules of Court provides for service of originating process out of Singapore in circumstances prescribed in paras (a) to (s) of Order 11 r. 1. 94. Supreme Court of Judicature Act (Cap. 322) s. 16. Like the High Court, the subordinate courts also have civil jurisdiction to hear and try actions where the defendant is served with a writ or other originating process in Singapore; or outside Singapore in circumstances authorised by and in the manner prescribed by the Rules of Court; or where the defendant submits to the jurisdiction of the District Court, Subordinate Courts Act (Cap. 321) s. 19(2). The Magistrates Court has similar jurisdiction, ibid., s. 52(1). It should, however, be noted that the civil jurisdiction of the District Court is limited to claims which do not exceed S$250,000, ibid., s. 19(4) and in the case of the magistrates court, it is limited to claims that do not exceed S$460,000. 95. Section 387 of the Companies Act. 96. Order 10 r. 2 of the Rules of Court (Cap. 322) allows this where the plaintiff’s action relates to any business or work against the defendant, the agent or manager has, at the time of service, personally the control or management of such business or work for the defendant within Singapore and at the time of the application, either the agent’s or manager’s authority has not been determined, or he is still in business relations with the defendant. 97. Cap. 322.

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service of the originating process on the foreign company outside Singapore. Order 11 Rule 1 provides that such service is permissible where, for example, the claim is brought to enforce a contract which was made in Singapore98 or is governed by the law of Singapore,99 or the claim is founded on a cause of action arising in Singapore.100 The applicant must also demonstrate that the claim has a good cause of action101 and that the case is a proper one for service out of Singapore. When determining whether Singapore is an appropriate forum, the Singapore court will consider such factors as the place of business of the parties (i.e., the insurer and assured), the nature of the dispute, the legal and practical issues involved, the availability of witnesses and their evidence and expenses102 and the presence of any jurisdiction clause103 in the policy. These are all factors that must be taken into account in considering whether Singapore is the appropriate forum to hear the case.104 Discretion to stay: the proper forum 2.23 Assuming the application for service out of Singapore is granted, the originating process must be served on the defendant in accordance with the law of the country in which service is effected or through the judicial authorities or through a Singapore consular authority of that country.105 Whilst the originating process may have been validly served (within or outside Singapore), a defendant can still challenge jurisdiction by applying to stay the Singapore action on the basis that Singapore is not the proper forum for the dispute.106 2.24 In this respect, the power to grant a stay is a discretionary one, which has to be exercised in accordance with established principles. The Singapore courts have consistently approved and adopted the principles enunciated by the House of Lords in the Spiliada case,107 which involve a two-stage test that has been applied by the Singapore courts in numerous cases. In Eng Liat Kiang v. Eng Bak Hern,108 a decision of the Singapore Court of Appeal, the court noted that it could see no reason for departing from the Spiliada case, which was considered and approved in Brinkerhoff Maritime Drilling Corp and Another v. PT Airfast Services Indonesia and Another Appeal.109 The court further went on to state that “the underlying basis for this test is whether the local court is clearly an appropriate forum or not and whether there is another forum, which is distinctly more appropriate”. The Spiliada principles adopt a more liberal approach that cuts down local parochialism 98. Order 11 r. 1(d)(i) of the Rules of Court; see, e.g., Transniko Pte Ltd v. Communication Technology Sdn Bhd [1995] 3 SLR(R) 941. 99. Order 11 r. 1(d)(iii) of the Rules of Court; see, e.g., Econ Corp International Ltd v. Ballast-Nedam International BV [2003] 2 SLR(R) 15. 100. Order 11 r. 1(p) of the Rules of Court; see, e.g., Kishinchand Tiloomal Bhojwani v. Sunil Kishinchand Bhojwani and another [1997] 1 SLR(R) 518. 101. Order 11 r. 2(1)(b) of the Rules of Court (Cap. 322). 102. NM Rothschild & Sons (S) Pte Ltd v. Plaza Rakyat Sdn Bhd [1995] 2 SLR(R) 565. 103. See, e.g., The Jian He [1999] 3 SLR(R) 432. 104. Generally, the same factors which would be considered by the Singapore court when applying stage one of the Spiliada test to determine whether a stay should be granted on the ground of forum non conveniens; see further para. 2.24 below. 105. Order 11 r. 4 of the Rules of Court. 106. See further para. 2.24. 107. [1987] AC 460. 108. [1995] 2 SLR(R) 851. 109. [1992] 2 SLR(R) 345.

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as regards judicial adjudication and attaches greater importance to considerations of international comity. In applying the Spiliada principles, the first step is to determine which jurisdiction has the closest and most real connection with the dispute and thus is best placed to try the case at the least cost, expense and inconvenience. The second step involves considering whether allowing the case to be tried in that jurisdiction would nevertheless result in a denial of justice. Most recently, in JIO Minerals FZC and Others v. Mineral Enterprises Ltd,110 the Singapore Court of Appeal proceeded to analyse the facts of the case in accordance with the two-stage test in arriving at its finding that “Indonesia was clearly and more distinctly the appropriate forum for the trial of the claims concerned”.111 In arriving at its decision, the Court of Appeal noted that the category of factors, under stage one of the Spiliada test, was not closed. Hong Kong law112 Service on the defendant within the jurisdiction 2.25 The circumstances in which the Hong Kong courts will have jurisdiction to hear and determine a particular claim will depend in the first place upon whether the originating process has been validly served on the defendant. A distinction needs to be drawn between defendants who are served within Hong Kong and defendants who are served outside Hong Kong. A defendant who is physically present in Hong Kong can be personally served with the originating process, in which case the jurisdiction of the Hong Kong courts is established as of right. Following the reform of Hong Kong’s civil justice system in 2009, there are now two types of originating process: the writ and the originating summons. The vast majority of marine cargo claims are commenced by writ. Service on a limited company registered under the Companies Ordinance113 is effected by delivering the writ to the registered office of the company.114 In UDL Contracting Ltd v. Apple Daily Printing Ltd,115 it was held that whatever address a company chooses to name as its registered office, the effect of sections 92 and 356 of the Companies Ordinance116 is to make the place named as the place where documents can be served on the company by leaving the document at that location. The court noted that a company that chooses to give a number on a street instead of say, a specific room in a building, cannot be heard to complain if the document is left at the entrance to the place designated by the given address. Companies incorporated outside Hong Kong but carrying on businesses in Hong Kong are required to register under Part XI of the Companies Ordinance.117 Such companies will accordingly have a registered address within the jurisdiction at which they can be served. If the company has no registered office for service, service may be effected by personal service upon the company’s chairman, president, clerk, secretary, treasurer or other similar officer.118

110. [2011] 1 SLR 391. 111. Ibid., at para. 116. 112. Colin Wright, Barrister-at-Law. 113. Cap. 356. 114. Companies Ordinance s. 356. 115. HCA 1209/2007. 116. Cap. 32. 117. Cap. 32. 118. RHC Order 65 r. 3(1).

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Service outside the jurisdiction 2.26 Both the Hong Kong High Court and the Hong Kong District Court have a discretionary power to grant leave to a plaintiff to issue and serve judicial process out of the jurisdiction.119 This power allows the High Court and the District Court to give leave to serve the originating process on a party outside Hong Kong. A plaintiff wishing to make an application for leave to serve process out of the jurisdiction is required to apply ex parte with affidavit evidence accompanied by a draft order. As an application for leave to serve process out of the jurisdiction must necessarily be made in the absence of the defendant, the plaintiff must give full and frank disclosure to the court, particularly of anything that casts doubt on the merits of his case: Continental Mark Ltd v. Verkehrs-Club de Schweiz.120 The plaintiff has to satisfy the court of three matters before the court will give leave to serve the proceedings out of the jurisdiction: (1) that the evidence discloses a serious issue to be tried; (2) that there is a good arguable case that the court has jurisdiction under the Rules of Court to grant leave; and (3) that as a matter of judicial discretion the court should grant leave.121 2.27 The requirement that there be “a serious issue to be tried” is directed to the requirement under RHC Order 11 rule 4(2) and RDC Order 11 rule 4(2) for the plaintiff to make it sufficiently clear to the court that the case is a proper one for service out of the jurisdiction. In terms of the merits of the case, he has to show that there is “a serious issue to be tried” or a “substantial question of fact or law” or both, which the plaintiff bona fide desires to try: Inchcape JDH Ltd v. Baltrans Exhibition & Removal Ltd.122 The plaintiff must establish that his case has a good prospect of success and is not just a case that could be argued. It need not be shown, however, that the plaintiff is right beyond all reasonable doubt. The court does not try the case upon the affidavits, but must necessarily reach a provisional or tentative conclusion that the plaintiff is probably right, before granting leave to serve outside the jurisdiction: Deak v. Deak Perera Far East Ltd.123 2.28 It is necessary for the plaintiff to establish a good arguable case that his case falls within the scope of one of the specified cases under RHC Order 11 rule 1(1). The specified cases include a claim to enforce or claim damages under “a contract which (i) was made within the jurisdiction or (ii) was made by or through an agent trading or residing within the jurisdiction on behalf of a principal trading or residing outside the jurisdiction or (iii) is by its terms, or by implication, governed by Hong Kong law, or (iv) contains a term to the effect that the [Hong Kong] Court of First Instance shall have jurisdiction to hear and determine any action in respect of the contract”.124 2.29 If satisfied on both the merits and the jurisdictional basis, the court must then consider in a separate manner whether to exercise its discretion to grant leave on the ground that the case is a proper one for service out of the jurisdiction: RHC Order 11 rule 4(2);

119. RHC Order 11 r. 9; RDC Order 11 r. 9. 120. [2001] 4 HKC 469. 121. RHC Order 11; RDC Order 11. 122. [1997] 3 HKC 314. 123. [1990] 2 HKC 198. 124. RHC Order 11 r. 1(1)(d).

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RDC Order 11 rule 4(2). The court in this connection applies the principles of forum non conveniens and lis alibi pendens. The court will only exercise its discretion in favour of granting leave to serve out of the jurisdiction if the plaintiff shows that Hong Kong is the most appropriate forum for the case to be tried in the interests of the parties and for the ends of justice: The Adhiguna Meranti125; Hui Kao Chu v. Wu Chi Cheung126 and Duan Qi Gui v. Upper Like Investments Ltd.127 Challenging jurisdiction 2.30 A defendant served outside the jurisdiction may apply to set aside the order granting leave to serve out of the jurisdiction and the service: RHC Order 11 rule 8(1)(a), Order 12 rule 8; RDC Order 11 rule 8(1)(a), Order 12 rule 8. The procedure under RHC Order 12 rule 8 allows a defendant served out of the jurisdiction to challenge the order granting leave to serve the writ or other process on him. A defendant who wishes to dispute the jurisdiction of the court should give notice of intention to defend and, within the time limited for the service of a defence, make the application disputing jurisdiction to the court: see RHC Order 12 rule 8. 2.31 The effect of an order staying proceedings is that the plaintiff is stopped from pursuing the proceedings further before the Hong Kong court. Stays on forum non conveniens grounds were, until recently, granted on the basis of the court’s inherent jurisdiction. Following the civil justice reforms, forum non conveniens stays are now covered by Order 12 rule 8(2) and are subject to the same procedure as applications in which a challenge is made to the jurisdiction of the court to deal with the application. It is to be noted that on an application for leave to serve proceedings on a defendant out of the jurisdiction, the burden of proving that Hong Kong is the most appropriate forum for the case to be tried lies upon the plaintiff. 2.32 In The Lanka Muditha,128 the court applied a three-stage test when considering an application for a stay on forum non conveniens grounds: (1) Is it shown that Hong Kong is not only the natural and appropriate forum for the trial, but that there is another available forum that is clearly or distinctly more appropriate than Hong Kong? (2) If the answer to (1) is yes, will a trial at the other forum deprive the plaintiff of any legitimate personal or juridical advantages? The evidential burden here lies on the plaintiff. (3) If the answer to (2) is yes, a court has to balance the advantages of (1) against the disadvantages of (2). Deprivation of one or more personal or juridical advantages will not necessarily be fatal to the applicant provided that the court is satisfied that, notwithstanding such loss, substantial justice will be done in the available appropriate forum. Proof of this rests upon the applicant for the stay.

125. [1987] 2 HKC 126. 126. [1984] HKC 273. 127. CACV 320/2007. 128. [1991] 1 HKLR 741 at p. 744.

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Australian law

Jurisdiction of the Australian courts 2.33 The rules of Australian law, or more precisely the laws of the Australian States and Territories and of the Commonwealth of Australia itself,130 are similar in many respects to the rules of English law set out in more detail earlier in this chapter.131 The rules depend first on the ability to serve proceedings on the defendant in the State in question. Accordingly, there is jurisdiction if an insurer (or an assured) is domiciled in an Australian State or Territory or agrees to accept service of proceedings for the purposes of submitting voluntarily to Australian jurisdiction. In addition, the Australian court will permit service of proceedings out of the jurisdiction in certain circumstances where there is a good case and Australia is the appropriate forum. Taking into account the presence of the defendant within the jurisdiction, and the circumstances where service out of the jurisdiction may be permitted, the most important cases132 in which the Australian court has jurisdiction in relation to marine cargo insurance contracts may be summarised as follows133: (1) The defendant is physically present within the jurisdiction. (2) The defendant voluntarily submits to the jurisdiction. (3) The contract of insurance is governed by the law of the Commonwealth of Australia or the law of a State or Territory. The Australian court may also exercise jurisdiction where the contract is not governed by Australian law but the proceedings “relate to any Australian legislation”,134 for example, the Marine Insurance Act 1909 or the Insurance Contracts Act 1984. The claimant must show that there is a good case, and Australia is the proper forum. (4) The contract of insurance includes a jurisdiction clause that provides for Australian jurisdiction, or the jurisdiction of an Australian State or Territory; there is a good case and there are no exceptional reasons that would lead the Australian court to decline jurisdiction. (5) The contract was made within the jurisdiction, or the claim is a result of a breach of contract within the jurisdiction, or relief is sought within the jurisdiction in relation to a contract; there is a good case, and Australia is the proper forum. The appropriate forum 2.34 The Australian court has discretion to stay the proceedings if Australia is not the most appropriate forum for the resolution of the dispute and, where the defendant is not domiciled 129. Derek Luxford, Partner, Hicksons. 130. These vary very little between the States, Territories and the Commonwealth of Australia; though the reader should take care to check the position in the relevant State. 131. At paras 2.13. to 2.19 above. 132. The instances listed are the most relevant to cargo insurance but not exhaustive: for further cases, see, e.g., r. 10.42 of the Federal Court Rules 2011. The court also exercises jurisdiction over arbitrations carried out in Australia. 133. The basis of jurisdiction for the issue and service of proceedings commenced in the Australian courts (including proceedings intended to be served outside Australia) is found in the various rules of the different Australian courts and in the Commonwealth Service and Execution of Process Act 1992. Generally, these rules are very similar to, and are based on, old common law principles. 134. See, e.g., the various references to legislation appearing in r. 10.42 of the Federal Court Rules 2011.

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within the jurisdiction, the party applying for leave to serve out of the jurisdiction must establish that Australia is the most appropriate forum. Since the decision of the High Court of Australia in Voth v. Manildra Flour Mills Pty Ltd,135 a case involving a New South Wales company suing a Missouri accountant for professional negligence, the Australian courts have adopted a narrower test than that adopted by the House of Lords in the Spiliada case136 discussed elsewhere in this chapter.137 The position in Australia is that the Australian courts will only decline jurisdiction regularly invoked by a claimant if they are satisfied that the selected forum is clearly inappropriate. The criteria for what is “clearly inappropriate” will depend on the facts of the case, and, although the courts have identified several factors, none is conclusive of itself. The relevant factors include: any significant connections between the selected forum and the parties and the subject-matter of the dispute; whether there is any legitimate and substantive advantage138 to the claimant in the selected forum; and whether the law of the selected forum will supply the substantive law to govern the dispute, or whether the matter is governed by a foreign law. This last factor could be important if the contract in dispute is governed by a foreign law, as will often be the case with, for example, a charterparty, or possibly, a marine insurance contract issued outside Australia.139 Circumstances where jurisdiction clauses are void 2.35 Where goods are insured for ocean voyages against perils of the sea falling within the Marine Insurance Act 1909 of Australia, the parties are free to choose the jurisdiction of an Australian State or Territory, or a foreign court such as the High Court in England. However, for goods insured in store, or in inland transit in Australia, or otherwise not exposed to marine perils,140 the Insurance Contracts Act 1984 section 52 prohibits a foreign jurisdiction clause in so far as such a clause may prejudice the assured. In the Akai case,141 the insurance policy contained an agreement to refer any disputes to the courts of England. This jurisdiction agreement was held by the High Court of Australia to be rendered void by section 52 of the 1984 Act as it purported to exclude, or would have the effect of excluding, the operation of the 1984 Act to the prejudice of a party other than the insurer. Japanese law142 Defendant within the jurisdiction; service out 2.36 The Japanese courts will exercise jurisdiction over a dispute under a marine cargo insurance contract where the defendant is resident or domiciled in Japan, for example, 135. [1990] 171 CLR 538. 136. [1987] 1 Lloyd’s Rep. 1 (HL). 137. See para. 2.17, English law and, in relation to Singapore law, para. 2.24, above. 138. For example, a higher recovery or a more favourable limitation period. 139. It is rare to find a marine insurance contract issued in Australia containing an express choice of non-Australian law. Although the Institute Cargo Clauses, cl. 19, apply English law and practice, the custom in Australia is to vary this to incorporate Australian law or the law of a particular State or Territory, see Chapter 7 (Australian law) at para. 7.36, below. 140. As examined in Chapter 7 (Australian law) at para. 7.10 et seq. 141. [1996] 188 CLR 418, [1996] 141 ALR 374, High Court of Australia, reversing the decision of the New South Wales Court of Appeal reported at [1996] LRLR 86, and see the English decision on this case discussed at para. 2.19 above. 142. Shuji Yamaguchi, Attorney at Law, Partner, Okabe & Yamaguchi.

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where an insurer has an office in Japan.143 Jurisdiction is also exercised where the defendant doing business in Japan has no office but has an appointed representative for service.144 Where the defendant is not domiciled or represented in Japan, the court will still exercise jurisdiction in the following cases: (1) Where the place of performance of the obligation under the contract is located in Japan.145 (2) Where the subject-matter of the claim is located in Japan,146 or where property is located in Japan that may be seised to satisfy a monetary claim.147 (3) Where the parties have agreed in the policy to the jurisdiction of the Japanese courts.148 2.37 In practice, marine cargo policies may provide that any “loss is payable in Tokyo”, in which case the Japanese court will have jurisdiction because performance of the contract by the insurers is to take place in Japan.149 The law of the contract applies when defining the place of the obligation,150 so if English law applies to liability for claims under the contract, English rules will apply to define the place of the obligation. For example, under English law, the debtor must find the creditor, so the payment of a marine cargo insurance claim by an English insurer would have to be made in Japan. As English law provides that the obligation would have to be performed in Japan, the Japanese court will have jurisdiction. United States law151 Jurisdiction of the federal and state courts 2.38 Claims under policies of marine insurance fall within the general jurisdiction of state courts and also fall within the admiralty jurisdiction of the federal courts.152 Having satisfied the requirement of subject-matter jurisdiction, the court must next determine whether there is personal jurisdiction over the defendant in any action filed in the court. In order to acquire jurisdiction over a defendant, the defendant must be properly served with process, for example, with a copy of the summons and complaint according to the applicable state or federal procedural rules.153 The defendant must be subject to the personal jurisdiction of the state or federal court. A court can exercise personal jurisdiction as to a resident defendant domiciled within the forum state at the time the action is commenced, even if the defendant 143. Civil Procedure Law effective 2012, Art. 3-2(iii). 144. Civil Procedure Law, Art. 3-2(iii). 145. Civil Procedure Law, Art. 3-3(i). 146. Civil Procedure Law, Art. 3-3(i). 147. Civil Procedure Law, Art. 3-3(iii). 148. Civil Procedure Law, Art. 3-7. 149. Civil Procedure Law, Art. 3-3(i). 150. Op. cit. Art. 3-3(i). 151. Stephen V. Rible, Partner, Mendes & Mount LLP, New York; Instructor, St John’s University, School of Risk Management, Insurance and Actuarial Science. 152. Advani Enterprises Inc v. Underwriters at Lloyd’s, 140 F.3d 157 (2d Cir. 1998); Folksamerica Reinsurance Co v. Clean Water of New York Inc, 413 F.3d 307 (2d Cir. 2005); Norfolk S. Ry. v. Kirby, 543 U.S. 14 (2004). Subject-matter jurisdiction in the federal court may also be established if diversity jurisdiction exists. 28 U.S.C. s. 1332(a). 153. Baumhauer v. Groves, 844 F. Supp. 719 (S.D. Ala. 1993); Adams v. Unione Mediterranea di Securta, 364 F.3d 646 (5th Cir. 2004).

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154

is absent from the state. A foreign defendant, on the other hand, may consent to the local jurisdiction or be served while physically present in the forum.155 Consent may be manifested by a voluntary appearance in an action, by contractual consent contained in a forum selection clause or by designating a local agent for service of process.156 “Minimum contacts” with the forum state or the US nation 2.39 If one of these grounds for personal jurisdiction is absent, due process requires that a foreign defendant have certain minimum contacts with the forum state, or the nation as a whole if a federal statute authorises broader jurisdiction or federal law applies. This is generally viewed as a two-step process. First, the court must determine whether the defendant’s actions meet the requirements of a forum state’s long-arm statute or the federal procedural rules. If service of process cannot be effected under the long-arm statute of the state, or under the federal rules of civil procedure, then the inquiry ends. If, however, the defendant’s actions meet the necessary requirements, then the court must consider whether the state or federal procedures for service go beyond the due process requirements of the United States Constitution.157 Many state long-arm statutes extend jurisdiction as broadly as possible under the permissible limits of due process.158 The constitutional touchstone of whether the exercise of personal jurisdiction comports with due process is whether the defendant purposefully established minimum contacts in the forum state or the United States as a whole.159 The defendant must have some meaningful ties with the forum. There must be minimal contacts with the forum such that the exercise of jurisdiction over the defendant “does not offend traditional notions of fair play and substantial justice”.160 It is essential that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum state or the United States. The defendant may not be hailed into a forum simply as a result of random or attenuated contacts.161 The extent of personal jurisdiction depends upon the nature and quality of a defendant’s contacts with the forum state. Under a concept of “general jurisdiction”, if a defendant’s activities are “substantial, continuous and systematic”, a federal court can exercise jurisdiction as to any cause of action, even though unrelated to a defendant’s activities with the state.162 Under a concept of “specific jurisdiction”, when a foreign defendant’s contacts with the forum state are not sufficiently “continuous or systematic” to constitute “general jurisdiction”, the defendant may still be subject to jurisdiction on claims related to its activities in the forum state or the nation. When a foreign defendant has contacts with the nation as a whole, and not the forum state, the defendant may be subject to personal jurisdiction pursuant 154. Federal Civil Procedure before Trial, 3:57 (1995). 155. Id. at 3:1–3:6. 156. Id.; Carnival Cruise Lines Inc v. Shute, 499 U.S. 585 (1991); Adams v. Indemnity Marine Assur. Co Ltd, 220 F.3d 659 (5th Cir. 2000); cert. den. 531 U.S. 1192 (2001); Employers Ins v. Banco de Seguros del Estado, 199 F.3d 937 (7th Cir. 1999); Dinallo v. Dunav Ins Co, 672 F. Supp. 2d. 368 (SDNY 2009), aff’d 402 Fed. Appx. 595 (2d Cir. 2010); McDermott Int’l v. Lloyd’s Underwriters, 944 F.2d 1199 (5th Cir. 1991); Fruit Dist. Inc v. Boag, 93 F. Supp. 431 (SD Ala. 1950). 157. International Shoe Co v. Washington, 326 U.S. 310 (1945); Baumhauer; Adams. 158. Baumhauer. 159. Baumhauer; Adams. 160. International Shoe at 316. 161. Baumhauer; Adams. 162. Federal Civil Procedure before Trial, 3:101–118 (1995).

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to the federal rules of civil procedure when the claims arise under federal law, such as admiralty law.163 The appropriate forum 2.40 Assuming both subject-matter jurisdiction and personal jurisdiction exist, the court may dismiss an action on a marine cargo insurance policy on the basis of forum non conveniens.164 If there is an adequate alternative forum in which the case can be litigated, the court has the discretion to dismiss the case. The court’s discretion is guided by several public and private interest factors165: “Private interest considerations [include]: the relative ease of access to sources of proof; the availability of compulsory processes for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; and all other practical problems that make trial of a case easy, expeditious and inexpensive. Questions as to the enforceability of a judgment if one is obtained may also exist. Public interest factors include administrative difficulties stemming from court congestion; the undesirability of imposing jury duty upon the people of a community which has no relation to the litigation; the local interests in having localised controversies decided at home; and the appropriateness of holding the trial in a forum that is ‘at home’ with the applicable law rather than having a court untangle problems in conflict of laws, and in law foreign to itself.”

If the contract contains a forum selection clause, however, the court’s discretion is severely curtailed. A forum selection clause is binding unless the party opposing its enforcement can clearly show that enforcement would be unreasonable or that the clause is invalid due to fraud or overreaching.166 In order to assert that enforcement would be unjust, “the party has a ‘heavy burden’ of demonstrating ‘that trial in the contractual forum will be so gravely difficult that he will for all practical purposes be deprived of his day in court’”.167 Law of the PRC168 Persons resident and other cases 2.41 Under the law of the People’s Republic of China, the Chinese court has jurisdiction over persons resident within the jurisdiction. In the case of cargo insurance, the domicile of the defendant is not the only test, as the claimant is entitled to choose any of the following places to file its claim: the place where the carrying conveyance is registered, the destination of carriage, and the place of occurrence of the insured accident. The Chinese court exercises jurisdiction over parties domiciled abroad if a contract is signed or performed in China, or the subject-matter in dispute, or the defendant’s property is seised in China, or the defendant’s representative office is set up in China, or a tortious act occurs in China.169 The parties to a foreign-related contract are entitled to agree upon a foreign jurisdiction clause 163. Id. at 3:100. 164. Heera Industries Ltd v. AIU Ins Co, 1998 AMC 1 (SDNY 1997). 165. Id. 166. Bremen v. Zapata Off-Shore Co, 407 U.S. 1 (1972); Transway Shipping Ltd v. Underwriters at Lloyd’s, 717 F. Supp. 82 (SDNY 1989). 167. Transway; see Bremen at 17–18. 168. Liu Guiming, Liang Jian and Cai Dongdong, GL & Co, Law Firm, Shanghai. 169. Article 241 of the Civil Procedure Law.

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whereby disputes are submitted to a foreign court, in which case the chosen jurisdiction must have an actual connection170 with disputes.171 South African law172 Instituting proceedings; jurisdiction and the special position of Lloyd’s 2.42 Marine cargo insurance claims are almost always actions in personam and may only be instituted against a person: (a) resident or carrying on business at any place in South Africa; (b) whose property within the court’s area of jurisdiction has been attached by the plaintiff or applicant to found or to confirm jurisdiction; (c) who has consented or submitted to the jurisdiction of the court; (d) in respect of whom any court in South Africa has jurisdiction in terms of Chapter VI of the Insurance Act No. 27 of 1943; and (e) in the case of a company, if it has a registered office in South Africa.173 With regard to paragraph (d), this is a reference to insurance placed through Lloyd’s. Jurisdiction over business underwritten by Lloyd’s174 is now dealt with in Part VIII, sections 56 to 63 of the Short-term Insurance Act No. 53 of 1998. In terms of Part VIII, Lloyd’s underwriters are authorised to carry on short-term insurance business.175 Lloyd’s are required to appoint a representative and a deputy representative who are obliged to ensure that Lloyd’s complies with the provisions of the Act.176 The Lloyd’s representative must have his or her principal place of business within South Africa.177 The Act provides178 that any claim against any underwriter at Lloyd’s under a South African short-term insurance policy179 will be recognised by any competent South African court and that the Lloyd’s representative in South Africa may be cited as the nominal defendant in the summons or application papers commencing proceedings and served on him.180 Furthermore, such representative may, with regard to such short-term insurance policies, institute and conduct proceedings in a competent South African court as nominal plaintiff or applicant on behalf of 170. The “actual connection” is usually determined by factors such as the domicile of the parties, where the parties are registered and conduct their business, the place for signing and performance of the contract, and where the subject-matter in dispute is located. 171. Article 242 of the Civil Procedure Law. 172. Andrew Robinson, Director and Head of Transport, Norton Rose South Africa. 173. Section 3(3) of the Admiralty Jurisdiction Regulation Act. No. 105 of 1983, as amended. 174. Lloyd’s was regulated by the Insurance Act No. 22 of 1943 (now repealed save for one section not relevant to marine insurance). 175. Section 56 of the Short-term Insurance Act, 53 of 1998. 176. Section 57(1) of the Short-term Insurance Act. 177. Section 57(7) of the Short-term Insurance Act. 178. Section 59(1) of the Short-term Insurance Act. 179. In terms of s. 56(4) of the Short-term Insurance Act read with Schedule 3 Part 1(1) and (3) of that Act, “South African short-term insurance policy” means a short-term policy that: (a) relates to risks in respect of movable property where the insured is either a natural person resident in South Africa or has its registered office or principal office or place of business in South Africa; and (b) for which the application was received, or the documentation of which was issued, or the premiums payable under which are received by a person in South Africa on behalf of the Lloyd’s underwriter. 180. Confirmed by the Supreme Court of Appeal in Ronald Stuart Napier v. Barkhuizen [2006] 2 All SA 469 (SCA).

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underwriters at Lloyd’s. Where the Lloyd’s representative is cited as the nominal party, the true party may at any time be substituted. Maritime claims: actions in personam and in rem in the Admiralty Courts 2.43 The Admiralty Jurisdiction Regulation Act181 (“the Act”) defines a maritime claim as including any claim arising out of or relating to marine insurance or any policy of marine insurance.182 Therefore, marine insurance claims for the enforcement of any obligation under the insurance policy – whether by an insured for payment under its insurance contract in respect of loss or damage suffered to the insured cargo, or by an insurer for payment of the insurance premium – or otherwise,183 will fall within the admiralty jurisdiction of the various divisions of the High Courts.184 The Act also defines, as a maritime claim, any claim for, or arising out of or relating to the remuneration of, or payments or disbursements made by, or the acts or omissions of, any person appointed to act, or who acted or failed to act, as a broker in connection with any insurance of other maritime property such as cargo.185 It follows that an underwriter or broker due premiums by the owner of the cargo against or in respect of which the claim lies can enforce that claim by arresting that cargo in rem.186 Such relief is rarely sought.187 2.44 The Act provides that claims arising from a marine insurance contract fall squarely within the admiralty jurisdiction of the South African High Court.188 Each High Court is vested with admiralty jurisdiction to hear and determine any maritime claim, irrespective of the place where such a claim arose.189 This wide-ranging jurisdiction is not completely unfettered. In the first instance, the court has the discretion190 to decline to exercise its jurisdiction in any proceedings instituted or to be instituted in South Africa, if the court is of the opinion that another court, arbitrator or tribunal or body elsewhere will exercise jurisdiction in those proceedings and that it is more appropriate that the matter be heard before that other court, arbitrator or tribunal or other body. The court also has the

181. No. 105 of 1983 as amended. This Act is currently the subject of substantive amendment by the Maritime Law Association of South Africa. 182. Section 1(1) (u) “maritime claim”; see Shooter t/a Shooter’s Fisheries v. Incorporated General Insurances Ltd, 1984 4 SA 269 (D); Incorporated General Insurances Ltd v. Shooter t/a Shooter’s Fisheries, 1987 1 SA 842 (A) 856J–857A. 183. See, e.g., The London Steamship Owners Mutual Insurance Association Ltd v. Westdeutsche Landesbank Girozentrale, 1996 1 SA 1 (A), which involved a claim by a protection and indemnity club for outstanding calls. 184. In South Africa, the courts with the least amount of jurisdiction are the magistrates courts. The ongoing dispute as to whether or not Magistrates Courts have any jurisdiction to hear claims that might be regarded as maritime claims, remains unresolved. The general view is that these courts do not have jurisdiction to hear admiralty claims. Following the Renaming of High Courts Act, 2008, there are now 13 High Courts, six of which have jurisdictions that include a coastline. Appeals can be made from a single judge in the High Court to a full bench of three judges in the High Court, or if leave to this end is obtained, from a single judge directly to the Supreme Court of Appeal, based in Bloemfontein, and, if the matter has some constitutional element, a further appeal can be made to the Constitutional Court. There is no automatic right of appeal. In each case, leave must be requested. If leave is refused, it is necessary to apply to the State President for leave to appeal. 185. Section 1(1)(p)(ii). 186. Section 3(5)(c) of the Act. 187. However, the enforcement of claims in rem by the arrest, or threatened arrest, of a ship for unpaid P&I calls is a very common occurrence. 188. Section 1(1)(u) of the Act. 189. Section 2(1) of the Act. 190. Section 7(1)(a) of the Act.

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191

discretion to stay any proceedings instituted if the parties to the dispute wish to refer the matter to arbitration or if the court is of the opinion that there is a sufficient reason to stay the proceedings. The onus to show that sufficient reason exists will rest on the party seeking the stay.192 The South African courts will recognise submissions to the jurisdiction of foreign courts.193 Generally, actions in personam can only be instituted in a court whose area of jurisdiction is “adjacent to the territorial waters”194 of South Africa. However, where the claim relates to an insurance agreement concluded within the jurisdiction of a court, that court will have admiralty jurisdiction to hear that claim notwithstanding that the area of jurisdiction of that court is not adjacent to the territorial waters of the jurisdiction of the court.195 For example, where there is a dispute arising out of a policy of insurance concluded in Johannesburg, the relevant inland court196 will have admiralty jurisdiction to hear the matter. 2.45 Where the intended defendant resides outside the jurisdiction of the court (and absent any submission and address for service), then any process instituting an action can be served on that defendant with the leave of the court. In particular, where property of a foreign defendant is situated within the jurisdiction of a South African court, this property can be attached to found and confirm jurisdiction and the court can order that any process instituting proceedings can be served by edictal citation.197 In order to succeed with such an attachment, the applicant must show that it has a prima facie case, that the respondent is a foreigner to the jurisdiction of the court, and that the property is within the jurisdiction of the court and the respondent owns the property to be attached.198 The application is usually brought ex parte and, as a consequence, there is a requirement that the applicant give full and frank disclosure to the court. 2.46 It is not sufficient for proceedings to be served upon an agent of the defendant, unless that agent has been specifically nominated by the defendant to accept service.

APPLICABLE LAW European law The Rome I Regulation 2.47 The Rome I Regulation199 (“Rome I”) sets out the EU rules for determining the applicable law. It applies, in particular, to contracts of marine cargo insurance against “large risks” entered into on or after 17 December 2009,200 whether or not the risk covered is 191. Section 7(1)(b). 192. The MV Iran Dastghayb 2010 (6) SA 493 (SCA). 193. The MV Achilleus 1992 (1) SA 324 (CPD). 194. Section 3(3) of the Act. 195. Section 3(3)(a) of the Act. 196. The South Gauteng High Court, Johannesburg. 197. Section 4(4) of the Act. 198. Numill Marketing CC v. Sitra Wood Products (Pty) Ltd, 1994 (3) SA 460 (CPD). 199. Regulation (EC) No. 593/2008 of the European Parliament Council on the Law Applicable to Contractual Obligations (Rome I). There are two relevant exceptions: jurisdiction clauses and, arguably, insurance certificates negotiated in international trade. The law applicable to these agreements is considered in the domestic English law section of this chapter at paras 2.51 to 2.52 below. 200. Ibid., Art. 29.

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situated in a Member State of the EU.201 Rome I will therefore apply to most contracts of marine cargo insurance under which a dispute now arises, as cargo contracts are normally entered into annually on renewal, or arranged for individual voyages,202 and will usually constitute “large risks”, as discussed above.203 Rome I applies to all EU Member States except Denmark,204 and this section of the chapter therefore states the law in the UK and the other EU Member States, including those considered in this book, Italy, Germany and France. The UK initially did not want to opt into Rome I,205 but following a consultation process changed its position.206 The law set out in the Regulation applies to the EU Member States, without the need for separate enacting legislation.207 Freedom of choice for “large risks”: limitations for other risks 2.48 The general principle under Rome I is that the parties to a contract should have freedom to choose the applicable law208 and, where the risk is a “large risk”, the Regulation accordingly provides that the contract shall be governed by the law chosen by the parties to it.209 “Large risks” are defined by reference to Article 5(d) of the First Non-Life Insurance Directive210 under which they include risks classified under Class 7 of Annex A which reads, “Goods in transit (including merchandise, baggage, and all other goods) – All damage to or loss of goods in transit or baggage, irrespective of the form of transport”.211 It is submitted that this wide definition will include most international marine cargo insurance contracts for which there is, therefore, freedom to choose the applicable law. The position with regard to cargo insured for storage risks, which do not include transit, is that these risks may still qualify as “large risks” where there is cover against the perils of fire, explosion storm and theft and the policyholder qualifies as a “substantial concern”.212 Where the risk does not qualify as a “large risk”, it is necessary to determine where the risk is situated. In practice, for cargo insurance this will be where the policyholder has his habitual place of residence, or, where the policyholder is a company or corporate body, where the company’s 201. Ibid., Art. 7.1. Where the risk is situated outside the EU, different rules may apply, but this only becomes a relevant factor where the risk is not a “large risk”, which will be rare in marine cargo insurance. This position regarding non “large risks” is briefly considered in para. 2.48 below. 202. For a summary of the law relating to contracts entered into before 17 December 2009, see Arnould First Supplement at para. 5-10 et seq. and Dunt, Marine Cargo Insurance, Chapter 2 at para. 2.2 et seq. 203. See para. 2.8 above. 204. In accordance with Arts 1 and 2 of the Protocol on the position of Denmark, see Rome I, Recital (46). 205. Rome I, Recital (45). 206. See “Rome I: An Update on the Law Applicable to Contractual Obligations in Europe”, by Mils Willem Vernooij, The Colombia Journal of European Law Online citing UK Consultation Paper 05/08 and the Commission Opinion, COM (2008) 730 final (7 November 2008). 207. The Regulation applies by virtue of Art. 67(4) of the Treaty on the Functioning of the European Union and is independent of any measure of reception into national law, Amsterdam Bulb BV v. Produktschap voor Siergewassen, Case C-50/76 [1977] ECR 137 (ECJ). 208. Rome I, Art. 3.1 and see Recital 11 which states, “The parties’ freedom to choose the applicable law should be one of the cornerstones of the system of conflict-of-law rules in matters of contractual obligations”. 209. Ibid., Arts 7.2 and 3.1. 210. 73/239/EEC as amended by the Second Non-Life Insurance Directive 88/357/EC. 211. Arnould’s First Supplement at para. 5-11, p. 26, indicates that “cargo and other policies may not constitute large risks”. In so far as this qualification is made because cargo policies may not include “transit” within Art. 5(d), this view accords with the text above, but most cargo insurances will be “large risks”. See also Mance, Goldrein and Merkin (eds), Insurance Disputes, 2011, Informa, at para. 15.45, which confirms that “large risks” includes risks that cover “goods in transit” in accordance with Art. 5(d) of the Non-Life Directive (73/239/EEC). 212. See the discussion earlier in this chapter at para. 2.8 above and fn. 39.

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establishment to which the risk relates is situated. Where the non-large risk is situated in the EU, the rules are designed to protect the assured as a consumer, for example, in the case of furniture214 removal, by limiting the choice of law to the law of the EU Member State where the risk is situated or the law of the country where the policyholder has his habitual place of residence.215 Where the non-large risk is situated outside an EU Member State, the usual rules as to freedom of choice apply,216 as do the normal rules for determining the applicable law in the absence of choice.217 Express or implied choices of law 2.49 Rome I provides that the choice of law made by the parties shall be “made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case”.218 An express choice of law is mandatory by current London market practice and the recommended English wording for the MRC219 reads: “This insurance shall be governed by and construed in accordance with the laws of England and Wales.”

The Institute Cargo Clauses220 also contain the following choice of law clause: “This insurance is subject to English law and practice.”

Even though an open cover or policy may incorporate the Institute Cargo Clauses, the policy may nevertheless have a choice of another law. For example, in the Evialis case,221 the assured took out a marine cargo open cover in Italy subject to Italian law, under which a certificate of insurance was issued, which incorporated the Institute Cargo Clauses. It was argued that English law applied, which required, under the previous rules, that the choice “must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case”.222 It was held that the printed reference to English law in the Institute Clauses taken in the context of an express agreement to Italian law in a policy issued to an Italian assured, where the risk was situated, did not demonstrate such a choice with “reasonable certainty”.223 Rome I now requires that the choice be “clearly” demonstrated, which is a higher test, and the choice of English law in clause 19 of the Institute

213. Article 2(d) of the Non-Life Directive 88/357/EEC, as amended, which applies by virtue of Rome I, Art. 7.6. 214. Assuming that furniture does not constitute “goods” for the purposes of Art. 5(d) of the Non-Life Directive. 215. Rome I, Art. 7.3, which contains additional choices not likely to be relevant to cargo insurance. Additional rules apply to such risks in the absence of choice, Art. 7.4. 216. Rome I, Art. 3. 217. Ibid., Art. 4, see para. 2.50 below. 218. Rome I, Art. 3. 219. For an example of a typical MRC, see Dunt, Marine Cargo Insurance, Appendix 5, and see the London Market Reform Group website for the latest MRC at www.londonmarketgroup.co.uk. 220. ICC, cl. 19. 221. [2003] EWHC 863 (Comm), [2003] 2 Lloyd’s Rep. 377. 222. This was in accordance with Art. 6(1) under the Financial Services and Markets Act 2000 (Law Applicable to Contracts of Insurance) Regulations 2001, which, in some respects, reflected the terms of the Rome Convention, which did not apply to contracts of insurance where the risk was situated in a Member State, Rome Convention, Art. 3. 223. Evialis SA v. S.I.A.T. (supra, fn. 221), at para. 42.

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Cargo Clauses is therefore most unlikely to prevail over a different choice of law in the policy or open cover. Absence of choice 2.50 Rome I provides that, to the extent that the applicable law has not been chosen by the parties, the insurance contract will be governed by the law of the country where the insurer has his habitual residence.224 This rule puts certainty over flexibility,225 but there is some allowance for exceptions, “where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with another country, the law of that other country shall apply”.226 For example, a marine cargo insurance may be issued in Singapore by a Singaporebased insurer on an English policy form and without a choice of law clause. Although the word “manifestly” suggests a higher hurdle than was the case in the previous legislation,227 it is submitted that the law of the place of the insurers’ residence, Singapore, would be “manifestly” inappropriate in such circumstances and that English law should apply. English domestic law 2.51 English domestic law only determines the applicable law in the two exceptional cases not governed by Rome I.228 Subject to the exceptions now considered, the reader is therefore referred to the European section of this chapter.229 The first exception arises because Rome I excludes from its scope “agreements on the choice of Court”, that is, jurisdiction clauses.230 The question of which law is applicable to jurisdiction clauses therefore remains a matter of the English common law.231 The other possible exception relates to certificates of insurance negotiated to a buyer of goods under a CIF contract.232 2.52 The general rule of the common law is that the parties are free to choose the law that governs their contract233 and that, in the absence of an express choice, the courts 224. Rome I Regulation, Art. 7.2. 225. See “Rome I: An Update on the Law Applicable to Contractual Obligations in Europe”, by Mils Willem Vernooij, The Colombia Journal of European Law Online at p. 71. 226. Article 7.2, para. 2. 227. Compare Art. 4(8) of the Financial Services and Markets Act 2000 (Law Applicable to Contracts of Insurance) Regulations 2001 and, e.g., Art. 4.5 of the Rome Convention. 228. Regulation (EC) No. 593/2008 of the European Parliament Council on the Law Applicable to Contractual Obligations (Rome I). 229. At paras 2.47 to 2.50 above. 230. Rome I, Art. 1.2(e). 231. Under the English common law, the question of which law applies is to be determined in accordance with English law and not, for example, by the law which might apply to the contract. 232. Article 1.2(d) of Rome I excludes “obligations arising under … negotiable instruments to the extent that the obligations under such instruments arise out of their negotiable character”. See Herman Boonk, “Determining Jurisdiction and Choice of Law in Contractual Disputes Coupled with Property-Related Claims”, [2011] LMCLQ 227 at 231–232, who argues that where a bill of lading is negotiated to a third party, and evidences the contract of carriage, the question of which law governs the bill falls outside Rome I. It is submitted that a similar rule may possibly apply to certificates of insurance to the extent that the obligation under such instruments arises out of their negotiable character, though the position is far from clear as Recital 9 of Rome I expressly mentions bills of lading but does not mention insurance certificates. See further, Y. Baatz “Forum Section in Contracts for the Carriage of Goods by Sea: The European Dimension” [2011] LMCLQ 208 at fn. 73. 233. The English courts do not recognise a floating law clause dependant upon the jurisdiction in which a dispute arises, Amin Rasheed Shipping Corporation v. Kuwait Insurance Co (The Al Wahab) [1983] 2 Lloyd’s Rep. 365 (HL), [1984] AC 50.

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will look to the implied choice of law from the other terms of the policy and surrounding circumstances. Where there is no choice, either express or implied, the court will apply a balancing test to determine with which system of law the policy has its closest connection. This test gives most weight to the country in which the risk was placed and, in practice, if there is no implied choice of law, the law of the country where the risk was placed is likely, under English rules, to be the law applicable to the jurisdiction clause.234 Singapore law235 2.53 Where the proper law of the contract has to be determined, the Singapore court will undertake a three-stage exercise as outlined by Judith Prakash J in Overseas Union Insurance Ltd v. Turegum Insurance Co.236 The first stage involves an examination of the contract itself to determine whether it expressly provides for a governing law. In the absence of an express provision, one then moves on to the second stage which is to see whether the intention of the parties as to the governing law can be inferred from the circumstances. If this cannot be done, the third stage is to determine with which system of law the contract has its most close and real connection, and that system would be taken, objectively, as the governing or proper law of the contract.237 This final part of the exercise is conducted in accordance with the common law rules, which are now considered. 2.54 The common law choice of law rules have long been applied in Singapore. Where the parties have agreed on a proper law clause, the Singapore courts will generally give effect to such clauses unless it can be shown that the selection lacks bona fide, is not legal or is contrary to public policy. The Singapore Court of Appeal’s decision in Peh Teck Quee v. Bayerische Landesbank Girozentrale238 clearly illustrates the application of the choice of law rules. In that case, the Court of Appeal cited with approval the English case of Vita Foods239 and said that “the only qualifications to the parties’ autonomy are that the application of foreign law should not be contrary to public policy and that the choice should be bona fide and legal”.240 The Institute Cargo Clauses 1/1/82, which are still widely used within the Singapore market, provide for English law, and this choice will generally be upheld with the above rules. 2.55 When faced with a policy governed by foreign law (i.e., English law), the Singapore court will rely on expert evidence to determine what that law is. In the absence of satisfactory evidence of the foreign law, or if no party has pleaded foreign law, the Singapore court will then apply Singapore law.241 In D’Oz International Pte Ltd v. PSB Corp Pte Ltd,242 it was held that the Singapore court will presume foreign law to be the

234. This applies particularly if London clauses, such as the Institute Cargo Clauses, are incorporated, see, Amin Rasheed Shipping Corporation v. Kuwait Insurance Co (The Al Wahab) [1983] 2 Lloyd’s Rep. 365 (HL); Islamic Arab Insurance Co v. Saudi Egyptian American Reinsurance Co [1987] 1 Lloyd’s Rep. 315 and, for a recent example, see Bank of New York Mellon v. GV Films [2010] 1 Lloyd’s Rep. 365. 235. Corina Song, Partner, Allen & Gledhill LLP, Singapore. 236. [2001] 2 SLR(R) 285. 237. Ibid., para. 82. 238. [1999] 3 SLR (R) 842. 239. Vita Food Products Inc v. Unus Shipping Co Ltd [1939] AC 277. 240. Ibid., p. 847. 241. Goh Chok Tong v. Tang Liang Hong [1997] 1 SLR(R) 811. 242. [2010] 3 SLR 267, [2010] SGHC 88.

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same as the lex fori (i.e., Singapore law) in any case where foreign law is not pleaded or not proved (if pleaded). 2.56 In 2003, a law reform sub-committee243 was set up to review and report on the necessity for reform of the law concerning choice of law in contract. The sub-committee considered the need to overhaul the law by way of legislative intervention. In particular, the sub-committee considered the UK Contracts (Applicable Law) Act 1990, which gave effect to substantive parts of the Rome Convention.244 After its review, the sub-committee concluded that there was no urgency for reform and the better approach would be to leave reform to the integrational, incremental and gradual evolution of the common law245 as “Singapore should not be sacrificing the flexibility of the common law, which has served us so well for so long”.246 Hong Kong law247 2.57 Hong Kong applies the general rule of the common law, which is that the parties are free to choose the law that governs their contract. In the absence of an express choice of law provision, the Hong Kong courts will look to the implied choice of law from the other terms of the policy and surrounding circumstances. Where there is no choice, either express or implied, the court will apply a balancing test to determine with which system of law the policy has its closest connection. This test, in practice, gives most weight to the country in which the risk was placed. 2.58 The Institute Cargo Clauses are still widely used in Hong Kong. These provide for English law. As a matter of formality, questions of foreign law are factual questions and are therefore subject to proof by the reception of expert evidence. However, in the absence of proof of any difference, the Hong Kong court will assume that English law is the same as Hong Kong law. The general procedure in cargo insurance cases which are subject to provisions providing for English law, is for the Hong Kong court to proceed and hear the case without receiving evidence in relation to English law. 2.59 Hong Kong has two official languages: Chinese and English. It is becoming increasingly common in Hong Kong for the PICC Clauses to be adopted. These provide that the Chinese text is to be regarded as authoritative.248 The matter does not appear to have yet been the subject of a decided case; however, it is unlikely that the Hong Kong court would regard a contractual statement that the Chinese text is to be authoritative as indicating by itself an implied choice of a particular law. Australian law249 Freedom of choice of law for ocean voyages 2.60 Where goods are insured for ocean voyages against perils of the sea falling within the Marine Insurance Act 1909 of Australia, the parties are free to choose the law of an Australian 243. ”Report on Reform of the Law Concerning Choice of Law in Contract” – 16 September 2003. 244. Ibid., paras 5 and 99. 245. Ibid., para. 110. 246. Ibid., para. 112. 247. Colin Wright, Barrister-at-Law. 248. See the PICC Clauses, Appendix 19 at cl. VI. 249. Derek Luxford, Partner, Hicksons.

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State or Territory, or a foreign law, such as English law. In such circumstances, the rules of the Australian common law, which in this respect reflects the English common law, apply in Australia. As earlier described,251 the parties are free to choose the law that governs their contract and, in the absence of an express choice, the courts will look to the implied choice of law from the other terms of the policy and surrounding circumstances. Where there is no choice, either express or implied, the court will apply a balancing test to determine with which system of law the policy has its closest connection. This test, in practice, gives most weight to the country in which the risk was placed. Circumstances where applicable law clauses are void: goods in store etc 2.61 Where goods are insured in store, or in inland transit in Australia, or otherwise not exposed to marine perils,252 the Insurance Contracts Act 1984 section 8 applies State law as the governing or “proper” law to contracts of insurance to which the Act applies,253 notwithstanding any express choice of another law.254 Moreover, section 52 of the Insurance Contracts Act 1984 makes a foreign law clause void in so far as such a clause may prejudice the assured. In the Akai case,255 the High Court of Australia held that sections 52 and 8 taken together meant that there should be no power to contract out of the 1984 Act and that, where the law of an Australian State or Territory would otherwise apply, that State law would be the governing law whatever the choice of the parties, thus respecting the regime of the Act.256 Choice of law clauses in practice in Australia 2.62 In practice, contracts for ocean voyages subject to the Marine Insurance Act 1909 are invariably expressed to be subject to Australian law or the law of the State or Territory.257 Where a contract may be subject to the Insurance Contracts Act 1984, the position, as further described in the Australian law chapter,258 is generally to respect the regime under the 1984 Act and, in cases of doubt, the practice is for the parties to agree that the 1984 Act applies.259 Japanese law260 2.63 The Japanese courts, like the English courts,261 will apply their own law, that is, Japanese law, to decide which law applies to the contract. Under Japanese law, the general

250. See, e.g., cl. 19 of the ICC. 251. At para. 2.52. 252. As examined in Chapter 7 (Australian law) at para. 7.10 et seq. 253. ICA 1984 s. 8(1). 254. ICA 1984 s. 8(2). 255. Akai Pty Ltd v. The People’s Insurance Co Ltd [1997] ALR 141, [1996] 188 CLR 418. 256. At p. 384. The English court nevertheless accepted jurisdiction in this case, see para. 2.19 above. 257. Overriding the choice of English law in cl. 19 of the ICC, which would commonly be incorporated. 258. See Chapter 7, below (Australian law) at para. 7.10 et seq. 259. See Chapter 7, below (Australian law) at para. 7.17. 260. Shuji Yamaguchi, Attorney at Law, Partner, Okabe & Yamaguchi. 261. See Amin Rasheed Shipping Corporation v. Kuwait Insurance Co (The Al Wahab) [1983] 2 Lloyd’s Rep. 365 (HL), [1984] AC 50.

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principle is that the parties are free to choose the law applicable to their contract. In this context, Article 7 of the Law Concerning the Applicable Law provides as follows: “The existence and effect of a juristic act shall be governed by the law of the place chosen by the parties at the time the juristic act is performed.”

Where there is an express or implied choice of law, the Japanese courts will uphold the choice made by the parties so that, for example, they will apply English law where a typical Japanese marine cargo policy expresses itself to be governed by English law in respect of “liability for claims”. The Japanese courts will also apply English law to the Institute Cargo Clauses, albeit that the general incorporation of English law in the clauses is usually subject to the more restrictive choice of English law in the policy itself, limiting English law to liability for claims. The Japanese courts at all levels, including the Supreme Court in one case, have upheld this limited choice of English law. The law chosen by the parties will be the applicable law and will apply not only to rights under the contract but will also apply to determine the validity and existence of the contract.262 2.64 If there is no choice of law in accordance with Article 7, then Article 8(1) of the Law Concerning the Applicable Law provides that, “if there is no choice provided by the preceding article, the existence and effect of a juristic act shall be governed by the law of the place related most closely to the said juristic act at the time that the juristic act is performed”. It is submitted that the Japanese courts are likely to approach the issue of the applicable law of a marine cargo insurance contract in a similar manner to the way in which domestic English law applies the rule that a contract is governed by the law of the country with which that contract had its closest connection. United States law263 2.65 In commercial contracts of an international character, freely negotiated choice-offorum and choice-of-law clauses are binding unless a court decides “that it would be unfair, unjust, or unreasonable to hold [a] party to his bargain”.264 In the absence of other considerations, such as a resulting injustice, “the agreement to submit to arbitration or the jurisdiction of [foreign] courts must be enforced even if [the] agreement tacitly includes the forfeiture of some claims that could have been brought in a different forum”.265 A marine cargo insurance policy is a maritime contract.266 Therefore, federal maritime law and federal choice of law rules apply. Federal maritime law requires that the court look to state law to determine the scope and validity of marine policy provisions.267 The federal court must determine which state law to use by assessing the following contacts: “(1) any choice-oflaw provision contained in the contract; (2) the place where the contract was negotiated,

262. Law Concerning the Applicable Law, Art. 7. For a further discussion of the difficult issues that arise on the construction of the usual form of clause in Japanese policies, which incorporate English law and practice as to “claims”, see Chapter 6 (Japanese law) at para. 6.3 et seq., where this clause is examined in detail. 263. Stephen V. Rible, Partner, Mendes & Mount LLP, New York; Instructor, St John’s University, School of Risk Management, Insurance and Actuarial Science. 264. The Bremen v. Zapata Off-Shore Co, 407 U.S. 1, 18 (1972); In re: Millenium Seacarriers Inc, 96 Fed. Appx. 753 (2d Cir. 2004). 265. Millenium Seacarriers; Roby v. Corporation of Lloyd’s, 996 F.2d 1353, 1360–1361 (2d Cir. 1993). 266. Advani Enterprises Inc v. Underwriters at Lloyd’s, 140 F.3d 157 (2d Cir. 1998). 267. Wilburn Boat Co v. Fireman’s Fund Ins Co, 348 U.S. 310 (1955); Advani.

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issued, and signed; (3) the place of performance; (4) the location of the subject matter of the contract; and (5) the domicile, residence, nationality, place of incorporation, and place of business of the parties”.268 Consequently, where sufficient “contacts” exist to support a choice of law provision in a marine cargo insurance policy and the policy expressly provides that the “insurance is subject to English law and practice”, the court will apply English law.269 Under federal choice of law rules, when a maritime contract contains a choice-of-law clause, the law chosen by the parties governs.270 However, there is an exception to the rule. When the law of the chosen jurisdiction has no substantial relationship to the parties or the transaction, the choice of law provision will not be controlling.271 Law of the PRC272 2.66 Under the law of the People’s Republic of China, the parties to a foreign-related contract may choose a foreign law as the applicable law for disputes arising out of such a contract.273 In practice, the Chinese courts recognise a choice of foreign law in insurance contracts. For example, in Jiangsu Overseas Group v. Winterthur Insurance Shanghai,274 where the goods were insured under the Institute Cargo Clauses (C), the Marine Insurance Act 1906 was deemed to be the applicable law for the dispute involved. If there is no choice of law in the contract, the Chinese courts determine which law applies on the basis of the “closest connection” test. In the context of insurance contracts, the domicile of the insurer is usually deemed to be the place having the “closest connection” with the insurance contract and the system of law of that place will apply. South African law275 Express or implied choices of law 2.67 In South Africa, the law to be applied to a maritime claim is determined by the somewhat cumbersome provisions of section 6 of the Admiralty Jurisdiction Regulation Act (“the Act”).276 The effect of this section is that, absent “any agreement relating to the system of law to be applied in the event of disputes”,277 a South African court will apply Roman-Dutch law to any matter arising in respect of marine insurance. An agreed choice of law will not necessarily override any South African legislation that might protect a party to the proceedings.

268. Advani. 269. Advani; see Javed v. British Airways plc, 980 F.2d 1407 (11th Cir. 1993). 270. Advani; Javed; Sphere Drake Ins plc v. J. Shree Corp, 1999 AMC 1480 (SDNY 1999), aff’d 53 F. Appx. 175 (2d Cir. 2002); Chrisnav Yachting Ltd v. Lloyd’s Underwriters, 2007 AMC 75 (SDNY 2006). 271. New York Marine & General Ins Co v. Tradeline LLC, 1999 U.S. Dist. LEXIS 20022 (SDNY 1999), aff’d in part and rev’d in part, on other grounds, 266 F.3d 112 (2d Cir. 2001). 272. Liu Guiming, Liang Jian and Cai Dongdong, GL & Co, Law Firm, Shanghai. 273. Unless otherwise stated by law, see Art. 126 of the Contract Law. 274. Shanghai Maritime Court Case No. (2001) Hu Hai Fa Shang Chu Zi 398. 275. Andrew Robinson, Director and Head of Transport, Norton Rose South Africa. 276. As marine insurance was not a matter over which the Colonial Courts of Admiralty had jurisdiction (s. 6(1) (a)), Roman-Dutch law will be applied (s. 6(1)(a)). 277. Section 6(5).

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2.68 In The Mieke, a decision of the Supreme Court of Appeal, the parties to a hull insurance policy agreed that the applicable law of the contract was English law, and that the South African courts would have jurisdiction to hear any dispute. The court noted that whilst it is valid for parties to choose the proper law of the contract, the question of the validity of the contract is governed by the lex fori and that any peremptory laws could not be excluded by agreement. As the court said: “Complete party autonomy cannot prevail over the peremptory provisions of a statute, especially where the action is brought in terms of the statute (as in this case). The Short-term Insurance Act is applicable to marine insurance by virtue of the definitions of a ‘short-term policy’ and ‘transportation policy’ which expressly includes insurance of a vessel.”279

2.69 When considering whether or not parties to an agreement could exclude the operation of statutory provisions by choosing another system of law, the court considered whether or not the provisions in question could be waived. If the waiver of the provision would prejudice public policy and interest, then such provisions could not be waived.280 Finally, and conclusively in the view of the court, the provisions of section 6(1) read with sections 6(2) and 6(5) of the Admiralty Jurisdiction Regulation Act make the position clear. In terms of section 6(1), Roman-Dutch law would apply to any marine insurance matter. Section 6(2) provides that the provisions of section 6(1) “shall not derogate from the provisions of any law of [South Africa] applicable to any matters contemplated in [section 6(1)] …”. Section 6(5) states that the provisions of section 6(1) “shall not supersede any agreement relating to the system of law to be applied in the event of dispute”. The court held that whilst section 6(5) does allow parties to make a choice of the law to apply to an agreement, this does not mean that the parties can contract out of the peremptory law. In other words, section 6(5) “must be subject to” section 6(2). Read together, the court held that the sub-sections mean that while the parties may choose a non-South African system of law to govern their contract, they may not do so where the provisions of the other system “are inconsistent with peremptory South African law”.281 2.70 Most marine cargo insurance is underwritten in terms that will incorporate the terms and conditions of the appropriate Institute Cargo Clauses, usually by reference only. One question that often arises is whether the South African courts will recognise the English law and practice clause282 in the event that the policy itself does not contain an English choice of law clause – which is often the case. The general rule is that the courts will give effect to the express wishes of the parties to a contract. In the event that the policy is silent on the question, the court would need to be satisfied that the reference to English law in the Institute Cargo Clauses reflected the parties intention that English 278. Representative of Lloyd’s and Others v. Classic Sailing Adventures (Pty) Ltd (The MV Mieke) [2010] ZACSA 89, paras 20 to 29. 279. At para. 22. 280. At para. 23 the court went further to hold that provisions in the Short-term Insurance Act relevant to nondisclosures, misrepresentations and the contravention of a law on a policy, were benefits that could not be waived and contracting out of the benefits afforded by that Act could not be permitted. 281. Paragraphs 27 to 29 of the judgment. This interpretation of s. 6 has been widely criticised – up until this decision the generally held view was that s. 6(5) was not subject to s. 6(2). 282. Clause 19 of the Institute Cargo Clauses.

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law would apply not only to issues arising under the standard clauses but also to the policy terms. Where the standard form choice of law conflicts with the relevant term in the policy, the term of the policy will prevail – although, in practice, practitioners will always look to the decisions of foreign courts for guidance when considering the terms and conditions in the Institute Clauses.

ARBITRATION Introduction 2.71 Arbitration clauses are rarely found in marine cargo insurance contracts and it is not proposed, therefore, to deal with this subject in depth. A brief summary of the position in Europe and England follows and, it may be suggested, represents a rule that courts will generally honour the agreement of the parties to arbitrate commercial disputes. European law 2.72 Where a party commences proceedings in the courts of an EU Member State in breach of an English arbitration clause, and that EU court thus becomes first seised of the case, the English courts cannot issue an anti-suit injunction to restrain that party from continuing those proceedings. The English courts must, according to the principle of mutual trust, accord the court first seised the right to uphold the English arbitration clause.283 However, the arbitrators have jurisdiction to make an award on the merits and can also award equitable damages for breach of the obligation to arbitrate.284 English law 2.73 Where arbitration clauses are occasionally encountered, the English court, once it is satisfied that the clause is valid, and that a dispute has arisen, is obliged under the Arbitration Act 1996, section 9(1) to stay any further proceedings so that the matter is effectively turned over to the arbitrators. South African law285 2.74 There is a growing trend among certain South African insurers and insurance agencies to include mediation and arbitration clauses in their policies. The submission to arbitration is usually not mandatory and the parties generally agree that the process be governed by the rules of the Arbitration Foundation of Southern Africa.286 Where none of the 283. Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v. West Tankers Inc (The Front Comor), Case C-185/07 [2009] ECR I-663, [2009] 1 Lloyd’s Rep. 413. 284. West Tankers Inc v. Allianz SpA & Another [2012] EWHC 854 (Comm). By virtue of Art. 1.2(d), the Judgments Regulation has no application to arbitration and, even in the context of European law, the arbitration tribunal was not deprived of its jurisdiction, per Flaux J at para. 78. 285. Andrew Robinson, Director and Head of Transport, Norton Rose South Africa. 286. www.arbitration.co.za.

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arbitral organisations rules are agreed to by the parties, the Arbitration Act287 will govern the arbitration. This is an outdated piece of legislation and is inadequate in many ways, hence the preference for rules of arbitral organisations. 2.75 In the event that any party to an arbitration agreement commences any proceedings in any court against any other party to the agreement in respect of any matter agreed to be referred to arbitration, then any defending party can, after joining the issue, apply that the court stay the proceedings.288 The court will stay the proceedings, subject to such terms and conditions that it deems just if it is satisfied that there are no sufficient reasons why the dispute should not be referred to arbitration in accordance with the agreement.289 An award made in terms of the Arbitration Act is not subject to appeal,290 unless the parties specifically agree to allow for an appeal to an appeal tribunal.

287. No. 42 of 1965, as amended. 288. S. 6(1) of the Arbitration Act. 289. S. 6(2) of the Arbitration Act. 290. S. 28 of the Arbitration Act.

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CHAPTER 3

E N G L I S H L AW A N D P R A C T I C E John Dunt1

INTRODUCTION Scope and structure of the chapter 3.1 It was famously said by MacKinnon LJ that, “The truth is that this law of marine insurance is nothing more than a collection of rules for the construction of the ancient form of policy”.2 It has been a long tradition in works on marine insurance to describe the law and practice in the context of standard policy wordings,3 such as the Institute Cargo Clauses (A),4 which are widely used in England and Japan as well as in some of the other common law jurisdictions considered in this book.5 This chapter, in accordance with this traditional approach, concentrates on the application of English law rules to the construction of these standard clauses. Before analysing the clauses, there are, however, a number of preliminary legal issues that go to the formation of a valid contract of marine insurance, starting with the assured’s duty to disclose all material facts and not to misrepresent the risk.6 After examining these rules, there is a consideration of the formalities that apply to marine insurance contracts as required by the Marine Insurance Act 1906, including the requirement for an insurable interest.7 There follows a brief description of open covers, policies and certificates of insurance,8 before examining warranties, exclusions and other conditions.9 The English rules of causation are explained in the context of exclusions and the special English rules relating to warranties.10 3.2 After these preliminary issues, there is a detailed consideration of the standard contract itself, which is analysed in terms of a typical cover underwritten on the Institute Cargo Clauses (A), with the Institute War Clauses (Cargo) and the Institute Strikes Clauses

1. Consultant, Clyde & Co LLP, Senior Research Fellow, Institute of Maritime Law, University of Southampton. 2. Middows, Ltd v. Robertson; and Other Cases (1940) 68 Ll. L. Rep. 45 (CA) at p. 63. 3. In Middows, Ltd v. Robertson; and Other Cases (1941) 70 Ll. L. Rep. 173 (HL) at p. 183. Viscount Maugham said that, “There was published at Rouen about the year 1600 a little book called ‘Le Guidon de la Mer’, which contains some forms of marine policies then in use and a general account of marine insurance”. 4. References in the text to the “Institute Cargo Clauses” are to the 2009 Clauses (i.e., the Institute Cargo Clauses 1/1/09) unless the 1982 Clauses or the 1963 Clauses are specifically referred to. 5. The ICC are used in Australia, see Chapter 7 at para. 7.36 et seq. below, and in South Africa, a hybrid jurisdiction, see Chapter 14 at para. 14.64 below. The ICC may also be incorporated as a requirement under a typical CIF sale contract even though there is no connection with England or other common law jurisdictions. 6. See paras 3.5 to 3.12 below. 7. See paras 3.14 to 3.15 below. 8. See paras 3.18 to 3.23 below. 9. See paras 3.24 to 3.33 below. 10. See para. 3.30 below.

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(Cargo) also attached. This part of the chapter considers the meaning of “all risks”11 and the exclusions and limitations on “all risks”,12 concentrating on inherent vice and insufficiency of packing,13 and then turning to delay and unseaworthiness,14 after which the cover for war, terrorism and strikes is analysed.15 3.3 A central issue in cargo insurance is the duration of the cover, which is examined by reference to the new extended warehouse-to-warehouse cover under the Transit Clause in the revised Institute Cargo Clauses 2009.16 Next, marine cargo claims are considered, including actual total loss, constructive total loss, and, where there is partial loss, the measure of indemnity.17 Subsequently, there is a review of the traditional expenses covered by a marine policy, that is, sue and labour, salvage and general average.18 In closing, double insurance and subrogation are dealt with.19 Marine insurance defined20 3.4 Insurance law in England is generally the same for marine and non-marine insurance,21 with some important exceptions for marine cargo insurance, including, in particular, the entitlement to sue and labour22 and the right to claim for a loss of the adventure.23 Marine insurance is defined under the Marine Insurance Act 190624 as an insurance against “marine losses” being losses incident to a “marine adventure”.25 The 1906 Act provides that there is a “marine adventure”, in particular, where goods are exposed to “maritime perils”, which are restrictively defined as meaning “the perils consequent on, or incidental to, the navigation of the sea”.26 However, a contract of marine insurance may, by its express terms, or by usage of trade, extend to “any land risk which may be incidental to a sea voyage”.27 This widens the definition to include cargo insured on a warehouse-to-warehouse basis, which is the usual practice.28 Insurance of goods for transits by land or by air, or for storage, are not contracts of marine insurance, as defined by the 1906 Act, because there is no exposure to maritime perils as they do not involve navigation of the sea. However, where these risks are insured under the Institute Cargo Clauses, as is commonly the case, it is no doubt the 11. See para. 3.34 below. 12. See para. 3.37 below. 13. See paras 3.41 to 3.50 below. 14. See paras 3.51 to 3.55 below. 15. See paras 3.56 to 3.69 below. 16. See paras 3.70 to 3.75 below. 17. See paras 3.93 to 3.112 below. 18. See paras 3.113 to 3.119 below. 19. See paras 3.120 to 3.124 below. 20. The definition of marine insurance has greater importance in some jurisdictions, e.g., Australia, and is therefore considered further in Chapter 15 (comparative law) at para. 15.2 below. 21. Contrast, in particular, the position in Australia, where different rules apply to non-marine insurance, see further Chapter 7 (Australian law) at paras 7.10 to 7.20 below. 22. See para. 3.113 below, where this entitlement is considered. 23. See para. 3.104 below, where this concept is considered. 24. The Act of 1906 expresses itself to be, “An Act to codify the law of marine insurance”. The existing law as set out in the common law cases remains unchanged unless clearly altered by express words, see Lord Wrenbury in British & Foreign Marine Insurance Co v. Samuel Sanday [1916] 1 AC 650 at p. 673. 25. MIA 1906 s. 1. 26. MIA 1906 s. 3. 27. MIA 1906 s. 2(1). 28. However, inland journeys preceding or following a sea voyage will not of themselves be contracts of marine insurance where the inland carriage is separately insured, see Schloss v. Stevens (1905) 10 Com. Cas. 224.

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3.6

intention of the parties that the Act should be applied in order to construe the clauses in so far as they use traditional marine terminology, and adopt maritime practice.29

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE Utmost good faith: non-disclosure and misrepresentation30 Utmost good faith: timing of the duty 3.5 Insurance contracts are unusual in that the assured has detailed knowledge of the risk that is transferred, for payment of a relatively small premium, to an insurer who has no personal knowledge of the risk at all.31 In some classes of non-marine insurance, the practice is for insurers to investigate the risk, for example, by commissioning a survey of industrial plant and machinery. However, in marine cargo, the insurer generally relies on the good faith of the assured to give full disclosure of the risk and to describe it accurately without misrepresentation. In the light of this practice, section 17 of the Marine Insurance Act 1906 provides that, “a contract of marine insurance is a contract based upon the utmost good faith and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party”. 3.6 This principle of utmost good faith, which derived largely from Lord Mansfield and, in particular, his judgment in Carter v. Boehm,32 is the basis for two important requirements for the formation of an insurance contract under English law. First, the assured must “disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured”.33 Secondly, there is a requirement that, “every material representation made by the assured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true”.34 In both cases, the obligations cease “when the contract is concluded”, which occurs when the proposal of the assured is accepted by the insurer, whether the policy is then issued or not.35 In the London market, the contract is usually concluded when each underwriter individually puts down his percentage line on the slip (e.g., 5%), adds his reference to the stamped box used in the market and signs in the box on behalf of his syndicate or company.36 Where cargo insurance is arranged under an open cover,37 in general there may still be a duty to disclose in relation

29. Amin Rasheed Shipping Corporation v. Kuwait Insurance Co (The Al Wahab) [1983] 2 Lloyd’s Rep. 365 (HL), [1984] AC 50. For a more detailed consideration of the application of the MIA 1906 to the Institute Clauses when used to insure land transits (road and rail), carriage of goods by air and storage risks, see Dunt, Marine Cargo Insurance, 2009, Informa, (Dunt), at paras 1.29 to 1.32. 30. The Consumer Insurance (Disclosure and Representations) Act 2012 received the Royal Assent on 8 March 2012 and is expected to come into force in March 2013. It is not discussed in the text as it only applies, as its title suggests, to consumers and has no direct bearing on commercial cargo insurance. 31. As Lord Mansfield said, “The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the assured only …”, Carter v. Boehm [1766] 3 Burr 1905 at p. 1910. 32. [1766] 3 Burr 1905. 33. MIA 1906 s. 18. 34. MIA 1906 s. 20. 35. MIA 1906 s. 21. 36. See General Accident Fire & Life Assurance Corporation v. Tanter (The Zephyr) [1984] 1 Lloyd’s Rep. 58, [1985] 2 Lloyd’s Rep. 529 (CA). 37. For a discussion of open covers, see para. 3.18 below.

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to individual declarations unless the declarations are purely administrative in nature so that insurers are bound to accept them in any event.38 Materiality and inducement 3.7 The key test in relation to both non-disclosure and misrepresentation is whether the circumstances not disclosed, or misrepresented, were material and whether they also induced the insurer to accept the risk. In this context, section 18(2) of the Marine Insurance Act 1906 provides that, “every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk”. This section makes no express reference to the actual underwriter who wrote the risk, but only to a notional “prudent insurer”. However, English law requires that there be inducement of the actual underwriter.39 Accordingly, insurers must show, first, that the facts not disclosed would have been material, in that they would have influenced the judgement of a notional prudent insurer and, secondly, that the actual underwriter who underwrote the risk was “induced” to accept the risk by reason of the non-disclosure or misrepresentation.40 The inducement test is illustrated by Berger and Light Diffusers Ltd v. Pollock,41 where the actual underwriter failed to give evidence as to the materiality to him of the somewhat doubtful history of the cargo and its over-valuation. It was held that the court must be satisfied as a matter of fact that the insurer in question would have been influenced in fixing the premium or determining whether to take the risk.42 3.8 The requirements of the “materiality” test are relatively easy to meet, as it is only necessary to show that the information would have “influenced” the judgement of a prudent insurer.43 However, this is balanced by the fact that the “inducement” requirement means that the insurers must show that the missing information, or the misrepresentation made, must have effectively induced the actual underwriter who wrote the risk to agree to the insurance contract. Insurers must therefore establish, usually by evidence from the actual underwriter, that if the true position had been made known to him or her, this would have prompted a different decision, either as to the acceptance of the risk itself, or, at the least, as to the rate or amount of the premium. The remedy of avoidance 3.9 If there is non-disclosure or misrepresentation, the insurer may avoid the contract.44 Avoidance most often occurs as a result of a claim that brings to light material facts that had 38. Ionides v. Pacific Fire & Marine Insurance Co Ltd [1871] LR 6 QB 674, Blackburn J, affirmed [1872] LR 7 QB 517 (CA). 39. See the speech of Lord Mustill in Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd [1994] 2 Lloyd’s Rep. 427 (HL) on the requirement for inducement at p. 447 et seq. 40. Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd [1994] 2 Lloyd’s Rep. 427 (HL), [1995] 1 AC 501; Assicurazioni Generali SpA v. Arab Insurance Group (BSC) [2002] EWCA Civ 1642, [2003] Lloyd’s Rep. IR 131 (CA). 41. [1973] 2 Lloyd’s Rep. 442. 42. Per Kerr J at p. 463. This view was disapproved by the Court of Appeal in Container Transport International Inc v. Oceanus Mutual Underwriting Association Ltd [1984] 1 Lloyd’s Rep. 476, but revived in Pan Atlantic Insurance v. Pine Top Insurance Co Ltd (supra) where that case, CTI v. Oceanus, was overruled in part. 43. See the judgment of Lord Mustill in Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd (supra) at pp. 452–453. 44. MIA 1906 ss. 18 and 20.

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3.11

not been disclosed to insurers. There are two points to note here. First, it is not the claim that is disallowed but the whole contract of insurance, which is avoided from the start with the premium returned.45 In marine cargo insurance, the contract may constitute an open cover, on which other claims on other shipments are outstanding or have even been paid, so this has the potential to be a truly “draconian” remedy.46 Secondly, the contract is not void,47 but voidable at the election of the insurer. This means that the insurer’s right to avoid will be lost if the insurer, with full knowledge of the non-disclosure, affirms the contract.48 Insurers are allowed a reasonable time for careful consideration, and to consult with their legal advisers and investigators, but will be held to have affirmed the contract if so much time is allowed to elapse that the necessary inference is one of affirmation, or the assured have been prejudiced by the delay.49 Insurers will also affirm if they exercise rights under the contract, even a right of cancellation.50 In practice, insurers can reserve their rights. However, even this may not provide complete protection if the delay is inordinate, and only compatible with affirmation, or if insurers’ actions, such as acceptance of premium, can only be taken by the assured as an unequivocal affirmation of the contract.51 Examples of non-disclosure 3.10 Materiality depends on whether the facts were material in the sense described above52 and inducement will further depend on whether the actual insurer would have accepted the risk, so the evidence in each case will be determinative. Nevertheless, it is convenient to give examples of matters that may be held material. These include excessive over-valuation giving rise to a suggestion of moral hazard53; the presence of unusually high-value, brandnamed goods, such as Rolex watches, in a risk blandly described as being an insurance of “clocks”54; second-hand or used goods masquerading as new55; lack of subrogation rights56; and moral hazard.57 3.11 The Marine Insurance Act 1906 expressly provides that the assured need not disclose any circumstance that is known or presumed to be known to the insurer, including matters “which an insurer in the ordinary course of his business, as such, ought to know”.58 45. The premium must be returned except in cases of fraud or illegality, MIA 1906 s. 84(3)(a). 46. See the judgment of Longmore LJ in K/S Merc-Scandia 42 at XXXXII v. Lloyd’s Underwriters (The Mercandian Continent) [2001] EWCA Civ 1275, [2001] 2 Lloyd’s Rep. 563. 47. As to the position in the United States, see Chapter 8 (US law) at para. 8.10 below. In certain states, an insurer must commence an action for a declaratory judgment to avoid the policy. 48. Liberian Insurance Agency Inc v. Mosse [1977] 2 Lloyd’s Rep. 560. 49. Liberian Insurance Agency Inc v. Mosse (supra) at p. 565 per Donaldson J. 50. WISE (Underwriting Agency) Ltd v. Grupo Nacional Provincial SA [2004] EWCA Civ 962, [2004] 2 Lloyd’s Rep. 483. 51. This is, it is submitted, the effect of the judgments in Liberian Insurance Agency Inc v. Mosse (supra) and WISE (Underwriting Agency) Ltd v. Grupo Nacional Provincial SA (supra). 52. At para. 3.8 above. 53. Mathie v. The Argonaut Marine Insurance Co Ltd (1924) 18 Ll. L. Rep. 118 and Ionides & Another v. Pender [1874] LR 9 QB 531. 54. WISE Underwriting Agency Ltd & Dornoch Ltd v. Grupo Nacional Provincial SA [2003] EWHC 3038 (Comm), decision of Simon J dated 1 October 2003. 55. Liberian Insurance Agency v. Mosse [1977] 2 Lloyd’s Rep. 560. 56. Tate & Sons v. Hyslop [1885] LR 15 QBD 368. 57. North Star Shipping Ltd v. Sphere Drake Insurance plc [2006] EWCA Civ 378, [2006] 2 Lloyd’s Rep. 183 (CA); Ionides & Another v. Pender (1874) LR 9 QB 531. 58. Section 18(3).

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The courts now expect a leading cargo underwriter to be fully aware of the trade practices prevalent in relation to the cargoes he insures so that, for example, an insurer will be taken to know that oil traders must be innovative and take advantage of new market opportunities, albeit that this may give rise to additional hazards.59 Additionally, the assured need not disclose circumstances which diminish the risk or as to which information is waived.60 Misrepresentation in practice 3.12 The test of materiality in relation to misrepresentation will depend on the same factors as those examined above in connection with non-disclosure.61 However, there are special factors worthy of separate consideration in relation to misrepresentation. First, the question of inducement tends to be more prominent in practice and the evidence of the actual underwriter more critical. Moreover, the test is not whether the misrepresentation was true or not, but whether the misrepresentation had any effect on the actual underwriter’s mind – if it did not, then it is not material to the risk even if it is untrue.62 Second, a misrepresentation (unlike a non-disclosure) may be as to a matter of fact or as to an expectation or belief. A matter of fact must be true, that is, substantially correct,63 but a representation as to a matter of expectation or belief is true (even if incorrect) if made in good faith.64 Thirdly, whilst a failure to disclose a previous refusal of insurance is not generally disclosable in marine insurance,65 a misrepresentation that the terms and conditions represent a current insurance contract, when in fact they do not, will entitle insurers to avoid if the difference in terms and conditions is material.66 Formalities, insurable interest and illegality Formalities 3.13 English law now requires few documentary formalities for a marine insurance policy, reflecting changes in taxation methods that had included the imposition of stamp duties on marine policies.67 However, the Marine Insurance Act 1906 still imposes three requirements: a policy must specify the name of the assured, or someone effecting the policy on 59. Glencore International AG v. Alpina Insurance Co Ltd [2003] EWHC 2792 (Comm), [2004] 1 Lloyd’s Rep. 111 at para. 34. 60. MIA 1906 s. 18(3). The Act also provides that the assured need not disclose any circumstances that it is superfluous to disclose by reason of an express or implied warranty. Express warranties are rarely used in relation to cargo insurance, except in relation to towage risks, and the implied warranties under ss. 39(1) and 40(2) of the MIA 1906 are waived by cl. 5.3 of the Institute Cargo Clauses 2009, see para. 3.55 below in relation to unseaworthiness. 61. See para. 3.7 above. In theory, the remedy of damages is available for misrepresentation under the Misrepresentation Act 1967 s. 2(2), but, in practice, the courts are unlikely to award damages in marine cargo insurance cases where the proper remedy is considered by the courts to be avoidance, see Highlands Insurance Co v. Continental Insurance Co [1987] 1 Lloyd’s Rep. 109 at p. 118, per Steyn J. 62. Glencore International AG v. Alpina Insurance Co Ltd [2003] EWHC 2792 (Comm), [2004] 1 Lloyd’s Rep. 111, see the judgment of Moore-Bick J at p. 180. 63. A matter of fact is substantially correct if the difference between what is represented and what is actually correct would not be considered material by a prudent insurer, MIA 1906 s. 20(4). 64. MIA s. 20(5) and see Economides v. Commercial Union Assurance Co plc [1998] QB 587, [1998] Lloyd’s Rep. IR 9 (CA); Eagle Star Insurance Co Ltd v. Games Video Co (GVC) SA (The Game Boy) [2004] EWHC 15 (Comm), [2004] 1 Lloyd’s Rep. 238; and Kamidian v. Holt & Others [2008] EWHC 1483 (Comm), [2009] Lloyd’s Rep. IR 242. 65. Glasgow Assurance Corporation Ltd v. William Symondson & Co (1911) 16 Com. Cas. 109. 66. Hamilton & Co v. Eagle Star & British Dominion Insurance Co Ltd (1924) 19 Ll. L. Rep. 242. 67. The English law position on the formalities for the documentation of a marine insurance contract has come full circle over the centuries. In 1795, Parliament laid down a prescribed standard form of contract in an Act

54

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE 68

3.14

69

his behalf ; it must be signed by or on behalf of the insurer ; and the subject-matter must be designated with reasonable certainty.70 The 1906 Act further provides that, “a contract of marine insurance is inadmissible in evidence unless it is embodied in a marine policy in accordance with this Act”.71 This is an evidential requirement intended to protect the stamp duty levied by marine insurance policies, which was abolished in 1970.72 In practice, policies, as such, are no longer issued in the London market,73 but the mandatory requirements of the Market Reform Contract (“MRC”)74 include the name of the assured and a description of the goods. Most commonly, an MRC is issued in a so-called “IID” form, that is, Insurer Issued Documentation, which consists of a detailed slip signed by the insurers. A contract of insurance issued in the London market therefore normally complies with the three remaining formalities required by English law and, even if it did not, a policy may be executed and issued either at the time when the contract is concluded, or afterwards.75 Insurable interest 3.14 The requirement for an insurable interest developed from twin concerns: moral hazard and a prejudice against wagering.76 The moral hazard, that is the incentive to destroy insured property in which the assured has no interest, has no relevance in marine cargo insurance as the common law provides that in order to be indemnified the assured must, in any event, establish that he has suffered a loss. The second concern, wagering, no longer applies in England as gambling contracts are now recognised as morally acceptable and are enforceable under the Gambling Act 2005.77 Nevertheless, clause 11.1 of the Institute Cargo Clauses78 provides: granting stamp duties on “sea insurance”, 35 George III c 63. The 1906 Act provided that a policy “may” be in the standard SG form attached to that Act, s. 30(1). Market practices prohibited, by agreement, the underwriting of war risks on land and the undertaking of financial insurances, but these restrictive practices, intended to protect underwriters and the public, fell away in the light of competition legislation. The Market Reform Contract provides a strict mandatory framework for the matters to be covered by a London market insurance contract but places no restrictions on the nature of the cover that can be provided. 68. MIA 1906 s. 23(1). 69. MIA 1906 s. 24(1). 70. MIA 1906 s. 26(1). 71. MIA 1906 s. 22. The Law Commissions do not think that there should be a statutory requirement for marine insurance to be in any particular form and have proposed the repeal of this section, see Joint Consultation Paper entitled, “Insurance Contract Law: Post Contract Duties and Other Issues”, LCCP 201/SLCPD 152, December 2011 (Law Comm. Consultation Paper, 2011). 72. By the Finance Act 1970, s. 30. 73. Policies are, however, issued by Japanese insurers, see Chapter 6 (Japanese law) at para. 6.19 below. 74. See para. 3.18 below where open covers, policies and certificates of insurance are described and examined. 75. MIA 1906 s. 22. As the policy requirement only depended upon stamp duty, now abolished, the view is that a policy is no longer required and, if it were required, insurers would in any event be obliged to sign a policy where a contract of insurance had already been agreed. See, e.g., Arnould’s Law of Marine Insurance and Average, 17th edn, 2008, Sweet & Maxwell, at para. 2-13, p. 18. 76. Law Commissions Issue Paper 4 on “Insurable Interests”, 14 January 2008, at paras 2.3 and 2.4. The Law Commissions propose to retain the doctrine of insurable interest and to leave the provisions of the MIA 1906 as they are, see para. 12.57 of Law Comm. Consultation Paper, 2011. 77. A somewhat barren controversy exists as to whether the Gambling Act 2005 s. 335 has repealed MIA 1906 s. 4, which formally made void contracts of marine insurance by way of gambling or wagering. A marine cargo wager on the safe arrival of cargoes would still be a criminal offence under the Marine Insurance (Gambling Policies) Act 1909, though no prosecutions have ever taken place under this Act, which appears moribund and the Law Commissions propose be repealed, para. 10.15 of Law Comm. Consultation Paper, 2011. 78. All references to the Institute Cargo Clauses are to the Institute Cargo Clauses (A) 1/1/09 except where the earlier clauses, the Institute Cargo Clauses (A) 1/1/82 or the Institute Cargo Clauses (All Risks) 1/1/53 are specifically referred to.

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“In order to recover under this insurance the Assured must have an insurable interest in the subjectmatter insured at the time of the loss.”

The courts do not look favourably on technical insurable interest defences where the assured has suffered a loss79 and will be quick to find that an insurable interest existed even if the evidence is weak.80 A broad view is now taken as to what constitutes an insurable interest.81 It is also of note that, under English law, a bailee may insure goods in his custody for their full value even though he has no liability to the owner or has only limited liability. In such circumstances, the bailee must account to the owner of the goods who has suffered the loss.82 3.15 The timing of the insurable interest is particularly important in cargo insurance where goods are sold from seller to buyer and risk and property pass during the period of the insured transit. The Institute Cargo Clauses (A) provide: “11.2 Subject to Clause 11.1 above, the Assured shall be entitled to recover for insured loss occurring during the period covered by this insurance, notwithstanding that the loss occurred before the contract of insurance was concluded, unless the Assured were aware of the loss and the Insurers were not.”

The position is that the assured, who does not know of a loss, may insure after the loss has taken place as long as he had an insurable interest at the time the goods were lost.83 Traditionally, an assured could also recover where the goods were insured “lost or not lost” even though the assured only acquired an insurable interest after the loss.84 However, the Institute Cargo Clauses make the extension of cover under clause 11.2 “subject to” the insurable interest requirement in clause 11.1, so the assured cannot recover unless he had an insurable interest at the time of the loss.85 Accordingly, under the Institute Cargo Clauses, an FOB buyer will not be able to recover if the goods are lost or damaged before risk and property passes, typically at loading or at ship’s rail, even though the goods were insured for the pre-shipment inland transit under a warehouse-to-warehouse clause that would otherwise have provided transit cover.86 79. Inglis v. Stock [1884] 12 QBD 564 at p. 571 per Brett MR, where it was said that, “... it is the duty of the Court always to lean in favour of an insurable interest”. 80. See, e.g., Wünsche Handelsgesellschaft International mbH v. Tai Ping Insurance Co Ltd, unreported decision of Moore-Bick J dated 13 July 1996, affirmed on appeal on other points at [1998] 2 Lloyd’s Rep. 8. 81. See Feasey v. Sun Life Assurance Company of Canada [2003] EWCA Civ 885, [2003] 1 Lloyd’s Rep. 637 and, in particular, the judgment of Waller LJ at para. 92. MIA 1906 s. 5 gives a broad description of an insurable interest so that it is sufficient for a person interested in a marine adventure to stand in a “legal or equitable relation to the adventure”. See also more recently O’Kane v. Jones (The Martin P) [2003] EWHC 3470 (Comm), [2004] 1 Lloyd’s Rep. 389. 82. Waters v. Monarch Fire & Life Assurance Co [1856] 5 E&B 870; A Tomlinson (Hauliers) Ltd v. Hepburn [1966] 1 Lloyd’s Rep. 309, [1966] AC 451. In Ramco (UK) Ltd v. International Insurance Company of Hannover Ltd [2004] EWCA Civ 675, [2004] 2 Lloyd’s Rep. 595 at p. 32, where Waller LJ said that, “There is thus something of an anomaly in allowing a bailee to recover for a loss he has not suffered”. 83. For a modern example, see Wünsche Handelsgesellschaft International mbH v. Tai Ping Insurance Co Ltd [1998] 2 Lloyd’s Rep. 8, where canned goods exported from the interior of China to Germany were not insured until containerised in Hong Kong. The assured recovered for losses sustained in China when the insurance attached, and when an insurable interest was acquired, even though the losses (unknown to the assured) occurred before the insurance was arranged. 84. Sutherland v. Pratt [1843] 11 M&W 296. 85. This restriction on cover was first introduced on 1 January 1982 in the Institute Cargo Clauses (A) 1/1/82 and was recognised by those responsible for drafting the clauses as a restriction on the traditional cover. 86. See New South Wales Leather Co Pty Ltd v. Vanguard Insurance Co Ltd [1991] 105 FLR 381, Supreme Court of New South Wales, Court of Appeal, discussed in Chapter 7 (Australian law) at para. 7.31 below. In that case, the assured only recovered because he had the advantage of the cover under the former SG Form and the Institute Cargo Clauses (All Risks) 1/1/63 and did not suffer the restriction of cover introduced in the 1982 Clauses. This issue is considered further in Chapter 15 (comparative law) at para. 15.15 below.

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Illegality and public policy 3.16 The Marine Insurance Act 1906 section 41 provides as follows: “There is an implied warranty that the adventure insured is a lawful one, and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner.”

In modern times, illustrations of illegality in marine cargo insurance occur where goods are accompanied, for example, by a false invoice intended to defraud the revenue authorities87 or where the export of goods is contrary to the local customs and excise legislation.88 The rule appears to be limited to illegality under English law if the case is brought in England, or the law of the court concerned with the case, so that, for example, in Singapore, illegality under the legislation of the Solomon Islands would not render the insurance illegal.89 3.17 Where a vessel and its cargo are seized by pirates, the question arises whether a payment of a ransom for the recovery of the cargo is illegal under general common law principles,90 or contrary to public policy. In Masefield AG v. Amlin Corporate Member Ltd,91 a vessel and her cargo were seized by Somali pirates and released after a substantial ransom payment had been made. Although the payment of a ransom under English law is not illegal,92 the question that arises is whether, if there is any illegality by reason of a foreign law, this makes a claim to be reimbursed for the payment of a ransom illegal and therefore not recoverable under the policy. As a cargo policy covers reimbursement of general average,93 a related and parallel question arises as to whether illegality, by a foreign law, gives cargo insurers grounds to refuse to pay a general average contribution where the contribution consists, in whole or in part, of reimbursement of a ransom payment. Under English law, a court will not enforce a contract, which, though not illegal by English law, involves enforcing, directly or indirectly, the terms of a contract that is illegal at the place of performance.94 However, the Court of Appeal in the Masefield case approved a passage from Arnould,95 which said96: “There appears to be little doubt that where a payment which is not itself illegal under any relevant law is made to secure the release of property, this can be recovered even though the persons demanding the payment are not acting lawfully in so doing. Thus, for example, payment to recover property from pirates or hijackers must, it is submitted, in general be recoverable.” 87. See, e.g., Euro-Diam Ltd v. Bathurst [1990] 1 QB 1 (CA), where, however, it was held that s. 41 did not apply as the insurance was non-marine. 88. See Everbright Commercial Enterprises Pte Ltd v. Axa Insurance Singapore Pte Ltd [2000] 4 SLR 226, and Chapter 5 at para. 5.16 et seq. below, where the position regarding illegality under Singapore law is discussed. 89. Parkin v. Dick [1809] 11 East 502 and Everbright Commercial Enterprises Pte Ltd v. Axa Insurance Singapore Pte Ltd (supra). 90. See, in this context, Regazzoni v. KC Sethia (1944) Ltd [1958] AC 301 (HL). 91. [2010] EWHC 280 (Comm Ct: David Steel J), [2010] 1 Lloyd’s Rep. 509, affirmed [2011] EWCA Civ 24, [2011] 1 Lloyd’s Rep. 630 (CA). 92. Since the repeal of the Ransom Act 1782 (also known as the Prize Act 1782). The full title of the Act is “An Act to prohibit the ransoming of ships or vessels captured from His Majesty’s Subjects, and merchandise of goods on board such ships or vessels”. This Act was repealed by the Naval Prize Act 1864, which was, in turn, repealed by the Senior Courts Act 1981 Schedule 7. 93. See, e.g., ICC, cl. 2. 94. Regazzoni v. KC Sethia (1944) Ltd [1958] AC 301 (HL), where the House of Lords would not enforce a contract for the sale of Indian jute to South Africa in circumstances where the sale of jute to South Africa was illegal by the terms of an Indian law. Rix J in Royal Boskalis Westminster NV v. Mountain [1999] LRLR 523 at pp. 577–590 (reversed on other grounds) appears to recognise that indirect enforcement, for example, under an insurance policy covering a reimbursement of sue and labour, will not be permitted or enforced if the underlying contract is illegal at the place of performance. 95. Arnould, 17th edn, at para. 25-21. 96. Approved in the Masefield AG case at para. 64.

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It could be argued, based on this passage, that the relevant question therefore becomes whether there is illegality by “any relevant law” and whether a payment of a ransom in a piracy case is illegal by that law. In the Masefield case, David Steel J said97: “As already noted, the payment of ransom is not illegal as a matter of English law (nor I can assume as a matter of Somali, Swiss or Malaysian law).”

Somalia was the place where the ransom payment was made. Malaysia was the place of the shipowners’ domicile and the cargo owners were based in Switzerland. It seems that in the Masefield case, evidence on Somali, Swiss or Malaysian law was not submitted to the court, as Rix LJ said in the Court of Appeal that, “there is no evidence before the Court of such payments being illegal anywhere in the world”.98 These dicta could be used to construct an argument that illegality by the law of the place where the ransom payment was made, or the law of the place of the shipowners’ domicile, or the law of the place where the cargo owners were based, could make a payment illegal. However, it is submitted that this is unlikely to be the approach of the English courts. The point remains undecided, but the thrust of the judgment of Rix LJ in the Court of Appeal is that the parties who pay ransom are inherently innocent99 and that in those circumstances an English court would be reluctant “to state that the payment of ransom should be regarded as a matter which stands beyond the pale, without any legitimate recognition”.100 In connection with the payment of general average, Lowndes and Rudolf101 state that, “where the payment of a ransom is illegal in the jurisdiction(s) of the parties to the adventure it is difficult to see how any right of contribution could be enforced”.102 It is submitted that these comments by Lowndes should be restricted to those cases, if any, where the actual “enforcement” of the payment would be illegal by the country where the paying party, of the general average contribution, was based and had its only assets. Although payment of a ransom was not illegal in the Masefield case, it was also argued that the ransom payment was contrary to public policy. However, issues of public policy must be approached with great caution and public policy may only be invoked in cases where the harm to the public is “substantially incontestable”.103 A payment to release the cargo in the Masefield case conferred obvious benefits on the cargo owners (and their insurers) even though it may have encouraged further acts of piracy in other cases. In the circumstances, the “balance of convenience” was far from clear-cut and it was held that the payment was not contrary to public policy.104 International sanctions seeking to prevent piracy including, in particular, President Obama’s Executive Order of 13 April 2010, may raise more difficult questions of illegality and public policy in future cases.105 In August 2010, cargo insurers in the London market adopted a Sanction 97. At para. 60(1), following Hicks v. Palington [1590] Moore’s (QB) R 297. 98. At para. 66. 99. See para. 66. 100. At para. 71. It is further submitted that there would need, at least, to be evidence of illegality at the place of payment of the ransom, e.g., Somalia, if the illegality was to fall within the English rule. Moreover, it could still be argued that the main purpose was not to break Somali law but to obtain the release of the crew, ship and cargo, and where the illegality is incidental it is unclear whether or not the English court will refuse to enforce the contract, albeit that it may be illegal by the place of performance. 101. The Law of General Average and The York-Antwerp Rules, 13th edn, 2008, Sweet & Maxwell. 102. At para. A.68, p. 112. 103. See the judgment of Lord Atkin in Fender v. St John Mildmay [1938] AC 1. 104. Masefield AG v. Amlin Corporate Member Ltd (supra) at paras 59 to 61. 105. See also, to similar effect, Council Regulations (EU) No. 356/2010 of 26 April 2010 designed to protect the Djibouti Agreement of 18 August 2008. These orders and regulations name a number of individuals, two of whom are understood to be behind many of the piracy attacks.

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3.20

Limitation and Exclusion Clause designed to ensure that cargo insurance does not provide insurance cover that contravenes any United Nations resolutions or sanctions, or any laws of the European Union or the United States.106

OPEN COVERS, POLICIES AND CERTIFICATES Open covers Modern open covers 3.18 Cargo is usually insured under an open cover that enables a merchant or trader to arrange insurance on a continuous basis for the goods he manufactures, buys or trades.107 The practice was for the assured to declare cargoes for voyages to named declarations at rates of premium pre-agreed with insurers, but in today’s market it is more usual for premiums to be charged on an estimate of the assured’s annual turnover. A minimum deposit premium is paid, usually within 60 days of the commencement of the annual policy period, based on the annual estimated value of the goods at risk. Premium adjustments are made at year end when the actual turnover of the goods at risk is known and declared.108 3.19 Open covers in standard form oblige the assured to declare every shipment109 (or to include all shipments in his annual declaration of turnover). The insurer must accept all declarations falling within the cover terms. In these circumstances, the insurance contract is concluded and the disclosure obligations must be satisfied110 when the open cover contract is agreed and not when each individual declaration is made.111 Accordingly, under a standard open cover, any honest failure to declare, or any honest error in the declaration that has been made, can be rectified even after loss.112

Policies The Market Reform Contract 3.20 The open cover will most probably not be evidenced by a policy if concluded in England113 but, by London market practice, will be in the form of a Market Reform

106. Joint Cargo Committee Circular JC 2010/014 of 11 August 2010. 107. Unlike the former floating policy, which had a limit on the amount of cargo to be declared for any one period, a modern open cover is “open” in the sense that there is no aggregate annual limit, though there will be a limit on the maximum value of each shipment that can be declared, or the maximum amount of cargo that can be held at each destination in store. 108. See, e.g., the policy described in New South Wales Leather Co Pty Ltd v. Vanguard Insurance Co Ltd [1990] NSW Lexis 10858:BC9002626, Supreme Court of New South Wales, Admiralty Division at p. 20. 109. See the Institute Standard Conditions for Cargo Contracts, which provides that, “the Assured are bound to declare hereunder every consignment without exception …”. 110. For the rules regarding disclosure and representations, see paras 3.5 to 3.12 above. 111. The position is different where there is a mere brokers facility or loose arrangement or where the declarations are facultative, see Berger and Light Diffusers Ltd v. Pollock [1973] 2 Lloyd’s Rep. 442. 112. By analogy with the rules for floating policies under MIA 1906 s. 29(3), and see Glencore International AG v. Ryan (The Beursgracht) [2001] EWCA Civ 2051, [2002] 1 Lloyd’s Rep. 574. 113. Contrast the position in Japan, see para. 6.19 below.

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Contract (“MRC”). The MRC deals with the basic policy requirements, in that it names the assured, it describes the subject-matter insured and it is normally signed by the insurers.114 The MRC also sets out the detailed terms of the extent of the cover, most usually by reference to the Institute Cargo Clauses. Jurisdiction, choice of law and administrative matters are also dealt with, the aim being to ensure that before the risk attaches, insurers and assured have agreed all the essential terms of the insurance contract.115 Certificates of insurance Certificates described 3.21 A certificate of insurance is an instrument that sets out the cover for an individual shipment of cargo. A certificate is most usually issued under an open cover116 to a buyer under a CIF contract so as to comply with the seller’s obligation to provide insurance. A modern certificate will identify the cargo and the voyage and the core cover terms, which are usually defined as “all risks”, most frequently by reference to the Institute Cargo Clauses (A). The certificate will also seek to set out the most important terms of the open cover but, for practical reasons, not all of the open cover terms and conditions can always be included on the reverse of a certificate, which normally takes the form of a document on a single sheet of double-sided A4-size paper negotiated with the bill of lading. In such circumstances, it has been questioned, as between buyer and seller, whether a certificate amounts to a “policy” of insurance. However, where the claim is under an insurance contract, it is not open to insurers to resile from the certificate, which is a document they have themselves issued, by seeking to deny that the certificate is evidence of the contract of insurance.117 The certificate holder as assured 3.22 There is no doubt that a certificate of insurance evidences a clear contract with the insurer.118 English law provides two principal methods by which the certificate holder, typically a CIF buyer, may become a party to the contract of insurance. First, the certificate may be assigned to the buyer in any customary manner,119 which includes delivery without endorsement.120 Secondly, the insurance may be arranged at the outset by the seller as agent on behalf of a known CIF buyer. The seller may also insure for a class of people, who

114. For the documentary requirements under MIA 1906, see para. 3.13 above. 115. For an example of a Market Reform Contract, see Dunt, Marine Cargo Insurance, 2009, Informa, at Appendix 5. 116. See paras 3.18 to 3.19 above. 117. D & J Koskas v. Standard Marine Insurance Co Ltd (1926) 25 Ll. L. Rep. 363 at p. 366 (Sankey J); different considerations may apply between seller and buyer, see Diamond Alkali Export Corporation v. Fl. Bourgeois (1921) 8 Ll. L. Rep. 282. 118. De Monchy v. Phoenix Insurance Company of Hartford and Another (1929) 34 Ll. L. Rep. 201 at pp. 206, 207 per Viscount Sumner. Where the certificate remains in the hands of the open cover holder, the open cover will normally remain the operative contractual document, see para. 3.23 fn. 129 below. 119. MIA 1906 s. 50(3). 120. D & J Koskas v. Standard Marine Insurance Co Ltd (1926) 25 Ll. L. Rep. 363 (Sankey J); (1927) 27 Ll. L. Rep. 59, see, in particular, the judgment of Scrutton LJ at p. 61; Safadi v. Western Assurance Co (1933) 46 Ll. L. Rep. 140 at p. 144 per Roche J. The standard Lloyd’s form of insurance certificate requires endorsement.

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include the potential CIF buyer, and the CIF buyer is then entitled to ratify the contract of insurance and become a party to it.121 The Institute Cargo Clauses recognise that the buyer may become an assured where the contract has been made by the seller on his behalf or may become an assured by assignment. Accordingly, the clauses define the assured to include “the person claiming indemnity either as the person by or on whose behalf the contract of insurance was effected or as an assignee”.122 What terms bind the certificate holder? 3.23 The contract acquired by the assured under a certificate of insurance issued under an open cover is a separate new contract carved out of the open cover and only insures in respect of the particular shipment of goods covered by the certificate.123 The terms of that new contract depend on a consideration of both documents, the open cover and the certificate of insurance, though it is likely that the certificate will be given more weight as it is directed to the specific risk124 and “clinches the bargain as to the particular shipment”.125 An insurance certificate may be more beneficial to the assured than an open cover, and not subject to a time bar in the open cover,126 or it may be more restricted than the open cover and, for example, give less transit cover.127 A certificate may give the certificate holder the option of choosing the benefit of certain clauses in the open cover.128 Where the open cover holder has yet to pass on the certificate to his buyer, he will be bound by the terms of the open cover rather than the certificate.129

WARRANTIES, EXCLUSIONS AND OTHER TERMS Warranties Warranties defined 3.24 A warranty in marine insurance is a promise by which the assured (1) undertakes that some particular thing shall or shall not be done or (2) that some condition shall be fulfilled 121. The standard London market wordings contemplate this situation which is valid to enable the buyer to become a party to the contract of insurance, see National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyd’s Rep. 582, applied in O’Kane v. Jones (The Martin P) [2003] EWHC 3470 (Comm), [2004] 1 Lloyd’s Rep. 389 (a hull insurance case). The decision in Talbot Underwriting v. Nausch Hogan & Murray (The Jascon 5) [2006] EWCA Civ 889, [2006] Lloyd’s Rep. IR 531, insofar as it limits the rule in the National Oilwell case has, it is submitted, little or no application to cargo insurance unless there is something unusual about the buyer which it would be material to disclose. 122. See cl. 15.1. 123. See the judgment of Denning LJ in MacLeod Ross & Co Ltd v. Compagnie D’Assurances Generales L’Helvetia [1952] 1 Lloyd’s Rep. 12 at p. 16. This approach accords with the analysis of Viscount Sumner in De Monchy v. Phoenix Insurance Company of Hartford and Another (1929) 34 Ll. L. Rep. 201 (HL) at pp. 206, 207. 124. Evialis SA v. S.I.A.T. and Another [2003] EWHC 863 (Comm), [2003] 2 Lloyd’s Rep. 377. 125. Per Viscount Dunedin in De Monchy v. Phoenix (supra) at p. 205. 126. De Monchy v. Phoenix (supra). 127. Silver Dolphin Products Ltd v. Parcels & General Assurance Association Ltd [1984] 2 Lloyd’s Rep. 404. 128. Tradigrain SA v. S.I.A.T. [2002] EWHC 106 (Comm), [2002] 2 Lloyd’s Rep. 553. 129. For example, where the open cover provided for Swiss law and practice, this bound the original assured even though he was the holder of a certificate under the open cover that would have entitled the eventual certificate holder to the benefit of English law and practice, see Craft Enterprises (International) Ltd v. Axa Insurance Co [2004] EWCA Civ 171, [2005] 1 Lloyd’s Rep. 14.

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or (3) affirms or negatives the existence of a particular state of facts.130 Express warranties are rarely imposed in cargo insurance except on towage risks, where it is the invariable practice to require that the tug, tow, stowage and towage arrangements be surveyed by a nominated surveyor and all his recommendations complied with.131 Occasionally, other cargo warranties are encountered in particular trades. For example, in Overseas Commodities v. Style,132 a consignment of tinned pork was, “warranted all tins marked by manufacturers with a code for verification of the date of manufacture”. Some tins were accurately marked; some were inaccurately marked and some were not marked at all. In the circumstances, the entire claim failed for breach of warranty. 3.25 The Marine Insurance Act 1906 imposes a number of implied warranties133 including, in particular, a warranty in voyage policies that the ship shall be seaworthy.134 However, cargo underwriters have long recognised that to impose an absolute warranty of seaworthiness upon a cargo owner who may not be aware of the actual condition of the vessel would be unrealistic. Accordingly, this warranty is waived by clause 5.3 of the Institute Cargo Clauses 2009, which, instead, imposes an exclusion where the vessel is unseaworthy to the knowledge of the assured.135 Exact compliance: effect of breach 3.26 The special rules of English law are that a warranty must be exactly complied with, whether it be material to the risk or not, and that if it is not complied with, the insurer is discharged from liability from the date of the breach.136 The rule that the warranty need not be material to the risk means that any breach need not be causative of any loss, and has been much criticised.137 Civil law systems generally require a breach of warranty to be causative.138 Whilst warranties may operate harshly in consumer insurance, there is a case for their retention 130. MIA 1906 s. 33(1). 131. See, e.g., J. Kirkaldy & Sons Ltd v. Walker [1999] Lloyd’s Rep. IR 410. In Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU) [2011] UKSC 5 (SC), [2011] 1 Lloyd’s Rep. 560, there was a survey requirement in almost identical terms which took the form of a condition precedent, rather than a warranty, though the effect was the same. 132. [1958] 1 Lloyd’s Rep. 546. 133. These are as to neutrality (MIA 1906 s. 36); good safety (MIA 1906 s. 38); legality (MIA 1906 s. 41, discussed at para. 3.16 above); and seaworthiness and cargo-worthiness (MIA 1906 s. 40(2)) as discussed in the text and in fn. 135 below. 134. MIA 1906 s. 39(1). 135. ICC, cl. 5.1.1, which excludes the loss where the assured are privy to the unseaworthiness at the time the cargo is loaded. Cargo underwriters also traditionally impose the Institute Classification Clause 1/1/01, which requires vessels used by the assured to be within certain minimum age limits and to be classed with recognised classification societies who are members or associate members of IACS. Historically, the Institute Cargo Clauses 1/1/82 provided a qualified waiver of seaworthiness whilst under the Institute Cargo Clauses (All Risks) 1/1/62 “seaworthiness was admitted” (cl. 8). The 1906 Act also imposes a warranty of cargo-worthiness, that is, that the ship is “reasonably fit to carry the goods” (MIA 1906 s. 40(2)), but this is also waived by cl. 5.3 of the Institute Cargo Clauses. 136. MIA 1906 s. 33(3). 137. See, e.g., “Good Faith and Breach of Warranty: Are We Moving Forwards or Backwards?”, Sir Andrew Longmore [2004] LMCLQ 158 and the report of the Law Commissions on insurance law (1980) “Law Com No. 104: Non-Disclosure of Breach of Warranty” at para. 6.9. These concerns were reiterated in The Joint Consultation Paper of the Law Commission and the Scottish Law Commission on Insurance Contract Law: “Misrepresentation, Non-Disclosure and Breach of Warranty by the Insured (LCCP 182/SLCDP 134)”, published in July 2007 (Law Comm. Consultation Paper 2007) at paras 2.112 and 8.22. 138. See Chapter 15 (comparative law) at para 15.27 below.

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in marine insurance where the parties are of equal bargaining status and the assured is usually represented by experienced and commercially powerful brokers.139 Moreover, the ability of insurers to impose such warranties may make the writing of unusual risks, such as towage risks, viable, whereas without that protection insurers might be unable to provide cover at all. 3.27 A number of recent cases illustrate the second rule, which is that there must be exact compliance. These cases have been decided in the context of the crewing “at all times” of smaller vessels, such as trawlers or motor yachts.140 The general approach of the English courts is to give a purposeful construction to the warranties which will allow some qualification of the literal meaning, such as for the crew to leave the vessel in an emergency, even where the vessel is “warranted fully crewed at all times”.141 Nevertheless, the courts ultimately require the assured to comply with the precautions set out in the warranty as part of the bargain with insurers. The approach of strict compliance is likely to be adopted by the English courts when dealing with cargo warranties including cargo towage warranties. Waiver of warranties 3.28 A breach of warranty is excused by reason of a change of circumstances, or where the warranty is waived.142 A breach of warranty automatically discharges the insurer from liability from the date of the breach and, unlike in the case of non-disclosure or misrepresentation,143 the insurer does not have to elect to avoid the contract. As the insurer is automatically discharged, he can only be held to have waived the breach if there is an estoppel. To create an estoppel, the insurer must have made a clear representation, by words or conduct, that he will not rely on the breach,144 and the assured must also have relied to his detriment upon that representation by changing his position for the worse. The detriment may not be easy to establish, though it could be sufficient if the assured incurs expense in the belief that no point will be taken on the breach of warranty.145 Exclusions The nature of exclusions 3.29 An exclusion is a clause that excludes from the operation of the cover, for example, all risks cover, particular types of losses, such as insufficiency of packing. But for the 139. For a detailed analysis of the Law Comm. Consultation Paper, 2007 see “The Law Commissions’ Proposed Reforms of the Law of ‘warranties’ in Marine and Commercial Insurance : ‘Will the Cure be Better than the Disease?’” by Sir Richard Aikens, published in Reforming Marine Commercial Insurance Law, B. Soyer (gen. ed.), 2008, Informa. 140. Pratt v. Aigaion Insurance Co SA (The Resolute) [2008] EWCA Civ 1314, [2009] 1 Lloyd’s Rep. 225 (CA); Sharp v. Sphere Drake Insurance plc (The Moonacre) [1992] 2 Lloyd’s Rep. 50; GE Frankona Reinsurance Ltd v. CMM Trust No. 1400 (The Newfoundland Explorer) [2006] EWHC 429 (Admlty), [2006] Lloyd’s Rep. IR 704; and Brownsville Holdings Ltd & Another v. Adamjee Insurance Co Ltd (The Milasan) [2000] 2 Lloyd’s Rep. 458. 141. See The Newfoundland Explorer (supra) at para. 18. 142. MIA 1906 s. 34(1), for an alleged change of circumstances, see, e.g., Agapitos v. Agnew (No. 2) [2002] EWHC 1558 (Comm), [2003] 1 Lloyd’s Rep. 54. 143. See paras 3.5 to 3.12 above. 144. See, e.g., J. Kirkaldy & Sons Ltd v. Walker [1999] Lloyd’s Rep. IR 410 per Longmore J at p. 422, followed by Aikens in Brownsville Holdings Ltd & Another v. Adamjee Insurance Co Ltd (The Milasan) [2000] 2 Lloyd’s Rep. 458 at p. 467. 145. MacGillivary on Insurance Law, 11th edn, 2008, Thomson Reuters, at para. 19-045.

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exclusion, the loss would be covered.146 To determine whether a loss falls within the insurance provided, and is covered, or falls outside the cover, and is excluded, it is necessary to identify the proximate cause of the loss. The assured has the initial onus of showing a loss within the insurance cover and the insurer must then prove any exclusion.147 The Institute Cargo Clauses (A) provides all risks cover subject to exclusions. The initial burden is therefore upon the assured to show an accidental loss.148 The burden of proof is thereafter upon insurers to show the operation of any exclusion by what is generally a two-stage process: first, they must establish that what occurred falls within the exclusionary wording, for example, that the packing was insufficient and, second, the insurers must prove on balance of probabilities that the insufficiency of packing was the proximate cause of the loss. Exclusions and causation 3.30 The rule of English law is that the insurer is liable for, “any loss proximately caused by a peril insured against”.149 The proximate cause of the loss is not necessarily the closest in time, but is to be identified by considering what accident or calamity brought about the loss.150 The proximate cause is the effective cause of the loss,151 taking a broad common sense view of the whole position152 as a business or seafaring man would understand it.153 There may occasionally be two proximate causes.154 If the loss is equally attributable to a covered peril and to an exclusion, then the exclusion will prevail.155 It is not absolutely clear if the exceptions in the 1982 version of the Institute Cargo Clauses are to be treated in this way as true exclusions as there is a view that they may be better analysed as limitations on cover rather than “exclusions”, at least in the context of perils of the seas.156 146. Munro Brice & Co v. War Risks Association Ltd, and Others [1918] 2 KB 78 at p. 88. 147. It may be noted that where the description of the cover is qualified, so that only limited cover is provided, this does not give rise to an exclusion and the assured must bring themselves within the cover, as, for example, in the case of insurances against total loss only (“free of particular average”). It is a question of construction in each case to determine whether the cover is limited or whether wider cover is provided subject to exclusions, see Munro Brice & Co v. War Risks Association Ltd (supra). 148. The burden of proof in all risks is discussed further at para. 3.36 below. See also para. 3.30 fn. 156 below on the issue of whether the limitations on cover in the 1982 version of the ICC are true “exclusions”. 149. MIA 1906 s. 55(1). 150. Leyland Shipping Co Ltd v. Norwich Union Fire Insurance Society Ltd [1917] 1 KB 873 (CA), [1918] AC 350 (HL), per Lord Shaw at p. 369. 151. Leyland Shipping v. Norwich Union (supra) per Lord Shaw at p. 369. 152. Canada Rice Mills Ltd v. Union Marine & General Marine Insurance Co Ltd (1940) 67 Ll. L. Rep. 549 at p. 557. 153. Yorkshire Dale Steamship Co Ltd v. Minister of War Transport (The Coxwold) (1942) 73 Ll. L. Rep. 1; T. M. Noten BV v. Harding [1989] 2 Lloyd’s Rep. 527, [1990] 2 Lloyd’s Rep. 283 (CA); and Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU) [2011] UKSC 5 (SC), [2011] 1 Lloyd’s Rep. 560. 154. Wayne Tank & Pump Co Ltd v. Employers’ Liability Assurance Corporation Ltd [1974] QB 57, [1973] 2 Lloyd’s Rep. 237, following John Cory & Sons v. Burr [1883] 8 App. Cas. 393 and dicta in P Samuel & Co Ltd v. Dumas [1924] AC 431 at p. 467. 155. Wayne Tank & Pump Co Ltd (supra).Where there are two concurrent causes and one is insured against under the policy and the other is not expressly excluded from the policy, the assured will be entitled to recover, J. J. Lloyd Instruments Ltd v. Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyd’s Rep. 32. These cases were cited in The Cendor MOPU (supra) by Lord Saville, at para. 22. 156. In The Cendor MOPU (supra), Lord Mance, at para. 88, left open the applicability of this approach in the context of the exclusions in the ICC 1/1/82 and perils of the sea. These exclusions are arguably no more than a confirmation of the limitations on cover as provided in MIA 1906 s. 55(2)(c) rather than true exclusions, see the Australian case of HIH Casualty & General Insurance Ltd v. Waterwell Shipping Inc [1998] 43 NSWLR 601,

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However, this issue seldom arises, as marine insurance cases that have turned on there being two proximate causes are rare.157 The English courts will nearly always identify a single proximate cause of a marine loss, whether it is a covered peril or an exclusion. This was the approach of the Supreme Court in the The Cendor MOPU,158 where a jack-up oil rig carried on a barge and insured as cargo was damaged as a result of the seas breaking over the rig in sea conditions that, though not bound to happen, were within the range of weather that could reasonably have been contemplated for the voyage in question. The loss resulted from metal fatigue in the legs in the form of a progressive cracking mechanism that continued until a “leg-breaking” wave caused one of the legs to break off, which increased the stresses on the other legs, which soon also broke off. Insurers relied upon the exclusion of inherent vice,159 and one of the central issues was whether the loss was caused by a peril of the seas, that is, the waves, or by inherent defects in the oil rig, which was neither seaworthy nor fit for the contemplated voyage. The Supreme Court held that the proximate cause of the loss was not inherent vice, or the ordinary action of the wind and waves, but an external and fortuitous accident or casualty of the seas. That accident took the form of the rolling and pitching of the barge in the seas in conditions where the first leg was caught at just the right moment for it to break – in short, a “leg-breaking” wave. In the circumstances, even though there was unfitness and unseaworthiness, there was also a peril of the seas, and the question in each case was whether the sea caused the accident and, if it did, at least in part, the loss was accidental and there was no need to consider inherent vice.160 Causation under the Institute Cargo Clauses 3.31 The proximate cause rule in section 55 of the Marine Insurance Act 1906 is subject to the proviso that the policy may “otherwise provide”. The Institute Cargo Clauses use a number of different phrases for expressing the causal connection between the risk and the loss. These causation triggers include “caused by”,161 “arising from”, “resulting from”, “attributable to” and “reasonably attributable to”. In addition, the exclusion of loss, damage or expense resulting from nuclear incidents162 includes the phrase, “directly or indirectly caused by”. Taking these phrases in turn, the usual proximate cause rule applies to “caused [1998] 146 FLR 76, discussed in Chapter 7 (Australian law) at para. 7.45 below, which was cited in argument before the Supreme Court but not referred to in the judgments. The word “exclusion” is not used in the ICC 1/1/82 but note that cl. 1.1 of the ICC 1/1/09 now refers to “exclusions”. 157. Although the Court of Appeal in The Miss Jay Jay [1987] 1 Lloyd’s Rep. 32 contemplated the possibility of two proximate causes, Mustill J at first instance found, along traditional marine insurance lines, that the cause of the loss was perils of the seas, [1985] 1 Lloyd’s Rep. 264. Wayne Tank & Pump Co Ltd (supra) was a nonmarine case where the primary finding of the Court of Appeal was that there was one cause of the loss, which was excluded, although it was also held that if there had been two causes, the exclusion would prevail. 158. Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU) (supra). 159. See para. 3.41 et seq. below where this case is discussed in more detail in the context of the definition of “inherent vice”. 160. The Cendor MOPU per Lord Mance at para. 80 and Lord Clarke SJC at paras 105 and 138. 161. The words “caused by” appear in ICC cl. 4.3 (Insufficiency of packing), cl. 4.4 (Inherent vice), cl. 4.5 (Delay), cl. 4.6 (Insolvency and financial default), cl. 6 (War and related exclusions) and cl. 7.1 (Strikers and terrorism). The words “arising from” appear in ICC cl. 4.7 and cl. 4.8 of the ICC(B) and ICC(C) clauses as well as in cl. 5.1 of the ICC(A) (Unseaworthiness). The words “resulting from” appear in ICC cl. 7.2 (Strikes). The words “attributable to” appear in ICC cl. 4.1 (Wilful misconduct) and the words “reasonably attributable to” appear in cl. 1.1 of the ICC(B) and the ICC(C). 162. Clause 4.7 of the Institute Cargo Clauses (A).

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by” and the words “arising from” have been similarly construed,163 though not in relation to the Institute Cargo Clauses, where a broader causative link may be intended.164 The words “resulting from” have also been held by the courts to imply the proximate cause test.165 The words “attributable to”, used in the context of the exclusion of wilful misconduct, override the proximate cause rule and the loss is excluded where misconduct is a cause of the loss even if the misconduct is only one of the factors contributing to the loss.166 The words “indirectly caused by” are clearly intended to reverse the proximate cause rule, but there must still be a connection between the loss and the risks involved. A more remote link in the chain of causation is contemplated, but the connection must be more than a mere matter of background or history.167 Conditions 3.32 A condition is a term of a marine insurance contract that gives rise to a remedy in damages to the extent that the insurer can show it has suffered loss as a result of a breach of the condition by the assured.168 For example, clause 16 of the Institute Cargo Clauses imposes a duty on the assured to take such measures as may be reasonable for averting or minimising a loss, and to ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised. In Noble Resources Ltd v. Greenwood (The Vasso),169 163. Coxe v. Employers Liability Assurance Corporation Ltd [1916] 2 KB 629 (Scrutton J), and to similar effect Vardinoyannis v. The Egyptian General Petroleum Corporation (The Evaggelos Th) [1971] 2 Lloyd’s Rep. 200 (Donaldson J). See also the Scottish cases of Bell v. Lothiansure Ltd [1993] SLT 421 and John Drew Russell (Transport) Ltd v. (First) Heath Collins Halden (Scotland) Ltd [1996] CLC 423. In British Waterways v. Royal & Sun Alliance Insurance plc [2012] EWHC 460 (Comm), Burton J applied a proximate cause test to the words “arising out of”, but without needing to decide whether that was necessarily the only test applicable to those words. 164. The words “caused by or arising out of” have been construed by the Court of Appeal more widely, see Dunthorne v. Bentley [1999] Lloyd’s Rep. IR 560 (CA). As to “arising out of”; see also King v. Brandywine Reinsurance Co (UK) Ltd [2004] EWHC 1033 (Comm) (Colman J), [2004] Lloyd’s Rep. IR 554 at p. 235, and, in the context of aggregation, as in the phrase “arising out of any one event”; see Scott v. Copenhagen Reinsurance Co (UK) Ltd [2003] EWCA Civ 688, [2003] Lloyd’s Rep. IR 696 (Rix LJ). In Kajima (UK) Engineering Ltd v. The Underwriter Insurance Co [2008] EWHC 83 (TCC), [2008] Lloyd’s Rep. IR 391 at p. 408, para. 97, Akenhead J observed that “arising out of” can have a wider significance than “caused by”. On the basis of these and other authorities, Christopher Clarke J in Beazley Underwriting Ltd v. The Travelers Companies Incorporated [2011] EWHC 1520 (Comm), [2012] Lloyd’s Rep. IR 78, accepted that “arising out of”, in the context of the contract in question, did not dictate a proximate cause test and that a somewhat wider causal connection was intended (para. 128). This accords with the insurance market view which is that a broader test of causation applies to unseaworthiness in cl. 5 of the Institute Cargo Clauses. 165. In the context of the exclusions in the Institute Clauses, the words “caused by” in cl. 7.1 may be contrasted with the words “resulting from” in cl. 7.2 and in the circumstances it is arguable that a broader test than proximate cause is to be applied under cl. 7.2, see Arnould’s Law of Marine Insurance and Average, 16th edn, 1981, Sweet & Maxwell (Arnould 16th edn), volume 3 at para. 249, p. 154. The current edition of Arnould does not appear to directly address this point in the context of cl. 7.2. 166. Trinder, Anderson & Co v. Thames & Mersey Marine Insurance Co [1898] 2 QB 114. See also Beazley Underwriting Ltd v. The Travelers Companies Incorporated [2011] EWHC 1520 (Comm), [2012] Lloyd’s Rep. IR 78 at para. 126 citing Lloyds TSB General Insurance Holdings v. Lloyds Bank Group Insurance Co Ltd [2003] UKHL 48, [2003] Lloyd’s Rep. IR 623 as indicating that a wider test applies. The additional word “reasonably” in the phrase “reasonably attributable to” used in the ICC(B) and ICC(C) clauses probably adds nothing. 167. Coxe v. Employers Liability Assurance Corporation Ltd [1916] 2 KB 629 at p. 634 per Scrutton J and see Spinney’s (1948) Ltd, Spinney’s Centres SAL & Michel Doumet v. Royal Insurance Co Ltd [1980] 1 Lloyd’s Rep. 406. 168. Marine insurance reverses the usual position under English law, e.g., under the Sale of Goods Act 1979 s. 11(3) where breach of a “condition” gives a right to repudiate the contract, but a breach of warranty gives only the more limited remedy of damages. 169. [1993] 2 Lloyd’s Rep. 309.

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it was alleged that the assured cargo owners had failed to preserve rights against carriers and it was argued that this automatically barred the entire claim, as if clause 16 was a warranty or a condition precedent. Hobhouse J held, in forceful terms, that the breach of the duty under clause 16 only entitled the insurer to a claim for damages against the assured in respect of any losses sustained by the insurers flowing from the assured’s breach. 3.33 Conditions precedent are rare in marine cargo insurance as the usual practice is for marine insurers to impose a warranty if they wish to protect themselves by introducing a condition precedent to their liability. Occasionally, however, in cargo insurances, conditions precedent are inserted with regard to immediate notice of claim.170 Notice of claim conditions are likely to be narrowly construed by the courts, but if properly expressed will be effective and, like warranties, can only be waived by estoppel and not by mere election.171

ALL RISKS All risks All risks defined 3.34 The usual practice is to insure cargo on all risks terms under the Institute Cargo Clauses (A).172 Clause 1 provides as follows: “This insurance covers all risks of loss of or damage to the subject-matter insured except as excluded by the provisions of Clauses 4, 5, 6 and 7 below.”

This section considers the meaning of the expression “all risks”, which is a term of art with a restricted meaning so that, for example, it does not include losses caused by inherent vice. The chapter then examines how cover under the Institute Cargo Clauses, as set out above, is further circumscribed by exclusions: first, by a number of general exclusions in clause 4 and, second, by the exclusion of unseaworthiness in clause 5. The war and strikes exclusions in clauses 6 and 7 are dealt with in a separate section of the chapter,173 as insurance cover is almost invariably purchased for these risks under the Institute War Clauses (Cargo) and the Institute Strikes Clauses (Cargo). 3.35 All risks cover was defined by Lord Sumner in British & Foreign Marine Insurance Co v. Gaunt as follows174: “There are, of course, limits to ‘all risks’. They are risks and risks insured against. Accordingly the expression does not cover inherent vice or mere wear and tear …. It covers a risk, not a certainty; it is something, which happens to the subject-matter from without, not the natural behaviour of that subject-matter, being what it is, in the circumstances under which it is carried.”

170. The standard notice provisions under the former Lloyd’s MAR Form and typical Lloyd’s Certificates of Insurance are not normally made conditions precedent to liability. 171. Kosmar Villa Holidays plc v. Trustees of Syndicate 1243 [2008] EWCA Civ 147, [2008] Lloyd’s Rep. IR 489. 172. Insurance cover is available against named perils under the Institute Cargo Clauses (B) and, in a more limited form against major casualties, under the Institute Cargo Clauses (C), but these forms of cover are only used for special commodities and trades and for cargo reinsurance, which are outside the scope of this book. 173. See paras 3.56 to 3.65 below. 174. [1921] 2 AC 41 (HL) at p. 57.

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Insofar as Lord Sumner refers to inherent vice and wear and tear, this reflects section 55(2)(c) of the Marine Insurance Act 1906, which states that, unless the policy otherwise provides, “the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage [or] inherent vice or nature of the subject-matter insured”. It is clear, therefore, that the expression “all risks”, which is a term of art, does not extend to loss caused by these matters. Nevertheless, ordinary leakage, wear and tear and inherent vice are expressly excluded by the Institute Cargo Clauses.175 The additional point made by Lord Sumner that all risks do not encompass “certainty” of loss is not dealt with in the 1906 Act but is a general principle of insurance law and there are cargo cases that confirm the principle that the loss is not covered if it is certain to happen.176 Burden of proof 3.36 Under an all risks policy it is not necessary to prove which particular peril operated, as it would be under a policy against specific perils such as fire.177 It is sufficient if the assured presents evidence “reasonably showing that the loss was due to a casualty, not to a certainty or to inherent vice or to wear and tear”.178 Similarly, it has been held by the Australian courts that wear and tear is a limitation on the description of the perils insured and not exclusion.179 However, it was common ground in The Cendor MOPU180 that it was for the insurers to prove that the loss was proximately caused by the exception of inherent vice, which is excluded under clause 4.4 of the Institute Cargo Clauses.181 It is submitted that the long-established general rule is that the insurer has the burden of proving exclusions, though in the special cases of inherent vice and wear and tear the position is less certain as these factors may, in some cases, negative the existence of a casualty rather than act as true exclusions. Limitations and exclusions on all risks Wilful misconduct 3.37 Clause 4.1 of the Institute Cargo Clauses excludes “loss damage or expense attributable to wilful misconduct of the assured”, which reflects similar wording in section 55(2) (a) of the Marine Insurance Act 1906.182 Where an assured deliberately causes loss or damage to the insured goods, any subsequent claim under the insurance would be a fraud on 175. Cl. 4.2 excludes ordinary wear and tear and “ordinary leakage” but not “breakage”. Cl. 4.4 excludes “inherent vice and nature of the subject matter insured”. 176. F. W. Berk & Co Ltd v. Style [1955] 2 Lloyd’s Rep. 382 at p. 390 per Sellers J. See also Shell International Petroleum v. Gibbs (The Salem) [1982] 1 Lloyd’s Rep. 369 (CA), Kerr LJ at p. 381 and [1983] 1 Lloyd’s Rep. 342 (HL) at p. 350 per Lord Roskill. 177. British & Foreign Marine Insurance Co Ltd v. Gaunt [1921] 2 AC 41 (HL) at p. 58. 178. Op. cit. at p. 58 per Lord Sumner. For the application of this rule in a cargo case, see Theodorou v. Chester [1951] 1 Lloyd’s Rep. 204. 179. HIH Casualty & General Insurance Ltd v. Waterwell Shipping Inc [1998] 146 FLR 76 at p. 87 and see Chapter 7 (Australian law) at para. 7.45 below. 180. Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU) [2011] UKSC 5, [2011] 1 Lloyd’s Rep. 560 (SC). 181. At para. 20. 182. MIA Act 1906 s. 55(2)(a) provides that, “The insurer is not liable for any loss attributable to the wilful misconduct of the assured, but, unless the policy otherwise provides, he is liable for any loss proximately caused

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the insurers and a breach of the duty of good faith, and, in any event, to allow recovery would be against public policy.184 Both the exclusion in the Institute Cargo Clauses, and the limitation on cover in relation to wilful misconduct in the 1906 Act, provide that the wilful misconduct need not be the proximate cause of the loss as long as the loss is, at least, partly “attributable to” the misconduct.185 Under English law, the assured need not deliberately intend loss, for it is sufficient if the assured hazards the property and is recklessly indifferent as to whether or not loss results.186 Whilst reckless indifference to loss may amount to dishonesty, mere negligence will not bar a claim as there is no general duty of due diligence under the 1906 Act or the Institute Cargo Clauses,187 until a loss occurs.188 Even where there is an express requirement that the assured shall take reasonable precautions, this may be narrowly construed in favour of the assured.189 A loss “which the assured brings about by his own act” was identified by Lord Sumner in the British & Foreign Marine Insurance v. Gaunt190 as outside the concept of all risks. As a loss dishonestly contrived by the assured in order to fabricate an insurance claim can never be a covered risk, it may be the case that Lord Sumner had in mind action by the assured that deliberately exposed the goods to harm but was not necessarily dishonest, for example, neglect to pay warehouse dues exposing the goods to risk of sale under a court order. Ordinary wear and tear 3.38 Clause 4.2 of the Institute Cargo Clauses (A) excludes “ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject matter insured”. The Marine Insurance Act 1906 section 55(2)(c) says nothing of loss in weight or volume but limits losses from both “leakage” and “breakage” in the following terms: “Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage ….”

The difference is understood to be because insurers do not wish to rely on “ordinary breakage” as a self-standing exclusion and will only seek to decline claims for “breakage” where there is evidence of insufficiency of packing on which they could separately rely under the packing exclusion in clause 4.3 of the Institute Cargo Clauses.191

by a peril insured against, even though the loss would not have happened but for the misconduct or negligence of the master or crew”. 183. MIA 1906 s. 17, and see Manifest Shipping Co Ltd v. Uni-Polaris Shipping Co Ltd (The Star Sea) [2001] UKHL 1 (HC), [2001] 1 Lloyd’s Rep. 389. 184. Geismar v. Sun Alliance & London Insurance Ltd [1978] QB 383, [1977] 2 Lloyd’s Rep. 62. 185. Trinder, Anderson & Co v. Thames & Mersey Marine Insurance Co [1898] 2 QB 114 at p. 124, per AL Smith LJ, to the effect that, where the loss is caused by the wilful act of the assured, the proximate cause doctrine does not apply. 186. Derry v. Peek (1889) LR 14 App. Cas. 337, and see National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyd’s Rep. 582, per Colman J at p. 622. 187. The Institute Cargo Clauses (A) do not impose a due diligence requirement which is rarely a requirement of any Institute Clauses, but see, exceptionally, the Institute Metals Storage Clauses (A) cl. 11, and the Institute Frozen Foods Clauses (A) 1/1/86 CL 263, cl. 4.8, which imposes an obligation on the assured to “take all reasonable precautions to ensure that the subject-matter insured is kept refrigerated”. 188. Once a peril is operating there is a duty to minimise the loss, see para. 3.113 below. 189. See, e.g., Crow’s Transport Ltd v. Phoenix Assurance Co Ltd [1965] 1 Lloyd’s Rep. 139. 190. [1921] 2 AC 41 (HL) at p. 57. 191. Insufficiency of packing is considered at para. 3.47 et seq. below.

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3.39 These exclusions of “ordinary” losses may be varied by positive cover in the policy or other provisions in the policy that, in terms of the 1906 Act, “otherwise provide”. However, the courts are reluctant to hold that normal leakage is covered and will only do so where clear express wording is used (e.g., “from any cause whatsoever”).192 The courts accept that in terms of “shortage of weight”, it would be theoretically possible to insure against a measurement error, and that there may indeed be commercial reasons why a cargo receiver might want such cover. However, it has been held that this “would be a most unusual type of marine cargo cover and clear terms would be required to effect it”.193 3.40 Although “wear and tear” is excluded under the Institute Cargo Clauses and is a limitation on all risks cover identified both by Lord Sumner in the British & Foreign Marine Insurance case194 and in section 55 of the Marine Insurance Act 1906, it appears to have little application to marine cargo insurance as it implies deterioration over a significant period of time rather than during a voyage.195 In marine cargo insurance, a defence of inherent vice is more likely to be put forward in cases that would, in hull insurance, be identified as wear and tear. Inherent vice 3.41 The Institute Cargo Clauses exclude “loss damage or expense caused by inherent vice or nature of the subject-matter insured”.196 This has proved to be one of the most difficult exclusions to construe and apply in practice. This is not so much due to the difficulty in defining “inherent vice”, but because of the problem of determining whether, as a matter of causation, a loss is caused by an insured peril (e.g., a peril of the seas) or by inherent vice. Where inherent vice is a cause, there is the further difficulty of deciding whether it operates solely or in conjunction with a covered risk.197 3.42 Inherent vice was defined in Soya GmbH Mainz KG v. White,198 where Lord Diplock said199: “This phrase (generally shortened to ‘inherent vice’) where it is used in s.55(2)(c) refers to a peril by which a loss is proximately caused; it is not descriptive of the loss itself. It means the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty.”

Examples of inherent vice, as set out in the second edition of Arnould on Marine Insurance,200 included fruit becoming rotten, flour heating and wine turning sour, not in each case from external damage but entirely from internal decomposition. Spontaneous combustion of certain types of coal is a problem of inherent vice as is the heating of soya beans201 192. Dodwell & Co Ltd v. British Dominions General Insurance Co Ltd [1955] 2 Lloyd’s Rep. 391 (judgment handed down on 9 April 1918). 193. Coven SpA v. Hong Kong Chinese Insurance Co [1999] Lloyd’s Rep. IR 565 (CA) at p. 570. 194. [1921] 2 AC 41 (HL), see para. 3.38 above. 195. See, e.g., Wadsworth Lighterage & Coaling Co Ltd v. Sea Insurance Co Ltd (1929) 34 Ll. L. Rep. 285 (CA), where a barge sank because she had deteriorated over the years and could no longer float. 196. ICC, cl. 4.4. MIA 1906 s. 55(2)(c) also provides that the insurer is, “not liable for … inherent vice or nature of the subject-matter insured…”. The words “caused by” or “proximately caused by” do not appear in this part of s. 55 of the Act, perhaps suggesting that a wider approach to causation applies to inherent vice. 197. T. M. Noten BV v. Harding [1990] 2 Lloyd’s Rep. 283 (CA); Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU) [2011] UKSC 5 (SC), [2011] 1 Lloyd’s Rep. 560. 198. [1983] 1 Lloyd’s Rep. 122 (HL) at p. 126. 199. Ibid., Soya v. White [1982] 1 Lloyd’s Rep. 136 (CA) at p. 149. 200. Published 1857, cited by Donaldson LJ in Soya v. White [1982] 1 Lloyd’s Rep. 136 (CA) at pp. 145, 146. 201. Soya GmbH Mainz KG v. White [1983] 1 Lloyd’s Rep. 122.

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203

204

or ground nuts or discolouration in a cargo of fish. Two recent cases have considered whether damage to machinery during bad weather was caused by “inherent vice”, though metal fatigue of the kind encountered in these cases more naturally falls within the phrase “nature of the subject matter insured” rather than inherent vice which suggests deterioration with natural products such as beans, fish or meat.205 3.43 The key issue identified by Lord Diplock is to establish whether or not there has been the “intervention of any fortuitous external accident or casualty”. The distinction which is to be made is between damage that originates within the goods themselves and damage that occurs as a result of “any” fortuitous external cause. Although easy to state, the rule is not always straightforward to apply in practice. In C. T. Bowring & Co Ltd v. Amsterdam London Insurance Co Ltd,206 ground nuts were imported from China to Rotterdam and Hamburg and were damaged by heating and by “sweat” from the ship’s holds. The originating cause of both types of damage was excessive moisture within the ground nuts. It was held that the heating damage to the ground nuts was caused by inherent vice as it originated from within the ground nuts. However, with regard to the “sweat” damage, it was held by the court that the sweat, albeit that it may have originated from within the ground nuts, once it had evaporated onto the ship’s side, where the moisture condensed, the sweat had taken on a life of its own so that the damage was to be treated as from an external cause. 3.44 In older cases, the “proximate” cause rule was applied on the basis that the operative cause was the last cause in point of time.207 Accordingly, where there was an accident caused by perils of the seas, for example, a storm, which triggered damage to the goods because of fault in packaging or stowage, it was the insured peril (of the seas) that was treated as the proximate cause. However, in recent cases, a more common sense view is taken of the predominant cause and there has been a shift that may favour insurers. For example, in T. M. Noten BV v. Harding,208 a cargo of gloves was shipped in containers from Calcutta, during the monsoon period, and out-turned in Rotterdam in a severely damaged and mouldy condition. Phillips J, at first instance,209 held that as the damage was caused as a consequence of the moisture in the gloves condensing on the inside of the top of the container and falling onto the gloves, the damage was from an external cause. This followed the decision in the C. T. Bowring case210 described above. However, in the Court of Appeal it was held that the proximate cause of the damage was the water within the gloves themselves and that this was therefore a loss by reason of inherent vice. Bingham LJ said211: 202. C. T. Bowring & Co Ltd v. Amsterdam London Insurance Co Ltd (1930) 36 Ll. L. Rep. 309. 203. See Albacora SRL v. Westcott & Laurance Line Ltd [1966] 2 Lloyd’s Rep. 53. 204. Mayban General Insurance BHD v. Alstom Power Plants Ltd [2004] EWHC 1038 (Comm), [2004] 2 Lloyd’s Rep. 609 (generator carried on deck) and Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU) [2011] UKSC 5, [2011] 1 Lloyd’s Rep. 560 (SC) (jack-up oil rig carried on a barge). 205. Where metal breaks, it may also be noted that “ordinary breakage” is not covered under the MIA 1906, but is not expressly excluded under the Institute Cargo Clauses, suggesting that insurers are content to cover “ordinary breakage” to the extent that it does not result from insufficient packing. “Ordinary breakage” is not covered under s. 55(2)(c) of the MIA 1906, but is not excluded by cl. 4.2 of the Institute Cargo Clauses, see para. 3.38 above for a consideration of wear and tear and ordinary leakage and breakage. Insufficiency of packing is considered at para. 3.47 et seq. below. 206. (1930) 36 Ll. L. Rep. 309. 207. A summary of the Victorian era approach is set out by Lord Mance in The Cendor MOPU at para. 49. 208. [1990] 2 Lloyd’s Rep. 283 (CA). 209. [1989] 2 Lloyd’s Rep. 527. 210. (1930) 36 Ll. L. Rep. 309, discussed at para. 3.43 above. 211. [1990] 2 Lloyd’s Rep. 283 at p. 287.

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“[Counsel] who appeared for the [assured] in this appeal, accepted that if the damage complained of had been caused by excessive moisture in the gloves, but without the intervening process of condensation on the roof of the containers, the position would have been different. But he said it was a crucial fact that the moisture condensed on the container roofs before dropping down on the gloves. I do not for my part think that this answer given by the [assured] would appeal to the common sense of the business or seafaring man. He would not understand how the water which had caused the damage could be regarded as coming from a source external to the goods, but would on the uncontradicted findings regard the gloves as the obvious and sole source of the water. He would, I think, regard the suggested distinction based on the intermediate migration of moisture to and condensation of moisture on the roofs of the containers as owing more to the subtlety of the legal mind than to the common sense of the mercantile.”

This approach was followed by the British Columbia Court of appeal in Nelson Marketing International Inc v. Royal and Sun Alliance Insurance Co of Canada.212 In this case, shipments of laminated flooring were damaged by moisture absorbed by the flooring in the course of manufacture. During the ordinary course of the voyage, the moisture evaporated and condensed, damaging the laminate. There was no external fortuitous occurrence and the damage was attributed to the nature of the subject-matter insured.213 In Mayban General Insurance BHD v. Alstom Power Plants Ltd,214 this reasoning was taken one important step further when it was held that the claim failed by reason of inherent vice where a large transformer carried on deck was unable to withstand the ordinary incidents of the carriage. That decision was overruled by the Supreme Court in the case of The Cendor MOPU, which it is now necessary to deal with in some detail. 3.45 In Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU),215 a jack-up oil rig was carried, under tow, by barge from Galveston in the United States to Lumet in Malaysia. The rig had three massive tubular steel legs to which the working platform was fixed by openings cut into the legs so that the platform could be jacked up. These openings were known to be subject to fatigue cracking when the legs were under stress. The rig was carried on the barge with its legs jacked-up, so that the legs extended some 300 ft into the air. Whilst the barge was being towed off Durban, the starboard leg broke off and fell into the sea, which increased the stresses on the other two legs, which broke off shortly thereafter. It was decided by the court that the loss of the three legs resulted from metal fatigue around the openings in the legs, and the loss occurred during weather conditions that were within the range expected for the voyage in question. The judge also found that the rig was not fit for that voyage. Although it was not appreciated at the time, the loss of the legs was “very probable” though not “inevitable”. It was common ground that fatigue cracking was bound to occur in the area of the openings cut into the legs. This type of cracking could not, therefore, have formed any claim under the insurance policy and such cracking that occurred during the earlier part of the voyage was not the subject of an insurance claim. Contrasted with this routine cracking, which was bound to occur, the loss of the legs, although “very probable” was found by the trial judge not to be inevitable as it required, in addition, a “leg-breaking” wave or “final straw” stress that fractured the weakened steel all around each leg.216 The rig was insured as cargo 212. (2006) 57 BCLR (4th) 27. 213. Per Lowry JA at p. 35. 214. [2004] EWHC 1038 (Comm), [2004] 2 Lloyd’s Rep. 609. 215. [2011] UKSC 5 (SC), [2011] 1 Lloyd’s Rep. 560. 216. Lord Clarke expresses the view that this was “a most unusual case” because of “the critical finding of the judge [that] the leg-breaking stress was fortuitous and was caused by a peril of the seas”, at para. 140.

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3.46

under a policy incorporating the Institute Cargo Clauses (A) 1/1/82 which, as we have seen, cover “all risks of loss of or damage to the subject-matter insured”, but exclude “loss, damage or expense caused by inherent vice or nature of the subject-matter insured”. 3.46 The Supreme Court concentrated on Lord Diplock’s formulation in the Soya case.217 Lord Mance pointed out that the reference to the “ordinary course of the contemplated voyage” in the phrase “ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty” was not intended to mean that the loss could not be accidental if the weather conditions were foreseeable. The phrase was, as Lord Mance put it, used “as a counterpoint to a voyage on which some fortuitous external accident or casualty occurred”.218 The Mayban approach, in so far as it was based on the assumption that inherent vice applied if the goods were unable to withstand the voyage conditions to be contemplated was, therefore, rejected. Lord Mance continued219: “... there is no apparent limitation in Lord Diplock’s qualification ‘without the intervention of any fortuitous external accident or casualty’ – in other words, on the face of it, anything that would otherwise count as a fortuitous external accident or casualty will suffice to prevent the loss being attributed to inherent vice.”

Subsequently, Lord Mance went on to say220: “While not myself attempting any exact definition, ordinary wear and tear and ordinary leakage and breakage would thus cover loss or damage resulting from the normal vicissitudes of use in the case of a vessel, or of handling and carriage in the case of cargo, while inherent vice would cover inherent characteristics of or defects in a hull or cargo leading to it causing loss or damage to itself – in each case without any fortuitous external accident or casualty.”

From this ruling, even where goods are unfit to withstand the ordinary incidents of the voyage, and the loss is very probable, the loss is still covered where there is a fortuitous accident, for example, due to rough weather. It is submitted that the rules for identifying inherent vice as the cause of the loss under English law involve the following four principles: (1) If the loss is inevitable and certain to occur and if it arises as a result of inherent characteristics of the cargo, there is no cover.221 (2) If the loss is solely caused by inherent vice, without the intervention of any fortuitous external accident or casualty, and the inherent vice originates from within the cargo itself, there is no cover.222 (3) If the loss is predominantly caused by inherent vice, even though the inherent vice only manifests itself due to the ordinary conditions experienced during the voyage, there is no cover if the cause of the loss originates within the cargo itself and is not triggered by any fortuitous external accident or casualty. So, where gloves containing

217. [1983] 1 Lloyd’s Rep. 122 at p. 126, which is set out at para. 3.42 above. 218. At para. 80. 219. Op. cit. The SC also pointed out that the formulation in the Mayban case ran counter to the requirement under MIA 1906 s. 40(1) that “there is no implied warranty that the goods or movables are seaworthy”. 220. At para. 81. 221. Soya GmbH Mainz KG v. White [1983] 1 Lloyd’s Rep. 122 (HL) and see Arnould’s Law of Marine Insurance and Average, 2008, Sweet & Maxwell, at para. 22-24 and Arnould’s First Supplement at p. 135 and The Cendor MOPU at first instance [2009] EWCA Civ 1398. 222. T. M. Noten BV v. Harding [1990] 2 Lloyd’s Rep. 283 (CA).

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excess moisture were containerised and the containerisation triggered condensation that damaged the gloves, it was held that the loss was due to inherent vice.223 (4) Where goods are unable to withstand the ordinary incidents of the voyage and encounter weather conditions that are no more than would be contemplated, such as rough weather, the loss is considered fortuitous as long as it is triggered by anything accidental, even if the loss turns out, in fact, to have been very probable.224 The decision of the Supreme Court has limited the circumstances in which insurers can rely upon inherent vice by emphasising that any fortuity under an all risks policy will preclude a finding of inherent vice.225 This leaves the defence of inherent vice to apply, as it did traditionally, to cases of cargo, such as soya beans, ground nuts etc, that are subject to natural deterioration entirely from within themselves. The Supreme Court decision, with respect, also importantly restores cargo insurance coverage in those cases where cargo is damaged by rough weather at sea, which surely constitutes one of the most fundamental reasons for purchasing such insurance.226 Insufficiency of packing 3.47 Clause 4.3 of the Institute Cargo Clauses 2009 provides as follows: “In no case shall this insurance cover loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of these Clauses ‘packing’ shall be deemed to include stowage in a container and ‘employees’ shall not include independent contractors).”

The revised insurance227 now covers bad packing or preparation following the attachment of the insurance, unless it is carried out by the assured or their employees. Accordingly, bad packing by a forwarder or carrier, during the attachment of the insurance, is now a covered risk analogous to bad stowage. Where the bad packing or preparation takes place in the warehouse or factory before the attachment of the insurance, there is no cover regardless of whether the packing is carried out by the assured or by third parties.228 The Australian courts have considered what amounts to “insufficiency or unsuitability of packing or preparation”, in the case of Helicopter Resources Pty Ltd v. Sun Alliance Australia Ltd 223. Op. cit. 224. The Cendor MOPU (supra). 225. The implications may be wider in so far as the principle is one of causation and therefore potentially applies to all the exclusions under the ICC. 226. The decision in Mayban General Insurance BHD v. Alstom Power Plants Ltd [2004] EWHC 1038 (Comm), [2004] 2 Lloyd’s Rep. 609, which was overruled, effectively withdrew that cover, at least in those cases where the goods were unfit or unseaworthy and the weather conditions were no worse than was to be contemplated for the voyage in question. 227. The packing exclusion was first introduced in the Institute Cargo Clauses 1/1/82 in a more extensive form and was modified in the 2009 Clauses. 228. Where the material in which the goods are customarily packed, for example, bags or wooden packing cases, is part of the subject-matter insured, it has been held that this constitutes inherent vice, see the decisions of Sellers J in 1955 in the cases of Gee & Garnham v. Whittall [1955] 2 Lloyd’s Rep. 652 and F. W. Berk & Co Ltd v. Style [1956] 1 QB 180, [1955] 2 Lloyd’s Rep. 382. It is the intention that insufficiency of packing should be regulated entirely by cl. 4.3 and inherent vice by the terms of cl. 4.4.

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229

(The Icebird). In that case, the court identified “packing” as preparation of the cargo for loading, not the stowage itself and observed that “packing” may be confined to placing the goods in some form of outer covering, while “preparation” contemplates that it may be necessary to prepare the cargo for loading and stowing on board the vessel.230 3.48 Where goods are stowed in containers, the position under the revised Institute Cargo Clauses is the same as for cargo packed more conventionally, as the term “packing” is deemed to include stowage of a container. Accordingly, where the stowage is carried out prior to the attachment of the risk, any loss of or damage to the cargo is excluded if it is caused by insufficiency or unsuitability of the container. Additionally, if the assured or their employees stow the container, even after attachment of the risk, and loss is caused by insufficiency or unsuitability of the container, it will not be covered.231 3.49 Where goods that are insufficiently packed to withstand the ordinary incidents of the insured transit are damaged in heavy weather, it is submitted that the damage so caused is excluded despite the decision of the Supreme Court in The Cendor MOPU.232 There are a number of reasons for this. First, The Cendor MOPU decision turns on its own most unusual facts, in particular, that a leg-breaking wave was part of the probable and foreseeable weather conditions, but was found, nevertheless, to be a fortuity by the trial judge.233 Second, in so far as that case ruled that a loss by foreseeable weather conditions is fortuitous, this approach should be confined to inherent vice and wear and tear, which were the issues in that case. Third, despite the authorities to the contrary,234 bad packing is not a form of inherent vice. Fourthly, even if bad packing is a form of inherent vice, it is clear, as a matter of construction, that the Institute Cargo Clauses intend a separate regime to apply to insufficiency of packing, as set out expressly in the carefully drafted terms of clause 4.3.235 3.50 Clause 4.3 lays down an express requirement that the packing must be sufficient “to withstand the ordinary incidents of the insured transit”, a requirement that was added to the revised clauses of 2009, not only to assist in identifying the standard to which the packing must be carried out, but also to clarify the circumstances in which damage caused by bad packing would not be covered under the policy.236 It is therefore submitted that where goods are damaged by bad weather at sea and the immediate cause of the loss is perils of the sea, the exclusion of insufficiency of packing will still apply to cases where the goods were insufficiently packed to withstand the ordinary incidents of the insured transit. 229. (1991) Supreme Court of Victoria, Commercial List, Ormiston J summarised in [1991] 312 LMLN 1(2), noted more fully by S. Hetherington in “Non-disclosure in Marine Insurance of Aircraft” [1992] LMCLQ 21. 230. See Chapter 7 (Australian law) at para. 7.49 below, where this case is examined in more detail. 231. This is also consistent with the exclusion of unfitness in relation to containers in cl. 5.1.2 of the Institute Cargo Clauses, as discussed at para. 3.55 below. 232. Supra. 233. See the judgment of Lord Clarke at paras 98 and 140. 234. See Dunt, Marine Cargo Insurance, at paras 8.28 to 8.30, where the authorities are considered, and see Arnould’s First Supplement at pp. 141–142, where, however, the editors regard it as an open question whether bad packing can generally be said to fall within the scope of the concept of inherent vice. 235. Arnould’s First Supplement accepts this approach as correct, at p. 142. 236. The words “to withstand the ordinary incidents of the insured transit” reflect the judgment of MooreBick J in Mayban General Insurance BHD v. Alstom Power Plants Ltd [2004] EWHC 1038 (Comm), [2004] 2 Lloyd’s Rep. 609, which was overruled by the Supreme Court in The Cendor MOPU (supra) and this approach was disapproved in the context of inherent vice. Nevertheless, where the test is made part of the express terms of the contract, it must clearly be applicable to insufficiency of packing whatever the general law as to inherent vice.

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Delay 3.51 Clause 4.5 of the revised Institute Cargo Clauses excludes, “loss damage or expense caused by delay, even though the delay be caused by a risk insured against”. The primary purpose of this exception is to exclude losses due to a fall in the market caused by a delay in the voyage, even if that delay is itself caused by an insured risk, for example, a fire aboard the vessel, which has delayed her arrival but not damaged the insured cargo.237 Where goods have a seasonal market and arrive intact, but are worthless due to the delay, such as calendars, the loss is not covered.238 3.52 These are clear cases, but the operation of the delay exclusion is less clear in cases where cargo is perishable and is damaged due to delay. For example, in the old case of Pink v. Fleming,239 a ship carrying a cargo of oranges and lemons was in collision and had to put into port for repair, during which time the fruit, which was not damaged in the collision, deteriorated. It was held that the loss was excluded, as delay was the proximate cause. This view may not be followed today because the courts now seek to identify the predominant cause on a common sense basis rather than looking at the closest cause in time.240 In particular, in the United States it has been held that where a cargo of bananas deteriorated following on from a stranding, the proximate cause of the loss was the stranding and not delay.241 If this approach is adopted by the English courts, the delay exclusion is unlikely to be effective in cases of deterioration as the court is likely to identify the underlying cause, that is, the collision or stranding, as the cause of the loss, rather than delay. Accordingly, the delay exclusion will rarely operate to exclude loss or damage arising from deterioration.242 Insolvency 3.53 Clause 4.6 of the revised Institute Cargo Clauses excludes “loss damage or expense caused by insolvency or financial default of the owners managers charterers or operators of the vessel” where the assured were aware that the carriers were financially unsound and that this could prevent the normal prosecution of the voyage. This rather narrow exclusion does not apply unless the insurers can prove that (1) insolvency or financial default caused the loss and (2) that the assured were aware of the carrier’s unsoundness. Moreover, this limited exclusion does not apply at all where the contract of insurance has been assigned to a CIF buyer under a certificate of insurance.243 3.54 The exclusion of insolvency or financial default is most likely to operate in circumstances where the voyage is abandoned by an impecunious carrier after what may be a relatively minor casualty, typically an engine breakdown. This triggers clause 12 of the Institute Cargo Clauses, the Forwarding Charges Clause, under which the assured is 237. In Masefield AG v. Amlin Corporate Member Ltd [2010] EWHC 280 (Comm Ct: David Steel J), [2010] 1 Lloyd’s Rep. 509, the vessel was delayed by Somali pirates and the cargo sold for a significant loss that was not recoverable as the cargo was neither an actual nor a constructive total loss and, indeed, was undamaged. 238. Federation Insurance Company of Canada v. Coret Accessories Inc & Hirsch [1968] 2 Lloyd’s Rep. 109. 239. [1890] LR 25 QBD 396. 240. See para. 3.44 above. See also Leyland Shipping Co Ltd v. Norwich Union Insurance Society Ltd [1918] AC 350 (HL). 241. Lanasa Fruit Steamship & Importing Co v. Universal Insurance Co [1938] AMC 1. 242. For a more detailed consideration of the difficulties that arise with regard to delay and causation, see Dunt, Marine Cargo Insurance, 2009, Informa, at para. 7.19 et seq. 243. ICC, cl. 4.4.6.

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entitled to claim reimbursement of costs expended in getting the goods to their destination unless the loss has been caused by the carrier’s insolvency. Unseaworthiness and unfitness 3.55 The Marine Insurance Act 1906 imposed a strict warranty of seaworthiness in voyage policies.244 In addition, the assured warranted that the ship was not only seaworthy as a ship, but also reasonably fit to carry the goods to the destination contemplated by the policy.245 Marine insurers have long recognised that to impose these implied warranties in modern times would be unrealistic as the assured is frequently unaware of any lack of seaworthiness of the ship used to carry his cargo.246 Instead, the satisfactory and seaworthy condition of the ship, in which the cargo is to be carried, is controlled by cargo insurers in two main ways. First, by the use of the Institute Classification Clause, and, secondly, by exclusions of unseaworthiness and unfitness in the Institute Cargo Clauses. The Institute Classification Clause247 imposes age limits on the vessels used to carry the cargo and requires that the ship is classed by a recognised classification society. The Institute Cargo Clauses exclude losses caused by unseaworthiness where the assured is aware of the unseaworthiness at the time of loading.248 Where loss, damage or expense arises from the use of an unfit container, or road vehicle, the loss is excluded where loading is carried out prior to attachment of the insurance (which will be rare) or where the assured or their employees carry out the loading and are aware of the defects.249

WAR, STRIKES AND TERRORISM The limitations on cover for war and strikes risks 3.56 War and strikes risks are excluded from the Institute Cargo Clauses (A),250 but it is the invariable practice to insure these risks under the Institute War Clauses (Cargo) and the Institute Strikes Clauses (Cargo). However, the positive cover provided is more limited in a number of important respects. First, the duration of the war risks cover is limited to the time the cargo is at sea or, at least, on board ocean-going vessels.251 Secondly, neither war cover nor strikes cover extends to loss of the adventure.252 Moreover, strikes cover does 244. MIA 1906 s. 39(1). 245. MIA 1906 s. 40(2). It was noted in The Cendor MOPU [2011] UKSC 5, [2011] 1 Lloyd’s Rep. 560 (SC), that under MIA 1906 s. 40(1), “In a policy on goods or other movables there is no implied warranty that the goods of movables are seaworthy”. 246. The warranties are therefore waived by cl. 5.3 of the Institute Cargo Clauses 2009. The seaworthiness of the ship was admitted in the Institute Cargo Clauses 1/1/63, and the Institute Cargo Clauses 1/1/82 had a more limited waiver of the warranties. 247. The Institute Classification Clause is considered in Dunt, Marine Cargo Insurance, 2009, Informa, at para. 8.73 et seq. 248. Clause 5.1.1. The exclusion does not apply where the insurance certificate has been passed to an innocent CIF buyer, see cl. 5.2. 249. ICC, cl. 5.1.2. 250. By cls 6 and 7. 251. The time aboard such vessels is limited to 15 days, Institute War Clauses (Cargo) cl. 5.1.2, and see para. 3.57 below. 252. See cls 3.7 (War) and 3.8 (Strikes) as explained in para. 3.58 below. For a discussion of loss of the adventure, see para. 3.104 below.

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not extend to expense caused by closure of a port of destination resulting from strikes.253 It should also be noted that the cover for terrorism (which is provided in the Strikes Clauses) is generally limited to the time when goods are in transit within the definition in the Institute Clauses,254 so as to avoid the risk of aggregation of risk in any one place. Finally, losses by seizure or restraint by government authorities under customs regulations or for breach of embargoes or similar regulations are outside the standard insurance provided by the Institute Cargo Clauses, though cover for this type of “rejection risk” may be provided in some insurance markets at significant additional premium.255 3.57 The first important limitation on war risks cover is that it is confined largely to the time that cargo is aboard seagoing vessels256 as compared to the warehouse-towarehouse cover normally available under the Institute Cargo Clauses.257 This limitation arises because cargo insurers have no control over how many cargoes may accumulate in the warehouses of any one port or place, either for the same assured or for many assureds. An attack during a war on such a port, with the widespread destruction of many cargoes, could lead to an unsustainable aggregation of losses beyond the capacity of insurers.258 The risks of war, civil war, revolution, rebellion and insurrection are accordingly not covered when they lead to loss and damage to cargo on land, whether in transit or in store. The same approach does not apply to the risks of riots or civil commotions, which are covered under the Institute Strikes Clauses (Cargo).259 Accordingly, the critical question when goods are destroyed on land during a period of unrest is often whether the state of civil commotion amounts to an insurrection because, if it does, there will be no insurance cover.260 3.58 The second important limitation on war risks cover, which also applies to strikes cover, is that there is no insurance for “any claim based upon loss of or frustration of the voyage or adventure”.261 Under English law, a marine cargo policy insures not only loss of or damage to the goods themselves, but also the arrival of the goods at the destination specified in the contract of insurance, which is sometimes expressed by saying that the “voyage” of the cargo is insured262 or that the “adventure” is insured.263 War and strikes cover does not, therefore, extend to this important risk. On the other hand, where the adventure is lost and the goods are also physically lost, as when during the Second World 253. The exclusion in cl. 7.2 of the Institute Cargo Clauses, which excludes loss, damage or expense resulting from strikes, lock outs, labour disturbances, riots or civil commotions, is not carried over into the Institute Strikes Clauses (Cargo), which only provide positive cover in cl. 1.1 for “strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions”, as excluded by cl. 7.1 of the ICC. 254. The practice is to use a Joint Cargo Committee Clause, called “Termination of Transit Clause (Terrorism) 2009” (JC56), which limits the insurance for terrorism to the time when the cargo is in transit within cl. 8 of the ICC, see para. 3.68 below. 255. See para. 3.61 below. 256. Institute War Clauses (Cargo), cl. 5. 257. ICC, cl. 8. 258. By former practice, insurers agreed not to insure war risks on land at all by the terms of the Waterborne Agreement. Although this Agreement has long since fallen into disuse, the wording of the duration of insurance provisions in the Institute War Clauses (Cargo) still owes its origins to that Agreement. 259. Institute Strikes Clauses (Cargo), cl. 1.1. 260. National Oil Co of Zimbabwe (Private) Ltd and Others v. Nicholas Collwyn Sturge [1991] 2 Lloyd’s Rep. 281 at p. 287 per Saville J, and see para. 3.65 below. 261. Institute War Clauses (Cargo), cl. 3.7; Institute Strikes Clauses (Cargo), cl. 3.8. 262. Roux v. Salvador [1836] 3 Bing (NC) 266; as explained by Roche J in Vacuum Oil Co v. Union Insurance Society of Canton Ltd (1926) 24 Ll. L. Rep. 188 at 190. 263. British & Foreign Marine Insurance Co v. Samuel Sanday [1916]1 AC 650, per Lord Loreburn.

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War certain German vessels carrying English cargoes were scuttled on the orders of the German Government, it was held that the loss of the adventure was covered.264 War risks War, civil war, revolution, rebellion and insurrection 3.59 Clause 1.1 of the Institute War Clauses (Cargo) covers loss of or damage to the subject-matter insured caused by: “War civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power.”

It has been said that the terms “war”, “civil war”, “revolution”, “rebellion” and “insurrection” reflect the stages through which civil strife may pass, with civil war at one extreme and insurrection at the other.265 It is convenient, therefore, to deal with these terms in order of precedence with “insurrection” at one end of the scale, even if, for example, “revolution” and “rebellion” may stand more or less side by side. Starting, therefore, with the term “war”, it may be said that there is a state of war where two or more governments, whether or not legally recognised, are involved in, or have recently been involved in, military (including naval) operations involving the use of force with each other.266 “Civil war” has been defined as meaning, “a war with the special characteristic of being civil i.e., being internal rather than external”.267 “Rebellion” and “insurrection” have somewhat similar meanings to each other. Each means an organised and violent internal uprising in a country with, as its main purpose, the object of trying to overthrow or supplant the government of that country, though “insurrection” denotes a lesser degree of organisation and size than “rebellion”.268 3.60 As we have seen above,269 “insurrection”, as the lowest on the scale of violence, is the critical exclusion. When this scale of violence is reached on land, there will be no cover under the War Clauses. In National Oil Co of Zimbabwe v. Sturge,270 Saville J defined “insurrection” as an uprising with “a lesser degree of organisation and size than a rebellion”. The losses in this case resulted from damage caused by explosions on the Beira to Feruka pipeline in Mozambique and from an explosion, and the resulting fire, at an oil tank farm. All the damage was deliberately caused by the supporters of the Mozambique National Resistance Movement (“Renamo”), whose purpose was the overthrow of the government. In view of the intention to overthrow the government, it was held that these incidents amounted to an “insurrection”. In Grell-Tourel Ltd v. Caribbean Home 264. Forestal Land, Timber & Railways Co Ltd v. Rickards. Middows Ltd v. Robertson & Other Cases (1941) 70 Ll. L. Rep. 173. 265. See, e.g., the comments of Farwell LJ in Republic of Bolivia v. Indemnity Mutual Assurance Co Ltd [1909] 1 KB 785 at p. 801. This approach should, however, be treated with caution as it has not always found favour in later decisions, see Mustill J in Spinney’s (1948) Ltd, Spinney’s Centres SAL & Michel Doumet v. Royal Insurance Co Ltd [1980] 1 Lloyd’s Rep. 406 and Rix J in Kuwait Airways Corporation v. Kuwait Insurance Co [1996] 1 Lloyd’s Rep. 664 at p. 690. 266. Kawasaki Kisen Kabushiki v. Bantham Steamship Co Ltd (No. 2) (1939) 63 Ll. R. Rep. 155 and Spinney’s (1948) Ltd, Spinney’s Centres SAL & Michel Doumet v. Royal Insurance Co Ltd [1980] 1 Lloyd’s Rep. 406. 267. National Oil Co of Zimbabwe (Private) Ltd and Others v. Nicholas Collwyn Sturge [1991] 2 Lloyd’s Rep. 281 at p. 282 per Saville J. 268. Ibid. 269. Para. 3.59 above. 270. [1991] 2 Lloyd’s Rep. 281.

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Insurance Co Ltd, members of the Muslimeen bombed the Trinidad and Tobago Police Headquarters in Port of Spain and, at the same time, stormed the Parliament building. They killed six people and took sixteen hostages including the prime minister, later taking over the television and broadcasting facilities where their leader announced, somewhat precipitously, that the government had been overthrown. The losses sustained during these events were held to have occurred and to have resulted from a state of insurrection. This was followed in Tappoo Holdings Ltd v. Stuchbery,272 where the circumstances were even closer to the margin between “insurrection”, which would be excluded, and civil commotions or riots, which would normally be covered under the Strikes Clauses. In this case, a Mr George Spreight and several confederates seized the Fijian Parliament and took the prime minister and other members of the government hostage. A breakdown of law and order followed and a riot began at the assured’s shop in the central business district, which a mob looted and damaged. It was argued that the scale of events did not warrant a finding of insurrection, but the Supreme Court of the Fiji Islands, having considered the authorities discussed above, held that there was an insurrection on the basis that there was an attempt by force to overthrow the established government and that the numbers taking part did not need to be large, nor did their prospects for success, as an “insurrection” could be a loose affair. The key issue was the intention to overthrow the established government accompanied by violence directed at the Parliament and members of that government. Capture, seizure, arrest, restraint and detainment 3.61 Clause 6.2 of the Institute Cargo Clauses (A) excludes loss damage or expense caused by: “Capture seizure arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat.”

The effect of this clause is that piracy remains an all risks peril but “capture seizure arrest restraint and detainment” are excluded from the cover provided under the (A) Clauses. The risks of capture, seizure and like perils are transferred to the Institute War Clauses (Cargo), which provide cover for these risks under clause 1.1, but only when the capture, seizure, etc “arises out of” war, civil war, revolution, rebellion, insurrection and civil strife arising from these war-related risks. The risk of “capture” is more likely than not to take place in the context of war, civil war etc. However, the other perils may not. In particular, “seizure” is widely defined to “embrace every act of taking forcible possession either by lawful authority or by overpowering force”,273 and is not necessarily associated with a war, or similar situation. Accordingly, if the cargo is seized in circumstances that do not arise out of war etc, there will be no cover under a policy in the standard form. Moreover, the exclusions in clause 6.2 of the Institute Cargo Clauses (A) are wide enough to exclude losses caused by government action taken to reject or embargo cargoes, for example, for breach of customs or health regulations.274 It may be possible to obtain so-called “Rejection Risks cover” for 271. [2002] Lloyd’s Rep. IR 655, Court of Appeal of Trinidad & Tobago. 272. [2008] Lloyd’s Rep. IR 34 Supreme Court of the Fiji Islands. 273. Cory v. Burr [1883] 8 App. Cas. 393 per Lord FitzGerald at p. 405 and see Bayview Motors Ltd v. Mitsui Marine & Fire Insurance Co Ltd [2002] EWHC 21 (Comm) (David Steel J), [2002] 1 Lloyd’s Rep. 652, affirmed [2002] EWCA Civ 1605, [2003] 1 Lloyd’s Rep. 131 (CA). 274. Miller v. Law Accident Insurance Co [1903] 1 KB 712.

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these risks at an additional premium and subject to strict conditions, which include the requirement that the goods are fit for export to the exporting country.275 Strikes, riots and civil commotions Strikes and strikers 3.62 The Institute Cargo Clauses (A) exclude loss damage or expense (1) caused by strikers276 and (2) resulting from strikes.277 The distinction is significant as the positive cover provided by clause 1.1 of the Institute Strikes Clauses (Cargo) is limited to “damage to the subject-matter insured caused by strikers” and excludes “loss damage or expense… resulting from any strike”.278 The result is that if damage is caused by strikers, it is covered by the insurance so that, for example, if strikers set fire to a warehouse and destroy the cargo, that will be a covered risk, but deterioration of a cargo resulting from the withholding of labour during a strike will not be covered whether the loss be caused by delay, or otherwise results from the strike.279 The limited cover in the Institute Strikes Clauses (Cargo) extends not only to strikers but also to locked-out workmen and persons taking part in labour disturbances. A “strike” has been defined as a “concerted stoppage of work by men done with a view to improving their wages or conditions, or giving vent to a grievance or making a protest about something or other, or supporting or sympathising with other workmen in such endeavour”.280 Workmen would be “locked out” in a situation where an employer refuses employment as a means of coercing potential or current employees. A “labour disturbance” lies somewhere between a strike, just considered, and a “riot” which is now considered. Riots and civil commotions 3.63 Clause 1.1 of the Institute Strikes Clauses (Cargo) covers loss of or damage to the subject-matter insured caused by “riots or civil commotions”.281 In common with the cover for damage caused by strikers, but not for deterioration resulting from strikes, the positive cover for riots and civil commotions is limited to physical damage caused by these risks and does not include deterioration or delay resulting from riots and civil commotions that lead to loss of the cargo. 3.64 The word “riot”, when used in insurance policies, is given its strict legal meaning282 as defined under section 1 of the Public Order Act 1968. This requires that 12 or more 275. For a consideration of rejection risks insurance, see Dunt, Marine Cargo Insurance, 2009, Informa, at paras 10.61 to 10.63. 276. ICC, cl. 7.1. 277. ICC, cl. 7.2. 278. The Institute Strikes Clauses (Cargo) exclude, by cl. 3.7, “loss damage or expense arising from the absence shortage or withholding of labour of any description whatsoever resulting from any strike, lock out, labour disturbance, riot or civil commotion”. 279. The above text follows para. 10.36 of Dunt, Marine Cargo Insurance, 2009, Informa, and was approved and followed by Judge Mackie QC in Clothing Management Technology Ltd v. Beazley Solutions Ltd t/a Beazley Marine UK [2012] EWHC 727 (QB) at para. 48, a case where goods were lost as a result of action by strikers and the loss was held to be recoverable under the Institute Strikes Clauses (Cargo) and not excluded as arising from the withholding of labour resulting from a strike under cl. 3.7. 280. Tramp Shipping Corporation v. Greenwich Marine Inc (The New Horizon) [1975] 2 Lloyd’s Rep. 314 per Lord Denning MR at p. 317. 281. These risks are excluded from the Institute Cargo Clauses (A) by cl. 7.1. 282. Bolands Ltd v. London & Lancashire Fire Insurance Co Ltd (1924) 19 Ll. L. Rep. 1 (HL).

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persons be present who together threaten unlawful violence for a common purpose so as to cause a person of reasonable firmness to fear for his personal safety. The case of The Andreas Lemos283 illustrates the meaning of “riot” in a modern context and shows how, because of its strict legal meaning, it overlaps with the peril of “piracy”. In this case, a gang of men armed with knives boarded a vessel anchored in the Chittagong roads at night and stole materials and equipment from the vessel. On being discovered, they used force, or threats of force, to make their escape. The technical definition of riot was applied and it was held that, at the time of the loss, no riot had occurred as the theft was clandestine, with no threat of force, but that a riot did occur later when threats of force were used during the escape. The United States court has firmly rejected this technical approach to the word “riot”.284 3.65 The meaning of the words “civil commotion” is particularly important as losses caused by such are covered under the standard form of insurance under the Institute Strikes Clauses (Cargo), but losses caused by war etc, including losses caused by insurrection, are excluded from the standard cover.285 It may be critical, therefore, to distinguish between a state of insurrection and a mere “civil commotion”. In Spinney’s [1948] Ltd v. Royal Insurance Co Ltd286 it was held that a civil commotion need not involve a revolt against the government, but the disturbances must nevertheless have sufficient cohesion to prevent them from being the work of a mindless mob.287 As an insurrection must be directed at the overthrowing of a government, as earlier examined,288 the distinguishing factor, which is likely to determine whether or not the loss is covered, will be whether the mob had an intention to overthrow the government. Terrorism The cover for terrorism 3.66 Clause 7.3 of the revised Institute Cargo Clauses 2009 excludes loss damage or expense: “Caused by any act of terrorism being an act of any person acting on behalf of, or in connection with, any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of any government whether or not legally constituted.”

Clause 1.2 of the Institute Strikes Clauses (Cargo), the “Strikes Clauses”, provides positive cover for “terrorism”.289 This cover is in similar terms to the exclusion, but cover is limited to physical loss and damage and does not extend to “expense”, particularly the expense of 283. Athens Maritime Enterprises Corporation v. Hellenic Mutual War Risks Association (Bermuda) Ltd (The Andreas Lemos) [1982] 2 Lloyd’s Rep. 483. 284. See Pan American World Airways Inc v. The Aetna Casualty & Surety Co [1974] 1 Lloyd’s Rep. 207 affirmed by the Court of Appeal of New York, where the same approach was adopted [1975] 1 Lloyd’s Rep. 77 at p. 99, and see Chapter 8 (US law) at para. 8.61 below. 285. By cl. 3.10 of the Institute Strikes Clauses (Cargo) which excludes, “loss damage or expense caused by war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power”. 286. [1980] 1 Lloyd’s Rep. 406. 287. Per Mustill J at p. 438. 288. See the cases cited at para. 3.60 above. 289. “Terrorism” is defined in the clauses in terms taken from the Reinsurance (Acts of Terrorism) Act 1993, which was introduced after the IRA bomb attack in 1992 in St. Mary Axe in the City of London, which destroyed the Baltic Exchange and damaged the fabric of the Lloyd’s building.

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forwarding goods to their destination in the event that the voyage or adventure is frustrated by terrorists.290 The dividing line between “terrorism” and war risks, including riots and civil commotions, may not always be easy to determine. However, it has been said that “terrorism” consists of the infliction of intentional violence by political groups (neither employed by, nor representing, governments) upon civilian citizens of non-belligerent powers and their property at places which may be far removed from the locale of the subject of any warfare.291 In considering whether the attacks on the World Trade Centre on 11 September 2001 were to be characterised as “acts of war” or terrorism, it was said that, “action by terrorists or terrorist activities seemed more appropriate to encapsulate what had occurred”.292 3.67 It is doubtful whether an individual acting alone can be a “terrorist” for the purposes of the definition of terrorism in the Strikes Clauses as the person must act on behalf of or in connection with a terrorist “organisation”. However, clause 1.3 of these Clauses covers physical loss caused by “any person acting from a political, ideological or religious motive”, which would cover action taken by a lone individual. 3.68 The cover provided for terrorism is, in practice, limited to the period whilst the goods are in transit from warehouse to warehouse within the terms of the Institute Cargo Clauses (A).293 On 20 November 2001, a few months after the World Trade Centre attack, the Joint Cargo Committee introduced a new clause for use by the worldwide cargo markets, called the Termination of Transit Clause (Terrorism), commonly known as JC56. This clause, which is paramount, so as to override other cover terms, prevents underwriters being exposed to the risk of terrorism for goods stored before or after transit, or for prolonged periods, during the transit. This type of extended storage cover is commonly provided in the London market under brokers’ covers or in the worldwide markets in insurance covers tailored to the needs of particular assureds. Cargo insurers, and their reinsurers, concerned at the possibility of unsustainable losses in one place, normally restrict terrorism cover to goods actually in transit.294 Weapons of mass destruction 3.69 Clause 4.7 of the Institute Cargo Clauses (A) excludes loss, damage or expense directly or indirectly caused by the use of any weapon or device employing atomic or nuclear fission and/or fusion. The exclusion of losses caused by escape of radioactive materials is relatively long-standing in the insurance markets, but the attack on the World Trade Centre in New York on 11 September 2001 brought home to insurers the potential scale of the threat of terrorism.295 As a result, the practice in marine cargo insurance is not merely to 290. See Institute Strikes Clauses (Cargo), cl. 3.8, which excludes “any claim based on loss of or frustration of the voyage or adventure”. 291. See Pan American World Airways Inc v. The Aetna Casualty & Surety Co [1974] 1 Lloyd’s Rep. 207, at pp. 230, 231 (Frankell TJ) affirmed [1975] 1 Lloyd’s Rep. 77 (United States Court of Appeals). Examples of terrorism include airline hijackings, sending bombs in the post, assassinating diplomats and the holding to ransom of a team of athletes at the Olympic Games. 292. IF P&C Insurance Ltd (Publ) v. Silversea Cruises Ltd [2004] EWCA Civ 769, [2004] Lloyd’s Rep. IR 696 (CA). 293. ICC, cl. 8, which is considered at paras 3.72 to 3.83 below. 294. Some limited storage cover, which occurs in the ordinary course of transit, is covered under cl. 8 of the ICC, see para. 3.74 below. 295. In April 2002, Werner Schaad, Chief Risk and Reinsurance Officer, Swiss Re (US) said, “we were thinking of terrorism as a small insignificant island … we have discovered it is a whole continent, large, dangerous, unknown continent.”

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exclude loss or damage caused by nuclear weapons or devices, as set out in exclusion 4.7 of the Institute Cargo Clauses, but to exclude more widely any losses resulting from the use of any chemical, biological or electromagnetic weapons. These risks are not carried over into the Strikes Clauses and there is no positive cover for such risks, which are excluded even when the cargo is in transit on land or at sea.296

DURATION OF THE INSURANCE How the duration of the insurance is regulated 3.70 The practice is to insure cargo on a voyage basis297 from warehouse to warehouse.298 This part of the chapter considers exactly when the insurance attaches and terminates under the Transit Clause in the revised Institute Cargo Clauses 2009. It then examines the circumstances in which the insurance cover continues automatically despite delay,299 deviation300 or a variation in the voyage. These circumstances will then be contrasted to the cases where cover does not continue automatically but may be provided subject to prompt notice to insurers and additional premium. These cases fall into two groups. First, where the contractual voyage is terminated, insurers require prompt notice and may also require additional premium.301 Secondly, where there is a change of the destination, or of the route of the voyage, insurers will require prompt notice and cover will only be provided if it would have been available at a reasonable commercial market rate on reasonable terms.302 3.71 The standard provisions of the duration of the insurance as defined in the Institute Cargo Clauses are frequently modified by extensions to insure the goods whilst in store, both before and after the transit. The Transit Clause itself may be amended so as to commence the risk at a more suitable point in time for a particular trade, so, for example, in British & Foreign Marine Insurance v. Gaunt,303 the import of wool was insured from “the sheep’s back”. Where the Institute Cargo Clauses have been modified by wording tailored to a specific risk, such special wording takes precedence over the printed clauses.304 The Transit Clause305 Attachment of risk 3.72 Clause 8 of the Institute Cargo Clauses 2009 provides as follows: 296. By the use generally of the Institute Radioactive Contamination, Chemical, Biological, Bio-chemical and Electromagnetic Weapons Exclusion Clause dated 10 November 2003, commonly known as CL 370. 297. Hull and machinery are normally insured on a time basis except for delivery voyages, scrap voyages and towage risks. 298. Warehouse-to-warehouse cover was included in the first standard Institute Cargo Clauses introduced in 1912 and, being on a voyage basis, is regulated by ss. 42 to 49 of the MIA 1906. 299. MIA 1906 s. 48 and see ICC cl. 8 at para. 3.82 below. 300. MIA 1906 s. 46 and see ICC cl. 8.3 at para. 3.83 below. 301. ICC, cl. 9, and see para. 3.85 below. 302. ICC, cl. 10, and see para. 3.86 below. 303. [1921] 2 AC 41 (HL). 304. Eurodale Manufacturing Ltd v. Ecclesiastical Insurance Office plc [2003] Lloyd’s Rep. IR 444 (CA). For a case where the printed Institute Cargo Clauses were themselves altered by insurers, see Hibernia Foods plc v. McAuslin (The Joint Frost) [1998] 1 Lloyd’s Rep. 310. 305. The Australian, Hong Kong and South African cases on the Transit Clause are considered in more detail in Chapter 15 (comparative law) at paras 15.36 to 15.50 below.

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306

“Subject to Clause 11 below, this insurance attaches from the time the subject-matter insured is first moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit ….”

The insurance now starts the moment the goods are first moved, for example, from the shelf, as long as the purpose of that movement is the immediate loading of the goods onto a lorry, or into a container, for the insured transit. This contrasts with the cover under the 1982 Clauses, which only commenced when the goods “left” the warehouse. The additional insurance covers damage within the warehouse caused, for example, by fork-lift trucks. This is more appropriately treated as a transit risk rather than a static warehouse risk. 3.73 There are two important prerequisites for the attachment of the insurance cover under the revised Transit Clause. First, the movement of the goods must be for the purpose of “immediate” loading for the commencement of transit. Accordingly, the insurance does not attach if the goods are to be placed in a waiting area, however secure, and loaded at a later time. Secondly, the insurance will not attach if the movement is not for the “commencement of transit”. For example, if goods are loaded onto a vehicle on a Friday afternoon so as to be ready to leave early the following Monday, before the loading teams arrive, the insurance will not attach on Friday. The loading in such circumstances is for future transit and is not for the “commencement of transit” within the meaning of the revised clause. “Ordinary course of transit” 3.74 The insurance terminates if the goods do not remain at all times in the “ordinary course of transit”. This requirement is an over-arching termination provision that operates in addition to the more usual reasons for the insurance to terminate at the end of its journey.307 However, the ordinary course of transit requirement is subject to the specific exceptions in clause 8.3, which continue the insurance in the event of deviation, forced discharge, re-shipment and transhipment etc. The insurance cover also automatically continues under clause 8.3 during any delay “beyond the control of the assured”. It follows that the insurance will therefore terminate where the delay is within the assured’s control and, in such circumstances, there will in all likelihood be a breach of the condition of insurance that the assured shall act with reasonable despatch in all circumstances within their control.308 A breach of this condition has been held by the Australian courts to terminate the cover.309 3.75 The phrase “ordinary course of transit” has not been construed in any English case. However, the very similar words, “whilst in the normal course of transit”, were considered in SCA (Freight) Ltd v. Gibson310 in the context of a policy protecting a haulier against 306. The Transit Clause starts by emphasising that the insurance is subject to the insurable interest requirement in cl. 11. This is to make it clear that the insurance does not extend to assureds, such as FOB buyers, who have no insurable interest, despite the fact that the insurance otherwise attaches at the time of first movement in the warehouse. 307. As defined in cls 8.1.1 to 8.1.4 and discussed at paras 3.76 to 3.80 below. 308. ICC, cl. 18. 309. See Wiggins Teape Australia Pty Ltd v. Baltica Insurance Co Ltd [1970] 2 NSWR 77 and Verna Trading Pty Ltd v. New India Assurance Co Ltd [1991] 1 VR 129. These cases, and the Hong Kong cases, which deal with the issue in some detail, are discussed in Chapter 15 (comparative law) at para. 15.41 et seq. below. 310. [1974] 2 Lloyd’s Rep. 533.

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legal liability for goods. In this case, the haulier sent two lorries to collect a consignment of books in Rome. After one lorry was loaded, and the other half-loaded, the drivers used the loaded vehicle to take an evening trip into the centre of the city. During this joy ride, the lorry overturned and the consignment of books was damaged. It was held that the goods had ceased to be in transit as they were not on a journey that was “in reasonable furtherance of their carriage to their ultimate destination”. Similarly, in the Australian case of Verna Trading Pty Ltd v. New India Assurance Co Ltd,311 Ormiston J, construing the words “ordinary course of transit” in the Institute Cargo Clauses said: “... the cargo may no longer be in the ‘ordinary course’ of transit if it is dealt with in a manner inconsistent with the prosecution of the adventure, that is, in a way or for a purpose which is unrelated to bringing the transit to its expected conclusion by delivery to the defined warehouse or store.”

As there is a line of Australian cases and one South African case that has considered this issue in more detail than the English authorities, the reader is referred to the comparative law chapter, Chapter 15,312 for a more detailed analysis of this issue in the context of those decisions. Termination of risk 3.76 The insurance usually terminates under clause 8 of the Institute Cargo Clauses when the goods are unloaded at the destination named in the insurance contract.313 The insurance will also terminate if the assured elects to use a warehouse, or vehicle or container, for storage or distribution.314 In any event, the insurance will not continue for more than 60 days after the goods are discharged from the carrying vessel.315 These termination provisions are now considered in turn. 3.77 Clause 8.1.1 of the revised Institute Cargo Clauses 2009 provides that the insurance terminates: “on completion of unloading from the carrying vehicle or other conveyance in or at the final warehouse or place of storage at the destination named in the contract of insurance … .”

The phrase “completion of unloading” means that the goods are still insured until they have come to rest safely on the ground. This may be some time after the “transit” by vehicle has ended. For example, in Tomlinson (Hauliers) Ltd v. Hepburn,316 cigarettes, which were insured whilst “in transit including loading and unloading”, were stolen whilst left aboard a lorry overnight as the lorry had arrived late and the loading crew had gone home. It was held that the cigarettes started their journey when they left the ground to be loaded onto the van and they would have completed it when they reached the ground again upon being unloaded.317 Once the goods have reached the ground as where, for example, they are taken from a container into a factory or warehouse by fork-lift truck, and placed on the ground, the insurance terminates. Any accident that occurs between the time the goods are on the ground and when they reach a final place of storage, for example, a shelf, is not covered. 311. [1991] 1 VR 129 at p. 168. 312. At paras 15.37 to 15.40 below. 313. ICC, cl. 8.1.1, see para. 3.77 below. 314. ICC, cls 8.1.2 and 8.1.3, see para. 3.79 below. 315. ICC, cl. 8.1.4, see para. 3.81 below. 316. [1966] 1 Lloyd’s Rep. 309, [1966] AC 451. 317. See the speech of Lord Pearce at p. 322.

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3.78 There have been a number of decisions on what amounts to a “final” warehouse or place of storage. Where goods are placed in a transit shed in the docks,318 or a holding area for customs purposes,319 such places are unlikely on the facts to constitute a “final” place of storage so as to terminate the cover. 3.79 The material parts of clause 8.1.2 of the revised Institute Cargo Clauses 2009 provide that the insurance terminates: “on completion of unloading from the carrying vehicle … in or at any … warehouse or place of storage … which the Assured or their employees elect to use either for storage other than in the ordinary course of transit or for allocation or distribution …”

A number of Australian and Hong Kong decisions examine the election for storage and the use of warehouses, or places of storage, for allocation and distribution,320 which are dealt with in the comparative law chapter.321 In the English case of Safadi v. Western Assurance Co,322 cotton yarn was insured for carriage from Manchester to Damascus and was destroyed by fire whilst in the customs warehouse in Beirut. The goods had been left in the warehouse as, under the terms of the purchase contract, the assured did not have to pay for them until they were removed from the warehouse. The assured buyers took advantage of this line of credit by leaving the goods in the warehouse and they were destroyed by fire. In the circumstances, it was held that the goods were not covered and, it is submitted, that it is this type of voluntary election, for commercial reasons, to leave the goods in store that terminates the insurance under clauses 8.1.2 and 8.1.3. 3.80 Clause 8.1.3 of the revised Institute Cargo Clauses 2009 provides that the insurance terminates: “When the Assured or their employees elect to use any carrying vehicle or other conveyance or any container for storage other than in the ordinary course of transit …”

Although this sub-clause is new, and has yet to be considered by the courts, the election would, no doubt, be approached in the same way as considered earlier in relation to warehouses and places of storage.323 The concern of insurers was that goods would be left on vehicles or in containers exposed to additional risk as, for example, occurred in the Tomlinson case.324 In this case, cigarettes were stolen whilst left overnight in a lorry in an unsecured yard. The lorry had arrived late and the unloading crew had gone home early so no voluntary election was made by the assured in that case. However, if the assured choose for their own commercial convenience to leave the goods on vehicles, or in containers, the insurance will terminate. Termination will occur either when the vehicle arrives at the place of destination, or if the decision not to unload is made later, when that decision is made. 318. Westminster Fire Office v. Reliance Marine Insurance Co [1903] 19 TLR 668; John Martin of London Ltd v. Russell [1960] 1 Lloyd’s Rep. 554; and Overseas Commodities Ltd v. Style [1958] 1 Lloyd’s Rep. 546. 319. Bayview Motors Ltd v. Mitsui Marine & Fire Insurance Co Ltd [2002] 1 Lloyd’s Rep. 652, [2002] EWHC 21 (Comm) (David Steel J) affirmed [2002] EWCA Civ 1605 (CA), [2003] 1 Lloyd’s Rep. 131. 320. Wiggins Teape Australia Pty Ltd v. Baltica Insurance Co Ltd [1970] 2 NSWR 77 and Fedsure General Insurance Ltd v. Carefree Investments (Pty) Ltd (477/99) [2001] ZASCA 88 (11 September 2001) following Leaders Shoes (Aust) Pty Ltd v. Liverpool & London & Globe Insurance Co Ltd [1968] 1 NSWR 279, Supreme Court of New South Wales and, in Hong Kong, Miruvor Ltd v. National Insurance Co Ltd [2003] 3 HKC 208 and E.L.A.Z. International Co v. Hong Kong and Shanghai Insurance Co Ltd, [2006] HKFCI 469; HCCL 16/03. 321. See Chapter 15 (comparative law) at paras 15.45 to 15.50 below. 322. (1933) 46 Ll. L. Rep. 140. 323. See para. 3.79 above. 324. [1966] 1 Lloyd’s Rep. 309, [1966] AC 451 (HL).

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Forwarding to another destination 3.81 Clause 8.2 of the Institute Cargo Clauses provides that the transit terminates if the goods are forwarded to another destination, either under another insurance or uninsured. The operation of this clause can be illustrated by reference to the facts of Bayview Motors Ltd v. Mitsui Marine & Fire Insurance Co Ltd,325 where the cargo was insured under a policy with Mitsui for transit from Yokohama to Santo Domingo in the Dominican Republic. The ultimate destination of the goods was the Turks and Caicos Islands. The goods were stolen, within 60 days of discharge from the overseas vessel, whilst they were still in a customs compound in the Dominican Republic, and were accordingly covered under the Mitsui policy. However, if the cargo had not been stolen, the insurance would have terminated under clause 8.2 at the time it was first moved as part of its further journey to the Turks and Caicos Islands. Delay, deviation and variations of the adventure 3.82 Clause 8.3 of Institute Cargo Clauses 2009 provides that: “This insurance shall remain in force (subject to termination as provided for in Clauses 8.1.1. to 8.1.4 above and to the provisions of Clause 9 below) during delay beyond the control of the Assured, any deviation, forced discharge, reshipment or transhipment and during any variation of the adventure arising from the exercise of a liberty granted to carriers under the contract of carriage.”

This clause automatically extends the duration of the insurance where there is a delay beyond the control of the assured and in other circumstances that are normally beyond the assured’s control as, for example, where the carrier deviates from the agreed route. The effect of this clause is to make it clear that, although the goods are no longer in the ordinary course of transit, the insurance will nevertheless remain in force if the assured can bring himself within the ambit of the specific matters mentioned in the clause. The most important of these, in practice, is delay. Delay in the voyage is also regulated by section 48 of the Marine Insurance Act 1906. This section provides that the adventure must be prosecuted throughout its course with reasonable despatch and, if without lawful excuse,326 it is not so prosecuted, the insurer is discharged from liability as from the time when the delay became unreasonable. Similarly, the Avoidance of Delay Clause (clause 18 of the Institute Cargo Clauses) provides that the assured must act with reasonable despatch in all circumstances within their control. The result of these provisions is that the goods remain insured during delay beyond the control of the assured but will come off risk if the assured voluntarily allows them to be stored out of the ordinary course of transit for his own commercial reasons.327 3.83 Section 46(1) of the Marine Insurance Act 1906 provides that where the ship deviates from the voyage contemplated by the policy, the insurer is discharged from liability from the time of the deviation. However, clause 8.3 of the Institute Cargo Clauses varies this section by extending the insurance to cover deviation and the cover therefore remains “in 325. [2002] EWHC 21 (Comm) (David Steel J), [2002] 1 Lloyd’s Rep. 652 affirmed [2002] EWCA Civ 1605 (CA), [2003] 1 Lloyd’s Rep. 131. 326. The excuses for delay are set out in MIA 1908 s. 49. 327. See para. 3.74 above, which considers the “ordinary course of transit” and see also the Australian cases on the effect of the Avoidance of Delay Clause (formally the Reasonable Despatch Clause) discussed in Chapter 15 (comparative law) at para. 15.43 et seq. below.

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force”. The assumption is that in modern times the deviation will be beyond the control of the assured and it would be inappropriate to terminate cover in those circumstances. Clause 8.3 also recognises that there may be “forced discharge” or “reshipment or transhipment”, which will typically occur following a casualty in circumstances that are beyond the control of the assured. Again, in such circumstances, the insurance automatically remains in force. Finally, clause 8.3 extends cover during any variation of the adventure arising from a liberty granted to the carriers under the contract of carriage. It is submitted that this potentially generous extension of cover will be narrowly construed so that the extension of cover, which must fall strictly within the contract of carriage, does not lead to insurers being bound to a wholly different risk. In Kallis (Manufacturers) Ltd v. Success Insurance Ltd,328 a fraudulent bill of lading was issued for ship A when the assured’s goods, unknown to them, had in fact been loaded on ship B. The assured argued that they were entitled to rely upon the liberties in the bill of lading for ship A, which included liberty to tranship. Although the insurance was for ship A, this would have enabled the assured to obtain the benefit of that insurance cover for the voyage on ship B. The court took a strict view and held that there cannot be transhipment from a named ship going to a named destination when the goods in question have never been on board that ship and, accordingly, the insurance never attached. Termination of carriage and change of voyage Held covered and analogous provisions 3.84 This section of the chapter summarises the position under the revised Institute Cargo Clauses 2009 where either the contract of carriage is terminated under clause 9 or there is a change of voyage under clause 10. As contrasted with delay, and the other matters dealt with in clause 8.3, the insurance does not continue automatically. Continuation of the insurance is subject to two requirements: first, prompt notice329 and, second, that cover is available at a reasonable commercial rate on reasonable commercial terms.330 If no prudent underwriter would have been prepared to write the risk at any reasonable premium, or on any reasonable commercial market terms, then insurers are not obliged to extend the duration of the cover within clauses 9 and 10.331 Termination of Contract Carriage Clause 3.85 Clause 9 of the revised Institute Cargo Clauses 2009 provides that if the contract of carriage is terminated owing to circumstances beyond the assured’s control, then the insurance also terminates. However, if prompt notice is given to the insurers, and continuation of cover is requested, the insurance remains in force, subject to an additional premium if required by the insurers. The clause accordingly gives the assured a right to a continuation of cover subject to (1) prompt notice to the insurers; (2) a request for a continuation of 328. [1985] 2 Lloyd’s Rep. 8 (PC). 329. This is now an express requirement in both clauses and is emphasised by the note at the foot of the Institute Cargo Clauses. The prompt notice requirement is illustrated by such cases as Thames & Mersey Marine Insurance Co Ltd v. H. T. Van Laun & Co [1917] 2 KB 48; Hood v. West End Motor Car Packing Co [1917] 2 KB 38; and Liberian Insurance Agency Inc. v. Mosse [1977] 2 Lloyd’s Rep. 560. 330. Liberian Insurance Agency Inc. v. Mosse (supra). 331. This is now an express requirement of the redrafted cl. 10 in the revised clauses, and is illustrated by Greenock Steamship Co Ltd v. Maritime Insurance Co Ltd [1902] 2 KB 657 (vessel sailed without sufficient coal

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cover; and (3) an additional premium if required by the insurers. There is no absolute right to a continuation of cover, which is conditional upon cover being available at a reasonable market premium.332 Change of Voyage Clause 3.86 Clause 10 of the revised Institute Cargo Clauses 2009 deals with two related matters, first, a change of voyage and, secondly, a change of destination. The provisions in the clauses are designed to mitigate the harshness of the rules in the 1906 Act, which are no longer applicable to modern all risks cargo insurance. In respect of a change of voyage, section 45 of the Marine Insurance Act 1906 provides that the insurer is discharged from liability from the moment a voluntary change of voyage by the assured takes place. Clause 10.1 of the revised Institute Cargo Clauses modifies this and provides that, where, after attachment of the insurance, the destination is changed by the assured, this must be notified promptly to insurers for rates and terms to be agreed. The clause also caters for circumstances that sometimes arise where, although the assured acts promptly, a loss occurs prior to such agreement being obtained. In those circumstances, cover may be provided but only if cover would have been available at a reasonable commercial market rate on reasonable market terms.333 3.87 So far as a change of destination is concerned, section 44 of the Marine Insurance Act 1906 provides that the risk does not attach where the destination is specified in the policy, and the ship, instead of sailing for that destination, sails for any other destination. In a series of “phantom” ship cases,334 the shipowners, unknown to the assureds, changed the destination before the ships sailed, in order to steal the cargoes, having changed the names of the ships en route. The effect of section 44 was to take the goods off risk in the very circumstances in which the assureds would have expected to recover for theft of their cargoes. If, by way of contrast, the goods had been stolen by a land carrier prior to shipment, this would be an all risks loss by theft. As section 44 of the Act only applies where a vessel “sails for any other destination”, it seems that the risk attaches and that goods lost or stolen between the warehouse and the ship’s rail are covered.335 Clause 10.2 of the revised Institute Cargo Clauses 2009 now provides that where the subjectmatter insured commences the transit contemplated by the insurance but, without the knowledge of the assured or their employees, the ship sails for another destination, the insurance will nevertheless be deemed to have attached. Accordingly, as long as the goods commence the transit contemplated by the insurance, the assured can now recover

to complete the voyage so “held covered” not applicable as premium would have been the value of the vessel) and the Singapore and Hong Kong cases on the Institute Classification Clause, which are dealt with at paras 5.25 et seq. and 4.33 et seq., respectively, below, Everbright Commercial Enterprises Pte Ltd v. Axa Insurance Singapore Pte Ltd (The Sirena I) [2001] 2 SLR 316, Singapore Court of Appeal and Nam Kwong Medicines & Health Products v. China Insurance Co Ltd [2002] 2 Lloyd’s Rep. 591. 332. See para. 3.84 above for the cases that illustrate how this may be determined. 333. Ibid. 334. See, in particular, Nima SARL v. Deves Insurance Public Co Ltd (The Prestrioka) [2002] EWCA Civ 1132 (CA), [2003] 2 Lloyd’s Rep. 327. 335. See Nima SARL v. Deves Insurance Public Co Ltd (The Prestrioka) [2003] 2 Lloyd’s Rep. 327 (CA) per Potter LJ at para. 56, see also Dunt, Marine Cargo Insurance, 2009, Informa, at para. 2.21 for the differing views expressed on this issue.

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even when the shipowner or carrier steals the cargo by sailing the ship to a different unknown destination.

CLAIMS AND LOSSES Claims Notification of loss: limitation of action 3.88 There is no general rule in English law that claims must be notified promptly nor do the Institute Cargo Clauses require prompt notification of claims.336 Although there was a notice requirement in the cargo version of the MAR 91 Form, there is no similar requirement in the standard Market Reform Contract now used in practice in London. However, the standard form of Lloyd’s insurance certificate provides that in the case of loss or damage, “immediate notice” must be given to the local Lloyd’s agents. In common with this, most forms of certificate and most Japanese insurance policies have a similar notice requirement. Such requirements are unlikely to be construed as a condition precedent to liability,337 in which case insurers will have to show that they have suffered a loss resulting from delay in notification and any defence available to insurers will be limited to that loss. 3.89 The time limit for bringing legal proceedings on a marine cargo insurance claim in England is six years338 from the date of the loss.339 This is a procedural provision that bars the remedy of taking legal proceedings in England and does not extinguish the right to claim.340 It is not the practice in England to impose a shorter contractual time limit than the procedural bar of six years but United States policies commonly have a one-year time limit.341 Proof of loss 3.90 In an English court the burden of proof lies upon the assured to establish his claim on the balance of probabilities. Under an all risks policy it is not necessary to show which particular peril operated, as would be the case in a policy against specific named perils, such as fire.342 It is sufficient if the assured presents evidence reasonably showing that the loss was due to a casualty.343 336. The Avoidance of Delay Clause, cl. 18, provides that it is a condition of the insurance that the assured shall act with reasonable despatch “in all circumstances” but, it is submitted, this is intended to relate to circumstances concerning the transit and, possibly, to post casualty delays and a failure to promptly minimise the loss, see Arnould’s First Supplement at p. 199. In any event, this clause does not impose a notice requirement. 337. D & J Koskas v. Standard Marine Insurance Co Ltd (1927) 27 Ll. L. Rep. 59 (CA). 338. Limitation Act 1980 s. 5. 339. The cause of action in marine insurance cases accrues at the date of the loss, see Chandris v. Argo Insurance Co Ltd [1963] 2 Lloyd’s Rep. 65 at p. 73. The Law Commissions have suggested that it would be preferable if the limitation period began from the breach of contract and are consulting on this, see Joint Consultation Paper “Post Contract Duties and Other Issues” LCCP 201/SLCPD 152 (Summary) December 2011, para. 5.43. 340. Per Diplock J, in Royal Norwegian Government v. Constant & Constant and Calcutta Marine Engineering Co Ltd [1960] 2 Lloyd’s Rep. 431 at p. 422. 341. See, e.g., the one year time limit in De Monchy v. Phoenix Insurance Company of Hartford and Another (1929) 34 Ll. L. Rep. 201 (HL) and see Chapter 8 (US law) at para. 8.82 below. 342. British & Foreign Marine Insurance Co Ltd v. Gaunt [1921] 2 AC 41 (HL) at p. 58. Contrast the position with cover against named perils, see Rhesa Shipping Co SA v. Fenton Insurance Co Ltd (The Popi M) [1985] 2 Lloyd’s Rep. 1. 343. Ibid., British & Foreign Marine Insurance Co Ltd v. Gaunt (supra) at p. 47.

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Interest and costs 3.91 In England, interest is recoverable once legal proceedings have been commenced,344 and it is the well-established practice of the Commercial Court to award interest at 1% above base rate on successful insurance claims.345 The basic rule is that interest runs from the time of the loss; however, in practice, the insurers are allowed a reasonable time to consider the claim, which can vary from five weeks after the loss,346 to a significantly greater period if the claim has unusual characteristics.347 Simple interest is recoverable, but the decision in the House of Lords in Sempra Metals Ltd v. Commissioners of Inland Revenue348 suggests the possibility that compound interest may now be awarded in insurance claims. However, so far as marine insurance is concerned, it has been held that the Marine Insurance Act 1906 section 67 limits the extent of the insurer’s liability for a loss in terms that are “conclusively definitive of liability”.349 Accordingly, there currently does not seem to be any possibility of obtaining an award of compound interest in the form of damages so far as marine cargo insurance is concerned in proceedings brought in England.350 Good faith and fraudulent claims 3.92 Under section 17 of the Marine Insurance Act 1906, there is, in theory, a duty of good faith that continues during the claims process until, at least, legal proceedings have been commenced.351 However, in practice, the only remedy for the breach of the duty of good faith is avoidance of the entire contract of insurance, which, in the claims context, is all too often disproportionate. The result is that it is a rare case indeed where section 17 will ever be relevant.352 The question in practice, therefore, is whether there has been fraud in the presentation of the claim. A fraudulent claim requires dishonesty by the assured. An assured who advances a claim without an honest belief in its truth is dishonest, as is an assured who advances a claim recklessly without caring whether or not the claim is true 344. Supreme Court Act 1981 s. 35A. An award of interest is discretionary. 345. Kuwait Airways Corporation v. Kuwait Insurance Co SAK (No. 3) [2000] Lloyd’s Rep. IR 678. 346. McLean Enterprises v. Ecclesiastical Insurance Office [1986] 2 Lloyd’s Rep. 416. 347. Quorum A/S v. Schramm (No. 2) [2002] Lloyd’s Rep. IR 315; BP Exploration Co (Libya) Ltd v. Hunt (No. 2) [1979] 1 WLR 783; and Insurance Corporation of the Channel Islands v. McHugh [1977] LRLR 94 at p. 137. 348. [2008] 1 AC 561. 349. Ventouris v. Mountain (The Italia Express) (No. 2) [1992] 2 Lloyd’s Rep. 281 at p. 291. See, however, the criticisms of The Italia Express considered by David Foxton in Chapter 9 of The Modern Law of Marine Insurance Volume 3, D. Rhidian Thomas (ed.), 2009, Informa, which suggest that English insurance law needs to “move on significantly” in this area. 350. In March 2010, the Law Commissions published Issues Paper No. 6 entitled “Damages for Late Payment and the Insurer’s Duty of Good Faith”, which considered whether a policyholder should be entitled to damages where the insurer had refused to pay a valid insurance claim, or had paid only after considerable delay. The consultation process initiated by the Commissions indicated “strong support for change” and in December 2011, the Commissions issued a Joint Consultation Paper in which they consult further on proposals to introduce a statutory duty to pay valid claims after a reasonable time. An insurer who unreasonably delays or wrongfully repudiates a claim would be in breach of this duty and be liable to pay damages according to normal contract law principles, that is, not punitive damages but only damages “for proven and foreseeable losses” flowing directly from the breach, “Insurance Contract Law: Post Contract Duties and other Issues: Joint Consultation Paper”, December 2011 at para. 5.2, p. 49. 351. Manifest Shipping Co Ltd v. Uni-Polaris Shipping Co Ltd (The Star Sea) [ [2001] UKHL 1 (HL), [2001] 1 Lloyd’s Rep. 389; K/S Merc-Scandia XXXXII v. Lloyd’s Underwriters (The Mercandian Continent) [2001] EWCA Civ 1275, [2001] 2 Lloyd’s Rep. 563; and Agapitos v. Agnew (The Aegeon) [2002] EWCA Civ 247, [2002] 2 Lloyd’s Rep. 42. 352. See Mance LJ in Agapitos v. Agnew (supra) at para. 44.

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353

or false. Simply lying to insurers is not enough, it is necessary for the insurers to show that the assured was seeking to obtain a monetary payment by lies and deceit.354 Where the assured exaggerates the amount of an otherwise valid claim, or uses fraudulent devices to further a claim, the claim is forfeit so as to introduce an incentive not to lie.355 However, the rule is that “the fraud must be substantial”, that is to say, that slightly exaggerating a claim does not make it fraudulent within the fraudulent claims doctrine.356 Total loss of cargo: actual and constructive The categorisation of losses 3.93 Losses, in marine insurance, may be total or partial.357 A total loss itself can either be an actual total loss or a constructive total loss.358 Additionally, under marine cargo insurance, there may be a loss of the adventure.359 This section of the book considers these types of losses in the context of clause 1 of the revised Institute Cargo Clauses 2009, which covers “loss of or damage to” the subject-matter insured. The Institute Clauses proceed on the basis that English law recognises that, except in the case of the loss of the adventure, all risks marine cargo insurance is limited to physical loss of or damage to the cargo rather than purely financial loss.360 This part of the chapter considers actual and constructive total loss of cargo, loss of the adventure, and then partial losses. Loss of possession of the cargo: actual total loss 3.94 Under section 57 of the Marine Insurance Act 1906 there is an actual total loss where the assured is “irretrievably deprived” of the cargo. Under all risks insurance, the assured may be deprived of possession by theft or simply by conversion.361 In Masefield AG v. Amlin Corporate Member Ltd,362 Somali pirates seized a vessel and cargo of bio diesel in 353. Derry v. Peek (1889) 14 App. Cas. 337. 354. Wisenthal v. World Auxiliary Insurance Corporation Ltd (1930) 38 Ll. L. Rep. 54. 355. Agapitos v. Agnew (The Aegeon) [2002] EWCA Civ 247, [2002] 2 Lloyd’s Rep. 42; Direct Line Insurance plc v. Fox [2009] EWHC 386, [2010] 1 Lloyd’s Rep. IR 324. 356. Lek v. Mathews (1927) 29 Ll. L. Rep. 141 (HL); Guardian Royal Exchange v. Ormsby [1982] 29 SASR 498; Orakpo v. Barclays Insurance Services [1995] LRLR 443 (CA); Galloway v. Guardian Royal Exchange (UK) Ltd [1999] Lloyd’s Rep. IR 209; Direct Line Insurance plc v. Khan [2001] EWCA Civ 1794, [2002] Lloyd’s Rep. IR 364; and Tonkin v. UK Insurance Ltd [2006] EWHC 1120 (TCC), [2007] Lloyd’s Rep. IR 283. Where an assured, subsequent to the agreement of his claim, submitted a fraudulent invoice to obtain payment of the balance of the agreed amount, this did not vitiate the honest claim; it merely meant that the balance was not recoverable, Direct Line Insurance plc v. Fox (supra). 357. MIA 1906 s. 56(1), which provides that any loss other than a total loss, as defined in s. 57, is a partial loss. 358. MIA 1906 s. 56(2) and see para. 3.94 et seq. below. 359. This is a common law concept, see para. 3.104 below. 360. Coven SpA v. Hong Kong Chinese Insurance Co [1999] Lloyd’s Rep. IR 565, per Clarke LJ at p. 568 relying on Fuerst Day Lawson Ltd v. Orion Insurance Co Ltd [1980] 1 Lloyd’s Rep. 656. See also the decision of the House of Lords in De Monchy v. Phoenix Insurance Company of Hartford and Another (1929) 34 Ll. L. Rep. 201. Under cl. 2 of the Institute Cargo Clauses, there are express extensions to cover liability for salvage and general average, a liability that may arise when the insured cargo has not been physically damaged. 361. London & Provincial Leather Processes Ltd v. Hudson (1939) 64 Ll. L. Rep. 352. 362. [2010] EWHC 280 (Comm Ct: David Steel J), [2010] 1 Lloyd’s Rep. 509, see also, for a recent example, Clothing Management Technology Ltd v. Beazley Solutions Ltd t/a Beazley Marine UK [2012] EWHC 727 (QB), where there was a loss of garments in Morocco due to strikers taking possession of them. It was held that there was not an actual total loss as the test has to be applied with rigour and it was not clear that the assured had been irretrievably deprived of the goods in question.

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order to extract a ransom. After about six weeks, the ransom was paid and the cargo was released. Ship and cargo thereafter safely reached the original port of destination; however, by that time, the cargo had missed its market and it had to be stored and sold the following year at a price substantially less than the insured value. The cargo owners claimed under an all risks policy based on the Institute Cargo Clauses for an actual total loss on the basis that they had been “irretrievably deprived” of the cargo by the pirates. It was held that there was no actual total loss. The test of whether the cargo owners had been “irretrievably deprived” of the cargo was objective and had to be assessed on the true facts as at the date proceedings were commenced, whether or not those facts were known or apparent to the assured. The actual fact of recovery within a relatively short period was not directly material, let alone decisive, but the court was nevertheless entitled to consider what in fact happened afterwards, as that would assist in showing what the probabilities really were. The probabilities were always that the cargo was likely to be recovered and the assured were not therefore “irretrievably deprived” of it. Moreover, an assured was not irretrievably deprived of property if it was legally and physically possible to recover it, even if such recovery could only be achieved by disproportionate effort and expense. Finally, it was held that capture by pirates, which it had been argued fell into a special case, did not of itself constitute an actual total loss, particularly in the modern context where pirates in Somalia operated for ransom rather than stealing the cargo and disappearing. This decision was upheld on appeal363 where the assured placed particular reliance on an old case, Dean v. Hornby,364 which seemed to suggest that piratical seizure gave rise to an immediate actual total loss. Where traditional pirates in past times took the vessel and cargo, and neither was ever likely to be seen again, such a conclusion may have been appropriate on the facts, but where, as here, there was not merely a chance but a strong likelihood that the payment of a ransom would secure recovery, there was no actual total loss. As Rix LJ said,365 “it was not an irretrievable deprivation of property. It was a typical ‘wait and see’ situation”. 3.95 Where the assured is tricked into parting with his goods and voluntarily passes good title, an issue arises as to whether he has been “deprived” of them within section 57 of the 1906 Act or whether he has merely suffered a financial loss. There is still a loss of the goods where the assured only releases them in exchange for forged documents showing that payment has already been made, rather than a false promise of future payment.366 Where goods are insured in store and the buyer gains possession of the goods without intending to pay for them, either by reason of dishonesty or because he is insolvent, there will be a loss under an all risks insurance if the goods are “taken” at a time when the buyer did not intend to pay, or had no reasonable prospect of doing so.367 3.96 As to the timing of the loss, it appears that there may be an actual total loss of cargo where there is a conversion of the goods, in the form of a refusal to release them, during the 363. [2011] EWCA Civ 24 (CA), [2011] 1 Lloyd’s Rep. 630. 364. (1854) 3 El & Bl 180. 365. At para. 56. 366. Australia and New Zealand Bank Ltd v. Colonial and Eagle Wharves Ltd [1960] 2 Lloyd’s Rep. 241 and see the example given by Parker J in Webster v. General Accident Fire & Life Assurance Corporation Ltd [1953] 1 Lloyd’s Rep. 123 at p. 128, [1953] 1 QB 520. 367. Glencore International AG v. Alpina Insurance Co Ltd [2003] EWHC 2792 (Comm), [2004] 1 Lloyd’s Rep. 111 and, as to possession, see Shell International Petroleum Co v. Gibbs (The Salem) [1981] 2 Lloyd’s Rep. 316, Mustill J, reversed by CA at [1982] QB 946, [1982] 1 Lloyd’s Rep. 369, affirmed HL at [1983] 1 Lloyd’s Rep. 342, [1983] 2 AC 375, and see also the dissenting judgment of Edmund Davies LJ in Nishina Trading Co Ltd v. Chiyoda Fire & Marine Insurance Co Ltd (The Mandarin Star) [1969] 1 Lloyd’s Rep. 293 (CA) at p. 300.

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currency of the policy, even though the goods are not sold or otherwise wrongly disposed of until after the policy expires.368 For example, in Bayview Motors Ltd v. Mitsui Marine & Fire Insurance Co Ltd,369 a consignment of Toyota cars, insured under all risks terms, was discharged to a customs compound in Santo Domingo. The cars were converted by the customs authorities when they wrongfully refused to release them during the currency of the policy period. Subsequently, after the policy period had expired, the cars were dishonestly “distributed” to certain customs officers and their families. It was held that the conversion of the cars, in the form of the improper refusal of the customs to release the cars, was an all risks peril, and that this was a partial loss within the period of cover that led to an actual total loss outside the period of the cover which related back to the conversion.370 Loss of possession: constructive total loss 3.97 A constructive total loss of cargo can take place in three circumstances: first, where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable371; secondly, where the assured is deprived of possession of his goods and it is unlikely that he can recover them372, and thirdly, where the cost of recovering the goods would exceed their value when recovered.373 There is some confusion as to whether the second type of constructive total loss is covered under clause 13 of the revised Institute Cargo Clauses 2009, which provides as follows: “No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter insured is reasonably abandoned either on account of its actual total loss appearing to be unavoidable or because the cost of recovering, reconditioning and forwarding the subject-matter insured to the destination to which it is insured would exceed its value on arrival.”

On the face of it, this clause omits the second category of constructive total loss, that is, where the assured is deprived of possession and it is unlikely that he can recover his goods. However, this is not the intention of this clause which, historically, was designed to emphasise that a constructive loss could only be calculated based on the cost of recovering, reconditioning and forwarding the subject-matter to its destination, other methods of calculation then being prevalent.374 368. London & Provincial Leather Processes Ltd v. Hudson (1939) 64 Ll. L. Rep. 352. 369. [2002] EWHC 21 (Comm), [2002] 1 Lloyd’s Rep. 652 at para. 28. 370. This was based on the authority of London & Provincial Leather Processes Ltd v. Hudson (supra), but the Court of Appeal in Bayview Motors [2002] EWCA Civ 1605 (CA), [2003] 1 Lloyd’s Rep. 131 (CA) is more cautious, preferring to decide the point on the basis that the goods were a constructive total loss (see para. 26). If the goods were “in the grip of a peril”, it would seem to be correct that it did not matter if further loss might occur after the expiration of the policy as they had already received a potential death blow, see Integrated Container Service Inc v. British Traders Insurance Co Ltd [1984] 1 Lloyd’s Rep. 154 (CA), particularly Eveleigh LJ at p. 160. 371. MIA 1906 s. 60(1). 372. MIA 1906 s. 60(2)(i)(a). 373. MIA 1906 s. 60(2)(i)(b). 374. See Dunt, Marine Cargo Insurance, 2009, Informa, at para. 13.42 fn. 136 and see Arnould’s Law of Marine Insurance and Average, 17th edn, 2008, Sweet & Maxwell, at paras 29 to 43 fn. 230 and Arnould’s First Supplement at p. 175. Compare, for the contrary view, H. Bennett, The Law of Marine Insurance, 2nd edn, 2006, para. 21.76. In Masefield AG v. Amlin Corporate Member Ltd [2010] EWHC 280 (Comm Ct: David Steel J), [2010] 1 Lloyd’s Rep. 509, the judgment records that it was common ground that the effect of cl. 13 was to exclude the additional category of constructive total loss relating to deprivation of possession in circumstances where it was unlikely that the goods could be recovered.

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3.98 The first rule (abandonment on account of an actual total loss appearing unavoidable) is illustrated by the Masefield case.375 In this case, a cargo of bio diesel was taken by Somali pirates and the cargo owners gave notice of abandonment about 10 days before a ransom was paid and the vessel and cargo released shortly thereafter. It was held that the vessel and its cargo were not abandoned: what was required was not a Notice of Abandonment but the actual abandonment of any hope of recovery, which had not occurred. To the contrary, the shipowners and cargo owners had every intention of recovering their cargo and were fully hopeful of doing so. In any event, there was no reasonable basis for regarding an actual total loss to be unavoidable.376 The Bayview Motors case377 illustrates the meaning of “unlikelihood” of recovery under the second of the rules set out above. In this case, a consignment of cars was in the possession of the customs authorities in Santo Domingo, who gave various spurious excuses for not releasing them, intending in fact to steal them. It was held that it was “unlikely” that the cars would be recovered and that they were therefore a constructive total loss. In Clothing Management Technology Ltd v. Beazley Solutions Ltd t/a Beazley Marine UK,378 a British clothing manufacturer claimed against insurers for the value of garments which were being manufactured in Morocco when the owners of the factory disappeared and the garments could not be recovered from the workers who were unpaid and who took possession of them. It was held that it was “unlikely” that the garments would be recovered within a reasonable time and that they were, therefore, a constructive total loss.379 3.99 Where, as a result of the insolvency of a bailee, goods are lost to the assured as a result of a lawful court order, or the threat of lien or lawful sale, this may constitute a loss under an all risks cargo policy. It was held in Integrated Container Service Inc v. British Traders Insurance Co Ltd380 that the risk of a lawful sale by a third party of abandoned goods, where the goods had been abandoned by an insolvent bailee, was an all risks loss. The case, however, involved a container contingency policy which, though treated as a policy on goods, has different characteristics, more particularly as it is aimed at protecting the assured from the insolvency of the lessee or bailee of the containers.381 3.100 The Marine Insurance Act requires that where the assured elects to abandon the subject-matter insured to the insurer, he must give notice of abandonment and that if he fails to do so the loss can only be treated as a partial loss.382 However, it is not necessary to give notice where, at the time when the assured receives information of the loss, there would be no possibility of benefit to the insurer if notice were given to him.383 In cargo cases, there may be very little that cargo assureds can do to recover their cargo and there 375. [2010] EWHC 280 (Comm Ct: David Steel J), [2010] 1 Lloyd’s Rep. 509. 376. At paras 54 to 57. There was no appeal against this ruling. 377. [2002] EWCA Civ 1605 (CA), [2003] 1 Lloyd’s Rep. 131. 378. [2012] EWHC 727 (QB). 379. At para. 32 et seq. 380. [1984] 1 Lloyd’s Rep. 154 (CA). 381. It was appropriate, therefore, to construe all risks more widely than may be appropriate under a conventional marine cargo policy. 382. MIA 1906 s. 62(1). 383. MIA 1906 s. 62(7) and see, for a modern illustration of the rule, Bayview Motors Ltd v. Mitsui Marine & Fire Insurance Co Ltd [2002] EWHC 21 (Comm) at p. 657, David Steel J, [2002] 1 Lloyd’s Rep. 652, affirmed [2002] EWCA Civ 1605 (CA), [2003] 1 Lloyd’s Rep. 131.

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are, therefore, relatively few marine cargo cases that turn on a failure to give notice of abandonment.384 Damage to the cargo: actual total loss 3.101 Where cargo is damaged, rather than lost, there is an actual total loss under section 57(1) of the Marine Insurance Act 1906 where the subject-matter is destroyed or so damaged as to cease to be a thing of the kind insured. Cargo ceases to be “a thing of the kind insured” where, as a matter of business, the nature of the thing has been altered.385 For example, in Asfar & Co v. Blundell,386 a cargo of dates was damaged and, although retaining the appearance of dates, was found to be fermenting and impregnated with sewage so as to be unfit for human consumption. Although the dates had considerable value for the purpose of distillation into spirit, they were commercially no longer saleable as dates and were an actual total loss.387 Damage to the cargo: constructive total loss 3.102 There is a constructive total loss to cargo, as a result of damage, where the extent of the damage is such that the cargo cannot be preserved from actual total loss without an expenditure that would exceed its value when the expenditure had been incurred.388 In particular, there is a constructive total loss, in the case of damage to goods, where the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival.389 Similarly, clause 13 of the revised Institute Cargo Clauses 2009 provides that there shall be no claim for a constructive total loss unless the cost of recovering, reconditioning and forwarding the subject-matter insured to the destination to which it is insured would exceed its value on arrival. The case of Boon & Cheah Steel Pipes Snd. Bhd. v. Asia Insurance Co Ltd,390 a decision of the High Court of Malaysia, which is considered in Chapter 5 (Singapore law),391 illustrates that the test is not whether the assured acted prudently, but simply whether it was possible or practical to forward the goods economically. What constitutes “damage” to cargo? 3.103 In practice, an issue that arises quite frequently is whether the cargo has been damaged at all. There is “damage” where the operation of the peril has brought about a physical change. For example, where heat affected a Degas pastel painting, so that there was submolecular damage to the pastel, that was held to be damage to the picture even though the 384. For a notable exception see Russian Bank for Foreign Trade v. Excess Insurance Co Ltd [1919] 1 KB 39 (CA). 385. [1896] 1 QB 123. 386. Ibid. 387. Similarly in Roux v. Salvador [1836] 3 Bing (NC) 266 where hides lost their character as hides, but compare Glennie v. The London Assurance Co [1814] 2 M&S 371 where some barrels containing rice had become swollen and burst, but it was held that the cargo, as a whole, had not become a total loss. 388. MIA 1906 s. 60(1). 389. MIA s. 60(2)(iii). 390. [1975] 1 Lloyd’s Rep. 452. 391. At para. 5.42 below.

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change was not visible and only established on the basis of expert evidence.392 In general, in insurance cases, the court will be reluctant to find in favour of the assured in the absence of physical change or deterioration to the property insured.393 In particular, economic loss sustained because the cargo has been exposed to contaminants, but not directly damaged by them, is not covered, nor is suspicion of damage.394 Loss of the adventure The general principle 3.104 There is a long-established principle that in the case of cargo insurance, the thing that is insured is not merely the cargo but also the arrival of the goods at the destination specified in the contract of insurance. This is sometimes expressed by saying that the “voyage” of the cargo is insured395 or that the “adventure” is insured.396 The concept of loss of the adventure entitles the assured to claim a constructive total loss where the cargo is undamaged and in the assured’s possession but the voyage has been frustrated and the cargo has not reached its intended destination.397 Loss of the adventure is a common law concept and may result in an actual total loss, where it is “impossible” for the goods to reach their destination,398 or a constructive total loss where it is “unlikely” that the goods will reach their destination.399 Where there is a potential loss of the adventure there is a duty to sue and labour by, for example, incurring the expenses of forwarding the goods to their intended destination because the insured transit has terminated. This particular form of sue and labour expense is recoverable under clause 12 of the Institute Cargo Clauses, known as the Forwarding Charges Clause, which is discussed below.400 It is not the practice under either the War Clauses or the Strikes Clauses to cover loss of the adventure against war or strikes risks, which exclude “any claim based upon loss of or frustration of the voyage or adventure”.401 However, where the adventure is not merely frustrated but the goods are also physically lost to the assured, either by destruction or because it is unlikely that the they

392. Quorum A/S v. Schramm [2002] 1 Lloyd’s Rep. 249 relying upon the Tasmanian decision in Ranicar v. Frigmobile Pty Ltd [1993] Tas R 113 (discussed also in Chapter 7 (Australian law) at para. 7.62 below), a case which, however, appears to go further than English law in that there was no “damage” proved but merely rejection of shellfish by the government authorities for transgression of temperature regulations. 393. Cementation Piling and Foundations Ltd v. Aegon Insurance Co Ltd [1993] 1 Lloyd’s Rep. 526; Promet Engineering (Singapore) Pte Ltd v. Sturge (The Nukila) [1997] 2 Lloyd’s Rep. 146; and Shell v. CLM Engineering [2000] 1 Lloyd’s Rep. 612. 394. Boon & Cheah Steel Pipes Snd. Bhd. v. Asia Insurance Co Ltd [1975] 1 Lloyd’s Rep. 452, a decision of the Malaysian High Court, following Cator & Others v. Great Western Insurance Co of New York [1873] LR 8 CP 552; Lysaght Ltd v. Coleman [1895] 1 QB 49; and Overseas Commodities Ltd v. Style [1958] 1 Lloyd’s Rep. 546. 395. Roux v. Salvador [1836] 3 Bing (NC) 266, as explained by Roche J in Vacuum Oil Co v. Union Insurance Society of Canton Ltd (1926) 24 Ll. L. Rep. 188 at p. 190. 396. British & Foreign Marine Insurance Co v. Samuel Sanday [1916]1 AC 650, per Lord Loreburn. 397. Ibid., British & Foreign Marine Insurance Co v. Samuel Sanday (supra). 398. Anderson v. Wallis (1813) 2 M&S 240. 399. See the discussion regarding the loss of the cargo aboard Wagoni in Forestal Land, Timber & Railways Co Ltd v. Rickards. Middows Ltd v. Robertson & Other Cases (1941) 70 Ll. L. Rep. 173 (HL). 400. At para. 3.105 below. 401. Institute War Clauses (Cargo) 1/1/09, cl. 3.7; Institute Strikes Clauses (Cargo) 1/1/09, cl. 3.8. The exclusion was introduced by the London market following the decision in British & Foreign Marine Insurance Co v. Samuel Sanday [1916]1 AC 650.

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can recover them, there will be a loss potentially covered under the War Clauses Strikes Clauses.

402

or the

The Forwarding Charges Clause 3.105 In recognition of the right to reimbursement of charges incurred to prevent a loss of the adventure, discussed in the preceding paragraph, clause 12 of the revised Institute Cargo Clauses 2009 provides as follows: “Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a port or place other than that to which the subject-matter insured is covered under this insurance, the Insurers will reimburse the Assured for any extra charges properly and reasonably incurred in unloading storing and forwarding the subject-matter insured to the destination to which it is insured. This Clause 12, which does not apply to general average or salvage charges, shall be subject to the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from the fault negligence insolvency or financial default of the Assured or their employees.”

This clause covers claims for loss of the adventure where the goods are undamaged, as well as other forms of constructive total loss as, for example, where goods have been damaged, the voyage is terminated, and it is necessary to forward the goods to their destination.403 Although this clause appears to be largely declaratory, as it reflects the right to claim for loss of the adventure and the right to sue and labour to prevent a constructive total loss, it is possible that it may provide additional cover by triggering the right to recover expenses simply on the basis that the insured transit has been “terminated” and by broadening the expense recoverable to any “extra charges”. 3.106 The right to recover forwarding charges is subject to the exclusions in the cover, in particular, insolvency and delay. So far as insolvency is concerned, where a voyage is abandoned due to the carrier becoming insolvent, there is potentially a claim for sue and labour under the Forwarding Charges Clause. The insolvency exclusion under clause 4.6 of the revised Institute Cargo Clauses 2009 only comes into play where the assured is aware, or ought to have been aware, of the potential insolvency.404 It appears that where cargo is subject to the risk of physical damage, because it is left exposed to the elements, the right to sue and labour may arise even if the goods are not in immediate danger as long as the circumstances are such that loss or damage is inevitable.405 3.107 So far as delay is concerned, a claim for loss of the adventure hinges on “termination” of the insured transit as set out in the Forwarding Charges Clause. It may be said, therefore, that the delay exclusion in clause 4.5 of the revised Institute Cargo Clauses 2009 has little role to play as the voyage must be frustrated and not merely delayed. That was the position taken by the court in Wilson Bros Bobbin Co Ltd v. Green,406 where there was a successful claim for sue and labour charges to prevent loss of the adventure 402. Forestal Land, Timber & Railways Co Ltd v. Rickards. Middows Ltd v. Robertson & Other Cases (1941) 70 Ll. L. Rep. 173 (HL). Cover will be subject to any other limitations imposed by the War Clauses, for example, the limitation of the transit to carriage by overseas vessels, as more fully discussed in para. 3.57 above. 403. In order to avoid a constructive total loss under MIA 1906 s. 60(2)(iii). 404. As discussed at para. 3.53 above. 405. Integrated Container Service Inc v. British Traders Insurance Co Ltd [1984] 1 Lloyd’s Rep. 154 (CA) and see London & Provincial Leather Processes Ltd v. Hudson (1939) 64 Ll. L. Rep. 352. 406. [1917] 1 KB 860.

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in circumstances where a cargo of wood, laden on a Norwegian vessel, was prevented by German war vessels from completing the voyage. The cargo, having been discharged in Norway, was warehoused and later forwarded to England. The policy excluded all claims arising from delay and it was argued that the claim to recover the storage charges and forwarding expenses was expressly excluded by the delay exclusion in the policy. However, it was held that the clause excluding all claims arising from delay did not affect in any way the sue and labouring clause. A different approach was taken in Russian Bank for Foreign Trade v. Excess Insurance Co Ltd,407 where the court felt itself bound to take a wider view of the delay exclusion.408 It is submitted that the narrower view of the delay exclusion is to be preferred and that the delay exclusion is not intended to negative the right to forwarding charges except where there is a loss of market for time-sensitive goods,409 or, possibly, in circumstances where the cargo is perishable. Partial loss: measure of indemnity Valued and unvalued policies 3.108 Marine cargo is generally insured on an agreed value basis, that is to say, in the event of loss the insurers will be liable to indemnify the assured for a fixed sum, usually the CIF value of the cargo plus 10%. Such a policy is called a “valued policy”. Occasionally, but very rarely, cargo is insured under an “unvalued” policy where the assured must establish his loss, most commonly by reference to the value of the goods plus freight and insurance.410 In practice in England, the agreed value of the subject-matter insured is usually done by way of a Basis of Valuation Clause,411 which provides a formula for calculating the agreed value, for example, “Cost, insurance and freight plus 10%”. This practice usually eliminates any difficulties in deciding whether or not a policy is for an agreed value. But if those difficulties arise, the words “valued at” or “agreed value” are a clear indication of an agreed value insurance as envisaged by section 27(2) of the 1906 Act. On the other hand, the words “sum insured” are a strong indication that the parties intended the policy to be unvalued.412 The policy must show that the intention of the parties is that there is a specified agreed value, proposed by the assured and agreed by the insurers.413 3.109 The Marine Insurance Act 1906 section 27(3) provides that, “in the absence of fraud, the value fixed by the policy is, as between the insurer and assured, conclusive of the insurable value of the subject intended to be insured, whether the loss be total or partial”. As the purpose of the section is to emphasise the conclusiveness of the agreed valuation in all but the most exceptional cases, a fraudulent valuation is one dishonestly presented 407. [1918] 2 KB 123. 408. Following the decision of the House of Lords in Bensuade v. Thames & Mersey Marine Insurance Co [1897] AC 609 (HL). 409. See para. 3.51 above for a discussion of the delay exclusion in this context. 410. Where there are late or erroneous declarations under an open cover the cargo is likely to be treated as insured on an unvalued basis by analogy with MIA 1906 s. 29(4). 411. See, for a recent example, Clothing Management Technology Ltd v. Beazley Solutions Ltd t/a Beazley Marine UK [2012] EWHC 727 (QB). 412. Kyzuna Investments Ltd v. Ocean Marine Mutual Insurance Association (Europe) [2000] 1 Lloyd’s Rep. 505, per Thomas J at p. 508 following Thor Navigation Inc. v. Ingosstrakh Insurance [2005] EWHC 19 (Comm), [2005] 1 Lloyd’s Rep. 547. 413. Ibid.

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414

and not a mere over-valuation. Nevertheless, where the assured has failed to disclose or has materially misrepresented an over-valuation in a manner that would have affected the insurer’s assessment of the risk, such as to fall within the rules governing avoidance for misrepresentation or non-disclosure, this will entitle the insurers to avoid the policy itself and the claim on the over-valued cargo will fail.415 3.110 The provisions of the Marine Insurance Act 1906 benefit the assured by entitling them, in the absence of fraud, to recover the agreed value under a valued policy.416 There is also protection for insurers as the measure of indemnity, as set out in the 1906 Act,417 is “conclusively definitive of the extent of the liability of the insurer for loss”.418 The claim under a marine cargo insurance contract is analysed legally in England as a claim for unliquidated (unascertained) damages arising immediately on the occurrence of the loss or damage to the cargo.419 Cargo delivered damaged at destination: salvage losses 3.111 It is not possible in a book of this kind to examine the comprehensive set of rules laid down in the Marine Insurance Act 1906 for calculating the measure of indemnity in all cases of partial loss.420 However, the way in which the adjustment of claims for cargo delivered damaged at destination differs from the adjustment of claims where cargo is delivered short of destination, often leads to misunderstandings between the assured and the insurers and deserves consideration. The Marine Insurance Act section 71(3) provides, so far as material, as follows: “Where the whole or any part of the goods or merchandise insured has been delivered damaged at its destination, the measure of indemnity is such proportion of the sum fixed by the policy … as the difference between the gross sound and damaged values at the place of arrival bears to the gross sound value.”

Where the cargo is delivered damaged at destination, the assured tend initially to see their loss as the insured value less the amount realised by the sale of damaged goods. However, the sale of damaged goods will be affected by the market price of sound goods. If the market has risen, the damaged goods might sell for as much as sound goods would have sold for, leaving the assured with no loss. If the market has fallen, the loss will be exaggerated and insurers will pay more because of the fall in the market, which causes a loss in value unrelated to the damage to the goods. Accordingly, the 1906 Act applies a percentage depreciation to the insured value based on the gross sound and damaged 414. See, e.g., Loders and Nucoline Ltd v. Bank of New Zealand (1929) 33 Ll. L. Rep. 70 and Papadimitriou v. Henderson (1939) 64 Ll. L. Rep. 345. 415. For a consideration of over-valuation and non-disclosure, see para. 3.10 above. 416. MIA 1906 s. 27(3). 417. MIA 1906 s. 67(1), which calls the sum that the assured can recover in respect of a loss the “measure of indemnity”. 418. Ventouris v. Mountain (The Italia Express) [1992] 2 Lloyd’s Rep. 281 at p. 291. 419. See Firma C-Trade SA v. The Newcastle Protection and Indemnity Association (The Fanti) [1990] 2 Lloyd’s Rep. 191, per Lord Goff at p. 202, [1991] 2 AC 1 and Chandris v. Argo Insurance Co Ltd [1963] 2 Lloyd’s Rep. 65, approved Castle Insurance Co Ltd v. Hong Kong Islands Shipping Co Ltd [1983] 2 Lloyd’s Rep. 376, [1984] AC 226 (PC). 420. For the rules see, MIA 1906 ss. 67 to 75 and Dunt, Marine Cargo Insurance, 2009, Informa, Chapter 15, as well as the well-known works by adjusters including, in particular, Goodacre, Marine Insurance Claims, 3rd edn, 1996, Witherby & Co Ltd.

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values, and if the extent of the damage is, for example, 25%, then the assured will receive 25% of the insured value. This position is to be contrasted to the situation where the goods are damaged and are sold short of their destination because it is impossible or uneconomic to complete the voyage. In such circumstances, the assured is entitled to abandon the cargo to the insurers, if necessary giving notice of abandonment, and to claim for a constructive total loss. In practice, the insurers will not accept the abandonment and will advise the assured “to act as a prudent uninsured”, putting the assured in the same position as if legal proceedings had been issued. The sale of the distressed cargo takes place in the name of the assured, most probably in conjunction with the insurer’s adjusters, and the insurer then pays for a total loss of the cargo in the amount of the insured value less the proceeds of sale received by the assured. This is known as a “salvage loss”. If the market has risen, a salvage loss basis will be more favourable for insurers; if the market has fallen, a salvage loss settlement will be more favourable for the assured. In view of this, it is increasingly the practice for brokers’ wordings in England to incorporate a clause allowing the assured at their option to elect for an adjustment on a salvage loss basis even where the goods are delivered damaged at destination and, indeed, some clauses go further and allow the assured to have the claim adjusted on a particular average or a salvage loss basis at the assured’s option whether cargo is delivered damaged at destination or short of destination. Underinsurance 3.112 The Marine Insurance Act 1906 section 81 provides: “Where the assured is insured for an amount less than the insurable value or, in the case of a valued policy, for an amount less than the policy valuation, he is deemed to be his own insurer in respect of the uninsured balance.”

The effect of section 81 of the 1906 Act in cases of underinsurance is to apportion partial losses between assured and insurers rateably in accordance with the amount of the risk they have each undertaken.421 In the case of a total loss, the assured simply recovers the agreed insured value, where the policy is valued. For example, if a cargo with a market value of US$10,000,000 is insured for an agreed value of only US$5,500,000, then the full insured amount of US$5,500,000 will be paid by insurers in the event of a total loss. No account is taken of the underinsurance.422 With regard to cases of partial loss, it is sometimes said that section 81 of the 1906 Act applies the principle of “average” to marine insurance. Although section 81 applies a rule that reflects average, it is submitted that the true position is that marine insurance has its own special statutory rules regarding the measure of indemnity, as set out in the 1906 Act, not all of which apply average.423

421. The same rule effectively applies to cargo delivered damaged at destination under MIA 1906 s. 71(3) discussed at para. 3.111 above. 422. The same rule applies to the limit of indemnity, sometimes called the “sum insured”, in rare cases where the policy is unvalued and the full claim up to the limit is paid by insurers in the event of a total loss. 423. For example, where a ship has been repaired, the assured is entitled to the reasonable cost of repairs, and the full amount of these repairs is recoverable, as long as it does not exceed the sum insured, and there is no deduction by way of average even if the vessel is under-insured, see MIA 1906 s. 69.

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Recoverable expenses Sue and labour 3.113 The Marine Insurance Act 1906 section 78(4) provides that “it is the duty of the assured and his agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a loss”. This does not impose a general duty of due diligence throughout the currency of the insurance and is a duty that only arises after an insured peril has begun to take effect.424 Where the policy contains a sue and labour clause, section 78(1) of the 1906 Act provides that “the assured may recover from the insurer any expenses properly incurred pursuant to the clause”. Under the general heading “Minimising Losses”, clause 16 of the revised Institute Cargo Clauses 2009 provides for sue and labour in the following terms: “‘Duty of Assured’ 16 It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder 16.1 To take such measures as may be reasonable for the purpose of averting or minimising such loss, and 16.2 To ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges properly and reasonably incurred in pursuance of these duties.”

It will be seen that the duty to mitigate has a two-fold purpose. First, there is a duty to ensure that action is taken to preserve cargo exposed to danger as a result of a casualty. Secondly, of key importance in practice, there is a duty to protect rights against bailees, in particular shipowners, road hauliers or others concerned in the carriage or storage of the cargo.425 The expenditure must be “reasonable” and “properly and reasonably incurred”.426 The loss must also be recoverable under the policy.427 The Marine Insurance Act 1906 section 78(1) provides that the sue and labour clause is “deemed to be supplementary to the contract of insurance”, which means, in practice, that the assured may recover for expenses properly incurred, notwithstanding that the insurer may have paid for a total loss.428 A breach of the duty to sue and labour does not operate like a breach of warranty and only gives insurers a right to claim damages by way of set off and counterclaim. Accordingly, insurers must show that their position has been prejudiced and it is only then that they can set off the monetary amount of that prejudice against any valid

424. Noble Resources Ltd v. Greenwood (The Vasso) [1993] 2 Lloyd’s Rep. 309 per Hobhouse J at p. 313. 425. In view of the express terms of the ICC, there is also likely to be implied by law a term that the assured will act reasonably and in good faith with due regard to insurers’ interests and rights of subrogation under the policy, see Horwood v. Land of Leather Ltd [2010] EWHC 546 (Comm), [2010] Lloyd’s Rep. IR 453. 426. In Lee v. Southern Insurance Co (1869-70) LR 5 CP 397, a vessel carrying a cargo of oil was stranded on the Welsh coast and the cargo was unloaded and forwarded by rail without waiting for the ship to be repaired and it was held that the additional expenses incurred for rail carriage were not reasonable. 427. See, e.g., F. W. Berk & Co Ltd v. Style [1956] 1 QB 180, [1955] 2 Lloyd’s Rep. 382, where the assured incurred expenses in re-bagging the goods but the loss not being recoverable, due to the inherent vice of the bags, the cost of re-bagging was not recoverable as sue and labour. 428. If, at the time the expenses were incurred, it appeared reasonable to do so. For a contemporary restatement of the rule, see the speech of Lord Hobhouse in Kuwait Airways Corporation v. Kuwait Airways Co SAK [1999] 1 Lloyd’s Rep. 803 (HL) at p. 816.

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claim. The insurers must also show that failure of the assured to take reasonable steps to avert or minimise the loss is causative. This is illustrated by the decision of the Court of Appeal in Hong Kong in Miruvor Ltd v. National Insurance Co Ltd,430 which is dealt with in Chapter 4 (Hong Kong law).431 Salvage 3.114 Salvage is the reward paid to those providing assistance to property in danger at sea.432 Where cargo is successfully saved, a salvage award, based on the extent of the services and the value of the property salved, is payable by the owner of the cargo either by maritime law or, more usually today, under contract. The most common form of salvage contract encountered in England is Lloyd’s Open Form (“LOF”). The liability of cargo interests to pay salvage is covered by marine insurance, but the cover for maritime salvage differs slightly from the cover for contractual salvage under, for example, LOF. These differences are now examined. 3.115 Services outside contract payable under maritime law, known as “salvage services”, are recoverable under section 65 of the Marine Insurance Act 1906, which limits the recovery to charges incurred in preventing a loss by perils insured. The Institute Cargo Clauses are more generous and the cover under clause 2 for salvage services extends to salvage incurred for the avoidance of loss “from any cause”.433 Where there is underinsurance, the Marine Insurance Act 1906434 applies an apportionment, but the practice in England is for the policy to expressly provide435 that the goods shall be deemed to be insured for their full contributory value, so the full award will be reimbursed by insurers even if the cargo is under-insured. 3.116 Salvage performed under a salvage contract, for example, LOF, is not recoverable under the policy as maritime salvage,436 but as sue and labour under the Duty of Assured Clause.437 This clause requires the assured to take such measures as may be reasonable for averting or minimising a loss and entitles the assured to reimbursement for salvage charges under LOF. The right to sue and labour is supplementary to the contract438 and, accordingly, contractual salvage is recoverable from insurers as long as it is reasonable, whatever the insured value of the goods, and in addition to the insured value. General average 3.117 There is a general average act when any extraordinary sacrifice or expenditure is voluntarily and reasonably made or incurred, in time of peril, for the purpose of preserving 429. Noble Resources Ltd v. Greenwood (The Vasso) [1993] 2 Lloyd’s Rep. 309. For a recent example where a claim by insurers that there had been a breach of duty failed, see Clothing Management Technology Ltd v. Beazley Solutions Ltd t/a Beazley Marine UK [2012] EWHC 727 (QB). 430. [2002] HKEC 1033, [2003] HKEC 237 (CA). 431. At para. 4.45 below. 432. Salvage, as discussed in this section, is to be distinguished from the right of the insurer, who has paid for a total loss, to assert proprietary rights over what remains in the subject-matter insured. 433. Except those causes expressly excluded under the exclusions in the Institute Cargo Clauses, see cl. 2. 434. MIA 1906 s. 73. 435. This is the usual provision in London market brokers’ wordings, though not part of the standard Institute Cargo Clauses. 436. MIA 1906 s. 65(2). 437. Cl. 16 of the ICC. 438. See para. 3.113 above.

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the property imperilled in the common adventure. An example of a sacrifice occurred in Dickenson v. Jardine,440 where part of a cargo of tea was thrown overboard on a voyage from Foochow to London. The ship was stranded on a reef and, in order to lighten the vessel and bring the whole adventure to a successful conclusion, it was necessary to sacrifice most of the tea owned by the assured. Such a sacrifice is of benefit to cargo interests as a whole, who share in the loss suffered by the owners of the sacrificed cargo so that the loss is shared rateably by all the cargo interests and by the vessel. Where the assured has suffered a general average sacrifice, he may recover from the insurer in respect of the whole loss without having enforced his right of contribution from the other parties liable to contribute, that right to contribution being exercised in due course by the insurers by way of subrogation.441 3.118 Contemporary examples of general average more frequently involve expenditure incurred by the shipowner or carrier rather than sacrifice. Such expenditure results, for example, from engine breakdowns and is incurred to enable the vessel to be repaired to complete the voyage and bring the adventure to a successful conclusion. Cargo interests are liable to contribute in general average to the costs of towing the vessel to a port of refuge as well as any expenses incurred as a result of that visit.442 Whilst cargo interests are not responsible for permanent repairs, liability may be incurred in certain circumstances to contribute to temporary repairs to the vessel carried out in order to complete the voyage.443 Where the assured has incurred general average expenditure in order to avoid a loss by a peril insured against, he may recover from the insurers in respect of the proportion of the loss that falls upon him. However, the insurer is not liable under the Marine Insurance Act 1906 unless the general average contribution was incurred to avoid a loss by a peril insured against.444 The Institute Cargo Clauses are more generous and clause 2 provides cover for general average in connection with the avoidance of loss from “any cause”.445 3.119 The Marine Insurance Act 1906 section 73 makes provision for the indemnity payable by the insurer in respect of the assured’s general average contribution to be reduced pro rata if the cargo is not insured for its full contributory value. However, this provision is generally reversed in the London market by brokers’ clauses which deem the cargo to be insured for its full contributory value so that the assured has complete indemnity for any general average contribution even if the cargo is under-insured. As cargo will normally only be released by the shipowners or carriers at the end of the voyage in exchange for general average bonds, from the cargo interests, backed by general average guarantees, from their insurers,446 it is manifestly more convenient for insurers to cover the whole 439. MIA 1906 s. 66(2). 440. (1867–68) LR 3 CP 639. 441. MIA 1906 s. 66(4). 442. York-Antwerp Rules 1004 Rule X. 443. York-Antwerp Rules 2004 Rule XIV. 444. MIA 1906 s. 66(4), 66(6). 445. This extension of cover is most likely to make a difference where the goods are insured against limited perils, e.g., under the Institute Bulk Oil Clauses 1/2/83, which are against named perils, such as fire and explosion, which do not include pirates. Nevertheless, where a ransom is paid to pirates and is recoverable in general average it will be recoverable under the insurance because the general average cover extends to losses “from any cause”, even causes not specifically insured under the policy. General average is not recoverable under the ICC if the cause is subject to one of the express exclusions. A piratical seizure may be excluded under cl. 6.2 of the Institute Cargo Clauses, but is not excluded in all cases, e.g., under the ICC(A) or the Institute Bulk Oil Clauses referred to above. 446. See, for the usual procedure, Castle Insurance Co v. Hong Kong Islands Shipping Co [1983] 2 Lloyd’s Rep. 376 (PC) and Metall Market OOO v. Vitorio Shipping Co Ltd [2012] EWHC 844 (Comm).

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of any general average liability without issues arising either as to whether the particular general average act is caused by an insured peril or whether the cargo is fully insured or under-insured. This is, no doubt, the practical reason for the more generous cover provided in the Institute Cargo Clauses as compared with the Marine Insurance Act 1906.

SUBROGATION, DOUBLE INSURANCE AND RIGHTS OF CONTRIBUTION Subrogation Nature of the right compared to assignment 3.120 Where the insurer pays for a loss, either total or partial, he becomes subrogated to all the rights and remedies of the assured in respect of the cargo as from the time of the casualty causing the loss.447 The right to subrogate has origins both in the common law, as an implied term of the contract,448 and in the equitable principle of unjust enrichment.449 Insurers’ rights of subrogation are limited to the amount that they have paid their assured.450 In some jurisdictions451 it is the practice for insurers to take an assignment of the assured’s rights of action against the third party. An assignment of the right of action is also recognised under English law. However, it is not usual practice in marine cargo insurance probably because English law requires either a formal notice of assignment to the party responsible for loss or damage to the goods, or that the insurers join their own assured as a named party to the legal action.452 Nevertheless, there is an advantage for insurers if an assignment is taken, as they can then recover more than their payment to the assured.453 Where subrogation rights are exercised in the name of the assured, the general principle is that insurers

447. MIA 1906 s. 79(1) as to total loss and s. 79(2) as to partial loss. In cases of total loss, the insurer is also entitled in principle to take over whatever remains of the subject-matter insured as salvage, though this right is rarely exercised as the ownership of distressed property may well give rise to liability for pollution, see Dornoch Ltd v. Westminster International BV (The WD Fairway No 2) [2009] EWHC 889, [2009] Lloyd’s Rep. IR 573. 448. Bee v. Jenson (No. 2) [2007] EWCA Civ 923, [2008] Lloyd’s Rep. IR 221. 449. The insurers have a lien over the proceeds of any recovery made by the assured, which relies upon the equitable origins of the right of subrogation, Napier and Ettrick v. Hunter [1993] 1 Lloyd’s Rep. 197, [1993] AC 713 (HL). 450. Yorkshire Insurance Co v. Nisbet Shipping Co Ltd [1962] 2 QB 330, [1961] 1 Lloyd’s Rep. 479, contrasts the position if the goods have been abandoned and a total loss agreed. Where a value has been agreed, the insurers may make an enhanced recovery based, for example, on the enhanced value of the cargo if the market has risen, as the agreed value is conclusive of the insurable value, MIA 1906 s. 27(3), applied to subrogated recoveries in North of England Iron Steamship Insurance Association v. Armstrong [1870] LR 5 QB 244 (total loss of ship that was under-valued); Thames and Mersey Marine Insurance Co v. British and Chilean Steamship Co [1915] 2 KB 214; and Goole & Hull Steam Towing Co Ltd v. Ocean Marine Insurance Co Ltd [1928] 1 KB 589 (same rule applied to partial loss). 451. See Chapter 15 (comparative law) at para. 15.61 below. 452. Compania Columbiana v. Pacific Steam Navigation Co [1965] 1 QB 101, [1963] 2 Lloyd’s Rep. 479 and Central Insurance Co Ltd v. Seacalf Shipping Corporation (The Aiolos) [1983] 2 Lloyd’s Rep. 25. The assured must be joined and this can only be avoided by creating a legal assignment under s. 136 of the Law of Property Act 1925 which requires that express notice in writing be given to the debtor, in the context of a subrogated cargo recovery action, the debtor for these purposes meaning the bailee or other person responsible for the loss or damage to the goods. This notice must be given by the assured as assignor to the shipowner or other bailee before the recovery proceedings are commenced. 453. Compania Columbiana v. Pacific Steam Navigation Co [1965] 1 QB 101, [1963] 2 Lloyd’s Rep. 479.

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cannot exercise such rights against their own assured, for no person can sue themselves,454 nor can the insurers sue a co-assured in order to recover by way of subrogation.455 Exercise of subrogation rights in practice 3.121 Clause 16.2 of the Institute Cargo Clauses 2009 requires the assured “to ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised”.456 Under English law, there is likely to be implied a term that the cargo owner will act reasonably with regard to insurers’ subrogation rights so as not to prejudice those rights by, for example, settling a recovery claim for commercial reasons on terms advantageous to themselves but disadvantageous to their insurers.457 On payment of a claim, insurers will take over the rights against third parties and it is the usual practice for the assured to sign a subrogation form, sometimes called a subrogation receipt or a letter of subrogation.458 The standard Lloyd’s market subrogation form includes (1) an acknowledgment that insurers are subrogated according to the law of the contract of insurance; (2) an agreement that insurers may use the assured’s name to the extent necessary to exercise their rights of subrogation; and (3) an agreement to provide any assistance insurers may reasonably require. In return, insurers agree to indemnify the assured against liability for all costs, charges and expenses in connection with any proceedings taken by them as insurers. This agreement459 clarifies insurers’ right to assistance, which, in practice, would most obviously include provision of all the documents needed by insurers to pursue the recovery claim. Insurers have the right to pursue the action in the assured’s name,460 and this is normally carried out by insurers’ solicitors with insurers responsible for all costs, including the costs of the other parties if the action is unsuccessful.461 Where insurers of cargo tried to secure jurisdiction in Senegal by requiring the cargo owners to arrest the carrying vessel in Senegal, in breach of the London arbitration clause in the contract of carriage, the insurers were themselves held liable in tort for inducing a breach of the cargo owners contract to arbitrate disputes in London.462 The insurers had to pay for the detention of the vessel during the period of the arrest. 3.122 Where there are two insurances on the same cargo, one a primary policy and one an increased value policy, the position under English law is that the primary insurers are entitled to exercise the whole of the recovery rights.463 However, this rule is varied 454. Simpson v. Thomson [1877] LR 3 App. Cas. 279. 455. National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyd’s Rep. 582. 456. Clause 16 is considered at para. 3.113 above. 457. See, Horwood v. Land of Leather Ltd [2010] EWHC 546 (Comm), [2010] Lloyd’s Rep. IR 453. 458. Boag v. Standard Marine Insurance Co Ltd (1937) 57 Ll. L. Rep. 83. 459. The form does more than record the existing legal position and evidences a separate agreement, see Duus Brown v. Binning (1906) 11 Com. Cas. 190. 460. The assured is entitled to control the action at least before settlement and subrogation, see Commercial Union Assurance Co v. Lister [1874] LR 9 Ch Ap 483. Control by the assured is subject to their not prejudicing insurers’ interests. Once the claim has been settled, the action continues in the assured’s name and it is submitted that they still have the last word on control but will be in breach of both the policy, and the agreement represented by the subrogation form, if they prejudice insurers’ position. 461. In appropriate circumstances, a non-party costs order may be made direct against the insurers, see Owners of the Dredger “Karmal XXVI” & Others v. Owners of the Arelia [2010] EWHC 2531 (Comm). 462. Kallang Shipping SA Panama v. AXA Assurances Senegal (The Kallang) [2008] EWHC 2761 (Comm), [2009] 1 Lloyd’s Rep. 124; Sotrade Denizcilik Sanayi VE Ticaret AS v. Amadou Lo (The Duden) [2008] EWHC 2762 (Comm), [2009] 1 Lloyd’s Rep. 145. 463. Boag v. Standard Marine Insurance Co Ltd (1937) 57 Ll. L. Rep. 83 (CA).

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by clause 14 of the Institute Cargo Clauses to apportion the recoveries pro rata between the primary insurers and the increased value insurers according to the amounts insured by each insurer. In many cases, both policies will have the pro rata clause as both will be written on the terms of the Institute Cargo Clauses. In some cases, only the primary policy will be written on the terms of the Institute Cargo Clauses. Where both policies include the clause, it is clear that a pro rata apportionment should take place: if only the primary policy has the clause it would seem equally clear that the primary underwriters have agreed not to exercise their right under English law, which entitles them to the whole of the recovery. But if only the increased value policy contains the pro rata clause, the primary underwriters would, it is submitted, be entitled to insist that all the recovery rights accrue solely to them. Double insurance and contribution Double insurance: when does it occur? 3.123 Double insurance occurs where two or more policies are effected by the same assured on the same cargo for the same risks, and the sums insured exceed the value of the cargo.464 Where the assured is over-insured by double insurance, he may claim payment from the insurers in such order as he thinks fit, provided that he is not entitled to recover any sum in excess of the value of the cargo.465 In practice, double insurance is comparatively rare in marine cargo insurance. However, it can arise where goods are insured for storage in warehouses, against risks such as fire, and are also covered for storage under an extension to a marine policy in anticipation of transit.466 Fire insurers covering warehouses traditionally include a Marine Insurance Clause in their policies under which payment on the fire policy is restricted to any excess amount not recoverable under the marine policy.467 The Institute Cargo Clauses do not include any equivalent non-contribution clause that would cancel out the Marine Insurance Clause.468 However, Japanese marine cargo insurers, whose policies are governed by English law, have traditionally sought to protect themselves by including in their policies a non-contribution clause aimed at neutralising the Marine Insurance Clause used by fire insurers.469 The effect of such a clause is that fire and marine insurers 464. MIA 1906 s. 32(1), and see Godin v. London Assurance Co [1758] 1 Burr 489. 465. MIA 1906 s. 32(2). 466. See, e.g., Australian Agricultural Co v. Saunders [1874-75] LR 10 CP 668 (wool destroyed by fire in stevedores’ warehouses held to be covered by the fire insurers as not “in transit” under the marine policy) and Niger Co Ltd v. The Guardian Assurance Co Ltd (1920) 4 Ll. L. Rep. 320 affirmed (1921) 6 Ll. L. Rep. 239 (CA), (1922) 13 Ll. L. Rep. 75 (HL) (marine insurers held to be providing warehouse cover at Burutu in the Niger Delta creating potential double insurance with fire insurers who were, however, protected by a non-contribution clause in the form of the Marine Insurance Clause). 467. See Goodacre, Marine Insurance Claims, 3rd edn, 1996, Witherby & Co Ltd at p. 1007 and Niger Co Ltd v. The Guardian Assurance Co Ltd (supra). 468. The position under English law is that where two concurrent policies each cover the same risk for the same assured and each contains a non-contribution clause, the two non-contribution clauses have been construed as cancelling each other out, see Weddell v. Road Transport and General Insurance Co Ltd [1932] 2 KB 563; National Employers Mutual General Insurance Association Ltd v. Haydon [1980] 2 Lloyd’s Rep. 149 (CA). It seems that a non-contribution clause may trump a rateable contribution clause and the insurer with only the protection of a rateable contribution clause will be liable for the whole loss, see National Farmers Union Mutual Insurance Society Ltd v. HSBC [2010] EWHC 773 (Comm), [2011] Lloyd’s Rep. IR 86, and Insurance Disputes, 3rd edn, 2011, Informa, at para. 10.30. 469. See Insurance Disputes, Mance, Goldrein and Merkin (eds), 2nd edn, 2003, at para. 9.13 fn. 1.

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3.124

470

should share proportionately in the loss. Similarly, United States cargo insurers generally protect themselves from double insurance with a clause that makes the first policy taken out the primary policy and the second policy the excess policy.471 Contribution between insurers 3.124 Where there is double insurance, each insurer is bound as between himself and the other insurers to contribute rateably to the loss in proportion to the amount for which he is liable under his contract.472 If any insurer pays more than his proportion of the loss, he is entitled to maintain an action for contribution against the other insurers, and is entitled to a remedy similar to a surety who has paid more than his proportion of the debt.473 The right of contribution between insurers is triggered by the fact that each contract is a contract of indemnity and covers the identical loss that the identical assured has sustained.474 The right of contribution arises where the assured,475 subject-matter,476 interest,477 and risk478 are the same. The right to contribution is also subject to the application of any non-contribution or rateable contribution clauses.479

470. It is submitted that this must be the position following the decision in Weddell v. Road Transport and General Insurance Co Ltd (supra), though it may be noted that in Niger Co Ltd v. The Guardian Assurance Co Ltd (1920) 4 Ll. L. Rep. 320, at first instance, Rowlatt at p. 339 appears to have rejected the similar argument by the insurers for fear that such a clause in their policy, and in the fire policy, would have resulted in the Niger Company having “cut themselves out of protection altogether”, the literal result regarded as absurd, and also rejected in the Weddell case. 471. See Chapter 8 (US law) at para. 8.125 below and see American Dredging Co v. Federal Insurance Co, 1970 AMC 1163. 472. MIA 1906 s. 80(1). For the method of apportionment of liability between insurers see Dunt, Marine Cargo Insurance, 2009, Informa, at paras 16.44 to 16.46. 473. MIA 1906 s. 80(2), Godin v. London Assurance Co [1758] 1 Burr 489. 474. Albion Insurance Co Ltd v. Government Insurance Office of New South Wales [1969] 121 CLR 342, per Katto J at p. 353 and see Bovis Construction Ltd and Another v. Commercial Union Assurance Co plc [2001] 1 Lloyd’s Rep. 416. 475. Godin v. London Assurance Co [1758] 1 Burr 489. 476. Boag v. Economic Insurance Co Ltd [1954] 2 Lloyd’s Rep. 581. 477. North British & Mercantile Insurance Co v. London, Liverpool and Globe Insurance Co [1877] 5 Ch D 569. See also O’Kane v. Jones (The Martin P) [2003] EWHC 3470 (Comm), [2004] 1 Lloyd’s Rep. 389. 478. Bovis Construction Ltd and Another v. Commercial Union Assurance Co plc [2001] 1 Lloyd’s Rep. 416. 479. See para. 3.123 above, where such clauses are considered in the context of double insurance.

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CHAPTER 4

H O N G K O N G L AW A N D P R A C T I C E Colin Wright1 and Caroline Thomas2

INTRODUCTION The Hong Kong legal system The constitutional framework 4.1 Hong Kong is a Special Administrative Region of The People’s Republic of China (“the PRC”). The unique nature of Hong Kong’s legal system arises from the fact that until 30 June 1997, Hong Kong was a colony of the United Kingdom. On 1 July 1997, sovereignty over Hong Kong was transferred to the PRC in accordance with the terms of the Sino-British Joint Declaration dated 19 December 1984. 4.2 The Joint Declaration gave effect to the doctrine known as “one country, two systems”. This doctrine has been enshrined in the Basic Law of the Hong Kong Special Administrative Region, which serves as Hong Kong’s mini-constitution. Article 5 of the Basic Law provides that: “The socialist system and policies shall not be practised in the Hong Kong Special Administrative Region, and the previous capitalist system and way of life shall remain unchanged for 50 years”. Thus, the formula effectively preserves the capitalist economic system and the existing legal structure in force in 1997 for a period of 50 years. Application of the common law 4.3 Article 8 of the Basic Law provides that: “The laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate legislation and customary law shall be maintained, except for any that contravene this Law, and subject to any amendment by the legislature of the Hong Kong Special Administrative Region”. This provision effectively ensures that the existing common law system will continue to apply in Hong Kong. 4.4 Shortly after the handover on 1 June 1997, Hong Kong’s new Court of Final Appeal confirmed that “in construing the provisions of the Hong Kong statute the courts would obviously follow the way the English courts have interpreted and applied the equivalent provisions of the English Acts, there being no circumstances relevant to the two different jurisdictions which might indicate that our courts could or should come to a different conclusion, when the same words are being construed”.3 4.5 The Hong Kong legislature is free to amend existing, or create new, legislation. Further, Hong Kong courts are expressly allowed by Article 84 of the Basic Law to follow 1. Barrister-at-Law, Hong Kong and England and Wales who would like to acknowledge the research and assistance of his pupil, Ms Jacqueline Lam. 2. Solicitor, Hong Kong and England and Wales. 3. The Bank of East Asia Ltd v. Tsien Wui Marble Factory Ltd (1999) 2 HKCFAR 349 at p. 360.

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precedents from common law jurisdictions. It is now clearly established that Hong Kong’s courts are free to follow decisions from common law jurisdictions other than the United Kingdom. Sources of Hong Kong law 4.6 As a common law jurisdiction, the laws of Hong Kong are to be found primarily in legislation and in cases decided by the courts. Ordinances passed by the Legislative Council and signed by the Chief Executive have a similar status to Acts of Parliament in other common law jurisdictions. Hong Kong’s courts follow a similar doctrine of stare decisis to that of other common law jurisdictions. According to this doctrine as applied in Hong Kong, lower courts are bound by decisions of the appellate courts on the same facts. Language 4.7 Article 9 of the Basic Law makes it clear that: “In addition to the Chinese language, English may also be used as an official language by the executive authorities, legislature and judiciary of the Hong Kong Special Administrative Region”.4 In addition to being an official language, Chinese is popular in Hong Kong as a commercial language. Court structure 4.8 The Court of Final Appeal is the highest appellate court in the Hong Kong Special Administrative Region. Following the handover of sovereignty in 1997, it replaced the Judicial Committee of the Privy Council in this role. 4.9 The High Court comprises the Court of First Instance and the Court of Appeal. The Court of First Instance has unlimited jurisdiction in both civil and criminal matters. The Court of First Instance has a number of specialist lists, each of which is presided over by a judge with particular expertise in the relevant area of the law. The District Court hears civil disputes of a value over HK$50,000 (approximately US$6,420) but not more than HK$1 million (approximately US$128,400). Practice and procedure 4.10 It will ordinarily be appropriate to commence an insurance claim in the Commercial List of the Court of First Instance. However, in cases in which the amounts at stake are less than HK$1 million, it would usually be appropriate to commence the action in the District Court. 4.11 In 2009, Hong Kong introduced extensive reforms to the administration of civil justice. These reforms drew on the Woolf reforms in England and Wales, although not all English reforms were adopted and the manner of implementation was different. Rather than adopting an entirely new code of civil procedure as had been done in England and Wales, the existing High Court Rules were maintained with selective amendments grafted onto them. 4. The Chinese text of the Marine Insurance Ordinance was authenticated under s. 4B(1) of the Official Languages Ordinance (Chapter 5 of the Laws of Hong Kong) by the Official Languages (Authentic Chinese Text) (Maritime Insurance Ordinance) Order (LN(C) 62 of 1996).

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Marine insurance in Hong Kong 4.12 The principal legislative source of the law of marine insurance in Hong Kong is the Marine Insurance Ordinance.5 The Ordinance is, in all material respects, identical to the UK’s Marine Insurance Act 1906.6 However, there are a number of minor differences between the Ordinance and the Marine Insurance Act 1906. The definition of “action” in section 90 of the Ordinance expressly includes a “suit”. Section 92 of the Ordinance has the effect of making it a crime to engage in marine insurance as a form of gambling.7 The potential penalties are imprisonment for up to 6 months, a fine of up to HK$2,000 together with the forfeiture of the proceeds of the contract.

Marine insurance practice in Hong Kong 4.13 The Hong Kong market for cargo insurance reflects Hong Kong’s position as a vital trading port for Mainland China. The vast majority of marine cargo insurance policies underwritten in Hong Kong continue to incorporate the 1982 version of the Institute Cargo Clauses (A) rather than the revised clauses introduced in the London market in January 2009 and in Japan in July 2009. The Institute Cargo Clauses 1982 and 2009 provide that the insurance is subject to English law but are silent on the question of jurisdiction. Some insurers in the Hong Kong market will include an express jurisdiction clause in the policies they issue. Other insurers prefer not to incorporate an express jurisdiction clause into their policies and hence, in the event of a disputed claim, proceedings tend to be brought either in the jurisdiction in which the goods were shipped or at the place of destination.8 4.14 The Hong Kong insurance market also uses clauses in the Chinese language developed by The People’s Insurance Company of China (“PICC”) in association with the broker Willis based on the Institute Cargo Clauses 1963. These clauses are considered in the PRC chapter.9

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE Utmost good faith: non-disclosure and misrepresentation Utmost good faith 4.15 Under Hong Kong law, a contract of marine insurance is a contract based on the utmost good faith. If the utmost good faith is not observed by either party, the contract may 5. Chapter 329 of the Laws of Hong Kong (9 June 1961). 6. Although s. 1 of the Ordinance constitutes an additional section, which states that it may be cited as the “Marine Insurance Ordinance”, by merging ss. 1 and 2 of the MIA 1906, the draftsman of the Ordinance has conveniently brought the section numbers into line with those in the English Act. Compare the position in Australia, where it is necessary to add six sections to the English Act, see Chapter 7, below (Australian law) at para. 7.4 fn. 9. 7. This section enacts in Hong Kong the Marine Insurance (Gambling Policies) Act 1909 (UK). There have never been any prosecutions under this Act in England and its repeal has recently been proposed by the English Law Commission, see Chapter 3, above (English law) at para. 3.14 fn. 77. 8. The legal position as to jurisdiction is dealt with in Chapter 2 (law and jurisdiction) at para. 2.25 et seq. The applicable law is considered at para. 2.55 et seq. 9. At para. 13.23 et seq.

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be avoided by either party. This principle, which is enshrined in section 17 of the Marine Insurance Ordinance, is identical to that under English law.10 As is the case under English law, the principle of utmost good faith as applied in Hong Kong gives rise to two requirements. The first requirement is that the assured must disclose to the insurer before the contract is concluded every material circumstance that is known to the assured: section 18(1), Marine Insurance Ordinance. The second requirement is that every material representation made by the assured or his agent to the insurer before the contract is concluded must be true: section 20(1), Marine Insurance Ordinance. As is also the case under English law, the obligations in relation to disclosure cease when the contract is concluded.11 Materiality and inducement 4.16 The Hong Kong courts apply the same test as that applied under English law in relation to materiality and inducement. The test is whether the matters not disclosed or misrepresented were material and whether they induced the insurer in fixing the premium or in deciding to accept the risk. The insurer must show, first, that the facts not disclosed would have been material in that they would have influenced the judgment of a prudent insurer and, second, that the actual underwriter who underwrote the risk was induced to accept the risk by reason of the nondisclosure or misrepresentation. The first matter that the insurer must show – materiality – is relatively easy to establish. All that the insurer must show is that the information would have influenced the judgment of a prudent insurer.12 4.17 The second matter that the insurer must show – inducement – is more difficult to establish. In Hong Kong Nylon Enterprises Ltd v. QBE Insurance (Hong Kong) Ltd,13 Stone J accepted as correct the decision of the House of Lords in Pan Atlantic Insurance Co Ltd v. Pine Top Co Ltd14 and stated that “before an insurer can avoid a contract for nondisclosure of a material circumstance it must be shown that actually he had been induced by such non-disclosure to enter into the policy on the relevant terms”.15 The cargo covered by the policy was a complex plastic-moulding machine and the insurers alleged that the assured had failed to disclose the fact that the machine had previously been exhibited at a trade fair and was therefore not new. On the evidence, Stone J held that this matter had in fact been disclosed to the insurer. He further held that the insurer had failed to discharge the burden of showing that the alleged non-disclosure would have impacted on its underwriting decision. The insurer had therefore failed to establish the necessary inducement. 4.18 In Hongkong & Shanghai Insurance Co Ltd v. Hong Sun Chun Josiah,16 the question was whether the insurer was entitled a declaration that it was entitled to avoid the insurance on the ground of material non-disclosure. The insurance, if valid, would have covered any motor vehicle that was either the property of the proposer or in his custody or control whilst bearing a particular trade registration number plate (“the T-plate”). The assured lent his T-plate to a friend, a car salesman, who needed a T-plate to drive second-hand 10. See Chapter 3, above (English law) at para. 3.5. 11. See Chapter 3 at para. 3.6 above. 12. See Chapter 3 at para. 3.7 above. 13. (17/01/2003, HCCL 46/1999), 2003 WL 17595 (CFI), [2003] HKEC 199. 14. [1995] 1 AC 501 (HL). 15. See para. 4.27. 16. (22/06/2000, HCMP 1893/2000), 2000 WL 33315883 (CFI), [2000] HKEC 696.

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vehicles for demonstration purposes but did not have the necessary trade licence. At the time of the accident giving rise to the claim, the T-plate was found in the boot of a car being driven by a third person. The insurer sought to avoid the policy on the ground that the assured had failed to disclose the fact that he had been lending his T-plate to someone else who was neither his employee nor under his control and the T-plate was being used for vehicles with which the assured had no connection and which he could not control. Yuen J stated that: “The point of the matter was that the T-Plate which was the basis of the insurance, would be out of the proposer’s control and in the hands of person and for the purposes about whom neither the proposer nor the Insurer knew anything”.17 On the evidence, the judge held that the insurer was entitled to avoid the policy since the insurer had satisfied the applicable test, which she formulated in the following terms18: “It is not enough for an insurer to prove a material non-disclosure. To get the benefit of this subsection, he must prove that the policy in question was obtained by that non-disclosure, in other words, he must prove that, but for that non-disclosure, the contract which was obtained would not have been obtained. It is a material averment in an action for rescission based on misrepresentation to aver and to prove that the misrepresentation has been relied upon. So here, the insurer has to satisfy me that [the assured] got a contract which he would not have got but for his non-disclosure.”

Formalities, insurable interest and illegality Formalities 4.19 The Marine Insurance Ordinance imposes a number of formal requirements. First, the policy must specify the name of the assured or someone effecting the insurance on his behalf: section 23(1), Marine Insurance Ordinance. Second, the policy must be signed by or on behalf of the insurer: section 24(1), Marine Insurance Ordinance. Third, the subject matter of the insurance must be designated with reasonable certainty: section 26(1), Marine Insurance Ordinance. 4.20 Section 22 of the Marine Insurance Ordinance provides that a contract of marine insurance is inadmissible as evidence unless it is embodied in a marine policy. The effect of this provision is that, if an insurance contract does not comply with the formalities in the Ordinance, its terms cannot be proved in court with the result that the claim under the contract would fail. There have been several Hong Kong cases where insurers have attempted to rely on this section. 4.21 In Great Northern Shipping Co Ltd v. American International Assurance Co Ltd,19 a case decided in 1952 when the Stamp Duty Ordinance still required policies of insurance to be stamped, a document clearly marked “Temporary Cover Note” had been issued by the insurers but was not stamped. After rectification of this cover note to correct certain inaccuracies, the question arose whether it could be received in evidence so as to allow a claim to be brought. Williams J held that20: “Should the Collector [of Stamp Duty] give special leave for stamping, the cover note becomes then admissible in evidence and the plaintiffs would be entitled to recover on it either as a policy of sea or marine insurance or on the alternative ground in equity.” 17. At para. 19. 18. At para. 13. 19. (1952) 36 HKLR 267. 20. At p. 287.

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4.22 A more recent case concerning section 22 of the Marine Insurance Ordinance was the District Court case of Neville Delmas Theaker v. Sun Hung Kai Insurance Co Ltd.21 The assured had shipped a brand new pleasure vessel from the United Kingdom to Hong Kong for his personal use. As a matter of local Hong Kong laws and regulations, pleasure vessels require registration and licensing in Hong Kong. However, as the pleasure vessel had been purchased in England, the assured tried to register her in England first and obtain a Hong Kong registration based on the English registration. The registration of the pleasure vessel could not be completed in England due to a lack of information from the builders. Meanwhile, the assured was able to obtain hull insurance in Hong Kong. Thereafter, but before the assured managed to register the vessel, she was damaged during a typhoon that broke her free from her moorings and threw her onto the rocks. The insurer sought to rely on the provisions of the Marine Insurance Ordinance prescribing formalities required of a marine insurance policy. The judge considered the various documents recording what was agreed between the parties (including a proposal form, cover note and a debit note) in order to decide whether the requirements of sections 22, 23, 24 and 26 of the Marine Insurance Ordinance had been complied with. The judge held that the proposal form (which had been initialled by the insurer) contained sufficient details (name of the assured, signature by the insurer and reasonable designation of the subject-matter) so as to comply with sections 23, 24 and 26 of the Marine Insurance Ordinance. In respect of section 22, the judge agreed that stamp duty had been abolished in both the United Kingdom and in Hong Kong and that at all material times there was no obligation to stamp any policy or any restriction on admitting the same in evidence pursuant to the Stamp Duty Ordinance. Insurable interest 4.23 Section 4 of the Marine Insurance Ordinance provides that where the assured has no insurable interest, the contract of marine insurance is void. Section 5 of the Marine Insurance Ordinance provides that “every person has an insurable interest who is interested in a marine adventure”. In recent years, the Hong Kong courts have not looked favourably on attempts by insurers to deny liability on the ground that the claimant does not have an insurable interest. In Hong Kong Nylon Enterprises Ltd v. QBE Insurance (Hong Kong) Ltd,22 it was argued by the insurer that the assured had ceased to have an insurable interest in the goods by the time of the loss. The assured had been a cost, insurance and freight (“CIF”) seller of the goods and the bill of lading had been endorsed to the buyer and transferred by the time of the loss. In anticipation of this argument, the buyer was named as the second plaintiff. Stone J held that a CIF seller retained an insurable interest in the goods even upon having endorsed the bill of lading to the purchaser and having dispatched the goods for delivery. Stone J stated as follows23: “In my view there is nothing in these circumstances which smacks of wagering, and I have little hesitation in finding that this purely technical objection as to a lack of insurable interest on the part of the 1st plaintiff is not well-founded and fails.”

21. Unreported, (19/06/1984, DCCJ 10354/1983). 22. [2003] HKEC 199. 23. At para. 72.

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Stone J considered the position on the basis that the above conclusion was wrong. The insurer had argued that the policy had not been validly assigned to the second plaintiff. He stated as follows24: “If this conclusion be wrong, I am inclined to agree with the alternative contention of [Counsel] that if the 1st plaintiff indeed had divested itself of any insurable interest in the machine, then under a CIF contract Hong Kong Nylon must have contracted to provide an insurance policy for the value of the cargo, and thus expressly or impliedly must have agreed with the 2nd plaintiff purchaser to assign the ‘larger’ policy. A policy can be assigned after loss (s. 50, 1906 Act), and in this situation of a prior agreement it thus remained open to the 1st plaintiff now to assign the policy to the 2nd plaintiff, Beijing Ha Ha which, by reason of the subsequent cancellation of the sales contract consequent upon the damage to the machine, and entry into a ‘Discharge Contract and Payment Agreement’ dated 26 January 1999, would then hold any sum recovered in this action on trust for the 1st plaintiff. I accept that possibly there may be consequential implications, for example in terms of costs, and that if the issue arose (which presently it does not) it would be necessary to hear the defendant on the point, but in principle I can see nothing wrong with this submission.”

4.24 In Kam Hing Trading (Hong Kong) Ltd v. The People’s Insurance Co of China (Hong Kong) Ltd,25 the claim was again brought in the name of the seller of the goods. The evidence established that for commercial reasons, the assured had released its buyer, Xiamen Xindeco, from the obligation to take up the shipping documents and pay for the cargo, despite the fact that the goods had been lost as a result of the sinking of the carrying vessel. The insurer sought to argue that the plaintiff had brought the loss upon itself by releasing the buyer from the obligation to pay the price. Stone J stated: “Admittedly the plaintiff chose to take the loss upon itself, which otherwise it could have insisted on passing on to Xiamen Xindeco, but in principle should this make a difference? A loss there undoubtedly was, and in the particular circumstances possibly the only arguable point thereby arising was one of locus, namely that Xiamen Xindeco and not Kam Hing Trading should have been named as plaintiff. As to this argument I am unsympathetic. Whilst I appreciate that it was the plaintiff’s choice to do what it did, and to let the Chinese buyer ‘off the hook’ and itself to absorb the loss occasioned by the marine peril, it makes no difference as to which entity is to be indemnified by the insurer, always assuming that it is otherwise legitimate that indemnification should be ordered; in any event, I do not consider in reality that this is a true ‘locus’ point, given that in these circumstances property in the logs had not passed to Xiamen Xindeco at the time when it had been released from its obligation under the documentary credit.”26

4.25 In Ali AH Saleh v. Falcon Insurance Co (Hong Kong) Ltd,27 the court applied the well-established principle that a director of a limited liability company ordinarily has no insurable interest in goods owned by the company of which he is a director. The policy was taken out by a director in his own name. He then commenced proceedings in his personal capacity, claiming to be the director of one of two companies (Harrytex and Challenger) that had bought cloth goods from a Hong Kong company for onwards sale to an Algerian company. The goods were shipped CIF from Wuhan, China, to Algiers and allegedly damaged due to water ingress into the container. Marine insurance had been purchased by the Chinese seller. District Judge Muttrie held that:

24. At para. 73. 25. [2010] 4 HKLRD 630. 26. At pp. 645–646, para. 70. 27. Unreported, (24/01/2003, DCCJ 6261/2002).

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“… there is nothing on the face of the insurance policies to show that Harrytex was contracting other than on its own behalf. Further, there is no evidence that the defendant was put on notice that Harrytex was or might be acting on behalf of another. So far as assignment to Challenger or the plaintiff is concerned, there is nothing on the face of the insurance policies to show assignment by indorsement or in some other customary manner, such as delivery, as required by s. 50 of the Marine Insurance Ordinance, Cap. 329 (‘the Ordinance’). The plaintiff argues that it is common knowledge within the industry than an insurance policy entered into by virtue of a C.I.F. contract is done so for the benefit of the purchaser and that the rights and benefits thereof will transfer to the purchaser once the goods have been paid for. If that is so, it is not pleaded. In any event it seems to me that there would have to be some form of assignment or agreement to assign and no such agreement is pleaded. The plaintiff’s claim to an interest in the policy as an assured or a director of Challenger seems strange. He could only obtain the interest himself by assignment, of which more below. If the policy was assigned to Challenger - and there is no evidence that it was or that there was an agreement to assign it - then his status as Challenger’s director would not give him an insurable interest. To have an insurable interest as defined by s. 5 of the Ordinance he would have to have a ‘legal or equitable relation to the marine adventure or to any insurable property at risk therein.’ But his status as director would not give him a legal or equitable interest in the company’s property; see Macaura v. Northern Assurance Co Ltd [1925] AC 619 where it was held that even a sole shareholder or creditor of a company had no insurable interest in the company’s sole asset.”28

Illegality and public policy 4.26 Section 41 of the Marine Insurance Ordinance provides that there is “an implied warranty that the adventure assured is a lawful one, and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner”. In ELAZ International Co v. Hong Kong & Shanghai Insurance Co Ltd,29 it was argued that, as the importer had not obtained the necessary import licences, the assured had failed to comply with the warranty implied by section 41 of the Marine Insurance Ordinance. On the evidence, Stone J held that it had not been shown that the assured was involved in any illegality and, accordingly, there was no breach of the implied warranty.

OPEN COVERS, POLICIES AND CERTIFICATES Open covers Modern open covers 4.27 The advantage of open cover is that it allows the assured to arrange insurance on a continuous basis. The use of open cover is relatively common in the Hong Kong market. In BC Enterprise Sdn Bhd v. Bank of China Group Insurance Co Ltd,30 the insurer argued that three valued marine cargo insurance policies issued during the currency of an open cover were not issued under the open cover but rather as separate facultative policies. It was argued on behalf of the insurer that in requesting a “cover note” rather 28. At paras 7, 8 and 9. 29. [2006] WL 496756 (CFI), [2006] HKEC 825, (10/05/2006, HCCL 16/2003). 30. [2003] WL 1953714 (CFI), [2004] 1 HKLRD 20, [2003] HKEC 712[2003] HKEC 712.

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than making declarations under the open cover, the assured had effectively given the insurer the choice either to insist that the assured should adhere to the existing open cover and make a declaration thereunder or to “go along” with the insured’s request for a cover note, which, in terms of legal analysis, could be regarded as an offer to enter into an insurance contract outside the existing open cover framework. Stone J rejected this argument. He noted that as the open cover in question did not make any stipulations as to the form of declaration required, there was no reason why a fax requesting the issuance of polices in terms of details then given could not be regarded as a relevant declaration.

WARRANTIES, EXCLUSIONS AND OTHER CONDITIONS Warranties 4.28 As a matter of Hong Kong law, a warranty in marine insurance is a promise by which the assured (1) undertakes that some particular thing shall or shall not be done or (2) that some condition shall be fulfilled or (3) affirms or negatives the existence of a particular state of facts: section 33(1), Marine Insurance Ordinance. The Marine Insurance Ordinance imposes a number of implied warranties, including a warranty in voyage policies that the ship shall be seaworthy at the commencement of the voyage: section 39(1), Marine Insurance Ordinance. In practice in the Hong Kong insurance market, the parties usually adopt the Institute Cargo Clauses, which modify the assured’s obligation such that there is an exclusion only where the vessel is unseaworthy at the time of loading to the knowledge of the assured.31 4.29 In the BC Enterprise case,32 Stone J stated, obiter, that a warranty that the carrying vessel was ISM Code compliant would be applicable only to vessels for which compliance with the ISM Code was actually mandatory. At the relevant time, the ISM Code did not apply mandatorily to the vessel in question. Stone J stated: “This point is not an easy one, but I see merit in the argument that the term ‘compliance’ (in grammatical terms the word used obviously should have been ‘compliant’) connotes obedience to applicable extrinsic rule, and that absent any such internationally-sanctioned requirement of obedience to this Code, a general cargo vessel such as the ‘Rui Xiang’ should not, and is not, to be regarded as being in a state of ‘non-compliance’ with the ISM Code. I bear in mind also that this term is expressed as a warranty, which under s. 33 of the Marine Insurance Act is a condition requiring exact compliance, whether or not material to the risk, and thus I accept that the court should be astute not to construe this warranty in a way which does damage to its clear commercial purport, and the manner in which it would be understood by commercial men; indeed this was the clear understanding between the commercial parties in the instant case, wherein the specific terms of the 1999 and 2000 Open Covers each made it clear, albeit in a slightly different manner, that the ISM Code warranty was to have no application to general cargo vessels, which at that time accurately represented the position in terms of the international applicability of the ISM Code.”33

31. ICC, 1/1/82 cl. 5.1 and ICC, 1/1/09 cl. 5.1.1, and see Chapter 3 (English law) at para. 3.55, above. 32. [2003] WL 1953714 (CFI), [2004] 1 HKLRD 20, [2003] HKEC 712[2003] HKEC 712. 33. At p. 30, para. 44D–H.

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4.30 In Hong Kong Nylon Enterprises Ltd v. QBE Insurance (Hong Kong) Ltd,34 the insurer argued that the assured was in breach of a warranty that provided: “Warranted that this is a container load shipment”. The insurer argued that this was a promissory warranty within the meaning of section 33(3) of the Marine Insurance Ordinance, which had to be exactly complied with whether or not material to the risk, with the attendant sanction that if it is not complied with the insurer was discharged from liability from the date of the breach of warranty. The assured argued that the warranty was ambiguous and that the word shipment could mean the act of shipping the goods on board or merely a consignment of goods intended for shipment. It was argued that the clause was to be construed contra proferentem and that on its true construction it meant only that the goods had to be in containers at the time of inception of the risk. It was further argued that, on this construction, the terms of the warranty had been satisfied. Stone J did not accept this argument and interpreted the warranty as requiring the goods to be shipped in a container without any temporal limitation to the moment of inception of risk. The assured advanced an alternative argument based on the terms of clause 8.3 of the Institute Cargo Clauses (A), which provides that the insurance shall remain in force: “during delay beyond the control of the Assured, any deviation, forced discharge, reshipment or transshipment and during any variation of the adventure arising from the exercise of a liberty granted to shipowners or charterers under the contract of affreightment”. It was also argued that this provision was essentially a “held covered” provision, so that if the event causing a prima facie breach of warranty was the exercise of a liberty by the carrier, the insurance remained in force. Stone J agreed: “I accept the contention that the breach of warranty, which took place without the knowledge or instruction of the [assured], occurred pursuant to the exercise of a liberty granted to the shipowner, and that the insurance thus remained in place as the breach was one within the parameters contemplated by Clause 8.3 of the [Institute Cargo Clauses] (A)”. 4.31 In the ELAZ case,35 the insurer argued that the policy, which was issued “subject to full container load”, was, as a result of this wording, subject to a warranty that the goods would at all times be in a container. Stone J considered that this wording meant that “it would be these goods, and these goods alone which would be in a container, and that there would be no intermingling with other shipments”.36 He did not accept that the wording created a warranty that there could never be transhipment between containers (which, in fact, had happened in that case). Accordingly, the insurer could not rely on the breach of the alleged warranty as a defence.

ALL RISKS The meaning of “all risks” 4.32 The usual practice in the Hong Kong cargo insurance market is for the insurance to be provided on terms that it covers “all risks”. The expression “all risks” is a term of art that bears the same meaning under Hong Kong law as under English law.37 34. (17/01/2003, HCCL 46/1999), 2003 WL 17595 (CFI), [2003] HKEC 199. 35. 2006 WL 496756 (CFI), [2006] HKEC 825, (10/05/2006, HCCL 16/2003). 36. Paragraph 134. 37. For the English law position, see Chapter 3 at para. 3.34 et seq., above.

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Limitations and exclusions on all risks Unseaworthiness and unfitness 4.32.1 As indicated above,38 section 39(1) of the Marine Insurance Ordinance provides that there is an implied warranty in a voyage policy that the vessel shall be seaworthy at the commencement of the voyage. The strictness of this rule is, in general, modified by the adoption of the Institute Cargo Clauses, which only exclude losses caused by unseaworthiness where the assured is privy to the unseaworthiness at the time of loading.39 The Institute Classification Clause 4.33 The Institute Classification Clause requires the cargo to be carried only on board vessels classed with an approved classification society.40 The fact that a vessel is classed by an approved classification society provides evidence of the seaworthiness of the vessel. There have been several cases in Hong Kong in which different versions of the Institute Classification Clause have been considered. In Nam Kwong Medicines & Health Products Co Ltd v. China Insurance Co Ltd and The People’s Insurance Co Ltd,41 the cargo was loaded on board a “phantom ship”,42 Pacifica. The discharge port for the cargo was intended to be Beihei in the PRC. However, Pacifica never arrived and indeed was never seen again. Pacifica was not classed with an approved classification society and, on the evidence, Stone J held that there was no possibility that a prudent insurer would have been prepared to underwrite this risk at a commercial rate of premium. Thus, Stone J decided that the “held covered” provision did not apply. The insurer was entitled to avoid liability on this basis alone. Stone J accepted the underwriter’s evidence that she had been concerned by the fact that she could not find a Lloyd’s Registry entry pertaining to the vessel and had inserted an Institute Classification Clause to deal with this issue. He rejected the assured’s suggestions first that the clause had been introduced by unfair dealing and inequitable conduct and second that by its very nature the Institute Classification Clause could have no sensible place in facultative insurance. 4.34 In the Kam Hing Trading case,43 a cargo of Malaysian round logs was shipped from Sandakan, Malaysia, on board Worldwide Shanghai. After Worldwide Shanghai sank having encountered heavy weather, the assured brought a claim against the defendant underwriters who rejected the claim on the basis that44: “The relevant Marine Cargo Open Cover and Marine Cargo Policy are subject to the Institute Classification Clause 01/01/2001. It is clear from the relevant documents provided by the Insurer that the carrying vessel MV ‘Worldwide Shanghai’ was not an approved vessel and did not conform to the 38. At para. 4.28. 39. ICC 1/1/82, cl. 5.2 and ICC 1/1/2009, cl. 5.3. In terms of hull insurance, the rule regarding voyage policies is illustrated by Yeung Kong Yung The Young Shing Insurance and Investment Co Ltd (1921) WL 18908 (SC), (1921) 16 HKLR 34, where the general rule was applied, with the court holding that “In every voyage policy, as this is, there is an implied warranty that the vessel is seaworthy, that she is in a reasonably fit state as to repairs, equipment, crew and all other respects to encounter the ordinary perils of the voyage assured at the time of sailing. If it is in fact a condition precedent to the insurer’s liability for any loss incurred in the course of the voyage”. 40. Different versions of the Institute Classification Clause have adopted different methods of defining the classification societies that are approved. 41. [2002] 2 Lloyd’s Rep. 591. 42. A ship that disappears on voyage only to assume a new identity, thereby facilitating the theft and onward sale of her fraudulently acquired cargo. 43. [2010] 4 HKLRD 630. 44. At p. 637, para. 20.

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requirements of the Institute Classification Clause 01/01/2001. Further or alternatively, the Insured have failed to promptly notify the underwriters of that abovementioned shipment of cargo was carried by a non-approved vessel, as was required by the Institute Classification Clause 01/01/2001.”

The rationale for the rejection was that Worldwide Shanghai had been classed by the International Register of Ships, which was neither a classification society listed in the Institute Classification Clause 1/8/97 nor a member of the International Association of Classification Societies (“IACS”) (the alternative requirement set out in the Institute Classification Clause 1/1/01). 4.35 The assured had declared the cargo particulars as well as the vessel’s name to insurers (via the broker) one day after the vessel sailed whereupon insurers issued a specific marine cargo policy (referring to Institute Classification Clause 1/8/97 rather than the 1/1/01 version as per the open cover45). Thus, the assured argued that the insurers could easily have looked up the vessel and checked her class before issuing the policy. The insurer conceded that upon receiving declarations, it was their practice to look up the vessels using Shipfinder Online (a service provided by the Lloyd’s Register) to determine the age of a vessel. However, the insurer claimed, and Stone J accepted, that they did not check each vessel’s class. On this basis, Stone J refused to find that the insurer had actual or imputed knowledge of the vessel’s class at the time of issuing the policy, it not being a matter which “an insurer in the ordinary course of his business as such ought to know” within the meaning of section 18(3)(b) of the Marine Insurance Ordinance. 4.36 In his judgment, Stone J referred to The Sirena I, Everbright Commercial Enterprises Pte Ltd v. AXA Insurance Singapore Pte Ltd,46 in which the Singapore Court of Appeal dealt with an earlier version of the Institute Classification Clause, namely the Institute Classification Clause of 13/4/92. The vessel, Sirena I, had disappeared with her cargo of logs and subsequently it was discovered that there was no current record of the vessel, which had not been registered in Lloyd’s Register of Ships. The Singapore Court of Appeal held that where an approved vessel was declared by the assured, underwriters were obliged to accept it for the purpose of insurance. However, the underwriters were under no obligation to inform the assured that the vessel declared did or did not fall within the parameters of the Institute Classification Clause; the responsibility rested with the plaintiff to ensure that the vessel declared was one which could, at least, fall within the scope of the ‘held covered’ clause. In other words, in the context of a marine open cover, it was the assured that had the duty to ensure that the vessel complied with the Institute Classification Clause, precisely because the insurer was agreeing to automatic cover in advance. Thus, Stone J held: “I reject the plaintiff’s submission that the legal/evidential ‘burden’ of discovering the non-compliant class of the vessel lay on the insurer, which in light of such information as it may then discover of its own volition then has to evaluate whether, and upon what terms, it is going to assume the increased risk, just as I reject the argument that the formal issuance of a cargo policy effectively is conclusive of the insurer’s acceptance of the situation and/or that by such issuance a ‘non ICC classed’ vessel thereby is, in effect, somehow transmuted to an ICC/01 ‘approved vessel’.” 45. The defendant insurer pleaded, by way of counterclaim, a prayer for rectification of the conditions of the cargo policy to rectify reference therein of Institute Classification Clause 1/8/97 to that of Institute Classification Clause 1/1/01 and at the conclusion of the case, counsel agreed that the reference to the Institute Classification cl. 97 version clearly was in error, and hence the reference in the policy should be to the Institute Classification Clause dated 1 January 2001, which was the version referred to in the open cover. 46. [2001] 2 SLR 316.

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DURATION OF THE INSURANCE The Transit Clause 4.37 There have been a number of important decisions in Hong Kong on the Transit Clause in the Institute Cargo Clauses47 dealing with the ordinary course of transit48 and termination of transit in the context of the election to store goods out of the ordinary course of transit.49 Similar points on the construction of the clause have also been considered by the Australian courts in a line of cases, and there has also been one significant case in the South African courts. As the decisions of the Australian and South African courts were much relied upon in Hong Kong, the Hong Kong decisions on the construction of the Transit Clause are considered together with the Australian and South African cases in the comparative law chapter.50 Change of voyage The Change of Voyage Clause 4.38 Where the voyage contemplated by the insurance never commences, the insurance cannot attach, even if the assured is wholly innocent of any wrongdoing. In the case of George Kallis (Manufacturers) Ltd v. Success Insurance Ltd51 (decided by the Judicial Committee of the Privy Council on appeal from Hong Kong), a cargo of denim fabric was shipped from Hong Kong to Cyprus aboard the vessel Ta Shun and insured under a warehouse-to-warehouse policy. The bill of lading under which the bales of denim were carried named the carrying vessel as being Ta Shun, but the goods were in fact shipped on Ta Hung and transhipped in Taiwan to the vessel Intellect. They were subsequently destroyed by water used to quench a fire that occurred aboard Intellect off Singapore. The assured prevailed at first instance on the basis that the risk had attached under the warehouse-to-warehouse clause52 when the goods commenced their inland transit, so it was irrelevant that they were shipped aboard a different vessel from that contemplated in the insurance. However, this judgment was set aside by the Court of Appeal in Hong Kong and the Privy Council upheld the Court of Appeal’s decision on the basis that “the risk never attached because the insured adventure was the carriage of the goods from Hong Kong to Limassol on the Ta Shun and since that voyage never took place, the risk never attached i.e. the goods were not on risk when actually totally lost”.53 While rendering the decision, Lord Roskill added that the judges had felt great sympathy with the buyers who had clearly been defrauded by the company that had arranged the sea carriage. 47. ICC, cl. 8. 48. Wunsche Handelsgesellshaft International GmbH v. General Accident Insurance Asia Ltd [2002] WL 2729 (CFI) 423; Pope’s International (HK) Ltd v. National Insurance Co Ltd, Unreported, (01/06/2000, HCCL 194/1997). 49. Miruvor Ltd v. National Insurance Co Ltd appealed to the Court of Appeal, [2003] HKEC 237, [2003] WL 17634 (CA); ELAZ International Co v. Hong Kong & Shanghai Insurance Co Ltd, [2006] WL 496756 (CFI), [2006] HKEC 825, (10/05/2006, HCCL 16/2003) and Anbest Electronic Ltd v CGU International Insurance PLC [2009] HKEC 6, [2009] WL 1669 (CA), on ICC, cl. 8.2 (forwarding to another destination). 50. See Chapter 15 at paras. 15.36 to 15.50 below. 51. [1988] 1 HKLR 13. 52. ICC (All Risks) 1/1/63, cl. 1, under which the “insurance attaches from the time the goods leave the warehouse…”, see now ICC 1/1/82 (A),(B) and (C) and 1/1/09, cl. 8. 53. At p. 17A.

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4.39 Section 44 of the Marine Insurance Ordinance provides that: “where the destination is specified by the policy, and the ship, instead of sailing for that destination, sails for another destination, the risk does not attach”. In Nam Kwong Medicines & Health Products Co Ltd v. China Insurance Co Ltd,54 the cargo was loaded aboard Pacifica, which was a “phantom ship”, whose owners/operators had formed the intention, prior to loading the cargo, to steal it. Stone J held that it followed, as a matter of logic, that she had sailed for a destination other than the intended destination under the policy and that section 44 of the Marine Insurance Ordinance was applicable, despite the existence of a clause in the insurance policy, which incorporated the Institute Cargo Clauses 1/1/82, which provide that “the insurance attaches from the time the goods leave the warehouse … for the commencement of the transit”.55 In support, the following decisions were cited: the Kallis case,56 as described above,57 Simon Israel v. Sedgwick58 and The Salem.59 Stone J held that as no risk attached, the insurers were not liable for the resulting loss. The “phantom ship” problem is addressed in the Institute Cargo Clauses of 2009 in clause 10.2 9 (Change of Voyage), which largely neutralises some of the unfortunate effects of section 44 to take account of the authorities cited by Stone J,60 including this case itself, bearing in mind that phantom ship frauds “are a phenomenon well known in Far East shipping circles”.61 It has been said that the fact that the 2009 Clauses are already in widespread use is “no doubt in part because of this protection afforded against ‘phantom ship’ losses”,62 but it seems that assureds in Hong Kong will continue to be faced with the harsh effects of section 44 of the Marine Insurance Ordinance unless the Hong Kong insurance market adopts the 2009 Institute Cargo Clauses.63

CLAIMS AND LOSSES Claims Notification of loss: limitation of action 4.40 Under Hong Kong law, the time limit for bringing an action on a marine insurance claim is six years from the date of loss: section 4(1)(a), Limitation Ordinance (Cap. 347). 54. 2003 WL 17645 (CFI), [2003] 2 HKLRD 345, [2003] HKEC 248, (13/11/2002, HCCL 27/1999). 55. ICC 1/1/82, cl. 8.1. 56. [1985] 2 Lloyd’s Rep. 8. 57. At para. 4.38. 58. [1893] 1 QB 303. 59. [1982] 1 Lloyd’s Rep. 369. 60. See Chapter 3 (English law) at para. 3.86, above, where the amendments to the ICC are outlined and see J. Dunt and W. Melbourne, “Insuring Cargoes in the New Millennium; the Institute Cargo Clauses 2009”, in R. Thomas (ed.), The Modern Law of Marine Insurance, 2009, volume 3, Informa, Chapter 6 at para. 6.103 et seq. for a detailed examination of the position. 61. Nima SARL v. The Deves Insurance Public Co Ltd (The Prestrioka) [2003] 2 Lloyd’s Rep. 327 (CA) per Potter J at p. 339, para. 10. 62. J. Gilman and R. Merkin, Arnoud’s Law of Marine Insurance and Average, First Supplement, 2011, Sweet & Maxwell, at paras 13 to 17. 63. The Hong Kong insurance market has yet to adopt the 2009 Clauses as they provide wider cover in a number of respects, including cover for the “phantom ship” losses described in the text, and more extended transit cover. Seemingly, insurers in Hong Kong have demanded a higher premium for the additional cover in the 2009 Clauses, which assureds are not prepared to pay. In the London insurance market, brokers clauses added to the ICC 1982 were already providing much of the additional cover so it is understood that no additional premium was required in the London market when the 2009 version of the ICC was introduced.

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As is the case with the equivalent legislation in England and Wales, the Limitation Ordinance is a procedural provision that bars the bringing of legal proceedings in Hong Kong but does not extinguish the claim. Proof of loss 4.41 In Hong Kong, the plaintiff bears the burden of establishing his claim on the balance of probabilities. As is the case in England and Wales, under an all risks policy, it is not necessary to show which particular peril operated.64 It is sufficient if the assured presents evidence reasonably showing that the loss was due to a casualty.65 Interest 4.42 In Hong Kong, it is customary in marine insurance matters for interest to be awarded at a rate of 1% or 2% over the prevailing best lending rate. The rationale for such an award of interest is that it compensates the successful party for the notional cost of borrowing a sum equivalent to the amount that has been wrongfully withheld from him. Interest is generally awarded from the date on which the court determines the payment should have been made. Costs 4.43 As in England, the general rule is that costs follow the event. However, the Hong Kong courts are entitled to take into account a variety of factors in exercising their discretion as to costs, such as the parties’ behaviour and whether the parties engaged in mediation. Recoverable expenses Sue and labour 4.44 In Moussi H Issa NV v. Grand Union Insurance Co Ltd,66 the Hong Kong Court of Appeal considered whether a bailee clause was a warranty within the meaning of section 33 of the Marine Insurance Ordinance. The clause provided: “It is the duty of the Assured and their Agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a loss and to ensure that all rights against carriers, bailees, or other third parties are properly preserved and exercised”.67 The claim related to the loss of part of the cargo, apparently due to pilferage, shipped from Hong Kong to Paramaribo, Surinam, South America. The loss was not discovered until after the cargo had been discharged from the ocean vessel and had been lying in the customs warehouse for some 10 days. The question whether the clause was a warranty within 64. See Chapter 3 (English law) at para. 3.36 above. 65. Op. cit. 66. [1984] HKLR 137. 67. ICC 1/1/63, cl. 9, the Bailee Clause. See ICC 1/1/82 and 1/1/09, cl. 16, Duty of Assured.

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the meaning of section 33 of the Marine Insurance Ordinance was significant since, if it was such a warranty, a breach by the assured would provide the insurer with a complete defence. Obiter, the Court of Appeal held that the wording of the particular clause was not ambiguous and that it was a warranty within the meaning of section 33. However, the Court of Appeal held on the particular facts that there was no breach of the bailee clause since no prudent uninsured would have incurred the expense of instituting proceedings against the carrier. 4.45 A similar decision was reached in Miruvor Ltd v. National Insurance Co Ltd,68 where the Hong Kong Court of Appeal considered the defendant insurer’s argument that the assured was in breach of clause 16.1 of the Institute Cargo Clauses and section 78(4) of the Marine Insurance Ordinance. The insurer alleged that the assured had failed to take the necessary steps to prevent the unauthorised release of certain cargoes and that it was a consequence of such failure that the cargoes had been lost. The Court of Appeal concluded that the law is clear that a failure on the part of the assured to comply with clause 16.1 is not to be equated with a breach of warranty. In reaching this conclusion, the court applied Noble Resources Ltd v. George Albert Greenwood (The Vasso)69 and Strive Shipping Corporation and Another v. Hellenic Mutual War Risks Association (The Grecia Express).70 The Court of Appeal then held that it is not sufficient for insurers merely to show the failure of the assured to take reasonable steps to avert or minimise the loss: they have to go further and show that the failure to take the measures was the dominant cause for the loss. The cargoes were lost as a result of a theft perpetrated by the use of forged bills of lading. The insurers argued that the assured’s representative had at least a real reason to suspect that cargoes were being stolen and that he could have taken steps to prevent the loss of at least some of the cargoes. The measures that, according to the insurers, should have been taken involved the sending of telexes to prevent the unauthorised release of the cargoes. The Court of Appeal upheld the trial judge’s finding that the sending of the telexes would not have prevented the release of the cargoes. Therefore, the insurers had not established that the failure to take the measures was the dominant cause of the loss. 4.46 In Angela Maria Dias t/a Crowden Trading Corporation v. National Insurance Co Ltd,71 there was an insurance of a cargo of marble slabs imported to Hong Kong from Italy, five of which were damaged during the sea transit. The assured failed to bring a claim against the shipping company for damage to the five slabs and the insurers relied upon a breach of the Bailee Clause in the Institute Cargo Clauses (All Risks) 1/1/63, which imposes a duty on the assured to ensure that all rights against carriers are preserved and exercised. It was also asserted by the insurers that there was a duty to act promptly in this regard by virtue of the Reasonable Despatch Clause, which makes it a “condition” of the insurance that the “Assured shall act with reasonable despatch in all

68. [2002] HKEC 1033, [2003] HKEC 237. 69. [1993] 2 Lloyd’s Rep. 309, 313. 70. [2002] 2 Lloyd’s Rep. 88 at 162. 71. [1973–1976] HKC 21, (30/06/1973, HCA 2474/1972).

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72

circumstances within their control”. It was held that, by failing to act promptly and thereby leading the assured to believe that it was prepared to waive the irregularity of not claiming against the shipping company, or appointing a Lloyd’s agent, the insurer was estopped from raising a breach of the Bailee Clause as a defence to the assured’s claim.73 Partial loss: measure of indemnity Valued and unvalued policies 4.47 The vast majority of insurance policies issued in the Hong Kong market are “valued policies”: the insurers agree that, in the event of loss, they will indemnify the assured for a fixed sum. The fixed sum will generally be the CIF value of the cargo plus 10%. It is relatively rare in the Hong Kong market for “unvalued policies” to be issued. In a case of unvalued policies, the assured must establish his actual loss. This requires the assured to call evidence as to the value of the goods. 4.48 In Re Tai Sun Insurance & Banking Co Ltd,74 the Court of Appeal upheld a first instance decision rendered in respect of the amount payable by the liquidator of insurers of a profits policy (forming part of a hull policy). The agreed value of the profits had been declared as $20,000. However, it was clear that, before the vessel had become a total loss, she had already earned profits. By a majority, the Court of Appeal held that although the policy was an “agreed value” policy and there had been neither fraud nor wagering, the assured could recover no more than the relevant proportion of the agreed value. Wood J stated that “… on occurrence of a partial loss, the insurers must pay, as compensation, a portion of the sum assured – a portion to be ascertained”. In that case, time was thought to be one of the factors to use to calculate the amount payable.

SUBROGATION, DOUBLE INSURANCE AND RIGHTS OF CONTRIBUTION Subrogation Exercise of subrogation rights in practice 4.49 In Amoi Electronics Co Ltd v. Kin Cheung Transportation (Hong Kong) Co Ltd,75 the concept of insurable interest was revisited from a subrogation angle. The insurers, having paid out under an insurance policy in respect of a cargo of electronic components which were lost during transit, brought proceedings in the name of the assured against the bailee in whose custody the goods had been at the time of the loss. It was argued by the bailee 72. For the difference in views as to whether this clause is a warranty or merely a lesser term, see Chapter 3 (English law) at para. 3.88 fn. 339, above. 73. Contrast the position under English law, Chapter 3 at para. 3.26, above where a waiver by estoppel requires a clear representation by the insurer that he will not rely on the breach and reliance on that representation by the assured to his detriment. 74. (1920) 15 HKLR 80. 75. 2010 WL 7467 (DC), [2010] HKEC 235, (01/02/2010, DCCJ 3993/2008).

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that he had an insurable interest and was a co-assured under the policy and hence could not be sued. However, Deputy District Court Judge Chan rejected this argument stating that: “There was on the evidence clearly no mutual intention between the Plaintiff and the Defendant or anyone on its behalf that any insurance taken out by the Plaintiff should benefit the Defendant. On the contrary, both the Chinese Contract and the Insurance Policy, far from exonerating the Defendant from liability, clearly envisaged that the Defendant as carrier or bailee of the goods was to be liable for any loss and damage sustained in the course of delivery”. Contribution Contribution between insurers 4.50 In Tai Ping Insurance Co Ltd v. Tugu Insurance Co Ltd & Another,76 an action for contribution arose from the armed robbery of 5,965 pieces of mink skins while they were transported to Hong Kong from a factory in the PRC. Tai Ping, as cargo insurer paid the claim in full to its assured who was the owner of the skins. Having paid the claim, Tai Ping claimed a contribution from Tugu/General Accident who had issued a Goods in Transit Policy in favour of the bailee to whom the skins had been entrusted at the time of loss.77 Stone J held that there was double insurance, and that the plaintiff was entitled to claim a contribution from the defendant on the basis that: both policies covered the loss of goods by theft/robbery; both policies covered the same interest; both policies were in force at the time of the loss; and both the Tai Ping and the Tugu/General Accident policies were legally enforceable. 4.51 The more difficult question was how much the defendant insurers should be liable for. As Stone J explained, there are two main methods of calculating contribution between insurers.78 The first is the maximum liability method, based on the limits of each policy, which in this case were HK$1.5 million for the Tai Ping Policy and HK$4 million for the Tugu/General Accident Policy. The claim was for HK$1,492,500, so on this method Tugu/ General Accident together were liable for HK$1,085,454 (4/5.5 times HK$1,492,500). The second method is the independent liability method, where the liability of each insurer is considered independently in isolation as if the other policy did not exist. The claim for HK$1,492,500 was within the limits of both policies and both insurers were potentially liable for the full amount, so on this method they shared equally. The judge had no doubt that the independent liability method produced “a fairer, and on these particular facts, a more appropriate level of contribution”.79

76. [2001] HKEC 506. 77. It is clear from the judgment that this was a policy covering the goods in the possession of the bailee (and not merely the bailee’s liability), see p. 4, and see also the case of Hepburn v. Tomlinson [1966] AC 451, where similarly the goods were covered under such a policy and not merely liability for goods in transit. 78. For a consideration of these methods as well as the common liability method (not applicable to marine insurance), see J. Dunt and W. Jones, “Double Insurance”, Chapter 10 of Insurance Disputes, Mance, Goldrein and Merkin (eds), 2011, Informa at para. 10.37 et seq. 79. At p. 4.

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CHAPTER 5

S I N G A P O R E L AW A N D P R A C T I C E Corina Song1

INTRODUCTION Scope and structure of the chapter 5.0 Singapore was, until 1959, a British colony.2 Not unlike many other former British colonies, Singapore inherited the English common law tradition. The heavy influence of English common law in Singapore is therefore evident in areas such as contract, tort, trusts and equity. Some of the English statutes remain applicable in Singapore; in particular, as will be discussed later, the Marine Insurance Act 1906 (UK)3 regulates the law of marine insurance in Singapore. Following a brief description of sources of Singapore law, the Singapore judicial system and jurisdiction, we will consider the Singapore court’s approach to the various aspects of the law of marine insurance. The general body of English law described in Chapter 3 is applicable in Singapore. Where there are differences or additions in Singapore’s jurisprudence, these will be pointed out in the course of this chapter. Sources of Singapore law 5.1 In 1826, the Second Charter of Justice was enacted by the British Parliament to introduce into Singapore the common law of England including the principles and rules of equity, as well as English statutes enacted before 27 November 1826. 5.2 In 1878, the Civil Law Act4 was introduced in Singapore. Under section 5 of this Act, any question or issue which arises in Singapore with respect to the law of partnerships, corporations, banks and banking, principals and agents, carriers by air, land and sea, marine insurance, average, life and fire insurance and generally with respect to mercantile law; the law to be administered shall be the same as that administered in England at the corresponding period unless otherwise expressly provided for by any Singapore law. With the passage of time, the difficulty in determining which English statutes continued to apply in Singapore became increasingly apparent. Notwithstanding an amendment to section 5 of the Civil Law Act in 1979, which was an attempt to reduce the uncertainty as to its scope of application, the automatic reception of English commercial statutes into Singapore law remained difficult to apply. 1. Partner, Allen & Gledhill LLP, Singapore, who would like to acknowledge the research and assistance of her then practice trainee, Ms Li Fangyi. The author has included Malaysian cases, although Malaysia is a separate jurisdiction, at the request of the editor, and would like to acknowledge the assistance of Mr James David of Shaik David Raj, Kuala Lumpur in this regard. 2. Singapore became an independent state in August 1965. 3. 6 Edw 7, c 41. 4. (Cap. 43).

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5.3 In 1993, the Application of English Law Act5 was enacted and section 5 of the Civil Law Act was repealed. The objective of this new Act was twofold: first, to clarify the application of English law, particularly English statutes, as part of the law of Singapore. Secondly, it made Singapore’s commercial law independent of future legislative changes in the United Kingdom, changes that Singapore had no control over. 5.4 The Application of English Law Act expressly provides that the common law of England (including the principles and rules of equity), so far as it was part of the law of Singapore before 12 November 1993, shall continue to be part of the law of Singapore. Section 3 of the Application of English Law Act provides that the common law, however, shall continue to be in force in Singapore as long as it is applicable to the circumstances of Singapore and subject to such modifications as those circumstances may require. Section 4 of the Act, read together with the First Schedule, specifies which English enactments (in total or in parts), with the necessary modifications, apply or continue to apply in Singapore. The English Marine Insurance Act 1906 is listed in the First Schedule as an enactment to be applied in its entirety in Singapore, and is now the governing statute on marine insurance contracts in Singapore. Unless otherwise indicated, all section references in this chapter are to the Marine Insurance Act 1906. Judicial system 5.5 The Singapore judiciary is headed by the Chief Justice; currently, there are 18 Supreme Court judges, including the Chief Justice and three Judges of Appeal. From time to time, Judicial Commissioners may be appointed to the Supreme Court bench for a fixed term and they have the same powers and enjoy the same immunities as a Supreme Court Judge. 5.6 The Supreme Court of Singapore is made up of the Court of Appeal and the High Court. The Singapore Court of Appeal sits permanently. It hears appeals, both civil and criminal, against the decisions of both the High Court and the subordinate courts. In order to avoid protracted interlocutory applications that lead to delay and wastage of the Court of Appeal’s resources while still ensuring a fair litigation process, the types of interlocutory orders that can be appealed against are restricted.6 The Court of Appeal is the highest court in Singapore since the further tier of appeals to the Privy Council in England was abolished in 1994. 5.7 In February 2002, the Admiralty Court, the first specialist commercial court to be introduced in the Supreme Court of Singapore, was established. The objective of establishing the Admiralty Court was to reinforce Singapore’s status as a leading shipping hub. There is no one permanent judge assigned to the Admiralty Court. Various judges, comprising former shipping law practitioners and a former academic, take turns to sit in the Admiralty Court. 5.8 The subordinate courts are made up of the district court, magistrates courts, juvenile courts, coroner’s courts and the small claims tribunals.7 Although there are four official languages in Singapore, namely, Malay, Mandarin, Tamil and English, the English language is used as the dominant language in both the Supreme Court and the subordinate courts. 5. (Cap. 7A, 1994 rev. edn Sing.). 6. Supreme Court of Judicature Act (Cap. 322, 2007 rev. edn), s. 34(1)(a) and the Fourth Schedule (nonappealable orders); s. 34(2)(d) and the Fifth Schedule (orders appealable only with leave). 7. Subordinate Courts Act (Cap. 321, 2007 rev. edn Sing.), s. 3.

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Costs 5.9 In Singapore, the general rule that cost follows the event is applied unless there are special circumstances for disallowing the successful litigant his costs. The award of costs is essentially a discretionary power. In exercising its discretion, the Singapore courts have generally adopted the same principles as the English courts, which are (i) that costs are in the discretion of the court; (ii) that costs should follow the event except when it appears to the court that in the circumstances of the case some other order should be made; (iii) that the general rule does not cease to apply simply because the successful party raises issues or makes allegations that fail, but that he could be deprived of his costs in whole or in part where he had caused a significant increase in the length of the proceedings; and (iv) that where the successful party raises issues or makes allegations improperly or unreasonably, the court should not only deprive him of his costs but should also order him to pay the whole or part of the unsuccessful party’s costs.8 Legal profession 5.10 Only advocates and solicitors of the Supreme Court of Singapore have rights of audience before all the courts in Singapore. The legal profession in Singapore is “fused”. As such, an advocate and solicitor of the Supreme Court of Singapore may therefore act as both advocate and solicitor. 5.11 In 1997, Singapore introduced the senior counsel scheme. The appointment of senior counsel is extended to outstanding litigators, practitioners and academics in recognition of their ability, professional standing, special knowledge or experience in law. To date, 68 senior counsels have been appointed. The appointments are made by the Senior Counsel Selection Committee, comprising the Chief Justice, Attorney General and Judges of Appeal.

FORMATION OF A CONTRACT OF INSURANCE Utmost good faith: non-disclosure and misrepresentation Utmost good faith: timing of the duty 5.12 The Singapore courts have also adopted the same approach as the English courts, as outlined in Chapter 3, paragraphs 3.7 and 3.8 above. The case of UMCI Ltd v. Tokio Marine & Fire Insurance Co (Singapore) Pte Ltd 9 illustrates the application of the Pan Atlantic test10 enunciated by the House of Lords. In the UMCI case, the insurers had provided the assured with an open policy covering all risk of loss or damage to cargo, comprising various equipment for the assured’s foundry in Singapore, for a voyage from the United States to Singapore. Some of the equipment arrived in a damaged condition that gave rise to the 8. Tullio Planeta v. Maoro Andrea G [1994] 2 SLR(R) 501 at para. 24, referring to the English Court of Appeal’s decision in Re Elgindata Ltd (No. 2) [1992] 1 WLR 1207. 9. [2008] SGHC 188. 10. Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd [1994] 2 Lloyd’s Rep. 427 (HL), see Chapter 3 (English law) at para. 3.7 fn. 39, above.

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claim. The insurer resisted the claim on account of misrepresentations made by the assured concerning, inter alia, the assured’s selection process of freight forwarders appointed to handle the equipment, that a pre-shipment inspection of the cargo would be carried out, that representatives would be stationed at the airport to witness the loading and unloading of the cargo and the cargo would be packed in accordance with certain industry standards. The Singapore court found on the evidence that the insurer had not proved that the representations were untrue and further, there was no evidence that the representations were relied upon by the insurer. In that case, the insurer had only adduced the affidavit evidence of their deputy general manager. It was noted by the court that there was no evidence that the representations complained of had been relied upon by the insurer in assessing the risks and fixing the rates to be applied to the policy.11 Formalities, insurable interest and illegality Insurable interest 5.13 The requirement for an insurable interest under English law, as outlined above at Chapter 3, paragraph 3.14, has also been adhered to by the Singapore courts. In Sitra Wood Products Pte Ltd v. Royal and Sun Alliance Insurance (S) Pte Ltd,12 where the cargo had been sold by the assured on free on board (“FOB”) terms to an overseas buyer, and where the loss occurred before the cargo reached the buyer but after the buyer accepted the terms of credit and the endorsed bills of lading were handed over to the buyer, the Singapore court found that the assured no longer had any insurable interest in the cargo and the claim was accordingly rejected. The court held that the presumption, in overseas sales, that the seller did not intend to part with the property until payment had been made, could be rebutted if credit terms were extended to the buyer. 5.14 The Singapore court revisited the issue of insurable interest in cargo involved in a marine adventure in the case of Hua Seng Sawmill Co Bhd v. QBE Insurance (Malaysia) Bhd,13 where the assured had yet to pay for the cargo at the time of the loss. The cargo was insured on ICC(C) terms, which included clause 11.1. The insurer relied upon the fact that the assured had not yet paid for the goods at the time of the loss, amongst other grounds, when rejecting the claim made under the policy. It was contended by the insurer that property in the goods passes only upon payment, but this argument was rejected by the Singapore court, who found that the assured had an insurable interest as property in the goods had already passed even before payment.14 The court found support in that the sellers were required to deliver the goods to the barge operators without reservation of title and the assured was named as consignee on all the bills. Therefore, the barge owners received and held the goods for the assured as purchasers of the same. Accordingly, the presumption in section 19(2) of the Sale of Goods Act15 has been rebutted. 5.15 The Malaysian court in Standard Chartered Bank v. KTS Sdn Bhd16 decided that a bank, which was the co-assured of a fire policy, and who had no insurable interest in the 11. UMCI, at paras 29 and 30. 12. [2001] SGHC 204. (Note: Appeal was dismissed by the Court of Appeal with no grounds of decision.) 13. [2003] 4 SLR 449. 14. See also Sinotani Pte Ltd v. The People’s Insurance Co Ltd [1998] SGHC 141, where the court held that the assured had an insurable interest based on evidence that the property in the goods remained with the assured. 15. (Cap. 393, 1999 rev. edn), s. 19 provides for the sellers’ reservation of right of disposal of goods. 16. [2006] 4 CLJ 79.

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goods, held the insurance payment on trust for the owners of the goods even though the latter was not a party to the policy. In consideration for a loan, the bank took security, by way of fixed and floating charge, over the assets of Lampak, the co-assured company in the business of buying and selling sawmill. The respondent in that case had entered into various contracts with Lampak for the purchase of sawn timber to the value of RM597,152.39 and that amount had been paid to Lampak. A fire broke out at the sawmill and completely destroyed all the sawn timber purchased by the respondent. The insurers had, pursuant to a consent judgment, paid the bank and Lampak in full and final settlement of their claims arising out of the policy. Lampak had since been wound-up and the respondent failed to recover their full losses against Lampak. They then wanted to recover their losses from the bank on the basis that the bank holds the insurance monies on trust for them. The Malaysian court, agreeing with the respondent, held that a fire insurance policy is strictly an indemnity,17 meant to compensate the owner of the goods covered by the policy which were destroyed by the fire, and the bank had no insurable interest as it did not have any legal or equitable interest in the property insured. In reaching its decision, the Malaysian court decided that it was irrelevant that the assured did not intend to insure third-party goods, instead, the policy’s coverage must be gathered from the terms of the policy. The policy in that case insured property “held in trust” and the court found that the “goods insured must necessarily include third party’s goods i.e. the respondent’s sawn timber”.18 Illegality and public policy 5.16 Section 41 of the Marine Insurance Act, which provides for an implied warranty that the insured adventure is a lawful one, is discussed above in the context of English law.19 The Singapore courts have also adopted a similar approach as the English courts in their application of section 41; the court will consider the issue of illegality pursuant to the law of the court. This is illustrated by the first instance decision in Everbright Commercial Enterprises Pte Ltd v. AXA Insurance Singapore Pte Ltd,20 where the insurer contended that even if the contract of insurance existed, it was not enforceable by reason of illegality, in that the volume of logs exported had been deliberately under-declared in order to circumvent custom duties laws under the Solomon Islands’ laws. The issue before the Singapore court was which country’s laws had to be contravened in order for the adventure to be deemed unlawful under section 41 of the Act, and the learned judge found that where a marine insurance contract is governed by the law of Singapore, section 41 would require legality under Singapore and lawful performance by the standards of Singapore law. The learned judge concluded that even if she had accepted that the export of logs was contrary to the Solomon Islands’ law, there would still be no breach of the warranty implied by section 41. 5.17 Applying the above approach, where the issue involved concerns the legality of ransom payments to pirates, it is likely that the Singapore courts would not arrive at the same conclusion as the English Court of Appeal in its recent decision of Masefield AG v. Amlin Corporate Member Ltd.21 In that case, the English court held that the payment of 17. Standard Chartered Bank at para. 26. 18. Standard Chartered Bank at paras 32 to 33. 19. See Chapter 3, para. 3.16, above. 20. [2000] 4 SLR 226. (Note: at the appeal at [2001] 2 SLR 316 mentioned below, the issue of illegality under s. 41 was not an issue before the Court of Appeal.) 21. [2011] EWCA Civ 24.

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ransom to pirates for the recovery of cargo was neither illegal nor contrary to English public policy. Under English law, the payment of ransom is no longer illegal following the repeal of the Ransom Act of 1782. However, in Singapore, the payment of ransom remains an offence under section 5(2) of the Kidnapping Act.22 This provision extends to anyone who “knowingly negotiates or assists in negotiations to pay or provide funds for the payment of ransom for the release of a person”. It therefore remains an offence to pay a ransom to a kidnapper in Singapore. 5.18 When the Kidnapping Act was first introduced in Parliament in 1961, the objective of the Bill was said to “create a situation whereby the payment of ransom money is made so difficult that … it will encourage victims and their families and agents to be more resolute in their co-operation with the Police in tracking down and arresting these evil doers”. 5.19 It remains to be seen whether in the absence of a “victim(s)” and where only the vessel’s cargo remains at stake, the payment of a ransom would similarly be considered illegal under Singapore law. It is submitted that if the underlying objective of the Kidnapping Act is to encourage those victims involved in such cases to co-operate with the police, as opposed to making the payment under duress, it should not make any difference whether or not there are any lives at stake. 5.20 A distinction should also be made between ransom paid pursuant to a piratical act and where ransom is paid pursuant to an act of terrorism. Piracy under international law consists of acts of violence or detention of ship or property on the high seas and is committed for personal gains.23 The Penal Code24 has also defined piracy as “any act that, by the law of nations, is piracy”25 and “piratical acts”26 as follows: “Whoever, while in or out of Singapore — (a) steals a Singapore ship; (b) steals or without lawful authority throws overboard, damages or destroys anything that is part of the cargo, supplies or fittings in a Singapore ship; (c) does or attempts to do a mutinous act on a Singapore ship; or (d) counsels or procures a person to do anything mentioned in paragraph (a), (b) or (c).”

5.21 Where the ransom is paid pursuant to an act of terrorism, the Terrorism (Suppression of Financing) Act27 prohibits, inter alia, a person from providing property or finances when “knowing or having reasonable grounds to believe” or “intending” that, “in whole or in part, they will be used by or will benefit any terrorist or terrorist entity”. The wording seems wide enough to capture a payment of ransom to secure release of cargo. If found guilty of such an offence, directors of body corporates would be found further liable under section 35 of the Terrorism (Suppression of Financing) Act. A terrorist is defined as follows: “‘terrorist’ means any person who — (a) commits, or attempts to commit, any terrorist act; or (b) participates in or facilitates the commission of any terrorist act, and includes any person defined in regulations made under the United Nations Act (Cap. 339) to be a terrorist; 22. (Cap. 151, 1999 rev. edn Sing.). 23. United Nations Convention on the Law of the Sea, Art. 101. 24. (Cap. 224, 2008 rev. edn Sing.). 25. Penal Code, s. 130B. 26. Penal Code, s. 130C. 27. (Cap. 325, 2003 rev. edn Sing.), s. 4.

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… (2) Subject to subsection (3), for the purposes of this Act, ‘terrorist act’ means the use or threat of action — (a) where the action — … (ii) involves serious damage to property; … (v) involves the use of firearms or explosives; … (b) where the use or threat is intended or reasonably regarded as intending to — (i) influence or compel the Government, any other government, or any international organisation to do or refrain from doing any act; or (ii) intimidate the public or a section of the public.”

5.22 While it is provided in the schedule that a terrorist act includes any act or omission constituting an offence under section 3 to section 6 of the Maritime Offences Act28 and section 3 of the said Act includes hijacking of ships as an offence, it is submitted that hijacking of ships for personal gain should not be classified as an act of terrorism. The Terrorism (Suppression of Financing) Act clearly provides that the act must be done with an intent to “influence or compel the Government, any other government, or any international organisation to do or refrain from doing any act; or intimidate the public or a section of the public” and an act for personal profit and gain should not fall within the consideration of the act. Therefore, where the act is considered to be an act of terrorism, it seems that Singapore has legislated it to be illegal to pay any ransom for the release of cargo, even if no lives are at stake. 5.23 There is, however, no evidence that the current acts of the Somalian pirates are linked to the activities of the terrorists.29

OPEN COVERS, POLICIES AND CERTIFICATES Open covers 5.24 In Chapter 3, in the context of English law,30 it is stated that in a standard open cover situation, the assured is obliged to declare every shipment and the insurer to accept all such declarations that fall within the scope of cover. It bears noting that not only is the assured obliged to declare every shipment, but the assured is also obliged to ensure that the declared shipment complies with the terms and conditions of the cover note. This point is illustrated by the Everbright case,31 where the Singapore Court of Appeal held that the insurer was under no obligation to advise the assured whether or not the declaration fell within or outside the scope of cover. 5.25 In the Everbright case, the assured had declared a vessel under the open cover in respect of a cargo of logs shipped from the Solomon Islands to India. The declared

28. (Cap. 170B, 2004 rev. edn Sing.). 29. See “House of Lords, European Union Committee, 19th Report of Session 2008–09”, The Stationery Office Ltd, London, at p. 46. 30. At para. 3.19. 31. [2001] 2 SLR 316.

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vessel was not an approved ship and did not comply with the requirements of the Institute Classification Clause 13/4/92. 5.26 However, where a policy included a “held covered” clause, the cargo might still be covered where such declared vessel did not comply with the requirements, provided (a) reasonable notice has been given by the assured to the insurer of all the material facts which brought the situation within the scope of the held covered clauses, as soon as the assured had knowledge of such facts; and (b) that despite the increase in the risk of loss, it was still possible to obtain a reasonable commercial rate of premium for the insurance coverage of the shipment. On the facts of the Everbright case, the court held that there were sufficient warning signs that would persuade a reasonable prudent insurer to reject providing cover, rather than to accept a higher premium to cover the increased risk. In those circumstances, a reasonable commercial rate of premium would not be available. Certificates of insurance 5.27 The practice of issuing marine open covers and certificates of insurance thereunder is also common place in Singapore. This is demonstrated by the Malaysian case of Kotak Malaysia (KOM) Sdn Bhd v. Perbadanan Nasional Insurans Sdn Bhd (formerly known as Union Insurance Malaysia Sdn Bhd),32 where the court generally described the nature and purpose of an open cover policy as a long-term contract taken out by importers and exporters for the protection of their shipments, where it is not practical to effect individual cargo insurance policies for each shipment due to the volumes involved.33 5.28 In the Kotak case, the insurer had issued a marine open cover policy and an offcover policy had been issued thereunder in favour of the assured. The off-cover policy provided that the cargo was insured for a voyage from “Tacoma USA to Kula Lumpur via Port Klang”, whilst the actual transit was from “Tacoma USA to Warehouse in Malacca via Port Klang”. The cargo was lost as a result of a fire at the warehouse and the insurers declined to pay out under the policy. It was contended by the assured that the off-cover policy contained a typo error and that the intention was always to include general coverage for “worldwide to warehouse in Malacca via Port Klang”. The issue before the Malaysian court was what the intent and scope of coverage in the marine open cover policy and the off-cover policy issued thereunder was. The court took the view that any individual insurance policy issued off-cover of the marine open cover must be in compliance with the original intent and purport of the marine open cover, unless there is clear evidence to show that the parties intended otherwise. Further, where there is any inconsistency between the two documents, the terms of the marine open cover will prevail.34 However, it bears noting that the certificate holder in this case, namely, Kotak, was also the original assured under the marine open cover policy. Further, the Malaysian court also found there to be a mistake in the off-cover policy and pursuant to its powers under the Specific Relief Act 1950, proceeded to rectify the off-cover policy.

32. [2005] 4 MLJ 402. 33. Kotak at para. 13. 34. Kotak at para. 25.

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WARRANTIES, EXCLUSIONS AND OTHER CONDITIONS Warranties Warranties defined 5.29 Section 35(2) of the Act provides that an express warranty must be “included in, or written upon, the policy, or must be contained in some document incorporated by reference in the policy”. As earlier noted at Chapter 3,35 the Act imposes a number of implied warranties.36 In Marina Offshore Pte Ltd v. China Insurance (Singapore) Pte Ltd and Another,37 which involved a routing warranty, the Singapore Court of Appeal found in favour of the assured who argued that the relevant provision did not amount to a warranty. In that case, the provision in question was actually a recommendation that provided: “Route to follow to be tracking along nearest coast of Japan, Philippines, Sabah unless weather permitted, and to seek shelter of weather is bad…”. In arriving at its finding, the Court of Appeal emphasised the importance of ensuring that warranties must be express, specific and clear in light of the serious consequence of a breach. It was further argued by the insurers in that case that there was implied into the policy a warranty that a particular route would be followed, because the circumstances might make it important or reasonable that certain conditions be followed to reduce risk. This submission was similarly rejected by the Court of Appeal who found that implied warranties can only be implied by law through the various sections of the Act that impose them. The normal contractual test relating to the implication of terms does not apply to a marine policy.38 Exact compliance: effect of breach 5.30 The English position on the nature and effect of warranties39 has been adopted in Singapore. In Kin Yuen Co Pte Ltd v. Lombard Insurance Co Ltd,40 the Singapore court endorsed the requirement of “literal compliance” with an express warranty, a breach of which would render the cover void, whether it be causation of the loss or not.41 A similar approach was adopted in Royal & Sun Alliance Insurance (Singapore) Ltd v. Metico Marine Pte Ltd42 and the Marina Offshore case. 5.31 Acknowledging the harsh consequences of a breach, the Singapore courts have stressed the need to interpret a warranty strictly when its meaning is in issue. This means that an assured should be able to take the words of the warranty at their face value and comply with the literal meaning of the warranty unless it leads to absurdity.43 As the learned judge in the Marina Offshore case puts it, warranties have to be “express, specific and clear so that there is no doubt in the minds of the insured as to what he has to comply with”.44 Further, construction of the warranty must be “for the benefit of the trade, and for the insured”.45 35. At para. 3.25. 36. MIA, s. 39(1). 37. [2006] SGCA 28. 38. Marina Offshore [2006] SGCA 28, at para. 25. 39. See Chapter 3 at paras 3.24 to 3.28, above. 40. [1994] 1 SLR(R) 964. 41. Ibid., para. 68. 42. [2006] SGHC 97. 43. Royal & Sun Alliance at para. 37. 44. Marina Offshore [2006] SGCA 28, at para. 24. 45. Kin Yuen at para. 69, citing Pelly v. Royal-Exchange Assurance (1757) 1 Burr 341, 97 ER 342 at 347.

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ALL RISKS Limitations and exclusions on all risks Wilful misconduct 5.32 Clause 4.1 of the Institute Cargo Clauses excludes “loss damage or expense attributable to wilful misconduct of the assured”, whilst section 55(2) of the Marine Insurance Act 1906 also excludes “any loss attributable to the wilful misconduct of the assured”. The case of Sinotani Pte Ltd v. The People’s Insurance Co Ltd 46 demonstrates how an assured’s failure to take steps to segregate damaged cargo from the undamaged cargo, prior to transhipment, as well as the failure to carry out a cargo survey, can amount to wilful misconduct where such failure results in further damage to the cargo. However, it bears noting that the cargo was insured on International Timber Trade Federation (“ITTF”) terms,47 which include an express warranty requiring survey and segregation at the port of transhipment. The facts of this case were quite extraordinary. The cargo comprised 5,549 crates of fibreboard and chipboard shipped from Antwerp for transhipment at Hong Kong and on to Shantou, China, as the final port of discharge. Upon arrival in Hong Kong, part of the cargo was found to be damaged and the insurers were notified accordingly. Surveyors were instructed but the assured said they received no guidance or assistance from the insurers or the surveyors. The assured contended that they had been asked by the insurer to act as “prudent uninsured”. Instead of segregating the damaged from the undamaged cargo, due to costs of storage in Hong Kong, the assured transhipped the entire cargo to Shantou. It is against this factual background that the Singapore court, adopting the approach of Colman J as to what constitutes wilful misconduct,48 found there to be wilful misconduct on the part of the assured. In particular, the assured acknowledged that they were aware that further damage to the cargo was inevitable, and further that the damaged goods would be of no use to the end user, but nevertheless proceeded to tranship the cargo. Deck cargo 5.33 The Malaysian court in Leong Brothers Industries Sdn Bhd v. Jerneh Insurance Corp Sdn Bhd49 decided an “all risks” cover also covers loss due to the carrier’s default. In the Leong Brothers case, the assured were the shippers of the cargo who contracted with the carriers to carry the goods below deck. However, in breach of the contract, the carriers carried the goods on deck, thereby causing damage to the goods. Adopting the English position on “all risks” cover, and while agreeing that such cover does not cover “willful misconduct” on the part of the assured, the court found: “…there is an element of fortuity. It was fortuitous that the said goods became damaged. The damage was not due to any willful misconduct on the part of the assured, i.e. the plaintiffs. The damage was caused in circumstances beyond the control of the plaintiffs. It was caused solely as a result of the said goods being improperly carried by the [carriers].”

46. [1998] SGHC 141. 47. Institute Timber Trade Federation Clauses. 48. National Oilwell (UK) Ltd v. Davy Offshore Ltd [1993] 2 Lloyd’s Rep. 582. 49. [1991] 1 MLJ 102.

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Counsel for the insurers in the Leong Brothers case submitted that Rule 17 of the “Rules for Construction of Policy”50 requires the assured to insure deck cargo specifically as “deck cargo”. The court, in rejecting the application of Rule 17, took the view that the “said goods were not shipped as deck cargo. They were shipped as cargo to be carried below deck. Thus insuring the said goods specifically as deck cargo did not arise”.51 It bears noting that no authorities were cited to the judge on this point.52 Inherent vice 5.34 The Singapore court was also faced with the difficult task of ascertaining whether a loss was caused by an insured peril or by inherent vice in Keck Seng & Co Ltd v. Royal Exchange Assurance.53 In that case, the policy insured 4,980 bags of white sugar against risk of damage by rain or fresh water, sea water and sweating, subject to the ICC (All Risks), which excluded loss caused by inherent vice, on a voyage from Dairen to Singapore. On arrival in Singapore, 1,729 bags were found to be internally wet, although the bags were externally unstained. Given the evidence, the court found that the wetness was caused not by condensation on the surface of the bags but by absorption of moisture from the atmosphere, which was not due to an external cause, and accordingly, dismissed the assured’s claim. In considering the term “inherent vice”, the Singapore court adopted the full passage from Lord Summer’s speech in British and Foreign Marine Insurance Co v. Gaunt54: “There are, of course, limits to ‘all risks’. They are risks and risks insured against. Accordingly the expression does not cover inherent vice or mere wear and tear or British capture. It covers a risk, not a certainty; it is something, which happens to the subject-matter from without, not the natural behaviour of that subject-matter, being what it is, in the circumstances under which it is carried.”

The court, following the above decision, found that the cause of the damage was the inherent vice of the sugar absorbing moisture from the atmosphere.

DURATION OF INSURANCE The transit clause Attachment of risk 5.35 Clause 8 of the revised ICC Clauses is discussed in Chapter 3 in the context of English law.55 Notwithstanding the recent revisions to the ICC Clauses, the original language “for the commencement of transit” has been retained. This phrase was considered by the Singapore court in Maratz Ltd v. New India Assurance,56 where the court found that the risk did not attach, as the freight forwarders did not take out the assured’s goods 50. MAI, First Schedule. 51. Leong Brothers, at 104. 52. But see John Dunt, Marine Cargo Insurance, 2009, Lloyd’s List, London, at paras 3.40 to 3.43; J. Kenneth Goodacre, Marine Insurance Claims, 3rd edn, 1996, Witherby & Co, London, at 173; Arnould’s Law of Marine Insurance and Average, 17th edn, 2008, Sweet & Maxwell, London, at para. 10-11. 53. [1964] 1 MLJ 256. 54. [1921] 2 AC 41, at p. 57. 55. At para. 3.72. 56. [1998] 2 SLR(R) 134.

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with the intention of having them shipped on board any vessel on behalf of the assured; he was on a “frolic of his own” and took out the goods “for some purpose of his own”. Therefore, the goods did not leave the warehouse “for the commencement of the transit” as required under the ICC(A) and the assured’s claim failed accordingly. The assured further contended in the Maratz case that it is for the insurer to discharge the burden of proof that risk did not attach under clause 8, but this was dismissed by the judged who held that the “warehouse-to-warehouse” clause was an extension of the primary cover afforded by the policy and, where the assured sought to rely on the clause, the burden was on him to bring himself within the ambit of the clause.57 “Ordinary course of transit” 5.36 Although the phrase “ordinary course of transit” has not been construed by the English court,58 it has been considered by the Malaysian court in the Kotak case.59 In that case, the insurers attempted to argue that they were not liable as the assured’s claim fell outside the duration of coverage; having terminated, the insured cargo were delivered to the warehouse “other than in the ordinary course of transit” before the fire broke out as per clause 8.1.2.1 of the ICC(A) Clauses. The Malaysian court cited with approval the Australian case of Verna Trading Pty Ltd v. New India Assurance Co Ltd,60 “the ‘ordinary course of transit’ would end if an act or acts took place which would, reasonably considered, indicate that the transit had terminated or that the transit had been so interrupted that it could not be seen as likely that the transit would re-commence without there being a positive decision to that effect by the assured or consignee”. 5.37 The Malaysian court further referred to the Institute Cargo Clauses 198261 where the phrase “ordinary course of transit” has been described as follows: “The term ‘ordinary’ is deemed to embrace the customary method of carriage relevant to the type of goods and most direct route to the destination. It would include delays during which the goods are held up pending inspection by the customs or similar authorities, and awaiting arrival of the onward carrying conveyance or vessel, but would not include any delay that the assured could avoid or period of storage within the assured’s control. Thus if the assured elects to use a port warehouse for storage, this would be deemed outside the ordinary course of transit.”

5.38 Further guidance was also sought from an earlier Malaysian Supreme Court decision, Malaysia National Insurance Sdn Bhd v. Malaysia Rubber Development Corporation,62 where the Malaysian Supreme Court cited with approval the following English court’s definition of “transit”63: “passage or carriage of goods from one place to another, and I think the goods were still being carried, ... from the one place to the other even though the lorry in which they were being carried was temporarily parked. Obviously an exhaustive definition of transit is impossible, and equally obviously it is undesirable, and certainly I do not propose to attempt one. I am merely concerned with applying the facts of this case as I find them to be to this particular policy.” 57. Maratz at para. 17. 58. See Chapter 3 at para. 3.75 above. 59. See paras 3.30 to 3.32 above for an earlier discussion of Kotak. 60. [1991] 1 VR 129. 61. R. H. Brown, The Institute Cargo Clauses 1982, 2nd edn, 1982, Witherby & Co, London, at 18–19 and 21. 62. [1986] 2 MLJ 124. 63. Sadler Brothers Co v. Meredith [1963] 2 Lloyd’s Rep. 293 at 307, 308.

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5.40

5.39 It was emphasised by the Malaysian court in the Kotak case that in construing the aforesaid phrase, the facts of the particular case had to be considered to determine whether the assured had acted with reasonable despatch in all circumstances within their control. Pursuant to the above, the court held that it was reasonable for the assured to temporarily store the goods in the said warehouse for a good number of days until the goods could be transported to Malacca, the final destination. Further, the court found that the assured had no control over the arrangements as they were made by the forwarding agent and could not therefore be said to be responsible for the delay (if any).64

CLAIMS AND LOSSES Claims Good faith and fraudulent claims 5.40 As is evident from Sumpiles Investments Pte Ltd v. AXA Insurance Singapore Pte Ltd,65 the Singapore Court has also followed the English position described above at Chapter 3, paragraph 3.92, that the assured’s duty of utmost good faith under section 17 of the Marine Insurance Act encompassed a duty not to put forward a fraudulent claim. The common law rule relating to fraudulent insurance claims extended to the use of fraudulent means or devices associated with making the claim, as well as during the course of an insurer’s investigation of the claim.66 If the assured presents a fraudulent claim, the insurer, who bears the burden of proof, can deny liability even if the other claims are otherwise good.67 This would even extend to recovering any interim claims paid by the insurer where the assured is a company; the court has to make a finding as to whose act (i.e., the proper conduct or handling of the insurance claim) was the act of the company.68 The insurers had to identify the individual or group of people that formed part of the corporate assured that was (a) aware of the false statements; (b) had the beneficial and financial interest in the claim; and (c) with the power or influence to determine how the claim should be presented.69 The court further stated that the knowledge of directors or senior employees, who were not engaged in pursuing the claim, will not necessarily be attributed to the assured in the context of claims. Therefore, it was found, inter alia, that the fact that the assured’s marine manager told the rigger to lie about whether the main engine was running did not prove the insurer’s case that the assured had put forth a false claim, because the wrongdoing of a marine manager cannot be attributed to the assured. In that case, there was no evidence suggesting that the individuals engaged in pursuing the claim or any of the directors had sought to persuade anyone to put forward a false case on behalf of the company.70

64. Kotak at para. 48. 65. [2006] 3 SLR(R) 12. 66. Sumpiles, at paras 30 to 34. 67. Sumpiles, at para. 31. 68. Sumpiles, at para. 37. 69. Sumpiles, at para. 42. 70. Sumpiles, at paras 46 to 49.

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Total loss of cargo: actual and constructive Damage to the cargo: actual total loss 5.41 As discussed earlier in Chapter 3,71 there is an actual total loss under section 57(1) of the Act where the cargo is destroyed or so damaged as to cease to resemble the item insured. In order to ascertain whether or not there is a total loss, the Malaysian court has applied the de minimis rule. In Boon & Cheah Steel Pipes Sdn Bhd v. Asia Insurance Co Ltd & Others,72 where all but 12 of the insured cargo of 668 steel pipes were lost overboard as a result of perils of the sea during a voyage from Prai to Brunei, the Malaysian court found that the 12 pipes represented too high a proportion of the whole consignment of 668 pipes to be capable of being dismissed as a matter of de minimis.73 Damage to the cargo: constructive total loss 5.42 The Boon & Cheah Steel Pipes case74 also illustrates the application of the rule that there can be no claim for constructive total loss unless the cost of recovering, reconditioning and forwarding the insured cargo would exceed its value on arrival. The assured made an alternative claim for constructive total loss contending that the costs to recondition and forward the damaged pipes to Brunei would exceed their value on arrival, and that a prudent uninsured would not have incurred the risk and expense of repairing and forwarding the pipes to their destination, but would simply have abandoned them. The court rejected the “prudent uninsured” test and emphasised that the true test is whether it is “impossible” or “impracticable” to recover, recondition and forward the cargo to its destination. It will be an impossibility or impracticability where it cannot be done without laying more money than the cargo is worth. 5.43 In an earlier case, Lau’s Timber Co v. Pacific & Orient Underwriters Pte Ltd,75 the Malaysian court stated that in calculating whether “the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival”,76 the phrase “their value on arrival” does not mean “their damaged value on arrival” but “their conventional value as agreed by the parties”. Also, in the Sinotani case, the Singapore court found that the notice of abandonment given after transhipment to final destination was not valid. The decision to abandon had to be made when the assured knew of the damage and had obtained sufficient information on the cost and consequences of recovering, reconditioning and forwarding the goods to their destination. It is not open to the assured to wait until the entire transhipment had been completed and after ascertaining the true situation, before serving the notice of abandonment.77

71. At para. 3.101. 72. [1973] 1 MLJ 101. 73. Boon & Cheah Steel Pipes, at 106. 74. [1973] 1 MLJ 101. 75. [1972] 2 MLJ 187. 76. MIA, s. 60(2)(c). 77. Sinotani, at para. 21.

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What constitutes “damage” to cargo? 5.44 The Malaysian court in the Boon & Cheah Steel Pipes case was faced with the issue of what constitutes damage, which it had to consider before moving on to the second issue, which was the extent of the damage. In this case, the assured failed to promptly notify the insurer of the damage and arrange for a survey to be carried out. The court emphasised that the burden is on the assured to prove damage on a balance of probabilities and the “mere suspicion of damage” was not enough.78 The only evidence adduced by the assured was from individuals who had never even sighted the damaged pipes. In the absence of any such contemporaneous evidence, the court was not prepared to find that there was damage whenever it looks as if there was damage.79 Recoverable expenses Sue and labour 5.45 Clause 16.2 of the revised ICC Clauses expressly provides for the recovery of charges properly and reasonably incurred by the assured in preserving all rights against the carriers, bailees or other third parties. This provision was considered by the Singapore court in the Maratz case,80 where the assured attempted to seek an indemnity for costs and expenses incurred in connection with the commencement of an action against a freight forwarder, and where the Singapore court found that clause 16 only responds if there is a loss recoverable under the policy. The court drew further support from section 78(3) of the Marine Insurance Act, which expressly provides that expenses incurred for the purpose of averting or diminishing any loss not covered by the policy are not recoverable under a suing and labouring clause.81 5.46 As to what charges the court will consider as having been “properly and reasonably incurred” by the assured in the exercise of its duties under section 78(4) of the Act, the first instance decision of the Singapore court in the PT Karimun case82 provides some guidance. In that case, following a storm, the owners of a barge that was insured under ITC (Hull) Clauses, submitted a claim to the insurers. The claim included not only the costs of repairs to the barge but also salvage, surveyors’ fees and loss adjusters’ fees. Although the court noted that adjusters’ fees are, strictly speaking, not an expense that can be considered a sue and labour charge recoverable under section 78 of the Act, and furthermore that the appointment of loss adjusters was not required for simple hull claims, the learned judge nevertheless found that in the circumstances of that case, the appointment of the loss adjusters was reasonable. The court had, in particular, relied upon the fact that the insurers were aware of the assured’s intention to appoint the loss adjusters but raised no objection thereto until a year later, when the adjustment had almost been completed.

78. Boon and Cheah, at 102. 79. Boon and Cheah, at 105. 80. See para 3.43 above. 81. Maratz, at para. 32. 82. PT Karimun Granite v. Insurance Co of North America [1992] SGHC 254.

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Subrogation, double insurance and rights of contribution Subrogation 5.47 As stated above in Chapter 3,83 under English law the insurers will take over all rights against the carriers, bailees or other third parties upon payment of the claim by the insured. The same principle has been adopted and slightly extended by the Malaysian Court of Appeal in Kementerian Pertahanan Malaysia & Another v. Malaysian International Shipping Corp Bhd & Others,84 where the court found that the insurers, who had admitted liability under the policy but where actual payment has yet to be made to the assured, were still entitled to exercise their rights of subrogation as an agreement was already in place to compensate the assured.

83. At para. 3.121. 84. [2007] 5 MLJ 393.

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CHAPTER 6

JA PA N : T H E I N S U R A N C E O F I N T E R N AT I O N A L CARGO BUSINESS Shuji Yamaguchi and John Dunt1

INTRODUCTION Historical background: use of English policies 6.1 It has long been the practice for international marine cargo business in Japan to be insured on English policy terms and conditions. By the 1890s, The Tokio Marine Insurance Company, Limited2 was using an English form of policy, similar to the traditional English SG Form.3 The oldest example of such a policy still in existence was issued in 1892 by Tokio Marine for the insurance of bullion for carriage from “San Francisco to Yokohama and/Kobe” with the cargo held covered, “in the event of the treasure being carried to Hong Kong”.4 More recently, the SG Form continued to be widely used in Japan, with the 1963 version of the Institute Cargo Clauses (All Risks).5 It was only in July 2009, when the revised Institute Cargo Clauses of 2009 were widely adopted in Japan, that more modern policy forms were introduced. Although the early form of the Tokio Marine & Fire policy did not express itself to be subject to English law and practice,6 current Japanese policy forms have a partial incorporation of English law as to claims,7 and invariably incorporate the terms of the Institute Cargo Clauses which themselves are subject to English law and practice.8 Scope and structure of the chapter 6.2 This chapter considers the extent to which English law and practice applies to claims issues arising under Japanese marine cargo policies and, where English law is not applicable 1. Shuji Yamaguchi, Partner, Okabe & Yamaguchi and John Dunt, Consultant, Clyde & Co LLP and Senior Research Fellow at the Institute of Maritime Law, University of Southampton. 2. Subsequently, the Tokio Marine & Fire Insurance Co Ltd and now the Tokio Marine & Nichido Fire Insurance Co Ltd. 3. Dunt, Marine Cargo Insurance, 2009, Informa, at para. 1.6 fn. 24. For a brief description of the SG Form, see Dunt, op. cit. at para. 1.7. 4. It is assumed that the policy form used by Tokio Marine at that time was based upon the form used by the British & Foreign Marine Insurance Co Ltd or the Union Marine Insurance Co Ltd, see 100 Years of Cargo Insurance in Japan, published by The General Insurance Association of Japan. 5. The ICC (FPA) 1/1/63 and the ICC (WA) 1/1/63 also continued to be widely used in Japan until 2009. For the background to the use of these clauses in Japan, rather than the Institute Clauses introduced in 1982, see R. Thomas (ed.), The Modern Law of Marine Insurance: Volume 3, 2009, Informa, Chapter 6 by J. Dunt and W. Melbourne, “Insuring Cargoes in the New Millennium: The Institute Cargo Clauses 2009”, at para. 6.3. 6. Dunt, op. cit. fn. 3 above. 7. The effect of this incorporation under Japanese law is considered at para.6.3 et seq. below. 8. ICC, cl. 19, and see further para. 6.6 below for a consideration of how this choice of law is treated by the Japanese courts.

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(e.g., to issues that do not involve claims), the relevant rules of Japanese law in relation to international cargo business. The choice of English law and practice within the Institute Cargo Clauses is also analysed, though this Clause is likely to be construed as subordinate to the choice of law clause in a typical Japanese policy which limits the application of English law to matters of liability for claims, a provision which prevails over the more general choice of law clause in the Institute Cargo Clauses.9 In view of these limitations on the application of English law, the rules of Japanese law are considered in so far as English law and practice does not apply to all aspects of the contractual agreement between the parties, for example, Japanese law applies as to the capacity of the parties, formalities, formation of the contract (misrepresentation and non-disclosure) and all other matters that are not dealt with within the Institute Clauses. The Japanese courts recognise that the meaning of terms of art in the policy form describing the risks insured, such as “perils of the seas”, or exclusions, such as “inherent vice”, are to be governed by English law. The reader is therefore referred to the English law chapter for the meaning of such terms. However, many other contractual issues may fall to be determined by Japanese law which may also colour the approach of the Japanese courts to issues that, strictly speaking, the parties have agreed should be governed by English law and practice. This chapter also discusses and analyses those cases decided by the Japanese courts according to English law, in so far as those decisions may be of persuasive authority in England, as well as in other jurisdictions where English law is applied.10

THE LIMITS TO THE APPLICATION OF ENGLISH LAW The limited choice of English law The limited choice of English law in a typical Japanese policy 6.3 Japanese policies commonly include a qualified choice of English law and practice in the following terms: “Notwithstanding anything contained herein or attached hereto to the contrary, this insurance is understood and agreed to be subject to English law and practice only as to liability for and settlement of any and all claims”.

This form of choice of law clause has been present in the typical Japanese form of marine policy for some years. This clause is believed to have been drafted in light of the approach of the English courts to the application of English law, as the proper law, to policies that are based on English marine insurance language and terms of art. This approach is illustrated by the decision in Amin Rasheed Shipping Corp v. Kuwait Insurance Co (The Al Wahab),11 where the policy closely followed the language of the statutory SG Form of English marine policy contained in Schedule 1 of the Marine Insurance Act 1906 and attached the Institute War and Strikes Clauses (Hulls – Time) 1.10.70.12 The House of Lords, reversing the 9. See paras 6.4 and 6.5 below. 10. See, in particular, para. 6.16 below, Connor v. Nippon Fire & Marine Insurance Co and para. 6.37 below, Shogado Co Ltd v. Nipponkoa Insurance Co Ltd. 11. [1984] AC 50; [1983] 2 Lloyd’s Rep. 365 (HL). 12. The 1.10.70 Clauses did not contain any express provision that the insurance was subject to English law and practice.

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THE LIMITS TO THE APPLICATION OF ENGLISH LAW

6.4

13

decision of the Court of Appeal, held that the contract itself was governed by English law as the terms the parties had agreed could not be understood without reference to English law and it followed, therefore, that English law was the law of the contract.14 Lord Wilberforce15 explained the role that English law may play, even where a contract is governed by another law, for example, Japanese law. As this is the role that English law plays under the standard form of Japanese marine cargo policy, it is appropriate to cite Lord Wilberforce at some length. He said:16 “The simple proposition that because a form of contract has to be interpreted in accordance with English rules, or even decisions, the proper law must be English law would have very unfortunate consequences. It is well known, and not disputed, that this Lloyd’s S.G. policy is widely used, not only in the British Commonwealth, or countries under British influence, but elsewhere, including countries in Europe. It is regularly used in the Middle East and in the Arabian Gulf. It is a strong thing to say that, in the absence of an express choice of law clause, the proper law of all such policies is to be regarded by an English Court as English. The wide use made of this form of policy calls, on the contrary, for a careful examination in each case of the question what proper law is appropriate, the English form or derivation of the form being an (important) factor. I do not believe, with respect, that this argument, which both Mr Justice Bingham and Lord Justice Robert Goff regarded as important, can be disposed of by describing it as contending for an internationalised, or floating, contract, unattached to any system of law - to do so does not do it justice. The argument is that the Lloyd’s S.G. form of policy is taken into a great number of legal systems, sometimes by statute, as in Australia, sometimes as a matter of commercial practice, as in Belgium or Germany, or in the Arabian Gulf, and that in such cases, though their legal systems may, and on the evidence do, resort to English law in order to interpret its terms, the contract may be regarded as an Australian, Belgian, German etc. contract.”

This view, that English law was used by foreign courts as an aid to construction, did not prevail and the effect of the decision in The “Al Wahab”17 was that Japanese marine cargo policies would be subject to English law as the law of the contract itself, because they incorporated the SG Form of policy and Institute Clauses. That was not acceptable to Japanese insurers who wished many aspects of that contract to be governed by Japanese law, which, in their view, remained the law of the contract. At the same time, Japanese insurers, like many insurers worldwide, wished, in the words of Lord Wilberforce, “to resort to English law in order to interpret [the] terms” of their policies, especially as to liability for settlement and adjustment of claims. Accordingly, the Japanese market incorporated in its policies the form of choice of law clause quoted above that applied English law only to claims. The drafting of this clause assumed the operation of Japanese law, a reasonable assumption for contracts frequently made between Japanese parties (insurer and manufacturer) in respect of cargoes exported from Japan. The effect of the clause, therefore, is to make an exception to the governing law, which is Japanese law, in respect of liability for and settlement of claims, these issues only being dealt with subject to English law. 6.4 However, without the advantage of this background, in Nima SARL v. The Deves Insurance Public Co Ltd (The Prestrioka),18 the English courts held that the word “only” 13. This was a strong court including Sir John Donaldson MR and Lord Justice Goff. 14. At p. 370 per Lord Diplock. 15. Lord Wilberforce agreed that the contract was governed by English law but with “no great confidence”, p. 375. 16. At p. 374. 17. Supra, fn. 11. 18. [2002] EWCA Civ 1132; [2003] 2 Lloyd’s Rep. 327.

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is merely for emphasis.19 In this case, a marine cargo policy issued by insurers in Thailand incorporated the Institute Cargo Clauses, Clause 19 of which contains a provision stating that the “insurance is subject to English law and practice”.20 The policy also contained the following choice of law clause: “Notwithstanding anything contained herein or attached hereto to the contrary, it is understood and agreed that this insurance is subject to English law and practice only as to all questions of liability for and settlement of any and all claims arising under this Policy.”

This wording is not identical to the usual form of Japanese wording but is sufficiently similar for analogous principles to be applied. Andrew Smith J21 held as follows in relation to this clause:22 “[The insurer] submits that the provision in the body of the policy providing for English law and practice is narrower than the provision in the ICC as to law and practice, and should prevail. I do not doubt that, if there were a significant difference between the provisions, the words of the clause in the policy itself should prevail. But I do not interpret the provision in the policy as narrower than cl. 19 of the ICC. That would involve interpreting the word ‘only’ in the provision in the policy as governing what questions are governed by English law (allowing for the possibility that other questions, such as questions relating to the obligations of the insured to pay premium, might be governed by another, unspecified, law). That seems to me a misinterpretation. It seems to me more natural to read ‘only’ as modifying the phrase ‘subject to English law’; and so, as I interpret the policy, English law governs all the obligations thereunder.”

It is unfortunate that Andrew Smith J did not have the benefit of the background to the circumstances in which the typical choice of law clause in a Japanese policy is believed by the authors to have been introduced in the Japanese, Korean and Thailand insurance markets. In particular, it appears he was not made aware of the practice of those markets, which is to treat a contract made in Japan as governed by Japanese law, and only to apply English law where necessary for the adjustment and settlement of claims. The intention is to allow the court to refer to English law and, in particular, the Marine Insurance Act 1906 as a consolidating statute, in order to interpret an English form of contract that owes much to ancient traditions of European mercantile law.23 The approach of the Japanese market is to use terms and conditions for their international cargo insurance that are understood internationally and therefore English terms and conditions are adopted, and the intention is to construe those conditions in accordance with English law. As we shall see in the next paragraph, there is no intention to make English law the governing law of the contract. 6.5 It is notable that the approach of the Japanese courts to the choice of law clause reflects the Japanese insurance market practice that English law is considered to have only limited application. In Connor v. Nippon Fire & Marine Insurance Co Ltd,24 the Tokyo District Court held on 13 May 1998 that: “It is the practice of the Japanese insurance market to underwrite marine insurance of cargo traded internationally according to the terms of the English insurance policy. There is a governing law clause added to the English insurance policy that provides that ‘This insurance is understood and agreed to be subject to English law and practice [only] as to liability for and settlement of any and all 19. At p. 330. 20. ICC, cl. 19, discussed in para. 6.6 below. 21. The judgment at first instance was overturned on appeal but not on this point. 22. At p. 330. 23. See Chapter 1, History and Harmony, at para. 1.5. 24. [1998] Hanrei Jiho No. 1675 at p. 129, affirmed on appeal on this point by the Tokyo High Court (2000) Hanrei Jiho No. 1749 at p. 157.

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claims.’ This clause means that the validity of the insurance contract and the legality of the voyage shall be subject to Japanese law but that the contract shall be subject to English law and usage as to whether the insurer is liable or not and how much they should pay if they are liable. This view accords with the practice of the marine insurance market.”

It is submitted that this is the correct approach and the intention is that English law and practice only applies to “liability for and settlement of claims”. In the circumstances, Japanese law applies to all other aspects of the insurance contract between the parties, including, in particular, the validity of that contract in terms of good faith and disclosure, which are pivotal requirements in English law but not in Japanese law. In particular, the approach of the Japanese courts is that English law only applies to the issue of liability for and settlement of claims and that Japanese law applies to the validity of the contract and the legality of the voyage. The choice of law clause in the Institute Clauses 6.6 Clause 19 of the Institute Cargo Clauses has, since 1982, included a choice of law clause in the following terms: “This insurance is subject to English law and practice.”

It is the invariable practice in Japan for international marine cargo business to be insured on the terms of the Institute Cargo Clauses. The general incorporation of English law and practice in the Clauses is potentially inconsistent with the limited choice of English law in the usual form of Japanese policy, which applies English law and practice only to the settlement and validity of claims. However, as a matter of construction, the policy clause prevails as it is paramount because it opens with the words, “Notwithstanding anything contained herein or attached hereto ...”. This appears to show an intention to limit the effect of the choice of law clause in the Institute Cargo Clauses as they are normally “attached”. The Institute Clauses would therefore be subject to the general limitation that English law only applies to claims matters.25 6.7 Moreover, it is to be noted that the choice of law in the Institute Cargo Clauses is probably limited to issues arising within the Clauses themselves. The view has been expressed26 that the words “This Insurance” in Clause 19 of the Institute Cargo Clauses refer to the cover within the Clauses, by way of contrast to the words “contract of insurance”, which are used in Clause 8 (the Transit Clause) of the Institute Cargo Clauses. The Japanese policy form constitutes the “contract of insurance” and has a limited choice of English law. This choice is not affected, it is submitted, by the apparently broader choice of English law in the Institute Cargo Clauses because the latter is not only confined to “claims” issues, but is also confined to issues arising within the Clauses, particularly the construction of the meaning of the terms that appear within the Clauses themselves. This approach was suggested by the English courts in Evialis SA v. S.I.A.T27 in relation to the construction of the words “This Insurance” in the Institute Cargo Clauses. In this case, a marine cargo open policy was governed by Italian law and incorporated the Institute Cargo Clauses, including Clause 19, which proves that the “insurance” is subject to English law 25. See paras 6.4 and 6.5 above. 26. See Dunt, Marine Cargo Insurance, 2009, Informa at para. 2.2. 27. [2003] EWHC 863 (Comm); (2003) 2 Lloyd’s Rep. 377 at para. 42.

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and practice. Andrew Smith J held that it might be that the effect of this English law and practice Clause was that the interpretation of the “insurance” cover within the Institute Clauses themselves was governed by English law and practice. He said that this choice of law clause within the Institute Cargo Clauses did not “evince the parties’ intention to choose an English governing law clause for the contract of insurance as a whole”.28 In conclusion, in a case where the policy contains the usual Japanese law clause, applying English law to claims, and the policy also incorporates the Institute Cargo Clauses, the contract will continue to be governed by Japanese law, and English law will only apply to matters relating to claims and to claims matters falling strictly within the terms of the Institute Cargo Clauses, particularly matters of construction arising on the Clauses. 6.8 This is the English approach to the question. It is uncertain under Japanese law whether the limited application of English law cited from the judgment in the Connor case set out above29 is equally applicable where the Institute Cargo Clauses (and the choice of English law clause) apply. However, even if the choice of English law in Clause 19 of the Institute Cargo Clauses applies, it is submitted that a Japanese court will still tend to consider that the validity of the contract, and its legality, are likely to be governed by Japanese law, as long as the insurance policy is issued in Japan. Additionally, as indicated above, Japanese insurance law is likely to colour the approach of the Japanese courts to issues falling outside the strict construction of the meaning of English terms of art or technical terms. Moreover, a Japanese court is inclined to be protective towards assureds and a Japanese court may therefore apply the Japanese Insurance Act, as described in this chapter, instead of English law, if it considers it necessary to protect the assured.

THE SOURCES OF JAPANESE LAW Statute law 6.9 There are two main statutory sources of Japanese insurance law, the Insurance Law 2010, which is the general law governing insurance, and Articles 815 to 841 of the Commercial Code 1899, as amended, which governs marine insurance. Where the two provisions conflict, the Commercial Code takes precedence, as it is aimed more specifically at marine insurance matters. The Commercial Code is based on civil or continental law and has been amended several times except for the Marine Insurance Chapter, which is still much as it was in the original Code. The Insurance Law is newly enacted and is quite protective of assureds and other “insurance contractors”.30 Other sources of Japanese law 6.10 Japan is a civil law country and, accordingly, the law is to be found strictly within the statutes. Although the Japanese system is not a common law system, where the decisions 28. At para. 42. 29. See para. 6.5 above. 30. For example, though not directly relevant to marine cargo insurance, the Insurance Law introduced a claimant’s lien over the assured’s rights under the policy in cases of liability insurance. Accordingly, where an assured has liability insurance coverage in respect of an accident, the third party claiming against the assured has the right to claim directly on the insurer by attaching the assured’s right under the liability insurance.

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of the higher courts bind the lower courts, it is in practice the case that a Japanese court, particularly a lower court, will be guided by the decision of a court of equal rank or status and will be likely to be persuaded by, and give respect to, the decision of a higher court. However, a lower court will not necessarily follow the decision of a court of equal rank. The Japanese courts recognise that the practice of the insurance market should be taken into account in their decisions.

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE 6.11 It is the invariable practice that Japanese contracts of international marine cargo insurance are subject to English law and practice as to claims,31 and normally incorporate the Institute Cargo Clauses, which are subject to English law and practice as to the construction of issues relating to the “insurance” provided within those Clauses.32 However, issues going to the formation of the insurance contract are neither related to claims nor matters dealt with within the Institute Cargo Clauses.33 It is therefore submitted that pre-contractual matters of formation that, in any event, would take place before any agreement to English law and practice was agreed, are not subject to English law and practice. The agreement to English law in the usual form of Japanese policy is limited to matters related to claims and the Institute Cargo Clauses do not deal with pre-contractual issues. A similar approach is likely to apply to the formalities necessary for the formation of a valid contract of marine insurance, particularly in cases where the contract is made in Japan, where Japanese law is likely to apply and not English law. Utmost good faith: non-disclosure and misrepresentation No general duty of non-disclosure or not to misrepresent the risk 6.12 English law imposes strict duties on the assured (and his agents) of good faith, which include the duty to disclose all material facts and not to misrepresent the risk at the time the contract of insurance is concluded.34 Japanese law does not acknowledge the concept of utmost good faith or the duty of disclosure and the obligation not to misrepresent the risk. The general rule under Japanese law is that the insurer must ask questions of the assured, and his agent, as to the risk. In this respect, Article 4 of the Japanese Insurance Law provides as follows: “In executing a non-life insurance contract, the insurance contractor or the assured shall disclose to the insurer the material facts as to the risk to be covered by the non-life insurance contract which is required by the insurance contractor and or the assured to be disclosed to the insurer.”

An “insurance contractor” means the person who executes the insurance contract for the benefit of the assured, for example, a broker or other agent. If an insurer does not “require” 31. See para. 6.3 above. 32. See para. 6.6 above. 33. The ICC is broken down into four main sections: Risks Covered, Exclusions, Duration and Claims (including benefit of insurance, minimising losses and avoidance of delay). There are no provisions within the ICC relating to the duty of utmost good faith; misrepresentation and non-disclosure; or the formalities necessary for the formation of a valid contract of marine insurance. 34. See English law chapter at para. 3.5 to 3.12 above.

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disclosure, any non-disclosed facts, even though they are material, will not have any effect on the validity of the insurance contract. Wilful misconduct and gross negligence 6.13 The position is different in cases where an assured (or his agent or contractor) intentionally, or by gross negligence,35 fails to disclose material facts or misrepresents the risk. Article 28(1) of the Insurance Law provides as follows: “The insurer may cancel a non-life insurance contract if the insurance contractor or an assured, intentionally or by gross negligence, fails to disclose the fact or makes false disclosure with respect to the matters to be disclosed.”

In accordance with this Article, an insurer cannot avoid liability even in cases of nondisclosure or misrepresentation unless wilful misconduct or gross negligence exist, in which case the insurer is entitled to cancel the contract. Formalities, insurable interest and illegality Formalities 6.14 Under English law, the Marine Insurance Act 1906 imposes few formalities but does require that the policy must specify the name of the assured, must be signed by the insurer and must designate the subject-matter insured with reasonable certainty.36 In Japan, Article 6(1) of the Insurance Law provides that upon execution of a non-life insurance contract, the insurer shall deliver to the assured (or his agent) without delay a document containing the following particulars: 1 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

The name of the insurer. The name of the insurance contractor. The name of the assured or any necessary information to identify the assured. The identification of the insured accidents, that is to say, the perils or risks insured. The insurance period. The insured amount. The subject-matter insured if any, or necessary information to identify the subjectmatter insured. The agreed amount insured, if any. The insurance premium and payment method. The notice which must be given to the insurer if the risk is increased after execution of the insurance contract (Article 29(1)(i)). The date of execution of the insurance contract. The date of issuance of the insurance document.

35. Gross negligence under Japanese law includes cases where there is not only a high level of breach of the duty to take care but also a lack of care equivalent to an intentional act or omission. 36. See English law chapter at para. 3.13 above. These requirements are subject to a view by the Law Commission, which has recommended repeal of MIA 1906 s. 22, see The Law Commission and The Scottish Law Commission Joint Consultation Paper No. 201 on Insurance Contract Law: Post Contract Duties and other Issues, Part 15, p. 162.

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Article 6(2) of the Insurance Law provides that the document in question shall be signed or stamped by the insurer. Additionally, so far as marine cargo insurance is concerned, Article 823 of the Japanese Commercial Code provides that the marine insurance policy shall, besides the particulars provided in Article 6(1) of Insurance Law, contain the following particulars in respect of marine cargo insurance37: “Name, nationality and description of ship, ports of loading and discharge.”

Although it is the practice, as discussed earlier,38 for Japanese policies to incorporate English law and practice, it is submitted that where an insurance contract is concluded in Japan, the above requirements according to Japanese law will apply, as English law does not apply to the formation of a marine cargo insurance contract in Japan. Insurable interest 6.15 Article 3 of the Japanese Insurance Law contains a very broad definition of insurable interest which provides that the interest insurable by non-life insurance shall be of any economic value that can be assessed in monetary terms. Although not expressly stated in the Law, by implication under Japanese law the assured is the person who must have the insurable interest in the subject-matter insured and, in case no insurable interest exists, the insurance contract is invalid. The position under Japanese law therefore reflects the position under the Institute Cargo Clauses, which are invariably used for the international carriage of goods in Japan, which provide39: “In order to recover under this insurance the Assured must have an insurable interest in the subjectmatter insured at the time of the loss.”

On the basis that the position in Japan will invariably be governed by the provisions of the Institute Cargo Clauses, and that the requirement for an insurable interest is a matter going to the validity of claims,40 it is submitted that the position as to insurable interest under Japanese law is the same as it is under English law and the reader is referred to the English law chapter in this respect.41 The implied warranty of legality 6.16 Under English law, there is an implied warranty of legality under section 41 of the Marine Insurance Act 1906, which provides as follows: “There is an implied warranty that the adventure insured is a lawful one, and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner.”

The Japanese courts have held that Japanese law applies to issues of illegality and public policy, even where the insurance is subject to the Institute Cargo Clauses, which apply English law and practice. The reason that the warranty of legality does not apply in Japan 37. The insurance of cargo includes insurance of prospective profits and/or remuneration to be earned upon arrival of cargo. 38. See paras 6.3 to 6.8 above. 39. ICC, cl. 11.1. 40. The usual form of Japanese insurance policy includes an agreement that claims are to be governed by English law and practice, see para. 6.3 above. 41. See para. 3.14 et seq. above.

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is that the Japanese courts do not consider that the choice of English law and practice in the Institute Cargo Clauses applies to matters of public policy and legality, which the Japanese courts retain to themselves to be decided under Japanese law, at least to the extent that the contract of insurance is made in Japan.42 Although the Japanese courts have held that the warranty of legality in the Marine Insurance Act 1906 is not applicable to a contract of marine cargo insurance made in Japan, they have nevertheless considered the construction of section 41 of the Marine Insurance Act 1906 applying English law principles, subject to their overall view that English law does not apply. It has been held in England that the warranty of legality only applies to breaches of English law and not to matters of illegality under a foreign law.43 The Japanese courts in the Connor case44 adopted a similar approach and declined to hold that a cargo insurance was illegal by reason of a breach of a foreign law. In this case, the policy was issued in accordance with the Institute Cargo Clauses (All Risks) 1/1/63 and was subject to “English law and usage as to liability for and settlement of all and any claims”. The assured, a US citizen, shipped his personal possessions from Japan to the United States, including a number of Iranian carpets. The goods were lost and when the claim was investigated, it was discovered that a number of the carpets were imported into the United States contrary to US laws prohibiting the import of certain Iranian goods. The assured made a disclosure statement to the US Customs Authorities, which was accepted and they agreed not to take the matter any further. The insurers relied, inter alia, on this illegality. At first instance,45 the Tokyo District Court upheld this defence, it being said that the disclosure statement and lack of measures by the US Customs Authorities did not “eliminate any illegality of the past acts [of the assured]”. However, the Japanese Court of Appeal,46 whose judgment was affirmed by the Supreme Court, took a different view. It held that if English law had applied to the issue, which it did not, the “transport in this case had no possibility to infringe the laws of Japan” and there was therefore no breach of section 41 of the 1906 Act. The reasoning of the judgment is that the Tokyo High Court places weight on the nature of the legislation concerned and the seriousness of the breach, as follows: “It is a totally lawful act in Japan for a person to collect, own and keep Iranian carpets and to transport them as personal property from Japan to the United States when he returns to the United States. If the transportation was against Iranian Restriction Rules and it was impossible for the [assured] to obtain permission to bring them into the United States, the rules were just a temporary political restriction. Carpets are totally different from prohibited goods such as drugs or arms which are, themselves, a problem. It is doubtful therefore whether a restriction on importation would nullify any contract. It is not considered, therefore, that the transportation contract should be null and void against public policy and, therefore, it is difficult to say that the subject-matter insured of this insurance contract should itself be against public policy. As mentioned before, the transportation contract and the insurance contract are not regarded as impossible of performance.”

In this judgment, the insurance contract and the transportation contract were considered at the same time and by the same criteria. Under Japanese law, some contracts are regarded as 42. Connor v. Nippon Fire & Marine Insurance Co [1998] Tokyo District Court Judgment of 13 May 1998 reported in Hanrei Jiho No. 1675 at p. 129; (2000) Tokyo High Court Judgment held on 9 February 2000 reported in Hanrei Jiho No. 1749 at p. 157, subsequently affirmed by the Japanese Supreme Court. 43. Parkin v. Dick [1809] 11 East 502, and see Dunt, Marine Cargo Insurance, 2009, Informa, at para. 6.20. 44. Supra. 45. [1998] Hanrei Jiho No. 1675 at p. 129. 46. [2000] Hanrei Jiho No. 1749 at p. 157.

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valid, even if they are against certain rules or restrictions, as long as the court considers the illegality as not sufficiently serious as to go to the root of a contract. Illegality and public policy: piracy and ransom 6.17 The Japanese Insurance Law does not have any provision that deals specifically with illegality, but Article 90 of the Japanese Civil Code provides that any unlawful act against public policy shall be null and void. Under English law, quite apart from the warranty of legality in section 41 of the Marine Insurance Act 1906, the courts will not enforce an illegal contract.47 However, so far as public policy is concerned, the English courts will only involve the public interest when the harm to the public is “substantially incontestable”.48 For example, in Masefield AG v. Amlin Corporate Member Ltd,49 where a ransom was paid to pirates for the release of the cargo, it was held that this conferred obvious benefits on the cargo owners (and their insurers) even though it may have encouraged further acts of piracy and, in the circumstances, the “balance of convenience” was far from clear-cut. Accordingly, the payment was not contrary to public policy. 6.18 In Japan, the approach to public policy issues is likely to be similar to that adopted in the Connor case,50 which held that Japanese law is the relevant law in matters of illegality. In Japan, payment of a ransom, including a ransom payment to pirates, is illegal and any such payment is contrary to public policy. It is unclear whether the Japanese Civil Code applies to payments made by an assured outside the territories of Japan, but it is arguable that this is the position and that a payment of general average by way of contribution by an assured contravenes the Japanese Civil Code. However, even if this is the case, a separate indemnification by cargo insurers to the assured by way of a payment of general average under a general average guarantee would not, it is submitted, be an infringement of the Japanese Civil Code. This is because the payment of a general average contribution is not a direct payment to pirates and is not, therefore, a ransom payment within the terms of the Japanese Law. It is a payment reimbursing the assured for a loss that they have already or will suffer unless their insurers stand behind them. In view of the protective nature of the approach of the Japanese courts to assureds, it is submitted, therefore, that they are unlikely to hold that the reimbursement of a ransom payment (as distinguished from a ransom payment itself) is an infringement of the Japanese Civil Code.

OPEN COVERS, POLICIES AND CERTIFICATES Open covers, policies and certificates of insurance 6.19 The use of open covers is widespread in Japan, particularly for the major trading houses who also have the benefit of additional manuscript clauses extending cover 47. See para. 3.17 above for the English law position and Dunt, Marine Cargo Insurance, 2009, Informa, at para. 6.23. This rule is separate from the rules regarding the implied warranty of legality and is a general rule of the common law applying to contracts. 48. See the judgment of Lord Atkin in Fender v. St. John Mildmay [1938] AC 1 at p. 12, and Chapter 3 (English law) at para. 3.17 above. 49. [2011] EWCA Civ 24, [2011] 1 Lloyd’s Rep. 630. 50. See para. 6.16 above where this case is examined.

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beyond the core insurance provided by the Institute Cargo Clauses 2009.51 As we have already seen,52 the Japanese insurance market has, since the 1980s, used English policy forms. The traditional SG Form of policy was used with the Institute Cargo Clauses (All Risks) 1/1/63 until about July 2009, when the Institute Cargo Clauses 2009 were widely adopted.53 Insurance certificates are rarely encountered since the Japanese practice is to provide the assured with a document expressing itself to be a “policy” where, for example, the original assured assigns the insurance to a buyer under a CIF contract. This practice may reflect the doubts that existed under English law as to the validity, under a trade contract, of an insurance certificate where the seller had contracted to provide a “policy”.54 The practice of using a “policy” rather than a certificate of insurance has the advantage of providing the assured with a document that will satisfy the CIF buyer’s requirements and, at the same time, provides the consignee with the full terms of the insurance.55

WARRANTIES, EXCLUSIONS AND OTHER TERMS Warranties 6.20 Japanese law does not recognise the concept of a promissory warranty as set out in section 33 of the Marine Insurance Act 1906. A promissory warranty in this form requires exact compliance and results in insurers being discharged from liability in the case of a breach, whether or not the breach is causative of any loss.56 The Japanese courts are unlikely to uphold the validity of warranties under the Marine Insurance Act 1906, even where English law potentially applies to the contract of insurance. In the Connor case,57 it was held that the implied warranty of legality under section 41 of the Marine Insurance Act 1906 was not applicable to a policy that was subject to English law and practice, as Japanese law was the governing law on this issue. It is submitted that it is unlikely, therefore, that the Japanese courts will uphold the strict English rules applicable to warranties, although the point has not been tested before the Japanese courts in respect of express warranties, for example, the warranty as to tug, tow and stowage arrangements.58 The Japanese 51. The Japanese insurance market adopted the ICC 2009 in July of that year. However, some open covers include the “Paramount Clause against the ICC 2009”, which seeks to give the assured the benefit of the wider cover included within the ICC 1/1/63 (All Risks) or the ICC(A) 1/1/82, as the cover is more extensive in some respects under these Clauses, for e.g., in relation to the exclusions of packing and insolvency. This practice may give the assured the benefit of additional cover at the price of clarity as to the extent of the cover in view of the conflicts that potentially arise between the different versions of the Institute Cargo Clauses. 52. See para. 6.1 above. 53. At that time, the Japanese market also adopted new policy forms, which are no more than a jacket reflecting the terms of the new MAR Form introduced in 1982, see Dunt, Marine Cargo Insurance, at para. 1.9 for the background to the MAR Form and its introduction into the London market in 1982. 54. See para. 3.21 above. 55. To achieve this on a double-sided sheet of A4 may mean that the terms and conditions may appear in small print but standard clauses, such as the Institute Cargo Clauses, are widely available on the internet, for example, on the Lloyd’s Market Association website or on the websites of the Japanese insurers involved in international cargo business. 56. See Chapter 3 above at para. 3.24 et seq. for a discussion of warranties under English law. 57. [2000] Tokyo High Court Judgment of 9 February 2000 reported in Hanrei Jiho No. 1749 at p. 147. 58. This warranty provides that a towage risk is subject to survey of the tug and tow and that any safety recommendations of the surveyor are complied with. For a discussion of this type of warranty, which is common in cargo towage risk cases, see Dunt, Marine Cargo Insurance, at para. 6.17 et seq.

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Insurance Law, Article 14, provides that “The insurance contractor or the assured shall notify the insurer of the occurrence of the insurance accident, upon learning thereof, without delay”. However, it is considered that an insurance claim will be valid, even though the timely notification is not made, as this is unlikely to be treated as a strict warranty by the Japanese courts. Exclusions Statutory exclusions in Japan 6.21 Japanese law recognises the validity of exclusions and, indeed, includes statutory exclusions that reflect sections 55(2)(a) and 55(2)(c) of the Marine Insurance Act 1906, which provide, so far as material, as follows: “(a) The insurer is not liable for any loss attributable to the wilful misconduct of the assured … (c) Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject-matter insured …”

Article 17(1) of the Japanese Insurance Law is similar, in some respects, to section 55(2) (a) and provides that: “The insurer shall not be liable to cover the loss arising from intentional act or gross negligence of the insurance contractor or the assured …”

Article 829 of the Commercial Code is, again, similar in some respects to the Marine Insurance Act section 55(2)(c) in that Article 829 provides as follows: “The insurer shall not be liable for any loss or damage arising from inherent vice or the nature of the subject matter insured, ordinary wear and tear and/or intentional act or gross negligence of the insurance contractor or the assured.”

These exclusions are also similar to the exclusions in Clause 4 of the Institute Cargo Clauses 2009 (which would normally be incorporated into any Japanese international cargo policy), which provide: “In no case shall this insurance cover 4.1 loss damage or expense attributable to wilful misconduct of the Assured. 4.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subjectmatter insured. 4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured …”

It may be noted that Article 17 of the Insurance Law and paragraph 1 of Article 829 of the Commercial Code exclude not only intentional act but also “gross negligence”.59 Gross negligence is not a concept known to the English common law.60 The Institute Cargo Clauses 2009 do not impose any general duty of due diligence upon the assured,61 and in the absence of wilful misconduct, the assured’s default is not a defence to insurers under English law. It is submitted that the incorporation of the Institute Cargo Clauses in a typical 59. See para. 6.13 above fn. 39 for an indication of what amounts to gross negligence under Japanese law. 60. Pentecost v. London District Auditor [1951] 2 KB 759, though the English courts have been called upon to construe the words “gross negligence” when used in commercial contracts or contracts subject to other systems of law, see, for example, The Hellespont Ardent [1997] 2 Lloyd’s Rep. 547. 61. See Chapter 3 (English law) above at para. 3.37. There is a duty to minimise loss after a peril operates or, perhaps, when a peril is imminent but this duty to sue and labour does not arise until, at the earliest, a peril is operating, see para. 3.113 above.

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Japanese international cargo policy means that the parties have agreed to abide by the terms of the Institute Cargo Clauses rather than the Japanese statutory exclusions and that the exclusion of wilful misconduct in Clause 4.1 of the Institute Cargo Clauses is the only relevant exclusion. Accordingly, gross negligence of the assured is not excluded where, as is invariably the case, the Japanese policy is subject to the Institute Cargo Clauses and English law and practice.62 6.22 Article 17 of the Insurance Law excludes “war or any disturbance”. Similarly, Clause 6.1 of the Institute Cargo Clauses 2009 excludes “war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power”. In practice, there is cover for these risks whilst the cargo is aboard seagoing vessels, but not whilst it is on land. Cover is provided by Clause 1 of the Institute War Clauses (Cargo) 1/1/2009, which is invariably obtained by the Japanese cargo assured as part of the package for cargo insurance, albeit that war and strike risks commonly incur an additional premium.63 It is the practice in Japan for cargo to be insured against the risk of war and, in the circumstances, it is submitted that the exclusion of “war or any disturbance” in Article 17 of the Insurance Law is not applicable where, as is invariably the case, separate war and strikes cover is obtained in the terms described here. Moreover, the exclusions of war and related risks in the Insurance Law and in the Commercial Code are subject to any agreement between the parties that varies these exclusions. War cover can therefore be validly obtained as long as the provision of the policy is within Japanese public policy.

DURATION OF THE INSURANCE How duration of the insurance is regulated 6.23 The duration of the insurance, in particular the point where the risk commences and terminates, is likely in almost all cases to be governed by the terms of Clause 8 of the Institute Cargo Clauses. Similarly, a change in voyage is likely to be governed by Clauses 9 and 10 of the Institute Cargo Clauses. The reader is therefore referred to the English law chapter in respect of these matters.64 However, the approach of the Japanese courts may be coloured, in their consideration of these issues, by the Japanese statutory provisions that govern the duration of the insurance and what happens when there is a change of the voyage. In particular, in respect of a change of voyage, the Japanese legislation is in some respects more favourable to the assured and it is submitted that in those circumstances a Japanese court may apply its own legislation to protect the assured where Japanese law extends the insurance beyond the terms of the Institute Cargo Clauses.65

62. Article 829(3) of the Commercial Code also excludes “any loss or damage arising from wilful misconduct or gross negligence of the charterer, the insurance contractor or the assured in case of the insurance of the cargo or the profit or the freight earned upon arrival of the cargo”. However, it is submitted that this provision is not applicable in practice in so far as it is invariably overridden by the terms of the Institute Cargo Clauses, and the intention must be that insurers will only rely upon the exclusions in those clauses and not the statutory Japanese exclusions. 63. It is also customary to invariably take cover for strike risks under the Institute Cargo Clauses (Strikes) 1/1/2009, including cover for terrorism risks. 64. See Chapter 3 above at para. 3.70 et seq. for the duration of transit and para. 3.86 for change of voyage. 65. See, in particular, Articles 824 to 827 discussed at para. 6.25 below.

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Duration of the insurance: transit Attachment and termination of the insurance 6.24 The insurance under the Institute Cargo Clauses 200966 attaches from the time the goods are first moved in the warehouse for the purpose of immediate loading.67 Transit normally terminates on completion of unloading in the final warehouse at the destination named in the contract of insurance,68 and transit will also terminate if the assured chooses to use an intermediate warehouse for storage or allocation.69 These provisions of the Institute Cargo Clauses for the duration of the insurance will normally override the terms of Article 822 of the Japanese Commercial Code, which provides that insurers’ liability in case of cargo70 “shall commence at the time when the cargo leaves the land and terminate at the time when the unloading is completed at the port of discharge”. Article 822 may be equivalent to the implied conditions as to the commencement of transit in the Marine Insurance Act 190671 and, if so, it provides the basic framework upon which an agreement reached between the parties, such as to incorporate the Institute Cargo Clauses, will further extend cover for the duration of the insurance. Deviation, change of voyage, change of master and change of ship 6.25 The Institute Cargo Clauses make elaborate provision for what happens where there is a deviation, termination of the contract of carriage or a change of voyage.72 The Japanese Commercial Code also has detailed provisions in respect of change of voyage which, being in some ways more favourable than the provisions of the Institute Cargo Clauses, need to be considered in some detail. The provisions of the Commercial Code are as follows: “Commercial Code: Article 824 (1) If the voyage is changed before the commencement of the insurer’s liability, the insurance contract shall be of no effect. (2) If the voyage is changed after the commencement of the insurer’s liability, the insurer shall not be liable for any accident which occurs after the change of voyage; however, this shall not apply if the insurance contractor or the assured is not responsible for the change. (3) If the port of destination is changed and the execution of the change is commenced, the voyage shall be deemed to be changed even if the deviation has not yet been made from the insured voyage. Commercial Code: Article 825 If the assured fails to commence or continue the voyage or changes the route or materially changes or increases the risk in any other way, the insurer shall not be liable for any accident which occurs after the change or the increase [in risk], provided however, this shall not be applicable if such accident is not attributable to the change or increase or the loss or damage has resulted from an accident for which the insurer is liable or any fair reason exists. 66. The ICC 2009 commence transit from when the goods are “first moved” whilst the previous position under the ICC (All Risks) 1/1/63 and the ICC(A) 1/1/82 was that transit commenced when the goods left the warehouse. The reader is referred to para. 3.72 et seq. of the English law chapter for the current position regarding the commencement and termination of transit. 67. ICC, cl. 8.1. 68. ICC, cl. 8.1.1. 69. ICC, cl. 8.1.2 and see paras 3.76 to 3.81 in the English law chapter for a discussion of the other circumstances in which transit terminates. 70. Or prospective profit and/or remuneration to be earned upon arrival of cargo. 71. See, in particular, s. 42 of the MIA 1906, “Implied condition as to commencement of risk”. 72. ICC, cls, 8.3, 9 and 10. See the English law chapter at paras 3.82 to 3.87 above.

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Commercial Code: Article 826 Even though the master has been nominated in the contract of insurance, the change of master shall not affect the validity of the contract. Commercial Code: Article 827 In the case of insurance of cargo … where the ship is changed, the insurer shall not be liable for any accident which occurs after the change, provided however, this shall not be applicable if the change is not attributable to the insurance contractor or the assured.”

Clause 10.2 of the revised Institute Cargo Clauses 2009, as discussed in the English law chapter,73 deems the insurance to have attached where the voyage or destination is changed by the carrier, for example, in circumstances where the cargo is effectively stolen by the shipowner.74 The above provisions of Japanese law with regard to change of voyage can be construed as being, in some respects, rather wider and more advantageous to the assured than the provisions of the Institute Cargo Clauses. In particular, the provisions of Articles 824(2), 825 and 827 relating to change of voyage after the attachment of the insurance, or change of the ship, are all aimed at circumstances where the change is not attributable to the assured. In other words, unless the assured is responsible for the change, there is broad cover under Japanese insurance law for the assured, even where the new voyage is something not contemplated in the original insurance. Clause 10.2 of the Institute Cargo Clauses is, however, less broad as the additional cover it provides is limited, in particular, to cases where the originally contemplated transit has commenced.75 Bearing in mind the protective attitude of the Japanese courts to assureds, it is submitted that in cases before the Japanese courts it is likely that Japanese law will be applied in favour of the assured even where, as is invariably the case, English law and practice applies to claims under the policy.

CLAIMS AND LOSSES Claims Notification of loss 6.26 Under English law, there is no statutory requirement that losses under an insurance contract must be notified promptly to insurers, nor is there any express requirement to that effect in the Institute Cargo Clauses. However, the old form of the marine cargo policy used for cargo business had a requirement for prompt notification of claims76 and it is the practice in the Japanese market to endorse upon all cargo policy documentation a strict requirement for prompt notification of claims as well as instructions to the assured to employ surveyors and the like to assist in quantifying the damage. Additionally, Article 14 of the Japanese Insurance Law provides as follows: “The insurance contractor or the assured shall notify the insurer of the occurrence of the insurance accident, upon learning thereof, without delay.” 73. See paras 3.86 to 3.87 above. 74. See para. 3.87 above. 75. This would not extend the insurance, for example, to a case where a fraudulent bill of lading was issued for carriage of the cargo on another ship and the insurance only covered a named ship, see Kallis (George) Manufacturers Ltd v. Success Insurance Ltd [1985] 2 Lloyd’s Rep. 8(PC). The Japanese law appears to give wider cover that would possibly include such a case. 76. See Dunt, Marine Cargo Insurance, at para. 13.1.

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Accordingly, prompt notification to the insurer regarding loss or damage to the cargo is a strict duty falling upon the assured (or his agent) under Japanese law. The law is construed such that the insurer is entitled to decrease the insurance payment if the amount of the claim has been increased by late notice. On the other hand, the provisions in the standard Japanese policy, and in Japanese law, do not create a condition precedent to liability such that the claim fails in its entirety simply due to late notification. It is submitted that in view of the protective attitude towards assureds, there would be a considerable burden upon the insurer in each case to show loss flowing from the late notification in order to justify a reduction in the claim payment. Limitation of action: time bar 6.27 In England, the time limit for bringing a legal action in the courts under a marine cargo insurance policy is six years from the date the cause of action accrued, which is normally the date of the loss.77 However, there is no contractually agreed time limit for claims in the typical Japanese policy,78 nor is there any time limit in the Institute Cargo Clauses. The right to claim under a marine cargo policy, or to claim a refund of premium, ceases by prescription under Japanese law if not exercised within three years from the date of the claim, or, in respect of return of premium, when the return of premium became due.79 As this bars the remedy, unless proceedings are commenced in Japan within three years, the fact that the typical Japanese marine cargo policy makes claims subject to English law and practice is most probably irrelevant. It is therefore submitted that any assured in Japan, who wishes to exercise his remedy in the Japanese courts, must commence proceedings within three years from the date of the loss of or damage to his cargo. Proof of loss 6.28 The approach of the Japanese courts to proof of loss is similar to that discussed earlier in this book in relation to English law and practice.80 In general, the burden of proof is upon the assured to show a loss falling within the policy and the insurer must establish any exclusion. The assured does not have to prove his case beyond reasonable doubt but on the balance of probabilities. Interest and costs 6.29 The Japanese courts do not award costs though certain expenses are recoverable. So far as interest is concerned, in Japan interest is recoverable if legal proceedings have been commenced, so the position is the same as it is in England, that is to say, it is necessary to commence legal proceedings to trigger the right to interest.81 The usual practice in Japan is 77. See para. 3.88 above and Dunt, Marine Cargo Insurance, at para. 13.14. 78. A typical Japanese marine cargo policy is issued according to English law and practice as to the settlement of claims. The statutory time limit in England bars the remedy rather than the right; see Dunt, Marine Cargo Insurance, at para. 3.14 fn. 13. Accordingly, there is no time limit within a contract of marine insurance under English law. 79. Insurance Law, Article 95. 80. See para. 3.90 above. 81. See Dunt, Marine Cargo Insurance, at para. 13.7.

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to award 6% annual interest from approximately one month after the claim is presented to the insurer, this being in accordance with Article 514 of the Commercial Code. The Insurance Law, Article 21(2), similarly provides that, if there is no provision in the policy for the time of payment, the insurer shall not bear any liability for delay in payment until it has had the necessary time to consider the insurance claim. One month from the presentation of the claim is usually considered as reasonable time. Good faith and fraudulent claims 6.30 Under English law, section 17 of the Marine Insurance Act 1906 provides that the contract of marine insurance is a contract of utmost good faith and that the contract may be avoided if good faith is not observed by either party. However, although this duty exists after the contract has been concluded, and is a continuing duty that applies to claims, it has been narrowly construed so as to effectively deprive it of any independent effect.82 There is, however, in English law a quite separate doctrine in relation to fraudulent claims that will bar a claim where the fraud is substantial and, indeed, will bar any valid part of a fraudulent claim.83 Similarly, Japanese law has very specific provisions regarding fraudulent claims in Article 30 of the Insurance Law, which provides: “The insurer may cancel a non-life insurance contract: (1) if the insurance contractor or the assured has caused or intended to cause damage in order to make the insurer pay the insurance benefit under the non-life insurance contract; or (2) if the assured has committed or intended to commit fraud in connection with the claim for the insurance benefit under the non-life insurance contract; or (3) if any other material event happens other than those referred to in the preceding two subparagraphs in which the insurer’s trust in either the insurance contractor or the assured is undermined or which makes the continuance of the non-life insurance difficult.”

It will be seen that these provisions are very specific with regard to fraudulent claims and also allow the insurer a right to cancel the contract where the relationship is undermined so that it is difficult to continue the insurance contract. However, the cancellation shall be effective only to the future (Article 31(1)). The insurer may be liable for any insurance claim raised by the assured before cancellation, unless the loss falls outside the policy or any exemption is applicable. Total loss of cargo: abandonment 6.31 English law recognises two types of total loss: actual and constructive. There is an actual total loss where the assured is irretrievably deprived of possession of the cargo,84 or it is destroyed, or so damaged that it ceases to be a thing of the kind insured.85 A constructive total loss takes place in three circumstances: first, where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable;86 secondly, where the assured is deprived of possession of his goods and it is unlikely that 82. See para. 3.92 above. 83. Op cit. 84. MIA 1906 s. 57, see para. 3.94 above. 85. MIA 1906 s. 57, see para. 3.101 above. 86. MIA 1906 s. 60(1).

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87

he can recover them; and thirdly, where the costs of recovering the goods would exceed their value when recovered.88 Clause 13 of the Institute Cargo Clauses 2009 also makes provision for a claim for constructive total loss where the subject-matter insured is reasonably abandoned, either on account of its actual total loss appearing to be unavoidable, or because the cost of recovering, reconditioning and forwarding the subject-matter insured to the destination to which it is insured would exceed its value on arrival.89 The general incorporation of English law and practice as to “claims” in the typical form of Japanese policy, as well as the incorporation of English law and practice in the Institute Cargo Clauses, means that these rules of English law are likely to be applied by the Japanese courts. However, these rules may need to be applied in parallel with the Japanese statutory rules as to abandonment. In this respect, Article 833 of the Japanese Commercial Code provides that the assured may abandon the subject-matter insured to the insurer, and claim for the full amount insured, in the following circumstances: “1. 2. 3. 4. 5.

If the ship is sunk. If the ship is missing. If the ship is un-repairable. If the ship and/or the cargo is captured. If the ship and/or the cargo is restrained by order of a government and not released after more than six months.”

It is further provided by Article 834(1) of the Commercial Code that, “a ship shall be deemed to be missing if the existence of the ship is unknown for six months”.90 In practice, the formal abandonment of cargo rarely takes place in Japan.91 However, if the cargo is abandoned, it is submitted that the Japanese courts will apply these rules in light of the Institute Cargo Clauses and the Marine Insurance Act 1906 and, in cases of conflict, will seek to protect the assured by applying those rules more favourable to the assured in any particular case. The position with regard to “capture” is of particular significance in the light of the Somali pirate cases and is now considered. 6.32 It is arguable under Article 833(4) of the Japanese Commercial Code that if “the ship and/or the cargo is captured”, the assured has a right to abandonment and recovery of the full insured amount from the insurers. This raises the question whether a “capture” of the ship and cargo by Somali pirates entitles the assured to abandon the cargo and claim a total loss under Article 833(4), even though the cargo will, in all likelihood, be returned in exchange for a ransom payment. It is submitted that the Commercial Code is quite an old law, passed in 1890, when the capture of a ship was likely to be final and last forever, or at least a lengthy period of time rendering the cargo commercially useless. If this is the correct approach, abandonment will not be allowed under the Japanese Commercial Code as in almost all of the Somali pirate cases the ship and cargo have been returned within a few months. It is anticipated that the Japanese courts will not allow abandonment and will take a very similar view to that adopted by the English court in Masefield AG v. Amlin Corporate Member Ltd now considered. 87. MIA 1906 s. 60(2)(1)(a). 88. MIA 1906 s. 60(2)(1)(b). 89. See further para. 3.97 above as to the difference of opinion as to whether this limits the availability of the other circumstances in which a total loss is payable under MIA 1906. 90. MIA 1906 s. 58 provides, “where the ship concerned in the adventure is missing, and after the lapse of a reasonable time no news of her has been received, an actual total loss may be presumed”. 91. See Dunt, Marine Cargo Insurance, at para. 13.50 for the similar situation in England.

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6.33 In the Masefield case,92 Somali pirates seized a vessel and cargo in order to extract a ransom that, after about six weeks, was paid and the cargo released. It was argued that the ship and cargo had been “captured” and that the capture by pirates rendered the cargo an actual total loss, this argument being based on an ancient English authority.93 The English court held that in circumstances where most if not all of the ships and cargoes taken by Somali pirates have been returned, it was not appropriate to apply this ancient rule and the cargo was not an actual total loss by “capture”. It was also argued that the cargo was an actual total loss as the assured had been “irretrievably deprived” of it. Again, in the light of the evidence that Somali cargoes were ransomed and invariably returned to the cargo owners, as the cargo had been in this case, it was held that the assured had not been irretrievably deprived of the cargo. Loss of the adventure 6.34 The concept of loss of the adventure94 is not known to Japanese law. However, as the concept of loss of the adventure is concerned with “liability for claims”, the Japanese courts may apply English law and practice in accordance with the agreement in a typical Japanese cargo policy.95 In particular, most claims arising in relation to loss of the adventure constitute claims for forwarding charges under Clause 12 of the Institute Cargo Clauses 2009. This Clause provides that where, as a result of the operation of a risk covered by the insurance, the insured transit is terminated at a port or place other than that to which the subject-matter insured is covered under the insurance, the insurers will reimburse the assured for any extra charges properly and reasonably incurred in forwarding the subject-matter insured to its insured destination. As this is a claims issue, and the Institute Cargo Clauses are subject to English law and practice,96 the Japanese courts will apply English law rules to enable the assured to recover for a loss of the adventure or for forwarding charges. Partial loss: measure of indemnity Valued and unvalued policies 6.35 Article 18 of the Insurance Law of Japan provides that: “The loss amount covered by a non-life insurance contract (hereinafter called the ‘covered loss amount’) shall be calculated on the basis of the value at the place and the time where and when the loss has occurred.”

In Japan, marine cargo is generally insured on an agreed value basis. Usually the agreed value fixed would be the CIF value of the cargo plus 10% or 20%.97 Where the insured value is agreed at a certain fixed amount, the insurance indemnity is calculated based on 92. [2011] EWCA Civ 24 (CA); [2010] EWHC 280 (Comm); [2011] 1 Lloyd’s Rep. 630 (CA); [2010] 1 Lloyd’s Rep. 509; [2011] 3 All ER 554, and see Chapter 3 (English law) at para. 3.94 and para. 3.98 in the context of actual and constructive total loss, respectively. 93. Dean v. Hornby (1854) 3 El & Bl 180. This case relates back to the time when traditional pirates made off with the vessel, and the cargo was never seen again. 94. See para. 3.104 above where loss of the adventure is considered under English law. 95. See para. 6.3 et seq. above as to the typical agreement that English law applies to liability for claims. 96. ICC, cl. 19. 97. See para. 3.108 above for a discussion of the similar practice in England.

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that agreed insured value unless the value is “significantly” higher than the insurable value, being the value at the place and time where and when the damage has occurred. The usual practice of agreeing a value for the cargo of CIF plus 10% or 20% would not be regarded by the Japanese courts as “significant”, though it is difficult to construe that word. In a case where the valuation is fraudulent, then this would certainly amount to a “significant” overvaluation.98 There is no Japanese case law to indicate how to test the word “significant” in terms of an over-valuation where it is not fraudulent, but it is submitted that if the valuation was so material as to change the nature of the risk, that would probably be considered by the Japanese courts as “significant”.99 Under-insurance 6.36 Under section 81 of the Marine Insurance Act 1906 where the assured is insured for an amount less than the insurable value, he is deemed to be his own insurer in respect of the uninsured balance.100 The effect of this section is that the assured will suffer a situation akin to average in circumstances of a partial loss adjusted under section 71(3) of the Marine Insurance Act 1906. For example, if the cargo has a sound market value of ¥100,000 and is insured for an agreed value of only ¥60,000, and suffers damage to the extent of 50%, the assured will be his own insurer for the excess of ¥40,000 over the agreed insured amount of ¥60,000. Under section 71(3) of the 1906 Act, the depreciation in value of the cargo, which is 50%, is then applied to the insured value of ¥60,000 and the assured recovers only ¥30,000. As this calculation is a matter of “liability for claims”, in accordance with the choice of English law clause found in the typical Japanese insurance policy,101 the English law rule is likely to apply in most if not all cases. Nevertheless, it may be noted that under Article 19 of the Japanese Insurance Law it is provided that: “If the insured amount less than the insurable value (or the agreed insured value, if any), the insurance benefit payable by the insurer shall be the amount obtained by comparing the proportion of the amount insured to the insurable value.”

Accordingly, under Japanese law the same rule applies and the assured in the example given above will recover ¥30,000 and not, for example, ¥50,000. Recoverable expenses Sue and labour: mitigation of loss 6.37 Under the general heading “Minimising Losses”, Clause 16 of the Institute Cargo Clauses provides that it is the duty of the assured to take such measures as may be reasonable for the purpose of averting or minimising a loss, and to ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised. In circumstances where the assured complies with this duty and incurs expense, it is agreed that the 98. Where the value of a building was about ¥2,000,000, the agreed amount of ¥127,400,000 was regarded as “significant” and fraudulent, see (1997) Nagoya District Court decision of 26 March 1997, reported in Hanrei Jiho No 1609 page 144. 99. This would accord in general terms with the English law position, see para. 3.109 above and see Dunt, Marine Cargo Insurance, at para. 5.21 et seq. 100. For a consideration of under insurance see Dunt, Marine Cargo Insurance, at para. 15.25 et seq. 101. See paras 6.3 to 6.5 above.

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insurers will, in addition to any loss recoverable under the policy, reimburse the assured for any charges properly and reasonably incurred in pursuance of these duties.102 Similar provisions apply under Article 13 of the Japanese Insurance Law where it is provided as follows: “When the insurance contractor or the assured learn of the occurrence of an insurance accident, they shall be obliged to prevent the occurrence of loss and its expansion.”

In Japan, this provision, and the equivalent provision in the Institute Cargo Clauses, is construed so that any increase in the loss is not covered by the insurer if the assured fails to mitigate the loss intentionally or by gross negligence. For example, in the case of Shogado Co Ltd v. Nipponkoa Insurance Co Ltd,103 a Monet painting with a value of ¥520,000,000 was lost. The assured did not notify the insurer that the lost painting would be on sale at a Sotheby auction where it had a reserve price of £1,300,000. The painting was eventually sold for £1,430,000 (equivalent to ¥237,000,000). The Tokyo District Court held that the assured had failed to notify the insurer that the painting would be on sale at a Sotheby’s auction and that, if they had notified the insurer, it could have been recovered for as little as the sale price of ¥237,000,000. Accordingly, it was held that the assured could only recover ¥237,000,000 (and not ¥520,000,000) against the insurer as the assured had knowingly failed to mitigate the insurance loss contrary to Article 13 of the Insurance Law. 6.38 Article 23(1) of the Insurance Law, concerning the assured’s duty to mitigate a loss, provides: “The following expenses shall be paid by the insurer: (1) any expense necessary to calculate the damage amount (2) in case of Article 13, any expense necessary or contributory to prevent the occurrence or expansion of the damage.”

In accordance with this provision, the insured is entitled to recover any and all expenses and costs to mitigate the insurance loss in accordance with Article 13 of the Insurance Law. This accords with the provisions of the Marine Insurance Act 1906 section 78(1) and of Clause 16 of the Institute Cargo Clauses. Under these provisions, if the assured incurs reasonable expenditure to mitigate the loss, that expenditure is recoverable from the insurers in addition to any claim that lies under the policy for loss of or damage to the goods. Salvage 6.39 There is no provision concerning salvage in the Insurance Law or the Commercial Code. Salvage is therefore governed by the policy terms and English law applies to insurers’ liability for salvage. General average 6.40 Article 817 of the Commercial Code provides: “The insurer shall cover general average contributions payable by the assured. If only a part of insurance value is insured, the insurer’s liability shall be determined by [comparing] the proportion of the amount insured to the insurable value.”

This provision is similar to Section 73(1) of the Marine Insurance Act 1906, which is generally reversed in the London market by brokers’ clauses which deem the cargo to be 102. See further the discussion at para. 3.113 where the duty to sue and labour is considered under English law. 103. (2002) decision of the Tokyo District Court held on 26 February 2002.

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insured for its full contributory value. The same practice prevails under Japanese law and practice where it is usual for the policy to include a clause that provides that general average contributions will be for the full contributory value, even in the event that the cargo is under-insured. There are the more generous provisions under the Institute Cargo Clauses whereby the cargo underwriters are always liable for general average, even if the goods are insured against limited perils.105 These provisions are considered valid under Japanese law. Subrogation The right to subrogate 6.41 Article 25 of the Insurance Law, so far as material, provides: “If the insurer has paid the insurance benefit, the insurer shall, automatically, acquire the rights of the assured obtained as the result of the damage caused by the insurance accident (including the right to claim [against third parties] ….) to the extent of the lesser of (1) The amount of insurance benefit paid by such insurer or (2) The amount of the assured’s claim [against the third party] … if the indemnity is less than the amount of damage suffered by the assured, the assured shall claim the unpaid damage [from the third party] in priority to the subrogated claim acquired by the insurer.”

According to this Article, the insurer acquires the assured’s right to claim against third parties by paying the indemnity to the assured. Under Japanese law, no subrogation receipt or assignment letter is necessary. The right to claim is automatically transferred to the insurer upon payment of the indemnity. However, it is the practice of the Japanese insurance market for the insurer to obtain a subrogation form signed by the assured. This is usually in the standard Lloyd’s form because this is a matter of “claims” which is, by the typical Japanese policy, subject to a choice of English law and practice.106 In Japan, the practice is for the insurer to commence proceedings in his own name and not in the name of the assured. Japanese law gives to the insurers the right to claim only by virtue of the fact of the payment of the insurance money and this must still be proved despite the existence of a Subrogation Form.107 The exercise of subrogation rights in practice 6.42 Article 25(2) of the Insurance Law limits the right of subrogation so that: “…, if the indemnity is less than the amount of damage suffered by the assured, the assured shall claim the unpaid damage [from the third party] in priority to the subrogated claim acquired by the insurer.”

Accordingly, if the insurer settles the assured’s damages partially for any reason, such as under-insurance or the application of an excess, the assured is entitled to claim against the third party with priority over the insurer. In accordance with this rule, the insurer will not receive any recovery before the assured recovers their claim in full. Although English law allows the assured the right to control proceedings taken in his name, insurers may be entitled to recover first, depending on the circumstances in which the under-insurance arose.108 104. See the discussion of the London market provision at para. 3.119 above. 105. See ICC(B) and (C) cl. 2, which covers general average incurred “from any cause” and not merely the named perils. 106. For the standard form of Lloyd’s Subrogation Form, see Dunt, Marine Cargo Insurance, Appendix 9. 107. For the similar position in France, see Chapter 11 at para. 11.78 below. 108. For a detailed consideration of the effect of under-insurance on insurers’ subrogation rights under English law, see Dunt, Marine Cargo Insurance, at para. 15.30 et seq.

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It is unclear whether the choice of English law and practice as to “claims”, which appears in a typical Japanese policy,109 would incorporate the English law rule so as to override Article 25 of the Insurance Law. However, it is submitted that as Japanese law is protective of the assured, it is likely that in any case of conflict a Japanese court is likely to apply the rule in Article 25 to protect the assured in preference to the rules of English law, even though the policy may be subject to the application of English law and practice as to liability for claims. Total loss and salvage 6.43 Article 24 of the Insurance Law provides for the insurer’s right to ownership of the subject-matter insured in cases of total loss and states as follows: “If the subject-matter insured is entirely destroyed [or lost] and the insurer has paid the insurance benefit, the insurer, automatically, shall acquire the title or the property right of the subject matter insured owned by the assured in accordance with the proportion of the amount of the insurance benefit to the insurance value (or the agreed insurance value, if any).”

Accordingly, if the subject-matter insured has, for example, an insured value of ¥100,000 and it is stolen and the insurer pays ¥100,000 to the assured, the insurer acquires the full title of the subject-matter insured. If, on the other hand, the insurer pays ¥80,000, he acquires only 80% of the ownership of the stolen object. Double insurance and contribution 6.44 Where one or more policies are affected by the same assured on the same interest in the same cargo for an amount in excess of its insurable value, there is said to be double insurance.110 Japanese law and practice is quite different from the English practice with regard to double insurance. So far as the practice is concerned, neither the standard form of Market Reform Contract (“MRC”)111 nor the Institute Cargo Clauses make any provision against double insurance such as a non-contribution or excess clause, providing that if there is other insurance, the insurers will not respond or will only pay in excess of the amount insured by the other policy. Accordingly, the cargo policy will pay in full if goods are, for example, destroyed by fire in an intermediate warehouse at the docks after the transit has begun and the goods are both insured for that transit and for fire in the warehouse. This is because it is the practice of fire insurers to insert a non-contribution clause, called the “Marine Insurance Clause”, which relieves them of liability if there is other insurance on the risk.112 In order to neutralise the Marine Insurance Clause, by the practice of the Japanese market,113 a typical Japanese marine cargo policy includes the following clause: “This insurance does not cover any loss or damage to the property which at the time of the happening of such loss or damage is insured by or would but for the existence of this Policy be insured by any fire or other insurance policy or policies except in respect of any excess beyond the amount which 109. See para. 6.3 above. 110. See MIA 1906, s. 32, and see para. 3.123 above, where double insurance is considered under English law. 111. For an example of an MRC, see Dunt, Marine Cargo Insurance, Appendix 5. 112. See, for example, the situation that arose in Niger Co v. Guardian Assurance Co (1922) 13 Ll. L. Rep. 75 (HL) and see Goodacre, Marine Insurance Claims, 3rd edn, 1996, Witherby, pp. 1007–1008, which describes the practice of fire insurers, which is to incorporate the “Marine Insurance Clause”, a form of non-contribution clause that seeks to protect fire insurers in these circumstances and place the burden on marine insurers. 113. See Mance, Goldrein and Merkin (eds), Insurance Disputes, 3rd edn, 2011, Informa, at para. 10.13 fn. 1.

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would have been payable under the fire or other insurance policy or policies had this insurance not been effected.”

Under English law and practice, the effect of such a clause is that fire and marine insurers should share proportionately in the loss.114 6.45 Under Japanese law where there is double insurance, Article 20 of the Insurance Law provides, so far as material, as follows: “1. Where damage covered by a non-life insurance contract is also covered by another insurance contract, the insurer is liable to pay the insurance money with respect to the entire amount of damage [that is] covered to the assured. 2. In the event that the total amount of the insurance money to be paid by each insurer of two or more non-life insurance contracts exceeds the amount of damage [that is] covered (if the amounts of the damage to be covered calculated pursuant to the respective non-life insurance contracts vary, the highest one;…) and if one of the insurers has paid the insurance money to the assured beyond its share (the amount obtained by multiplying the amount of damage to be covered by the proportion of the amount of insurance money to be paid by each insurer assuming that there is no other non-life insurance contract, to the total insurance monies;…) and obtains a release on behalf of all insurers, that insurer is entitled to claim against the other insurer(s) a contribution [for any amount paid] in excess of the insurer’s own share of liability.”

This Article is unique. It allows the assured to claim from just one of the insurers the full insurance money due under his policy in cases where more than one insurance contract exists upon one subject-matter insured. So far as the contribution between insurers is concerned, the insurer who pays an indemnity in excess of his share, because of his statutory liability based on the full value of all the insurances, is able to recover from the other insurer or insurer(s), but only the amount in excess of his share. His share is obtained by multiplying the amount of damage to be covered by the proportion of the amount of insurance money to be paid by each insurer, on the assumption that there is no other insurance, to the total insurance money. For example, insurance company A underwrites a US$100,000 CIF value cargo at an agreed insured value of US$120,000 insurance and insurance company B underwrites the same cargo at an agreed insurance value of US$110,000 and the cargo is a total loss during the voyage: A’s share shall be 120,000 × 120,000/(120,000 + 110,000) = 62,600 and B’s share shall be 120,000 × 110,000/(120,000 + 110,000) = 57,400. When A pays the assured US$120,000 and obtains full release, A is entitled to recover US$57,400 from B, which exceeds A’s share of US$62,600. This provision is not compulsorily applicable, if the policy otherwise provides. The Institute Cargo Clauses make no reference to double insurance and do not therefore “otherwise provide”. Moreover, while it is arguable that English law is applicable to any double insurance issue, based on the English governing law clause of the Institute Cargo Clauses,115 it is doubtful whether a Japanese court would apply English law to a double insurance issue as this Article in the Insurance Law is intended to protect the assured where the insurance policy is issued in Japan. 114. It is submitted that this must be the position following the decision in Weddell v. Road Transport and General Insurance Co Ltd [1932] 2 KB 563, though it may be noted that at first instance in Niger Co v. Guardian Assurance Co (1920) 4 Ll. L. Rep. 320, Rowlatt J at p. 339 seems to have rejected a similar argument by the South British Insurance Company for fear that such a clause in their policy, and in the fire insurance policy as well, would have resulted in the Niger Company having “cut themselves out of protection altogether”. 115. ICC, cl. 19, which provides that the insurance is subject to English law and practice.

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CHAPTER 7

A U S T R A L I A N L AW A N D P R A C T I C E Derek Luxford1

INTRODUCTION Scope and structure of the chapter 7.1 As Australia and England share common legislation2 and practice,3 this chapter concentrates on those aspects of Australian law and practice that diverge from that described in Chapter 3 (English law). In order to enable a quick comparison to be easily made between the law of Australia and England regarding, for example, non-disclosure or warranties, or claims issues, such as loss of the adventure or constructive total loss, this chapter is structured in the same order, and with the same headings, as the other common law chapters in this book and, in particular, as the English law chapter. The most important differences between Australian and English law are in relation to the insurance of cargo for inland transit or in store, or against other risks that do not involve maritime perils.4 These risks are subject to the separate regime of the Insurance Contracts Act 1984, which imposes a more even balance between the rights of the assured and insurers. 7.2 This chapter not only highlights the areas where Australian law of marine cargo insurance is different from English law, but also where it complements and adds to English law. Australia has its own common law5 and there are a number of decisions on marine insurance that illustrate and expand upon the English position. Importantly, there are also cases on marine cargo insurance and, in particular, the Institute Cargo Clauses. Whilst these are not numerous, they include a number of decisions of importance including, in particular, Verna Trading Pty Ltd v. New India Assurance Co Ltd,6 which examines the law of marine cargo insurance at a depth only rarely encountered in the English cases.

1. Partner, Hicksons, Australia. 2. The Marine Insurance Act 1909 (MIA 1909) of Australia is virtually identical to the English MIA 1906, see the Australian Law Reform Commission (ALFC) report, Review of the Marine Insurance Act 1909 (Cth) (ALRC Report 91) (ALRC Report) at para. 2.7.9. 3. Australia has a close association with marine insurance law and practice in the United Kingdom and other common law jurisdictions. The London market and United Kingdom law have been the leading influence in the global marine insurance market, op. cit. ALRC Report at para. 3.43 above. Consequently, there is a widespread practice of adopting the Institute Cargo Clauses (ICC) in Australia, as considered in para. 7.9 below. 4. See paras 7.12 to 7.16 below for an examination of those risks that constitute maritime perils falling within the terms of the MIA 1909. 5. See para. 7.6 below, where the differences between English common law and Australian common law are considered. 6. [1991] 1 VR 129 (Supreme Court of Victoria).

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Sources of Australian law and practice The Australian legal system 7.3 Australia is a federation with two parallel systems of government, namely, the Commonwealth Government based in Canberra and the governments of each of the six States and two Commonwealth Territories (the Australian Capital Territory and the Northern Territory). The Commonwealth Government has power, under the Commonwealth Constitution, to legislate in respect of insurance,7 which it has frequently exercised.8 There are two Australian statutes that are relevant to marine cargo insurance, the first is the Marine Insurance Act 1909 and the second is the Insurance Contracts Act 1984. The Marine Insurance Act 1909 7.4 The Marine Insurance Act 1909 is based on the English Marine Insurance Act 1906 and, with some very minor additions (mainly dealing with constitutional aspects), is almost identical to the English Act.9 Indeed, subsequent minor amendments to the English Act have not been followed in Australia.10 The Marine Insurance Act 1909, like its English counterpart, has always been treated as a code regulating all aspects of marine insurance and, as such, as preserving the common law rules.11 The challenge, in the context of the Insurance Contracts Act 1984, is to ascertain whether in relation to risks that contain nonsea elements (common in multi-modal transport) there is the necessary connection with the “sea” within the meaning of sections 7, 8 and 9 of the Marine Insurance Act 1909, as interpreted by the courts.12 The Insurance Contracts Act 1984 7.5 The English Marine Insurance Act 1906 was widely adopted in Commonwealth countries. However, it appears to be the case that it is only in Australia that subsequent legislation has been adopted, that is, the Insurance Contracts Act 1984, which imposes a quite different consumer-driven regime in substitution for the 1909 Act. The Insurance Contracts Act will apply to cargo insurance in some circumstances, particularly to cases of storage

7. Commonwealth of Australia, Constitution Act 1900 s. 51 (xiv). The States can legislate in respect of insurance but, if they do so, then, to the extent of any inconsistency, Commonwealth law prevails, see the Commonwealth of Australia Constitution Act 1900 s. 109. Currently, there is no relevant State legislation affecting any form of marine insurance, including cargo insurance. 8. See, e.g., the Insurance Act 1973, which regulates general insurance and Lloyd’s underwriters in Australia and the Life Insurance Act 1945, which governs life insurance. 9. As a rule of thumb, to find the equivalent provisions in the Australian MIA, as compared to the English MIA, add six sections to the English Act. Thus, s. 17 of the English Act (the duty of utmost good faith) is replicated in s. 23 of the Australian MIA 1909. 10. Subsections 2 to 5 of s. 23 of the MIA 1906 were repealed in England by the Finance Act 1959 ss. 30(5), (7), 37(5), Sch. 8 Pt. II, the effect of which is that in England the policy no longer needs to specify the subjectmatter assured, the voyage, the sum or sums assured or the name of the insurers. In England, the Finance Act 1959 op. cit. also repealed subsection 2 of s. 25 of the MIA 1906, which had provided that a time policy that exceeded a 12-month period was invalid unless it complied with the provisions of the Finance Act 1901. 11. MIA 1909 s. 4 and see Allison Pty Ltd v. Lumley General Insurance Ltd [2006] WASC 104, as discussed later in this chapter, see paras 7.40 and 7.66 below. 12. See paras 7.12 to 7.16 below.

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and inland transit, and where the insurance contract does cover maritime perils, as more fully described later in this chapter.13 The common law 7.6 Australia is a common law jurisdiction and the courts follow the doctrine of precedent, whereby courts are obliged to follow judgments of higher courts on the same issues pertaining to similar facts, but are not obliged to follow the judgments of a court of the same level. Unlike civil law systems where judgments are persuasive, in Australia judgments are one of the main sources of the law itself. Australia has its own system of common law,14 which varies in important respects that affect the application and interpretation of marine policies, particularly with regard to the identity of the assured, which may be important in the context of subrogation.15 The Australian courts have regard to the decisions of other common law jurisdictions especially England, and the earlier decisions of the English courts form part of the Australian common law.16 As the Marine Insurance Act 1909 consolidates the English common law, English decisions have continued to have a marked influence on the development of Australian marine insurance law as found in the judgments of the Australian courts. This applies not only to insurance contract coverage disputes, which take place without any particular reference to the Marine Insurance Act 1909 or the English Act,17 but also to coverage disputes involving the Marine Insurance Act 1909 where reference is frequently made to judgments of the English courts in relation to the equivalent provisions of the English Act.18 The Australian court system 7.7 In practice, there are nine distinct jurisdictions in Australia, namely, each of the States and Territories and the jurisdiction of the Commonwealth of Australia itself. Original jurisdiction for the issue of court proceedings in Australia resides in the Supreme Courts of each of the States and Territories and in the Commonwealth’s two courts, namely, the Federal Court of Australia and the High Court of Australia. The Federal Court, which was created as recently as 1976,19 has jurisdiction in relation to all matters that arise under Commonwealth legislation. In practice, since the early years of the Commonwealth,20 it is rare for 13. See paras 7.10 to 7.17 below. 14. Judiciary Act 1903 s. 80. 15. The ALRC from whose report the statement in the text is derived (para. 2.19 on the report on the MIA 1909) cites two examples. First, Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd [1987] 4 ANZ Ins Cas para. 74-674, [1987] 8 NSWLR 270 (NSWCA), [1988] 165 CLR 107 (HC). According to the ALRC, the principle enunciated in the Trident case is that a person who, though not a party to a public liability insurance policy, falls within the class of persons expressed to be insured by it, may enforce the indemnity for which the policy provides. A further example given by the ALRC is the case of Woodside Petroleum Development Pty Ltd v. H&R-E&W Pty Ltd [1997] 10 ANZ Ins Cas para. 61-395 (Anderson J), [1999] 20 WAR 380 (WA Full Court), which is discussed at para. 7.70 below in the context of subrogation. 16. More specifically, the common law of the various States and Territories as the relevant jurisdiction in Australia is not the Commonwealth but the State or Territory. 17. Orica Australia Pty Ltd v. Limit (No. 2) Ltd [2011] VSC 65, a case in the Supreme Court of Victoria in which a charterer’s liability coverage dispute took place without there being a reference to the MIA 1909. 18. See Allison Pty Ltd v. Lumley General Insurance Ltd [2006] WASC 104, for a recent example. 19. By the Commonwealth Federal Court Act 1976. 20. The Commonwealth came into existence in 1901 when the six states federated.

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the High Court of Australia to exercise its original jurisdiction, as it usually transfers these powers either to the Federal Court of Australia or to a Supreme Court of the appropriate State or Territory. In practice, the High Court of Australia only sits as an appellate court, being the highest court of Australia. Traditionally, prior to Federation in 1901, the courts of each State or Territory were considered sovereign within that territory; however, after Federation they shared sovereignty with the Commonwealth. There is a raft of legislation that determines how the courts transfer their constitutional and legislative powers to each other, including, most importantly, the Commonwealth Judiciary Act 1903 and the Jurisdiction of Courts (Cross-Vesting Act) 1987. The High Court of Australia, which had original jurisdiction over admiralty, continued to exercise original admiralty jurisdiction until 1989 and the coming into effect of the Commonwealth Admiralty Act 1988. 7.8 Marine cargo coverage disputes between assured and insurers are usually heard in the Supreme Court of the State or Territory, with appeals lying to an intermediate appellate court, and the final right of appeal (very rarely exercised in relation to marine insurance issues) is to the High Court of Australia. Some State and Territory Supreme Courts include a specialised commercial list or division, such as the Supreme Courts of New South Wales and Victoria.21 It is possible for decisions of judges at first instance in the various State or Territory Supreme Courts to be inconsistent in relation to similar legal issues or the construction, for example, of the Institute Cargo Clauses. There is also a parallel federal jurisdiction through the Federal Court at first instance with appeals lying to the intermediate Full Federal Court and also with the final appellate court also being the High Court of Australia. However, in practice, most marine insurance coverage disputes tend to come through the state court system. Market practice 7.9 The London market continues to have a strong influence on the practice of marine cargo insurance in Australia. There is widespread use of the various forms of marine policy wordings in place in England, including for present purposes, the Institute Cargo Clauses 1/1/82 and the Institute Cargo Clauses 1/1/09. The most commonly used form of contract is the “all risks” form, that is the Cargo Clauses (A). Until fairly recently, the birthplace of many marine brokers, underwriters and claims handlers was the United Kingdom, and this influenced their practice when they came to Australia, which very much mirrored the practice they had experienced in England. In more recent years, this has changed to some extent, with newer generations of marine insurance practitioners and the emergence of global marine insurers and broking houses playing a more prominent role in the Australian market. However, English practice is still the dominant practice in Australia. Application of the Insurance Contracts Act 1984 Importance of the issue 7.10 Since the 1960s, with the development of containerisation of goods, air transportation of goods and much improved road transportation of goods, the preponderance of cargo 21. For example, the unreported case of Helicopter Resources Pty Limited v. Sun Alliance Australia Limited (26 March 1991) was heard in the Commercial List of the Supreme Court of Victoria before Ormiston J, an experienced commercial judge whose valuable contribution to marine cargo insurance will be noted from time to time throughout this chapter.

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carried by sea around Australia has declined significantly when compared to other modes of transport. Where the marine cargo insurance is of a traditional nature against an ocean voyage in overseas vessels, there is no doubt that the Marine Insurance Act 1909 will apply. However, modern forms of cargo insurance include many examples of inland transit and storage and, in such cases, the issue of whether the Marine Insurance Act 1909 or the Insurance Contracts Act 1984 applies may be finely balanced.22 This issue may be important for, as a general proposition, the Insurance Contracts Act 1984 is more pro-assured. This applies particularly in relation to areas that are fundamental to the operation of the Marine Insurance Act 1909 and especially the duty of utmost good faith,23 the duty of material disclosure24 and the operation of the warranties implied by Division 7 of the Marine Insurance Act 1909.25 Other warranties implied by the Marine Insurance Act 1909, especially the warranty of seaworthiness in section 45 of the 1909 Act, can apply directly to cargo, for cargo is insured under a voyage policy.26 The Insurance Contracts Act 1984 also impacts on claims issues, such as average,27 and “other insurance” clauses where double insurance arises.28 7.11 As a starting point, it is the law that either the Marine Insurance Act 1909 or the Insurance Contracts Act 1984 applies to the whole contract. A contract of marine insurance (whether cargo or otherwise) cannot be severed so that some parts are governed by the Marine Insurance Act 1909 and some parts are governed by the Insurance Contracts Act 1984.29 The position in Australia is that the Insurance Contracts Act 1984 applies unless the risk is a marine risk.30 In other words, the Insurance Contracts Act 1984 and not the common law is the default regime. Pursuant to section 52 of the Insurance Contracts Act 1984, the parties are prevented from contracting out of that Act on terms more favourable to insurers, such as those to be found under the Marine Insurance Act 1909.31 This means in effect that unless the Marine Insurance Act 1909 applies to a contract of marine cargo insurance by law,32 the Insurance Contracts Act 1984 must apply to it, assuming the proper law of the contract is Australian law.33

22. See paras 7.10 to 7.17 below. 23. ICA 1984 s. 23. 24. MIA 1909 ss. 24 to 26. 25. MIA 1909 ss. 39 to 47 including the warranty of legality in s. 47 of the MIA 1909, which can be significant for cargo insurance. 26. This warranty, and the parallel warranty that the ship is cargo worthy in s. 46(2) of the 1909 Act are, however, normally waived by cl. 5.3 of the ICC. 27. See para. 7.65 below. 28. See para. 7.72 below. 29. Con-Stan Industries of Australia Pty Ltd v. Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14, [1986] 160 CLR 226 (11 April 1986). 30. A marine risk to which the MIA 1909 applies is excepted from the ICA 1984 by s. 9(1)(d). 31. This prohibition includes the choice of a foreign jurisdiction clause in order to circumvent the Act, see Akai Pty Ltd v. People’s Insurance Co Ltd [1996] 188 CLR 418, [1996] 141 ALR 374, High Court of Australia. For a consideration of the issues as to jurisdiction under Australian law, see Chapter 2 at para. 2.33 et seq. above. 32. The ICA 1984 applies to the insurance of pleasure craft, when the hull of the boat is assured, though where pleasure craft are carried as cargo they fall within the provisions of the MIA 1909, ICA 1984 s. 9A(1) excepting pleasure craft from the MIA, “unless the contract is made in connection with the pleasure craft’s capacity as cargo”. 33. A choice of a foreign law that modifies the operation if the Act, to the prejudice of the assured, is void, see ICA 1984 s. 8(2) and Akai Pty Ltd v. People’s Insurance Co Ltd [1996] 188 CLR 418. For a consideration of the rules of Australian law as to which law governs the contract, see Chapter 2 para. 2.60 above.

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Maritime perils 7.12 This brings us to the crux of the issue for identifying the relevant legal liability regime for cargo insurance, namely, whether there is the relevant “maritime” element as set out in the Marine Insurance Act 1909. Under the Marine Insurance Act 1909, a contract of marine insurance is a contract of indemnity whereby the insurer agrees to indemnify the assured against losses incident to a marine adventure,34 which occur when insurable property, including a ship or cargo,35 is exposed to “the perils consequent on, or incidental to, the navigation of the sea”,36 or where liability to a third party may be incurred thereby.37 Crucially, a contract of marine insurance can be extended to cover land risks, “or to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage”.38 However, in all cases a “marine adventure” involves the exposure of the subject-matter assured to “maritime perils”.39 Con-Stan Industries v. Norwich Winterthur 7.13 The leading Australian case on whether or not a contract of cargo insurance falls within the terms of the Marine Insurance Act 1909 is Con-Stan Industries of Australia Pty Ltd v. Norwich Winterthur Insurance (Australia) Ltd,40 a decision of the High Court of Australia. In this case, Con-Stan insured its stock-in-trade against a number of risks that were described in the proposal as including “transit risk – road, rail, sea, air, parcel, post”. The property was insured in transit “from place and/or places in Australia to place and/or places in Australia per any means of conveyance including loading and unloading”. This form of policy, or similar forms, is quite common for large industrial Australian undertakings in the Australian insurance market. The policy was clearly not intended mainly for overseas ocean transits, but it was submitted that because it contemplated, or at least included, the insurance of goods during their transit by sea, it was a marine policy within the meaning of section 9 of the 1909 Act, which gives instances of what amounts to a “marine adventure” and lists some of the “maritime perils”.41 It was argued that the evidence of the marine risks was not so trifling that they could be ignored and, further, that as the policy included the insurance of marine risks it was a “marine policy” and did not cease to have that character merely because it was largely to be characterised as a non-marine policy. The court held42: “Section 7 [of the Marine Insurance Act 1909] defines a ‘contract of marine insurance’ to be a contract whereby the insurer undertakes to indemnify the assured against losses incident to marine adventure. The carriage of goods by sea, which is an event encompassed by the terms of the insurance policy, is unquestionably a marine adventure (s.9). A contract which indemnifies the assured against losses incident to a marine adventure does not cease to be a contract of marine insurance because it 34. MIA 1909 ss. 7, 9(1). 35. MIA 1909 s. 9(2)(a). 36. MIA 1909 s. 9(2). 37. MIA 1909 s. 9(2)(c). 38. MIA 1909 s. 8(1). 39. MIA 1909 s. 9. 40. [1986] HCA 14, [1986] 160 CLR 226 (11 April 1986). 41. For a consideration of the “curious” drafting of s. 9(2), see Continental Illinois National Bank and Trust Co of Chicago v. Bathurst (The Captain Panagos DP) [1985] 1 Lloyd’s Rep. 625, per Mustill J at p. 631, as cited by Kennedy J in Mercantile Mutual Insurance (Australia) Ltd v. Gibbs and Another [2001] WASCA 271 at p. 38. 42. At para. 19.

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also protects the assured against land risks which are incidental to the sea voyage (s.8(1)). But a contract indemnifying the assured against losses which are not substantially incident to marine adventure is not a contract of marine insurance (Leon v Casey).43 No evidence has been led to illustrate the importance of such part of the transit risk as involved the carriage of goods by sea in the context of the whole policy. An examination of the terms of the policy indicates that it is but one small part of one section of the cover afforded. It cannot be said, therefore, that the policy, viewed in its entirety, is one which indemnifies the assured against losses that are substantially incident to marine adventure. Accordingly, the policy does not fall within the ambit of s.9 of the Act.”

The approach adopted by the High Court of Australia followed the English decision in Leon v. Casey44 and placed particular emphasis on the passage in the judgment of Greer LJ at p. 590, which reads: “If it has been held, as I think it has, that where the adventure is substantially a marine adventure the order for ship’s papers is applicable, then the question in each case is whether the adventure is, or is not, substantially a marine adventure, and in deciding that question the contract of insurance cannot be left out of account, for it is an indication of the adventure which the parties had in mind.”

This case was not concerned with the construction of the provisions of the Marine Insurance Act 1906 in England (which are equivalent to the provisions of the Marine Insurance Act 1909), which define a marine adventure, but was a case concerned with the development of the rules of discovery.45 In the Leon case, the voyage declared was for a journey by land from Cairo to Alexandria by lorry and thence by sea to Jaffa. The loss occurred during the lorry transit and there was an attempt, therefore, to say that this was a non-marine policy. However, the court held that the policy was substantially a marine policy and it was in a marine form. 7.14 In the Con-Stan Industries case, the High Court of Australia held that it could not be said that the policy, in that case, viewed in its entirety, indemnified the assured against losses that were substantially incidental to a marine adventure. Accordingly, it appears that a policy covering various modes of transport will be governed by the Insurance Contracts Act 1984 unless there is evidence that sea transport predominates. “Perils which may be designated by the policy” 7.15 “Maritime perils” are defined in section 9(2) of the 1909 Act as, “the perils consequent on, or incidental to, the navigation of the seas, that is to say, perils of the seas, fire … and all other perils either of the like kind, or which may be designated by the policy”. In the Supreme Court of Western Australia, in Mercantile Mutual Insurance (Australia) Ltd v. Gibbs,46 Kennedy J was of the opinion that the words “which may be designated by the policy” were a “dead end”,47 following the English decision of Mustill J in Continental Illinois National Bank and Trust Co of Chicago v. Bathurst (The Captain Panagos DP).48 43. [1932] 2 KB 576, at p. 590. 44. [1932] 2 KB 576. 45. The order for ship’s papers was an order for discovery, very favourable for marine insurers and, the issue was to what extent the heavy obligation implied by those rules should be placed as a burden upon assureds under non-marine policies. 46. [2001] WASCA 271 judgment affirmed by the High Court of Australia, [2003] 5 LRC 419. 47. At p. 39. 48. [1985] 1 Lloyd’s Rep. 625, and see Chapter 15 (comparative law) at para. 15.2 et seq., where the definitions of marine insurance are considered.

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If the correct construction of the words “or which may be designated by the policy” was that it is open to the parties to elect to extend the Marine Insurance Act 1909 to what would otherwise be non-marine risks, the non-derogation provisions in the Insurance Contracts Act 198449 would be overridden. This is because such words might have the effect of making the insurance contract one to which the Marine Insurance Act 1909 applies, and hence the Insurance Contracts Act 1984 does not apply by virtue of the exclusion in section 9 of the 1984 Act. As the cases cited above confirm, there does not seem to be any legislative intention for the words “or which may be designated by the policy” in section 9(2) of the Marine Insurance Act 1909 to be read so as to give a greater scope of operation to the 1909 Act than already applies in sections 7, 8 and 9(1). All these provisions are concerned with “marine adventures” in one form or other, including mixed land and sea risks, where those risks are “incidental” to any sea voyage or, it can be argued, to any “marine adventure”. In summary, it would not seem consistent with the overall scheme of the Marine Insurance Act 1909, or its interpretation, in Australian courts, for the parties to be able to agree to an extension of the concept of a “marine adventure” to include totally non-marine adventures such as goods carried by air, or goods entirely carried by land without any “incidental” sea voyage. In the circumstances, the law does not accord with what was the practice, and presumably the understanding of the market in Australia prior to the coming into effect of the Insurance Contracts Act 1984, and indeed for some years after that legislation came into effect, that land risks, air risks and storage risks were to be construed in the light of the provisions of the Marine Insurance Act 1909. 7.16 The New South Wales Court of Appeal in Hansen Development Pty Ltd v. MMI Ltd & Another50 held that a liability policy covering boating accidents on an inland lake was not a marine policy within the terms of the 1909 Act. There appear to have been two reasons for that decision: first, that a public liability policy had never been treated as a marine policy, and, second, that a lake was not part of the “sea”.51 It is submitted that, in all probability, that decision may be wrong and it certainly seems to be wrong, it is submitted, in relation to the assertion that there cannot be marine insurance in respect of a boat on inland waters as that plainly flies in the face of section 8(1) of the Marine Insurance Act 1909, which extends marine insurance to losses on “inland water”. It is also inconsistent with the subsequent decision of the High Court of Australia in the Mercantile Mutual Insurance case,52 where a liability policy in materially identical terms to that in the Hansen Development case, covering liability for a boating accident on an estuary, was held to be a marine policy within the terms of the 1909 Act. Market practice: demarcation between the legislative regimes 7.17 The Australian insurance market has regulated itself in its practice by reducing the risk of there being expensive, risky and unseemly concern of disputes under cargo contracts by, in practice, contractually subjecting some of those risks to governance by the Insurance Contracts Act 1984 where there might be an argument (and perhaps a reasonable argu49. ICA s. 52. 50. [1999] NSWCA 186. 51. At para. 11. 52. [2003] 5 LRC 419.

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ment) that the Marine Insurance Act 1909 ought to apply rather than the 1984 Act. For example, where there are mixed land and sea risks within the meaning of those phrases in the Marine Insurance Act 1909,53 it is not unusual to find a provision subjecting the cargo insurance contract to the Insurance Contracts Act 1984, not only when the risks clearly fall outside the scope of the Marine Insurance Act 1909, for instance entirely domestic road or air transport of cargo within Australia, but also where the goods are assured against marine risks falling within the scope of the Marine Insurance Act 1909.54 However, in these circumstances, a more usual practice in the Australian insurance market is for the cargo insurance contract to acknowledge that either the Marine Insurance Act 1909 or the Insurance Contracts Act 1984 might apply (as discussed below).55 Proposals of Australian Law Reform Commission 7.18 In the late 1990s, the Australian Law Reform Commission (“ALRC”) considered proposals for reform of the Marine Insurance Act 1906 so that the Act would move towards the more pro-assured provisions of the Insurance Contracts Act 1984. These proposals were developed following an extensive investigation and set out in a report entitled “Review of the Marine Insurance Act 1909”.56 Only a very small number of the recommendations in that report have been effected.57 Although there are occasional attempts to revisit the ALRC Report, there seems to be very little interest in the marine insurance market in doing so, or even the broader community. Since 2001, the Insurance Contracts Act has been amended and further proposals for reform of that Act lie in various reports before Parliament. There are still occasional suggestions, mainly from academic circles,58 that there is a case for abolishing the Marine Insurance Act 1909 altogether rather than trying to amend its provisions piecemeal, but the ALRC looked at such a proposal and dismissed it as not having any real merit. It is unlikely that there will be any substantial amendment to the Marine Insurance Act 1909 in the foreseeable future. The Commonwealth Government has far more urgent matters to consider and this applies to both major political parties, as the ALRC Report was produced under the former coalition government. The current Labour Party minority government appears more interested in possible reform of the Insurance Contracts Act 1984 as part of a continued push for further reform of consumer law generally, including insurance law, but not so as to remove some types of marine business out of the Marine Insurance Act 1909 and into the Insurance Contracts Act 1984, as was done with marine pleasure craft in 1998.59 53. MIA 1984 ss. 7 to 9. 54. As discussed at paras 7.10 to 7.17 above. 55. See para. 7.28 below. 56. “Australian Law Reform Commission Review of the Marine Insurance Act 1909, Report 91”, April 2001, “the ALRC Report”. 57. In 2002, ss. 59 and 60 of the MIA 1909 were repealed pursuant to the Financial Services Reform (Consequential Provisions) Act 2011. 58. See, most recently, R. Merkin “Australia: Still a Nation of Chalmers?”, Richard Cooper Memorial Lecture delivered at the Federal Court at Brisbane on 13 October 2011, which suggests that it is time to deliver the coup de grace and repeal the marine legislation. 59. So far as craft are concerned, it is of note that the ALRC Report recommended that the operation of the MIA 1909 be extended to commercial vessels on inland waters, which is currently outside the scope of the MIA 1909 unless “incidental” to a sea voyage, see MIA 1909 s. 8(1).

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7.19 The ALRC Report took the view that to put the matter beyond doubt, the Marine Insurance Act 1909 section 8 should be amended to refer expressly to losses arising from any “air risk incidental to a sea voyage” and that the 1909 Act should be amended so that, subject to the terms of the contract, and where appropriate, the “sea” and the “seas” should include inland waters so that marine insurance would cover risks on such waters. Further, the ALRC Report took the view that the 1909 Act should be amended in relation to section 8(2) to delete the reference to a “policy in the form of a marine policy” and to state that the risks referred to are those covered by the 1909 Act, unless the contract states otherwise. As mentioned above,60 none of these reforms have been carried out. The ALRC Report stopped short of recommending a form of multi-modal transit insurance (sometimes called Marine Aviation Transit, or abbreviated to “MAT”), as it did not recommend that the 1909 Act be amended to cover air cargo unless the carriage of air cargo was incidental to a sea voyage. The ALRC Report also recommended that the Insurance Contracts Act should be amended to cover contracts of insurance for the transportation of goods by water, other than goods being transported for the purposes of a business, trade, profession or occupation carried out on or engaged in by the assured. As discussed earlier in this chapter,61 this is, in practice, how the Australian cargo market already insures domestic consumer goods in transit, that is to say, they are insured on the basis that the Insurance Contracts Act 1984, and not the Marine Insurance Act 1909, is the applicable statute. The practical effect of such an amendment would be to remove from the Marine Insurance Act the insurance of the carriage of goods for non-commercial purposes. Such an amendment would parallel the amendment made in 1998 to section 9A of the Insurance Contracts Act 1984 whereby the insurance of marine pleasure craft was removed from the Marine Insurance Act 1909 into the Insurance Contracts Act 1984. That amendment was made without amending the Marine Insurance Act 1909 itself. 7.20 Notwithstanding the recent tendency of the Australian marine insurance market to accept the fact that some traditional forms of marine insurance cover ought, for commercial or even political reasons, to be governed by the Insurance Contracts Act 1984, the ALRC considered that there was a strong case for all insurance contracts that included “an element of marine cargo but which are not substantially contracts for marine insurance” to be covered under an amended Marine Insurance Act 1909.62 The ALRC considered that this would bring the position in Australia into line with the position in England, where the English Marine Insurance Act 1906 and the common law act in tandem so that, in practice, many risks which do not fall under the Marine Insurance Act 1906 are, nonetheless, treated in most respects under the common law in the same way.63 As mentioned above,64 this was certainly the view taken by the Australian insurance market or, at least, most of it, for the first few years after the Insurance Contracts Act 1984 came into practice and some insurers continued to operate that way until quite recently. However, in many cases, the Australian marine market seems no longer interested in trying to impose the Marine Insurance Act 1909 in marginal areas of cargo cover. 60. At para. 7.18 above. 61. At paras 7.10 to 7.17 above. 62. ALRC Report at para. 8.60. 63. Under English law, whether a policy is one of marine insurance has a number of important consequences, see Dunt at para. 1.21, and for a list of the distinctions between marine and non-marine insurance, see fn. 70 to that para. 64. At paras 7.6 to 7.17 above.

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FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE Utmost good faith: non-disclosure and misrepresentation Disclosure under the Marine Insurance Act 1909 7.21 Where the policy is primarily concerned with the carriage of cargo internationally by seagoing vessels, or even from one port to another in Australia by seagoing vessels (though this is rarer today than in 1909), the policy is likely to be subject to the Marine Insurance Act 1909 and the strict obligations of disclosure required by that Act.65 Where, on the other hand, the policy is one concerned with internal transits by road or rail (or by air), whether these be of a consumer nature (such as household removals) or whether they be for the carriage of industrial materials, the Insurance Contracts Act 1984 is likely to apply subject to the points discussed earlier in this chapter.66 Similarly, extensions to cover storage risks, even industrial storage risks, may well fall within the provisions of the Insurance Contracts Act 1984.67 7.22 The duties of disclosure by the assured and its broker under the Marine Insurance Act 1909 were considered in the context of a marine cargo claim by Byrne J of the Victorian Supreme Court in Akedian Co Ltd v. Royal Insurance Australia Ltd and Others,68 where the court applied the tests adopted by the House of Lords in Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd.69 The court held that the proper test for materiality is a twostage enquiry. The first stage requires an assessment of the impact of the non-disclosure, or the misrepresentation, upon the mind of a hypothetical prudent insurer. The second stage, which is anchored in the facts of the actual case, requires the court to determine whether the misrepresentation or non-disclosure did, in fact, induce the underwriter who issued the policy to assume the risk that it did. In the Akedian case, the assured had purchased used pipe-rolling machinery and shipped it from Indonesia to Hong Kong in 1992. The ship carrying the pipes caught fire and the pipes suffered damage. The insurers avoided the policy for non-disclosure and/or misrepresentation of two material facts; first that the cost of the insured goods to the assured when it purchased them was only about one seventh of the price represented to the insurers, and, secondly, the age of the goods was eight years and not five years as represented. As is not unusual, the assured sued its broker in the alternative. The assured and the insurers settled their dispute and the assured carried on against the brokers. The assured succeeded against the brokers who were held liable for substantial damages because the broker had misstated the two material facts to the insurers. The court found that both stages of the materiality of non-disclosure/misrepresentation test were satisfied on the facts of this case, based upon the evidence of the expert hypothetical “prudent” underwriter and also on the evidence of the actual underwriter. The remedy of avoidance 7.23 As described in Chapter 3 (English law),70 the only remedy under the Marine Insurance Act 1909 for breach of the duty of good faith, or for non-disclosure or misrepresentation, 65. See paras 7.22 to 7.25 below. 66. At paras 7.10 to 7.17 above. 67. Again, reference should be made to paras 7.10 to 7.17 above for the rules that apply in each individual case. 68. [1997] 148 ALR 480. 69. [1995] 1 AC 501. 70. At para. 3.9 above.

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is the draconian remedy of avoidance of the policy which is of little or no consolation to the assured, who in all likelihood has a substantial claim and is not properly compensated by return of premium. The Insurance Contracts Act 1984 has sought to address this problem by prohibiting the insurers’ avoidance of the contract in the context of the mutual contractual duties of good faith, pursuant to section 13 of the Insurance Contracts Act 1984. The 1984 Act does not provide a specific remedy for breach of the duty of good faith under section 13 but, as the duty is a contractual duty, it seems to follow that the innocent party’s remedy includes the usual remedies for breach of contract, including the right to damages. Examples of non-disclosure 7.24 The judgment in Helicopter Resources Pty Ltd v. Sun Alliance Australia Ltd (The Icebird)71 illustrates the application of the non-disclosure rule in Australia in the context of marine cargo insurance. Four helicopters stowed in the ship Icebird were damaged by a storm resulting from a force 12 gale on a voyage from Hobart to the Australian Antarctic base at Casey. There were three main alleged non-disclosures: first, that insurers’ subrogation rights were prejudiced by a waiver of claims against the carriers; second, that the lashing of the helicopters would be carried out by the assured’s employees, and not the master and crew of the ship; and, third, that the risk would involve the helicopters in repeated “stowing and unstowing” at sea “in varying weather conditions”, as the helicopters were to be used as “spotter” aircraft for reconnaissance and transport on the approach of the vessel to each Antarctic base. On the first ground, the court accepted that the contractual arrangements, a charterparty, which had the effect of excluding the insurer’s rights to recovery, was a material fact that should have been disclosed and was, in fact, not disclosed. On the second ground, namely, that the broker had not disclosed the fact that the securing of the aircraft would be carried out by the crew of the helicopters, and not the crew of the vessel itself, the underwriter took the view that this was a material non-disclosure as he expected the crew of the vessel to secure and stow the helicopters as was the usual shipboard practice. Notwithstanding evidence that that the assured’s employees (the air crews of the helicopters) had more experience of how helicopters should be lashed, Ormiston J agreed with the underwriters that this was a material non-disclosure, a conclusion linked to the earlier finding that the waiver of claims against the vessel was material. On the third allegation, Ormiston J found against the underwriters as the risk under clause 8 of the Institute Cargo Clauses72 terminated when the vessel neared the Antarctic bases and the helicopters were brought up on deck for reconnaissance purposes. As the helicopters came off risk at that time, it was not material to disclose the subsequent stowing and unstowing.73 The decision involved evidence, not only from the “prudent underwriter”, but also from the actual underwriter, to prove that the actual underwriter was, in fact, induced by the material non-disclosure and misrepresentation into accepting the risk. 7.25 The decision in the Helicopter Resources case is also probably the high watermark of the broker’s duty to be sufficiently self-informed of the business activities of the assured, 71. [1991] Supreme Court of Victoria, Commercial List, Ormiston J, summarised at [1991] 312 LMLN 1(2), noted by S. Hetherington in “Non-disclosure in Marine Insurance of Aircraft” [1992] LMCLQ 21. 72. See Chapter 15 (comparative law) at para. 15.38, below, where this case is considered in terms of the “ordinary course of transit”. 73. The inference may be drawn that if the cargo had continued to be on risk, the “stowing and unstowing at sea in varying weather conditions”, as alleged, would have been material.

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FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE 74

so as to carry out its obligations of material disclosure on behalf of the assured. The broker admitted in cross-examination that he was unfamiliar with the provisions of the Marine Insurance Act 1909 and that, indeed, he had never read it. As with the vast majority of commercial marine insurance, including cargo insurance, placed in the Australian market, the risk in the Helicopter Resources case was placed by an experienced broker, albeit an aviation broker. In that case, which is relevant to the way the Australian market operated at the time, the aviation broker initially broked the risk to the aviation underwriter in the insurer’s office, but the risk was then transferred internally to the marine department of the insurance office, which ultimately accepted the risk and ultimately avoided the policy for material non-disclosure. Misrepresentation in practice 7.26 There is no relevant difference to the test of materiality under the Marine Insurance Act 1909 to allegations of non-disclosure and misrepresentation.75 Utmost good faith under the Insurance Contracts Act 1984 7.27 The duty of utmost good faith in section 13 of the Insurance Contracts Act 1984 constitutes a contractual obligation on both parties, rather than merely a pre-contractual obligation where the only remedy is avoidance.76 Section 14 of the Insurance Contracts Act 1984 resolves the difficult issue of whether strict reliance on an onerous term of the contract could itself amount to bad faith by providing that “if reliance by a party to an insurance contract on a provision of the contract would be to fail to act with the utmost good faith, [then] the party cannot rely on that provision”. This section ties in with the provision in section 37 of the 1984 Act requiring the insurer to notify the assured of any unusual terms in the insurance contract before the contract is entered into. Moreover, the obligations of the Insurance Contracts Act 1984, requiring pre-contractual disclosure by the assured,77 are much less onerous than the corresponding provisions in the Marine Insurance Act 1909.78 The 1984 Act only requires the assured to disclose matters that the assured knows would be relevant to the decision of the insurer, as to whether to accept the risk, or matters that a reasonable person in the circumstances could have been expected to know would have been relevant to the insurer’s assessment of the risk.79 Disclosure under the Insurance Contracts Act 1984 7.28 The Insurance Contracts Act 1984 imposes very strict obligations on insurers to notify the assured of its obligations to make disclosure, whereas the Marine Insurance Act 1909 does not require the insurer to draw to the assured’s attention the duties of disclosure. If there is a material non-disclosure or misrepresentation under the Marine Insurance Act 1909, 74. MIA 1909 s. 25. 75. Randell v. Atlantica Insurance Co Ltd [1985] 80 FLR 253, [1985] 3 ANZ Ins Cas 60-672. 76. The obligation under the MIA 1909 is also a mutual obligation, but the only remedy is avoidance of the contract, which, in effect, is not a remedy from the point of view of the assured, whilst s. 13 of the ICA 1984 potentially provides a remedy in damages as discussed in the text at para. 7.23 above. 77. ICA 1984 ss. 21 to 27. 78. MIA 1909 ss. 23 to 26. 79. ICA 1984 s. 21.

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the insurer may elect to avoid the contract from the beginning unless there has, exceptionally, been a waiver by the insurer of its rights.80 As a result of the notice obligations under the 1984 Act, especially with cargo business placed through proposals drafted by the insurer, as opposed to the placement of business through a broker’s slip, the industry began to incorporate disclosure notices. These notices took into account the fact that the cargo cover might be subject to either the Marine Insurance Act 1909 or the Insurance Contracts Act 1984, but always ensuring that the strict requirements for notification to assureds of the disclosure obligation under the Insurance Contracts Act 1984 were specifically mentioned. Gradually, such flexibility extended to the issue of policy wordings by insurers themselves, frequently containing an acknowledgment that either the Marine Insurance Act 1909 or the Insurance Contracts Act 1984 might apply to the policy or contract of insurance. It is quite common to find such provisions in both proposals, and in annual cargo policies, of many Australian marine insurers. Brokers invariably insert such provisions in their cover notes. A typical provision current in the Australian cargo market includes, under the heading “law and practice”, the following: “This policy is subject to Australian law, including the Marine Insurance Act 1909. It is also subject to Australian jurisdiction and in some cases the Insurance Contracts Act may apply.”

As mentioned above,81 only one regime can apply to every contract of insurance. It is not possible for the one contract to be subject to both regimes. Which regime applies is a matter of construction of the contract according to the usual canons of insurance contract construction as contained in the common law, including those judgments interpreting the Marine Insurance Act 1909 and the Insurance Contracts Act 1984, as discussed earlier in this chapter.82 Formalities, insurable interest and illegality Formalities 7.29 The formalities required by the Marine Insurance Act 1906 in England have been amended under English law by the Finance Act 1959. These amendments to the 1906 Act mean that time policies for periods over 12 months are no longer invalid.83 The same amending legislation also removes the statutory requirement for marine policies to specify the subject-matter insured and the risk insured; the voyage or period of time covered; the sum insured; and the name or names of the insurers.84 The Marine Insurance Act 1909 has not been similarly amended and the above formalities are therefore required, in addition to those set out in the English Act that have not been repealed, for example, that the contract of insurance must be embodied in a policy to be admissible in evidence85; that the policy must specify the name of the assured86; and that a marine policy must be signed by or on behalf of the insurer.87 There are proposals by the English Law Reform Commission to 80. MIA 1909 ss. 23 to 26. 81. At para. 7.11 above. 82. At paras 7.10 to 7.17 above. 83. Finance Act 1959 repealing MIA 1906 s. 25(2). 84. Finance Act 1959 repealing MIA 1906 s. 23(2)–(5). 85. MIA 1906 s. 22; MIA 1909 s. 28. 86. MIA 1906 s. 23; MIA 1909 s. 29. 87. MIA 1906 s. 24; MIA 1909 s. 30.

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7.31

dispense with the requirements that a contract of insurance is inadmissible in evidence unless it is embodied in a policy,88 but no such proposals are presently contemplated in Australia. Insurable interest 7.30 Insurable interest is enshrined in the Marine Insurance Act 1909. The Act provides that every person interested in a marine adventure must have an insurable interest.89 Anyone with a legal or equitable interest in a marine adventure, or any insurable property on risk, has an insurable interest.90 The Marine Insurance Act 1909 also provides that a defeasible,91 contingent92 or partial93 interest constitutes an insurable interest. Insurable interest is also a requirement of the Institute Cargo Clauses.94 In practice, the basic question in every case is whether the relationship between the assured and the subject-matter insured is sufficiently close to justify the assured being indemnified in the event of loss of or damage to the subject-matter insured. 7.31 In NSW Leather Co Pty Ltd v. Vanguard Insurance Co Ltd,95 leather goods, insured on the terms of the Institute Cargo Clauses (All Risks) 1/1/63, were imported to Australia from Brazil in containers under free on board (“FOB”) contracts. As is commonly the case under the usual form of FOB contract, risk and property in the goods (and hence the insurable interest) only passed from the seller to the assured buyer when the goods were loaded at the port of loading in South America.96 The goods had been containerised and it was common ground that the leather had been stolen from the containers into which it had been packed, before the containers had been loaded onto the carrying vessels. Accordingly, the assured buyer had no insurable interest at the time of the loss and hence was not able to claim under the policy under section 12(1) of the Marine Insurance Act 1909, insofar as that section provides that the insurable interest must be held “at the time of the loss”. However, the proviso to section 12(1) of the Act provides as follows: “Provided that where the subject matter is assured ‘lost or not lost’ the assured may recover or those he may not have acquired his interest until after the loss … .”

It was held that the assured acquired a retrospective insurable interest under this provision following the English decision in Sutherland v. Pratt.97 It is to be noted that, in practice, the decision in the NSW Leather case does not apply to cases where the Institute Cargo Clauses 1/1/82 or the revised Institute Cargo Clauses 1/1/09 are incorporated in the policy. These provisions have a stricter requirement in clause 11.1 that the assured must have an 88. See Chapter 3 (English law) at para. 3.13 fn. 71 above. 89. MIA 1909 s. 11(1). 90. MIA 1909 s. 11(2). 91. MIA 1909 s. 13(1). 92. MIA 1909 s. 13(1). 93. MIA 1909 s. 14. 94. ICC(A) 1/1/82 and 1/1/09, cls 11.1 and 11.2. Contrast the ICC 1/1/63 which imposed no additional insurable interest requirement. 95. [1990] NSW Lexis 10858 (unreported) reversed by the Court of Appeal of New South Wales, [1991] 25 NSWLR 699, [1991] 105 FLR 381. 96. The position under FOB contracts may vary, but the FOB contracts in this case were treated as standard and, on that basis, risk and property passed when the goods had been loaded. It is a question of the intention of the parties in each case. 97. [1843] 11 M&W 296, 152 ER 815.

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insurable interest “at the time of the loss”, and this requirement overrides the “lost or not lost” provision in the Marine Insurance Act 1909, insofar as that provision otherwise allows the assured to acquire an insurable interest after the loss.98 7.32 In the New South Wales Court of Appeal in the NSW Leather case, Handley JA (with whom Clarke JA agreed) held that the assured had, prior to the loading of the goods, an insurable interest in the profits it would have expected to earn from the safe arrival of the goods in Australia.99 It was also held that the assured had an insurable interest in the risk that it would pay in good faith for the shipping documents relating to the goods that had been stolen before loading, or would otherwise suffer loss because the shipping documents were forged or fraudulent.100 However, the insurance was on “goods and/or merchandise” and, subject to the lost or not lost clause, did not cover the assured in respect of profits or the financial risks it incurred when it paid cash against documents.101 7.33 The ALRC Report found the decision in the NSW Leather case unsatisfactory in relation to FOB and cost and freight (“CFR”) contracts particularly in the context of the containerisation of goods, because a clean bill of lading may be issued where the goods, or some of them, have been loaded into the container. The buyer may then pay for a cargo that has not been loaded because payment is made against the documents including the clean bill of lading. This is of particular importance as the vast majority of goods imported into Australia are containerised and, as a very broad generalisation, Australia can be categorised as an importer of containerised cargo and an exporter of bulk cargo. Essentially, the ALRC Report put forward recommendations to amend the insurable interest provisions in sections 10, 11 and 12 of the Marine Insurance Act 1909 to bring them into line with sections 16 and 17 of the Insurance Contracts Act 1984, which make the requirement for an insurable interest void.102 Those proposals have not, however, been accepted. 7.34 The insurance market in Australia does, however, on occasion make use of a clause that appears to be intended to provide cover during the inland transit prior to loading, so as to enable the assured to recover even if they did not have an insurable interest prior to the goods being shipped aboard the overseas vessel. Typically, this clause provides as follows: “Notwithstanding the provisions of the contract of sale, where the interest of the assured is purchased on an FOB, CFR or similar basis, this insurance attaches from the time when the interest insured leaves the warehouse or place of storage for the commencement of transit … .”

At first sight, this clause seems to do no more than repeat the provisions of the Institute Cargo Clauses, which commence the insurance at the time the goods leave the shelf103 or leave the warehouse.104 However, the words “notwithstanding the provisions of the contract of sale” are presumably intended to mean, “whether or not the assured has an insurable 98. See Dunt, Marine Cargo Insurance, at para. 4.19. The right to acquire a retrospective insurable interest that existed under the ICC 1963 was withdrawn when the ICC 1982 were introduced and was not restored in the 2009 Clauses. 99. [1991] 105 FLR 381 at p. 388, following Anderson v. Morice [1875] LR 10 CP 609, where in the Exchequer Chamber a distinction was made between a policy on goods and a policy on profits. 100. Op. cit. at p. 388. 101. Op. cit. at p. 389. The financial losses suffered were, however, sufficient to comply with the indemnity principle and the argument that the assured had suffered no loss therefore failed, at p. 392. 102. See para. 7.35 below. 103. ICC, 2009, cl. 8. 104. ICC, 1982, cl. 8.

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interest”. Although the requirements under the Marine Insurance Act 1909 for an insurable interest appear to be mandatory requirements, the parties are free to permit the assured the right to acquire a retrospective insurable interest in accordance with the terms of the proviso to section 12(1) of that Act and, no doubt, the Australian courts would, in line with the NSW Leather case, construe the above clause as having that somewhat more limited effect.105 7.35 In respect of inland transits and storage and other insurances that do not expose the cargo to marine perils,106 the Insurance Contracts Act 1984 provides that an insurance contract will not be void for want of any insurable interest in the assured or other person entitled to claim under the contract.107 The ALRC Report108 reasoned that the indemnity principle is sufficient to protect insurers, as the assured must show a loss. However, these views on insurable interest did not gain the support of the marine insurance market, particularly the cargo market. The market took the view that abolition of the requirement for insurable interest, whether as achieved in the Insurance Contracts Act or otherwise, would create uncertainty and potential fraud in relation to cargo claims. There was concern that people who had no legitimate interest in the claim, especially in the context of cost, insurance and freight (“CIF”) sales and purchases of cargo would be entitled to claim under the policy without showing an insurable interest.109

POLICIES AND THE INSTITUTE CARGO CLAUSES Policies The policy form: the law applicable 7.36 The SG Form of policy is appended to the Marine Insurance Act 1909 as a second schedule, but has been superseded in the Australian market by newer, briefer forms of policy such as the MAR Form.110 It is arguable that the various Institute Cargo Clauses might constitute a “form of policy” for the purposes of section 8(2) of the Marine Insurance Act 1909.111 As a matter of marine insurance practice, standard industry wordings, such as the Institute Cargo Clauses, which are based on English law and practice, are frequently expressed in the Australian context to be subject to Australian law and practice. As the Australian Marine Insurance Act 1909 is largely identical to the Marine Insurance Act 1906, and as both are a consolidation of the English common law, this practice enables the parties in Australia to have the benefit of the English and Australian decisions, which explain and clarify the meaning of technical terms in the Institute Cargo Clauses and fill the 105. Contrast the position in Japan where the use of an “FOB Attachment Clause” is widely used to make it clear that, where goods are purchased on FOB or CFR terms, the insurance does not attach prior to loading despite the terms of cl. 8 of the ICC. 106. See paras 7.10 to 7.17 above. 107. ICA s. 16. 108. Chapter 11. 109. When the ICC were revised during the course of 2008, the London market took a similar view and declined to omit the strict requirement for insurable interest at the time of the loss in cl. 11 of the revised ICC 2009. 110. The MAR Form is no longer in use in England, where it has been replaced by the Market Reform Contract (“MRC”), see Chapter 3 (English law) para. 3.20 above. 111. For a consideration of this issue in the context of English law and practice, see Dunt, Marine Cargo Insurance, at para. 1.27.

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gaps in the operation of certain concepts, peculiar to marine cargo insurance, such as loss of the adventure and sue and labour. 7.37 It is appropriate here to highlight some idiosyncrasies in the practice of the Australian marine cargo market. It is not unusual to find, in addition to the incorporation of the Institute Cargo Clauses (A), that the policy contains express conditions and exclusions covering much the same subject-matter as the Institute Clauses without any express reference as to whether the policy conditions, or Institute Clauses, should apply if there is a conflict between the two. In such cases, the insurer’s standard industry wording is often perfectly capable of making sense on a stand-alone basis without any reference to the Institute Clauses or, indeed, any other terms and conditions (whether of the Institute type or otherwise). It is frequently the case that these contracts or policies are designed to cover both pure domestic transit of goods and overseas transit, whether by sea or air, and for those reasons there are the usual references112 to the applicability of both the Marine Insurance Act 1909 and the Insurance Contracts Act 1984, as circumstances permit. Often, the two forms of policy wording (one the insurer’s standard wording and the other the Institute wording) overlap considerably, but the wording is not identical. A good example occurs in relation to a clause providing “additional cover” for packing risks where the policy also incorporates the Institute Cargo Clauses (A) without amendment, which excludes insufficiency of packing.113 In the example, additional cover is provided in respect of sea transits where the “packing or preparation of the goods was not caused, directed or agreed by the assured, and the insufficiency or unsuitability was outside the assureds’ control or knowledge”. This reflects the position under the Institute Cargo Clauses 2009,114 but is more generous than the wider exclusion of insufficiency of packing in the Institute Cargo Clauses 1982.115 The Institute Cargo Clauses When do the Institute Cargo Clauses 2009 apply? 7.38 It is sometimes the case in the Australian market that a broker’s placing slip for a cargo risk, whilst referring to the Institute Cargo Clauses, omits to specify the relevant version, for example, whether the 1982 version or the 2009 version applies. It is quite conceivable that, having regard to some of the extensions of cover in favour of the assured contained in the 2009 version, that an assured might be covered under the 2009 version but not covered under the 1982 version.116 One example would be the “change of voyage” provision in clause 10.2 of the Institute Cargo Clauses 2009, which provides theft cover to the assured where the shipowner sails to a different destination in so-called “phantom” ship cases.117

112. As to the “usual references”, see para. 7.28 above. 113. For a discussion of the exclusion of insufficiency of packing, see Chapter 3 (English law) at para. 3.47 et seq. above. 114. Op. cit. 115. For a discussion of the previous clause, see Dunt, Marine Cargo Insurance, at para. 8.31. 116. In addition to the example given in the text, there is significantly wider cover for transit, under cl. 8, in the ICC 2009. 117. Clause 10.2 was introduced in the 2009 Clauses to reverse the effects of the decision in Nima SARL v. Deves Insurance Public Co Ltd (The Prestrioka) [2003] 2 Lloyd’s Rep. 327.

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7.39 Unless the insurance contract wording specifies which version of the Institute Cargo Clauses applies, then an issue will arise as to which version does apply. To prevent such uncertainty arising, some insurers’ and brokers’ wordings incorporate a provision along the following lines: “Institute Clauses: all Institute Clauses referred to in this policy are those current at the time of attachment of risk. In the event of any of these clauses being altered or added to, such new clauses shall automatically form part of this policy, unless such alteration or addition reduces the assured’s protection in which event the assured shall be advised in writing.”

However, this is by no means a uniform practice.118 Although it might be thought that the intention of the parties, when the particular version of the Institute of Clauses is not mentioned, would be to incorporate into the insurance contract the most recent or current version, this is not necessarily the case in the Australian market. In the early days after the 2009 version of the Institute Cargo Clauses came into effect, and when the Australian cargo market had not yet adopted that version generally or consistently, some insurers took the view that it was the 1982 version that applied. In such circumstances, the Change of Voyage Clause, for example, under the 1982 version of the clauses would have entitled an underwriter to reject the claim for a loss on a “phantom” ship in circumstances where the claim would be covered under the 2009 Clauses.119 The introduction of a new wording120 in the 2009 Clauses does not, it is submitted, amount to a clear “usage of trade”,121 so as to assist the court in construing the insurance contract to give effect to the current version of the Institute Cargo Clauses. Under the ordinary rules of construction, if a current industry wording is not incorporated into the contract, it cannot apply.

WARRANTIES, EXCLUSIONS AND CAUSATION Warranties Warranties under the Marine Insurance Act 1909 7.40 Where cargo is insured against marine risks, as described earlier in this chapter,122 a warranty must be strictly complied with or the insurer is discharged from liability from the date of the breach.123 Thus, the Queensland courts have upheld the decision of insurers to decline a claim for breach of the warranty of legality where the relevant breach was a breach of statutory provision and a statutory penalty had been incurred.124 Where there is a lack of causal connection between the relevant breach of warranty and the actual damage sustained to the assured’s interest, the Australian courts have generally expressed reluctance 118. In the London market, it was the practice to include a clause in brokers’ covers and insurance certificates to the same effect. 119. It is possible that in some cases underwriters might be persuaded, on a commercial basis, to apply the 2009 Clauses. 120. For reasons of English and EU competition law, the ICC 2009 are available for the use of the market but are not in any sense obligatory or “standard” in the sense of being terms imposed on the assured by the insurance industry. In practice, the ICC 2009 are used, like their predecessors, as a basis for the core cover upon which appropriate additions and extension are negotiated. 121. MIA s. 8(1). 122. See paras 7.11 to 7.17 above. 123. MIA 1909 s. 39(3), and see Chapter 3 (English law) at para. 3.26 above. 124. Doak v. Weekes [1986] 82 FLR 334.

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to follow the potentially draconian provisions of the Marine Insurance Act 1909 section 39(3), and have tried to find ways around applying the strict letter of the law. A recent example of such a decision is Allison Pty Ltd v. Lumley General Insurance Ltd,125 where a vessel was lost in circumstances where a warranty relating to cyclone berths for vessels off North-Western Australian was found to have been breached. The owners, on the basis of the best advice available at the time, moved the vessel from the warranted cyclone berth, intending to preserve her from imminent loss. The court held that the insurer was not entitled to rely on the contractual warranty because the assured had acted in a reasonable way to minimise the loss in the context of its sue and labour obligations under the Marine Insurance Act 1909 and the policy.126 It is, nevertheless, submitted that it is questionable whether it is appropriate to excuse the intentional breach of an express warranty by reference to the assured seeking to minimise the loss by actively breaching the warranty, albeit believing that it was doing so for the good reason of better preserving the vessel. Warranties under the Insurance Contracts Act 1984 7.41 Where cargo is insured for inland transit, or in store, or for other voyages where it is not exposed to maritime perils, as discussed earlier in this chapter,127 the strict rules as to the application of warranties that apply under the Marine Insurance Act 1909,128 do not apply. The remedies available to insurers under the Insurance Contracts Act 1984 for breach of warranty are much more favourable to the assured. In particular, under section 54 of the Insurance Contracts Act 1984, the insurer may not automatically refuse to pay a claim by reason only of a breach of any policy term, whether condition or warranty, and, where there is such a breach, “the insurer’s liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced that as a result of” the breach.129 Exclusions Proximate cause, burden of proof and causation 7.42 It is well established that the reference to “proximate” cause in section 61 of the Marine Insurance Act 1909 is a reference to the “real”, “effective” or “dominant” cause.130 The assured has the onus of proving that the peril insured against was the proximate cause of the loss and must do so on the balance of probabilities and, crucially, where the insurance is against named perils, the assured will fail if it does no more than establish facts that are equally consistent with several theories about the cause of the loss.131 The assured 125. [2006] WASC 104. 126. See para. 7.66 below, where this case is discussed in the context of sue and labour. 127. See paras 7.10 to 7.16 above. 128. See para.7.40 above, which reflects the English law position in which respect see para. 3.24 et seq. above. 129. ICA 1984 s. 54(1). 130. Wood v. Associated National Insurance Co Ltd [1985] 1 Qd R 297, following accepted English principles in Leyland Shipping Co Ltd v. Norwich Union Fire Insurance Society Ltd [1918] AC 350 (HL); Wayne Tank & Pump Co Ltd v. Employers’ Liability Assurance Corporation Ltd [1974] 1 QB 57; and, more recently, Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU) [2011] UKSC 5, [2011] 1 Lloyd’s Rep. 560. 131. Skandia Insurance Co Ltd v. Skoljarev [1979] 142 CLR 375. The position is different under all risks insurance, which is the normal position in the case of cargo insurance, see Chapter 3 at para. 3.36 above.

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bears the onus of proving that the peril assured against was the proximate cause of the loss and must do so on the balance of probabilities and, crucially, where the insurance is against named perils, the assured will fail if it does no more than establish facts that are equally consistent with several theories about the cause of the loss.132 However, in Skandia Insurance Co Ltd v. Skoljarev,133 the High Court of Australia held that the assured was successful because it was able to demonstrate that the vessel was seaworthy when the voyage commenced (the judge found there was no latent defect, e.g., in the pipe work) and the rapid entry of water into the engine room therefore gave rise to an inference of some identified accident or fortuitous event. Whether there are competing proximate causes of equal effect, if one competing proximate cause is insured against and the other is expressly excluded, the assured is not entitled to recover.134 However, if there are two competing causes, one of which is covered, and the other is not excluded, the loss is covered.135 Conditions 7.43 In the case of inland transit or storage, or other risks that are not such as to expose the cargo to marine perils,136 the Insurance Contracts Act 1984 protects the assured from breach of both conditions and warranties, in that the insurer is not entitled to refuse to pay a claim purely on the basis of a breach of a term in the contract of insurance and the insurer’s liability is only reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of breach of condition.137

ALL RISKS All Risks The approach of the Australian courts to all risks 7.44 There are many provisions of the Marine Insurance Act 1909 that have no comparable provision at all in the Insurance Contracts Act 1984, including the provisions of the 1909 Act relating to proximate cause of loss and the limitations on cover provided by a marine policy, unless that policy “otherwise provides”.138 In particular, unless the policy otherwise provides, insurers are not liable for losses proximately caused by delay, though the delay be caused by a peril insured against,139 and inherent vice.140 These provisions 132. Skandia Insurance Co Ltd v. Skoljarev [1979] 142 CLR 375. 133. [1979] 142 CLR 375. 134. See the English cases cited at fn. 130 above. 135. HIH Casualty and General Insurance Ltd v. Waterwell Shipping Inc and Another [1998] 43 NSWLR 601, [1998] 146 FLR 76, a case arising out of a hull policy. This case is examined at para. 7.46 below in connection with the burden of proof in relation to the exclusions under the ICC. The view was taken that ordinary wear and tear was a limitation on cover and not an exclusion; see Dunt, Marine Cargo Insurance at para. 6.33 and Bennett, The Law of Marine Insurance, 2nd edn, 2006, at para. 9.30. Ordinary wear and tear is excluded under the ICC 2009 and if it is one of two equal proximate causes, the loss would not be covered. 136. As discussed at paras 7.10 to 7.17 above. 137. ICA 1984 s. 54. 138. MIA 1909 s. 61. 139. MIA 1909 s. 61(2)(b). 140. MIA 1909 s. 61(2)(c).

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are converted to exclusions in the specific cargo-oriented wordings of the Institute Cargo Clauses.141 In the context of the Institute Cargo Clauses (A), the cover provided is, “all risks of loss of or damage to the subject-matter insured except as excluded by the provisions of Clauses 4, 5, 6 and 7 below”.142 It is not the intention of this chapter to examine these provisions in detail because they are dealt with in Chapter 3 (English law),143 and, in general, the law in Australia is the same as English law and there does not appear to be any relevant disparity between the approaches taken by the English and Australian courts in interpreting these provisions of the Marine Insurance Act 1909 and the Marine Insurance Act 1906. However, a number of Australian cases illustrate and complement the English decisions and are now considered. Burden of proof: concurrent causes 7.45 As indicated earlier,144 the burden of proof is on the assured to establish, on a balance of probabilities, that a loss has occurred during the currency of the policy. Under an all risks policy, it is not necessary for the assured to identify the particular peril that operated and the burden passes to insurers if the assured can establish that a fortuitous loss took place during the time when the goods were insured under the policy.145 Australian law has explored the additional question, not resolved in English law, as to whether the limitations on cover set out in section 61 of the Marine Insurance Act 1909 operate as “exclusions” or whether they circumscribe the cover itself. If they are exclusions, then the burden of proof is upon underwriters to establish an exclusion. Furthermore, if there are two concurrent causes of loss, one of which is excluded and one of which is covered, then the loss will not be covered by the policy. If, however, there are two concurrent causes of loss, one of which is covered and one of which is not excluded, the loss will be covered by the policy. The approach of the Australian courts is that the limitations on cover in section 61 of the Marine Insurance Act 1909 constitute limitations on cover rather than exclusions. The issue was addressed in the case of HIH Casualty and General Insurance Ltd v. Waterwell Shipping Inc and Another.146 In this case, a fishing vessel was lost due to a combination of ordinary wear and tear, which took the form of corrosion in a straining box, and negligence, represented by failure to close the suction valves on a “dead” ship. The negligence of masters, officers and crew was a covered peril. It was held that, insofar as wear and tear and negligence of the crew were concurrent causes, the loss was covered because “ordinary wear and tear” was a limitation on the description and extent of the 141. See cls 4.1, 4.2, 4.4 and 4.5 of the ICC. These clauses are identical to the provisions of the MIA 1909 s. 61, though it is to be noted that in the revised 2009 Clauses the word “proximate” has been omitted from the delay exclusion in cl. 4.5; for the reasons for this, see Dunt at para. 7.27. 142. ICC 1/1/09, cl. 1. Note the variation of wording in the ICC 1/1/82, which simply refers to the cover being against all risks “except as provided in Clauses 4, 5, 6 and 7 below” without using the word “excluded”. The intention was to clarify that the provisions of cl. 4, in particular, constitute “exclusions” and not mere limitations on the cover, as is the position under Australian law, in relation to s. 61 of the Act itself. See para. 7.45 below where this issue is considered. 143. See Chapter 3 at paras 3.37 to 3.55 above. 144. See para. 7.42 above. 145. The position is the same as it is under English law, in which respect see para. 3.36 above. 146. [1998] 43 NSWLR 601, [1998] 146 FLR 76 at p. 87. See further Dunt at p. 108 para. 6.33, and, for the English position and consideration of this case, see H. Bennett, The Law of Marine Insurance, 2nd edn, 2006, Oxford University Press, at para. 9.30 and Arnould 17th edn at p. 938 fn. 214 at para. 22.21.

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147

cover, not an exclusion. The position may be considered academic to the extent that, in practice, where the Institute Cargo Clauses are incorporated in a policy, the exclusions of wear and tear and more importantly, inherent vice, insufficiency of packing and delay, are converted into true “exclusions”, rather than limitations on cover. Where the Institute Cargo Clauses do not apply, then the Marine Insurance Act 1909 section 61 will, in Australia, operate as a limitation on the cover and not as an exclusion, and it is submitted that the same is likely to be the position under English law.148 Limitations and exclusions on all risks Ordinary wear and tear 7.46 The exclusion of wear and tear rarely applies in cargo insurance, as compared to hull insurance, as wear and tear takes place over a period of time rather than a voyage, and cargo is normally insured on a voyage basis. However, in the Australian hull case of HIH Casualty,149 a vessel was lost due to a combination of ordinary wear and tear and crew negligence.150 It was held that the loss was covered, as the limitation under the Marine Insurance Act 1909 section 61(2) constituted a limitation on cover rather than a true exclusion and that, the risk being covered and not excluded, the assured was entitled to recover under the insurance. It is submitted that the position would be different where the Institute Cargo Clauses apply, as they convert the limitations under section 61 of the 1909 Act into true exclusions, in which case the rule is that if the loss is covered by one cause and excluded by a concurrent clause, then the loss is excluded. In those circumstances, the insurers, however, have the burden of proof of showing that the exclusion applies. Inherent vice 7.47 As indicated at the beginning of this section,151 the law in Australia does not deviate from English law, but it may be noted that, in practice, a common example in the Australian market of the parties to a contract of cargo insurance amending a standard exclusion from cover under the Marine Insurance Act 1909 is in relation to the inherent vice exclusion. In this respect, brokers wordings often cover fresh food sendings, for instance in relation to citrus and grapes, against inherent vice.152 7.48 The recent decision of the English Supreme Court in the case of the The Cendor MOPU,153 which overruled the earlier first instance decision in Mayban General Insurance BHD v. Alstom Power Plants Ltd,154 is likely to be followed in Australia. Although it would be incorrect to characterise the tendency of Australian courts to invariably adopt a more pro-assured, rather than pro-insurer approach, decisions such as The Cendor MOPU can be regarded as being in keeping with the established principles of construction of contractual 147. [1998] 43 NSWLR 601, [1998] 146 FLR 76, at p. 87. 148. It is unclear whether the position is the same in English law or not, see Dunt at para. 6.33. 149. [1998] 43 NSWLR 601, [1998] 146 FLR 76. 150. The facts of this case are given more fully in para. 7.45 above. 151. At para. 7.44 above. 152. In relation to the English practice, see Soya GmbH Mainz KG v. White [1983] 1 Lloyd’s Rep. 122(HL). 153. Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU) [2011] UKSC 5 (SC), [2011] 1 Lloyd’s Rep. 560. 154. [2004] 2 Lloyd’s Rep. 609.

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exclusion clauses against the proferens (the insurer) and reflecting the line of reasoning in the ALRC Report.155 The Australian court’s decisions in cases under the MIA 1909 are, arguably, influenced by this jurisprudence and are attempts to create a more balanced position as between assured and insurers that underlie the Insurance Contracts Act 1984. However, it will be unusual to find a superior court in Australia adopting blatant judicial atavism to lean towards the Insurance Contracts Act 1984 approach when construing a commercial marine cargo insurance contract in the commercial context. Insufficiency of packing 7.49 The Institute Cargo Clauses 1/1/82 exclude, “loss damage or expense caused by insufficiency or unsuitability of packing of preparation of the subject matter insured”.156 In the Helicopter Resources case,157 the meaning of the words “packing” and “preparation” was explored in the judgment of Ormiston J. In this case, the claim was for storm damage inflicted on four helicopters stowed aboard the vessel Icebird on a voyage from Hobart to the Atlantic base at Casey.158 The damage occurred during a force 12 gale and the insurers alleged insufficiency of packing and preparation in that the helicopters were not properly lashed and secured by the assured’s employees to the pontoons upon which they were to be carried. Ormiston J, in relation to “packing”, said: “Without wishing to preclude the possibility that packing or preparation may in exceptional cases occur on board a vessel, the clause is directed to those steps which are necessary to prepare the cargo for the loading process, not the very acts which result in the cargo being stowed on board.”

After discussing the position regarding containers, Ormiston J continued: “The word ‘packing’ should otherwise be confined to the placing of an outer covering over the cargo or the placing of the cargo in a box or a similar container specifically designed for the transportation of that cargo.”

Ormiston J then turned his attention to “preparation” saying: “The word ‘preparation’ in sub-clause 4.3 is clearly wider in its connotation but it is also directed to those steps taken to making an item ready for transportation before it is taken and placed on board the vessel, in the course of the process of loading and stowing the cargo. Whereas the word ‘packing’ may be confined to the placing of goods in some form of outer covering, whether peculiar to the item shipped or of a more general kind, the word ‘preparation’ contemplates that there may be other acts which may be necessary to prepare cargo for loading and stowing on board a vessel. The removal, adjustment and securing of some mechanical part may be required for an item to be shipped ‘in bulk’ and there are many and various other ways in which cargo is prepared for transportation without it being packed. But in each case, the sub-clause is directed to those acts done before the cargo was loaded and stowed on board.”

This judgment stresses that “preparation” like “packing” will normally precede loading. It also highlights that there may be different methods of “preparation” applicable in different 155. For a discussion of the ALRC Reports, see para. 7.19 above. 156. In the ICC 2009 this has been expanded to read, “loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject matter assured to withstand the ordinary incidents of the assured transit”, see para. 3.47. This change does not alter the construction of “preparation and packing” as adopted by Ormiston J. 157. [1991] Supreme Court of Victoria, Commercial List, Ormiston J, summarised at [1991] 312 LMLN 1(2), noted by S. Hetherington in “Non-disclosure in Marine Insurance of Aircraft” [1992] LMCLQ 21. 158. The facts of this case are given in more detail at para. 7.24 above, where the case illustrates the rules as to non-disclosure.

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trades. It is submitted that, for example, the use of moisture inhibitors would be included within the “preparation” of the cargo and that failure to use such inhibitors would amount to lack of preparation and that moisture losses thus caused would be excluded from cover in those trades where inhibitors were the usual practice. 7.50 In Craftware Products Ltd v. Commercial Union General Insurance Co Ltd,159 a machine was assured for carriage from New Zealand to Australia and was damaged when it was carried on deck, unprotected from the elements, in a container. The insurers relied upon the insufficiency of packing exclusion. It was held that the packing was, in fact, insufficient, but that the exclusion should be construed in the light of what was in the reasonable contemplation of the parties. As the assured had no grounds for believing that the container might have been carried on deck, the loss arose because the carrier stowed the machine above deck, and the exclusion did not apply.160 Rats and vermin 7.51 The Marine Insurance Act 1909 section 61(2)(c) states, inter alia that, “unless the policy otherwise provides, the insurer is not liable … for any loss proximately caused by rats or vermin”. It has been suggested that the provisions relating to rats and vermin may have no modern application.161 However, other authors have taken the view that “vermin” extends to “insects”162 and insect infestation certainly remains a problem with the carriage of cargoes in modern times. The problem with the subsection to the 1909 Act is that it is not entirely clear whether the provision of coverage on all risks terms means that the policy automatically “otherwise provides”, with the result that there is cover for “rats and vermin” despite the limitation in section 61(2)(c) of the 1909 Act. The better view, in English law, is that the all risks cover overrides the limitation and it is likely that the same view would be adopted in Australia.163 Unseaworthiness and unfitness 7.52 Clause 5 of the Institute Cargo Clauses excludes loss, damage or expense arising from unfitness of the vessel where the assured or their servants are privy to the unfitness at the time the goods are loaded.164 This clause is rarely relied upon by insurers, because of the difficulty of establishing privity against the assured, and because it may be considered more commercial to proceed against the carriers because, if the vessel is unseaworthy, there may be reasonable prospects for a recovery.165 There are, therefore, few if any reported 159. [1987] 4 ANZ cases 60-819. No point was taken by the insurers that the cargo was carried on deck, see Chapter 15 (comparative law), at para. 15.51, where this issue is considered. 160. Per Holland J at 75-037. 161. D. Luxford, “The Marine Insurance Act: Chronologically challenged legislation?” MLAANZ Annual Conference Wellington 5–8 November 1995, 33. 162. See Dunt at para. 8.38 and Arnould at para. 22-01, which also takes the view that “vermin” may extend to insects. See also the decision in Schloss Brothers v. Stevens [1906] 2 KB 665, at p. 670, per Walton J. 163. See Dunt at para. 8.38 for a consideration of this issue. Dunt also notes the London market practice, in some cases, which is to provide for insurance against “rats and vermin” in express terms so as to make it clear that the policy “otherwise provides” in terms of MIA 1906 s. 55(2)(c). However, as indicated in the text, this would not seem to be strictly necessary. See also, as to the position in France, para. 11.45. 164. See Chapter 3 (English law) at para. 3.55 above, where this clause is considered. 165. Article III r. 1 of the Hague-Visby Rules requires the carrier, before and at the beginning of the voyage, to exercise due diligence to make the ship seaworthy, see Y. Baatz, Maritime Law, 2nd edn, 2011, Sweet & Maxwell, at p. 224.

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decisions on this clause. However, in the Helicopter Resources case,166 reliance was placed on this clause by underwriters where the assured had chartered the vessel for carriage of a cargo of four helicopters, and had their own employees on board as air crew for those aircraft. It was said that the vessel was unfit because there were insufficient numbers of pontoons to take four helicopters in the hold of the vessel, and unfitness was said to arise because, on at least two of the pontoons, there were incorrectly placed lugs to which the webbing straps might be attached by hooks. Ormiston J, after remarking that the source of clause 5 is the implied warranty in section 46(2) of the Marine Insurance Act 1909,167 accepted that the air crew, as employees of the assured, were privy to these allegedly unsatisfactory conditions. However, he was not satisfied that the defects in the placing of the lugs on the pontoons, which made it difficult to lash the aircraft, amounted to unfitness of the vessel itself within the meaning of clause 5.

WAR AND TERRORISM The cover for war and strikes risks Application of the Insurance Contracts Act 1984 7.53 The cover for war and terrorism is limited in the ways discussed in Chapter 3 (English law)168 as these limitations are driven by the worldwide reinsurance markets, dominated in cargo insurance to some extent by London, and concerns in the worldwide markets about the danger of aggregation of risk on land in the context, particularly, of war and terrorism.169 7.54 Cover for risks related to war170 and terrorism171 for cargo whilst in inland transit or in store, or otherwise whilst not exposed to maritime perils,172 is subject to the Insurance Contracts Act 1984, except for sections 53 and 63. These sections make void any provisions that entitle an insurer173 to vary or cancel174 a contract of insurance. The general practice in international cargo insurance is for war and strikes cover (including terrorism) to be subject to special periods for cancellation: typically war and strikes risks may be cancelled at seven days’ notice.175 Presumably, the exceptions from the 1984 Act in respect of variation and cancellation recognise the need for insurers to be flexible with regard to cancellation of these unusual risks. 166. [1991] Supreme Court of Victoria, Commercial List, Ormiston J, summarised at [1991] 312 LMLN 1(2), noted by S. Hetherington in “Non-disclosure in Marine Insurance of Aircraft” [1992] LMCLQ 21. 167. This section, so far as material, provides that in a voyage policy on goods there is an implied warranty that the “ship is not only seaworthy as a ship, but also that she is reasonably fit to carry the goods … to the destination named in the policy”. Clause 5.2 of the ICC 1982 waives this warranty unless the assured or their servants are privy to the unseaworthiness or unfitness. Clause 5.3 of the ICC 2009 waives the warranty in its entirety, but cl. 5.1 still imposes an exclusion of unseaworthiness, see para. 3.55 et seq. above. 168. See Chapter 3 at paras 3.56 to 3.58 above. 169. See para. 7.54 below. 170. ICA 1984 s. 9(4)(a)(i). 171. ICA 1984 s. 9(4)(a)(ii). 172. As discussed and described in paras 7.10 to 7.17 above. 173. ICA 1984 s. 53. 174. ICA 1984 s. 63. 175. Dunt, Marine Cargo Insurance, para. 10.4 fn. 14. It is anticipated that Australian insurers would be obliged by their reinsurers, who in all probability bear the risks of war and strikes, to impose similar short cancellation periods and the exceptions created by ss. 53 and 63 appear to be intended to allow for this.

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DURATION OF THE INSURANCE The Transit Clause 7.55 In general, the approach of the Australian courts to the construction of the Transit Clause is likely to be similar to that adopted by the English courts, which is dealt with in Chapter 3 (English law).176 There are, however, some Australian and South African decisions on the “ordinary course of transit” and the relationship between that phrase and the Avoidance of Delay Clause in the Institute Cargo Clauses. These decisions, which include the important Australian case of Verna Trading,177 are analysed in Chapter 15 (comparative law)178 with the South African and English decisions, which also construe the same wording of the Institute Cargo Clauses.

CLAIMS AND LOSSES Claims Limitation of action 7.56 In all Australian jurisdictions, except the Northern Territory, the limitation period for bringing a claim under an insurance contract (whether governed by the Marine Insurance Act 1909 or the Insurance Contracts Act 1984) is six years.179 In the Northern Territory, the relevant limitation period is three years from when the cause of action accrues. There is no specific provision in any of the limitation legislation pertaining specifically to claims under insurance contracts, rather this particular limitation period applies because the claim will invariably be a claim for breach of contract and six years (three years in the Northern Territory) is the relevant limitation period for claims for breach of contract. In Australia, limitation runs from the date of the breach of the contract, not, for instance, the date of the incident that gives rise to the claim.180 Interest 7.57 In cases of the insurance of cargo exposed to maritime perils falling within the Marine Insurance Act 1909, there are no specific provisions entitling the assured to interest, but the position in Australia is similar to that which applies in England, where under procedural rules, interest is recoverable if proceedings have been commenced.181 7.58 Where cargo is assured for inland transit, or in store, or is otherwise not exposed to marine perils as discussed earlier in this chapter,182 the Insurance Contracts Act 1984 gives a statutory right to the assured to claim interest on claims. The Act provides that the 176. See Chapter 3 at para. 3.72 et seq. above. 177. [1991] 1 VR 129. 178. At paras 15.36 to 15.50 below. 179. Limitation Act 1969 (NSW) s. 14(1); the limitation legislation is essentially the same for all the States and Territories except the Northern Territory. 180. Penrith City Council v. Government Insurance Office of New South Wales [1991] 24 NSWLR 564 at 565, 568. 181. See Chapter 3 (English law) at para. 3.91 above. 182. See paras 7.10 to 7.17 above.

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insurer is also liable to pay interest for “the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment”. Interest runs to the day on which payment is made or the day on which payment is sent by post to the person to whom it is payable.183 Good faith and fraudulent claims 7.59 Where the cargo is exposed to maritime perils falling within the Marine Insurance Act 1909, the Australian courts recognise the continuing duty of good faith in the claims process.184 It has been held in the Western Australian courts, in line with the English authorities,185 that the duty of good faith is superseded or exhausted by the rules of litigation, once litigation has commenced.186 The Western Australian courts have also confirmed that the breach of the duty of good faith does not give rise to a remedy for damages, but only entitles the aggrieved party to avoid the policy.187 Clearly, as return of premium is of little consolation to the assured, this remedy is invariably only of benefit to the insurer and, in this respect, the Marine Insurance Act 1909 is quite different to the position under the Insurance Contracts Act 1984, which is now considered. 7.60 In cases where the cargo is insured for inland transit, or in store, or otherwise is not exposed to maritime perils as discussed earlier in this chapter,188 the Insurance Contracts Act 1984 imposes statutory protection for the assured, even where the claim is fraudulent, limiting insurers’ rights.189 Where a claim is made fraudulently, the insurer may not avoid the contract but may refuse payment of the claim.190 In any proceedings in relation to a fraudulent claim, the court may, if only a minimal or insignificant part of the claim is made fraudulently, and non-payment of the remainder of the claim would be harsh and unfair, order the insurer to pay such amount as is just and equitable in the circumstances.191 In allowing a payment in relation to a fraudulent claim, the court shall have regard to the need to deter fraudulent conduct in relation to insurance, but may also have regard to any other relevant matter.192 Total loss of cargo: actual and constructive Damage to the cargo: constructive total loss 7.61 Where cargo is exposed to maritime perils falling within the Marine Insurance Act 1909, the rules relating to constructive total loss and abandonment have been applied by 183. ICA 1984 s. 57(2). The rate of interest is prescribed and worked out in a manner set down in regulations passed under the ICA 1984. 184. MIA 1909 s. 23. 185. Manifest Shipping Co Ltd v. Uni-Polaris Shipping Co Ltd (The Star Sea) [2001] UKHL 1 (HL), [2001] 1 Lloyd’s Rep 389, and, with regard to English law, see para. 3.92 above. 186. Wiltrading (WA) Pty Ltd v. Lumley General Insurance Ltd [2005] WASCA 106. 187. Allison Pty Ltd v. Lumley General Insurance Ltd [2004] WASC 98. 188. See paras 7.10 to 7.17 above. 189. ICA 1984 s. 56. 190. ICA 1984 s. 56(1). Thus, for example, where the insurer has insured cargo under an open cover and one of the claims under the open cover is fraudulent, the insurer can only refuse payment of that claim and not avoid the whole open cover. 191. ICA 1984 s. 56(2). 192. ICA 1984 s. 56(3).

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the Australian courts without any departure from established English authorities. The provisions of the Marine Insurance Act 1909, applying to constructive total loss and abandonment,194 would appear to extend the advantages of being able to bring a claim for a constructive total loss only to cargo carried on ocean transits or, at the least, exposed to maritime perils as discussed earlier in this chapter.195 It is submitted that cargo that is not exposed to maritime perils, and that is subject to the regime imposed by the Insurance Contracts Act 1984, must be an actual total loss and that the benefits of claiming a constructive total loss are not available to the assured. Partial losses: what constitutes “damage” to cargo? 7.62 The Australian courts construe marine cargo insurance contracts as concerned primarily with loss of or damage to cargo, that is, physical loss or damage. Nevertheless, the Tasmanian Supreme Court in Ranicar v. Frigmobile Pty Ltd196 considered a case where shellfish could not be exported as they had been held in temperatures that transgressed the regulations, and concluded that this constituted “damage” for the purposes of indemnity under the policy.197 Partial loss: measure of indemnity Valued and unvalued policies 7.63 Most commercial cargo insurance in Australia is written under annual cargo policies usually on an “agreed value” basis.198 In the Australian marine cargo insurance market, there is a substantial difference in practice between using the phrase “basis of settlement” (“BOS”) rather than “basis of valuation” (“BOV”). The practice of the cargo market in Australia is that a policy that does not actually specify a BOV, but rather provides for a BOS, becomes an “unvalued policy”,199 and the rules as to declarations, the adjustment of claims and the application of underinsurance, as provided for in the 1909 Act,200 apply rather than the rules applying to valued policies.201 Prime cost 7.64 Section 22(3) of the Marine Insurance Act 1909 provides, “In insurance on goods or merchandise, the insurable value is the prime cost of the property insured, plus the expenses of and incidental to shipping and the charges of insurance upon the whole”.202 193. Wood v. Associated National Insurance Co Ltd [1985] 1 Qd R 297. 194. MIA 1909 ss. 66 to 68. 195. See paras 7.10 to 7.17 above. 196. [1983] Tas R 113. 197. This case was followed in England in Quorum A/S v. Schramm [2002] 1 Lloyd’s Rep. 249, but it is nevertheless suggested that the decision that the rejection of the shellfish for breach of the regulations itself amounted to “damage” goes too far, see Dunt at para. 13.36 fn. 121. 198. MIA 1909 s. 33. 199. MIA 1909 s. 34. 200. See MIA 1909 ss. 86 and 87. 201. The rules applying to valued and unvalued policies are dealt with in Chapter 3 (English law) at paras 3.108 to 3.110 above. It is anticipated that there is no material difference in the way the Australian courts would apply these rules. 202. See also MIA 1909 s. 78.

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This provision was considered in a New Zealand case where it was held that “prime cost” is the value of the goods in the state they are in at the commencement of the risk, which is to be compared to the damaged value of the goods at destination.203 Underinsurance 7.65 The Marine Insurance Act 1909 provides that the assured is its own insurer where it does not insure for the full insurable value “in respect of the uninsured balance”.204 The effect of this is that rules analogous to average generally apply to marine cargo insurance.205 Where cargo is insured for inland transit, or in store, or otherwise is not exposed to maritime perils as discussed earlier in this chapter,206 average would not apply unless provided for in the policy. In this respect, the Insurance Contracts Act 1984 section 44 provides that an insurer may not rely on an average provision unless, before the contract was entered into, the insurer clearly informed the assured in writing of the nature and effect of the average provision. Recoverable expenses Sue and labour 7.66 The Marine Insurance Act 1909 section 84(4) provides that it is the “duty of the assured and his agents, in all cases, to take such measures as may be reasonable for the purposes of averting or minimising a loss”. Similar provisions are contained in the Duty of Assured Clause207 of the Institute Cargo Clauses under the heading “Minimising Losses”.208 In the Western Australian Supreme Court in the Allison case,209 Heenan J found that an express warranty could be circumvented by the sue and labour provisions in a policy because the sue and labour requirement, which was enshrined in section 84(4) of the 1909 Act, was inconsistent with that express warranty. In the circumstances, the court held that the assured shipowner’s decision to move their vessel into a new position, contrary to the Cyclone warranty in the policy, which required the vessel to remain at a cyclone berth, was “an honest and reasonably decision” designed to preserve the vessel’s safety. Although this movement was ultimately unsuccessful, the court held that the movement of the vessel to the new temporary mooring was a precaution taken “with a view to preserve the vessel from the developing threat and one which was supposed by all the marine expertise available at the time”. The court reached this decision by reference 203. Entec Services Ltd v. Neuchatel Swiss General Insurance Co Ltd [1989] 6 Anz Ins Cas 60-969. The Australian courts tend to have regard to decisions of the New Zealand Courts in marine insurance. 204. MIA 1909 s. 87. 205. There is no general rule applying average to underinsurance under the MIA 1909 as certain claims, e.g., repairs to hull and machinery, are payable in full without reference to the insured value of the vessel, see MIA 1909 s. 75 and Dunt, Marine Cargo Insurance, at para. 15.26. 206. See paras 7.10 to 7.17 above. 207. ICC, cl. 16. 208. A decision of the High Court of New Zealand, Craftware Products Ltd v. Commercial Union General Insurance Co Ltd [1987] 4 ANZ 60-819, illustrates the working of this rule in a case where the assured failed to take measures to preserve machinery that was wet damaged after carriage on deck in a flat rack container. The assured’s claim was reduced to the amount that it would have cost to repair the machine immediately after the voyage and before the failure to sue and labour to preserve the machine took place. 209. [2006] WASC 104.

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to the operation of section 4 of the Marine Insurance Act 1909, which reserved the common law (including the law merchant) to the extent that it was not inconsistent with the Act, and held that, in all the circumstances, the sue and labour provision must prevail over the express warranty. Accordingly, even though there was a breach of the warranty, that breach did not discharge the insurer from liability. The court was conscious that in relation to a breach of an express warranty or condition of a policy falling outside the terms of the Marine Insurance Act 1909, and therefore falling within the provisions of section 54 of the Insurance Contracts Act 1984, the insurer would only be relieved of liability to the extent of any prejudice it suffered by virtue of the assured’s breach of warranty.210 The conclusion that Heenan J came to was not easy and effectively placed the assured in the same position as if the case had been decided under the Insurance Contracts Act. The reasoning is directly applicable to cargo insurance, because the policy contained a sue and labour provision corresponding to those in clause 16 of the Institute Cargo Clauses. The court held that the effect of section 84(4) of the Marine Insurance Act 1909, and the sue and labour provisions in the relevant Institute Time Clauses Hulls–Port Risks 1983, justified, in effect, overriding the express warranty. 7.67 A recent decision of the Victorian Supreme Court in March 2011 highlights the extent to which the Australian courts will allow an assured to recover significant expenses incurred when mitigating its loss as part of the measure of indemnity under the insurance. The case of Orica Australia Pty Ltd v. Limit (No. 2) Ltd 211 involved a charterer’s liability policy. Orica, as charterers, were protected under the policy and sought indemnity for a payment they had made to the owner of the vessel for costs associated with deviation of the vessel that was caused by the stowage of the cargo. The charterer’s liability insurers paid Orica about one third of the amount that Orica had paid to the shipowners. Orica sought indemnity for the full payment from insurers, but it was argued that Orica should have put forward a smaller payment to the shipowner. In response, Orica said that to have made a smaller payment, would have significantly sacrificed its commercial interests and that it was not required to do so under the insurance contract. The court accepted this and held that: “An assured facing an incident is entitled to have regards to his, her or its own interests at least to some extent. To lose the protection of the coverage the insurer needs to show that the indemnity sought by the assured flows from something other than the incident.”

The court held that the compensation flowed directly from an insured incident and that as the cargo of ammonium nitrate was not only very dangerous but also valuable, the assured was entitled to adopt a very cautious approach to protect its commercial interest. Hence, there was no need for it to discharge the cargo inexpensively if that led to significant detriment to the assured in its commercial operations and the displeasure of the US Coast Guard. Although the language is expressed in the language of the duty to mitigate damages, it demonstrates that an assured in a marine policy can go a long way in incurring significant additional costs to mitigate the loss which, in many cases, will be equivalent to a sue and labour expense that can be recovered from the insurer. The principles in this case are directly applicable to cargo coverage cases.

210. For a consideration of this rule, see para. 7.41 above. 211. [2011] VSC 65.

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Salvage and general average 7.68 These specialised topics have not been addressed by the Australian courts and it is anticipated, therefore, that the English decisions would be likely to be followed on these issues.

SUBROGATION, DOUBLE INSURANCE AND RIGHTS OF CONTRIBUTION Subrogation Nature of the right 7.69 In Australia, subrogation proceedings are brought in the assured’s name, and not in the name of the subrogated insurer. In cases involving subrogated recovery actions in respect of damaged cargo against, for instance, a carrier, it is not unusual for the court to be made aware during the case management process, between commencement of proceedings and the case being set down for hearing, that subrogated insurers are behind the recovery action. Exercise of subrogation rights in practice 7.70 According to the ALRC Report, in general the position under Australian law reflects English law in relation to subrogation, but there are differences between the common law of England and Australian common law, in particular with regard to the inability of insurers to proceed by way of subrogation against one co-assured for damage caused to another co-assured, as considered in Woodside Petroleum Development Pty Ltd v. H&R-E&W Pty Ltd.212 7.71 Where cargo is insured for inland transit, or in store, or otherwise is not exposed to maritime perils as discussed earlier in this chapter,213 the Insurance Contracts Act 1984 imposes a special regime related to subrogation214 and, in particular, does not require the assured to disclose to insurers that there may be limitations on the insurers’ subrogation rights, for example, to take legal action to recover against inland carriers.215 Double insurance and contribution Double insurance 7.72 Where cargo is insured for inland transit, or in store, or otherwise is not exposed to maritime perils as discussed earlier in this chapter,216 the Insurance Contracts Act 1984 212. [1997] 10 ANZ Ins Cas para. 61-395 (Anderson J), [1999] 20 WAR 380 (WA Full Court), cited at para. 7.15 of the ALRC Report. 213. See paras 7.10 to 7.17 above. 214. ICA 1984 ss. 65 to 68. 215. ICA 1984 s. 68. The effect of this section, in cases that are not subject to the MIA 1909, would appear to be to reverse part of the decision in Helicopter Resources Pty Ltd v. Sun Alliance Australia Ltd (The Icebird), in so far as it related to non-disclosure of recovery rights by charterers (who were the assured) against the shipowners, which was held to be material, see para. 7.24 above. 216. See paras 7.10 to 7.17 above.

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entitles the assured, where there is double insurance, to recover from any one or more of its insurers such amount as will fully indemnify it for the loss.217 Moreover, clauses that relieve the insurer from liability where there is “other insurance” are void.218 These provisions appear to have worked well as there are now few, if any, reported cases in Australia where the assured has been troubled by “other insurance” clauses, but this sensible provision does not apply to marine risks falling within the Marine Insurance Act 1909 and double insurance complications can still potentially arise if, for example, goods are stored in a warehouse and covered for storage risks and, at the same time, a transit insurance is taken out which covers the initial storage and the goods are damaged or destroyed during the initial storage period. Contribution between insurers 7.73 The usual rules of double insurance apply in marine insurance cases whereby an insurer who has paid more than its proportion of the loss is entitled to maintain an action for contribution from other insurers who have insured the same loss for the same assured.219 Where cargo is insured for inland transit, or in store, or otherwise is not exposed to maritime perils as discussed earlier in this chapter,220 contribution rights as between insurers are preserved by section 76(3) of the Insurance Contracts Act 1984.

217. ICA 1984 s. 76. 218. ICA 1984 s. 45. 219. MIA 1909 s. 86. 220. See paras 7.10 to 7.17 above.

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CHAPTER 8

U N I T E D S TAT E S L AW A N D P R A C T I C E Stephen V. Rible1

INTRODUCTION Scope and structure of the chapter 8.1 Insurance policies are contracts construed and enforced under the general rules of contract law. Historically, American courts followed English law on matters involving marine insurance.2 In 1955, however, the United States Supreme Court decided the case of Wilburn Boat Co v. Fireman’s Fund Insurance Co,3 wherein the court held that, absent a well-established federal maritime law, or a determination that the interests of national uniformity require that a rule of federal maritime law be fashioned, the interpretation of a marine insurance contract follows state law. In the United States, marine cargo insurance contracts are prepared by brokers, underwriters or their agents. For over a century, the American Institute of Marine Underwriters (“AIMU”), a trade association, has served the ocean marine insurance industry and has published Standard Cargo Clauses for the marine insurance market.4 This chapter will address the construction of All Risks Cargo Clauses based on the application of well-established federal maritime law, supplemented by notable instances of the application of state law with a focus on New York law. As a preliminary matter, the chapter will consider the formation of a valid contract of marine insurance, starting with the assured’s duty to disclose all material facts concerning the risk. After examining these rules, there follows an analysis of: (1) the formalities that apply to marine insurance contracts; (2) open cargo policies; (3) certificates of insurance; (4) warranties; and (5) exclusions and other conditions. 8.2 After these preliminary issues, there will be a detailed consideration of standard All Risks Cargo Clauses as exemplified by the AIMU Cargo Clauses 2004 (All Risks); the AIMU War Risk Open Policy (Cargo) (2 December 1993); and the AIMU Endorsement for Open Policies (Cargo) – Strikes, Riots & Civil Commotions (Form 12A) (1 January 2008).5 This part of the chapter will consider the meaning of all risks, and the exclusions from and limitations on all risks coverage, concentrating on areas such as: (1) fortuity;

1. Partner, Mendes & Mount LLP, New York, NY; Instructor, St. John’s University, School of Risk Management, Insurance and Actuarial Science. The author gratefully acknowledges the contributions of marine professionals, Robert V. Comegys, Joseph P. Hall, Thomas J. Lynch and Nancy Zachariades; and the editorial assistance of Mary Kate Brennan. 2. Queens Ins Co v. Globe & Rutgers Fire Ins Co, 263 U.S. 487 (1924); see generally, Charles M. Davis, Maritime Law Deskbook (2005). 3. Wilburn Boat Co v. Fireman’s Fund Ins Co, 348 U.S. 310 (1955). 4. American Institute of Marine Underwriters (AIMU) forms menu: available at www.aimu.org/formsmenu. html. 5. Id. See Appendices 7 and 8.

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(2) inherent vice; (3) insufficiency of packing; (4) delay; (5) unseaworthiness; and (6) cover for war, terrorism and strikes. 8.3 The duration of coverage will then be examined by reference to traditional duration of risk clauses and the American Institute All Risks Cargo Clauses 2004. Finally, marine cargo claims will be considered, including: (1) actual total loss; (2) constructive total loss; (3) partial loss and the measure of indemnity; (4) sue and labor; (5) salvage; (6) general average; (7) double insurance; and (8) subrogation. Marine insurance defined 8.4 The definition of marine insurance was aptly stated by William D. Winter6: “Marine Insurance is a contract of indemnity whereby one party, called the assurer or underwriter, agrees, for a stated consideration known as the premium, to indemnify another party, called the insured or assured, against loss, damage, or expense in connection with the subject matter at risk if caused by perils enumerated in the contract known as the policy of insurance.”

There are “few clean lines” between maritime and non-maritime contracts, and the boundaries of admiralty jurisdiction over contracts are “conceptual rather than spatial”.7 The contract’s “nature and character” determines whether it has “reference to maritime service or maritime transactions”.8 Ultimately, coverage determines whether a policy is marine insurance, and coverage is a “function of the terms of the insurance contract and the nature of the business insured”.9 Thus, in a situation where cargo is stored in a warehouse pending transit and is insured pursuant to a warehouse endorsement in an open cargo policy, the contract will be considered a marine insurance contract.10

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE Utmost good faith: non-disclosure and misrepresentation Utmost good faith: timing of the duty 8.5 Marine insurance contracts must be distinguished from non-marine insurance because the obligation of an assured to inform an underwriter of all facts material to the risk is strictly applied according to federal maritime law. In non-marine insurance matters, state law controls and does not apply such a high standard. In the placement of marine cargo insurance, the insurer often relies solely on the good faith of the assured to give full disclosure of the risk and to describe it accurately without misrepresentation.11 Marine insurance

6. William D. Winter, Marine Insurance, 2nd edn, 1929, p. 96. 7. Folksamerica Reinsurance Co v. Clean Water of New York Inc, 413 F.3d 307 (2d Cir. 2005); Norfolk S. Ry. v. Kirby, 543 U.S. 14 (2004). 8. Folksamerica. 9. Id. 10. N Am Foreign Trading Corp v. Mitsui Sumitomo Ins Co, 292 F. App’x 73 (2d Cir. 2008); Thomas v. NASL Corp, 2000 U.S. Dist. LEXIS 16761 (SDNY 2000); contra, In re Balfour Maclaine Ltd, 85 F.3d 68 (2d Cir. 1996). 11. Knight v. US Fire Ins Co, 804 F.2d 9, 13 (2d Cir. 1986), cert. denied, 480 U.S. 932, 107 S. Ct. 1570, 94 L. Ed. 2d 762 (1987).

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8.7

is a contract uberrimae fidei, meaning that the parties owe each other a duty of utmost good faith.12 This principle of utmost good faith was first applied by the United States Supreme Court in 1828, when Justice Story described the obligation13: “The contract of insurance has been said to be a contract uberrimae fidei, and the principles which govern it, are those of an enlightened moral policy. The underwriter must be presumed to act upon the belief, that the party procuring insurance, is not, at the time, in possession of any facts, material to the risk which he does not disclose … And even if there be no intentional fraud, still the underwriter has a right to a disclosure of all material facts, which it was in the power of the party to communicate by ordinary means; and the omission is fatal to the insurance.”

The doctrine of utmost good faith has been recognized as well-established federal admiralty law in almost all federal circuits, with the exception of the Fifth Circuit.14 8.6 A marine insurance contract may incept as early as when a premium is received by the insurer.15 Certainly, when an insurance binder is issued, it is the effective instrument until the policy is delivered.16 The obligation of disclosure ceases when the contract is concluded and does not apply during the claims stage.17 Disclosure obligations must be met prior to the inception of the open cargo policy. There has been a reluctance to impose this obligation prior to the issuance of each certificate of insurance. Certificates are not stand-alone policies, but are merely evidence of insurance.18 Coverage is not activated by the issuance of a certificate, but rather automatically attaches on the shipment date.19 Courts do recognize, however, that the obligation to disclose does exist when an endorsement is requested for additional or more comprehensive coverage.20 This extension of coverage can be severed from the main policy.21 Under the same rationale, when a certificate of insurance provides different coverage, there is duty to disclose and not misrepresent material facts.22 Of course, the obligation to disclose only affects the validity of the endorsement or the certificate of insurance in question, and not the main policy.23 Materiality and reliance 8.7 The key test in relation to utmost good faith is whether the matters not disclosed or misrepresented were material, and whether the underwriter relied on or would have relied on these facts while considering whether to accept the risk. An assured must disclose any information that materially affects the risk being insured, because the assured is more 12. Id. at 13. 13. M’Lanahan v. Universal Ins Co, 26 U.S. 170, 185, 7 L. Ed. 98, 105 (1828). 14. See Graydon S. Staring and George L. Waddell, Marine Insurance, 73 Tul. L. Rev. 1619, 1650–52 (1999). The federal court system is comprised of federal district courts at the trial level, 11 circuit courts at the intermediate appellate level and the Supreme Court of the United States. The Court of Appeals for the Fifth Circuit covers the territory of Texas, Louisiana and Mississippi. 15. Robert Bocko et al., Marine Insurance Survey: A Comparison of United States Law to the Marine Insurance Act of 1906, 20 Tul. Mar. L. J. 5, 24–25 (1995); see Estee Lauder Int’l Inc v. Worldwide Marine Service, 923 F.2d 238, 241 (2d Cir. 1991). 16. In re September 11th Liability Insurance Coverage Cases, 458 F. Supp. 2d 104 (SDNY 2006). 17. Am Home Assur Co v. Masters’ Ships Management SA, 423 F. Supp. 2d 193 (SDNY 2006), aff’d 2007 U.S. App. LEXIS 12928 (2d Cir. 2007), but see N Am Foreign Trading. 18. NY Mar & Gen Ins Co v. Tradeline, 266 F.3d 112 (2d Cir. 2001). 19. Id. 20. Id.; see also Intermetal Mexicana SA v. Ins Co of N Am, 866 F.2d 71 (3rd Cir. 1989). 21. Id. 22. Tradeline, 266 F.3d 112. see fn. 18 above. 23. Id.; see Intermetal.

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likely to be aware of such information.24 A non-disclosed fact is material if it would have affected the insurer’s decision to insure at all or at a particular premium.25 Whether the assured personally realizes that the non-disclosure or misrepresentation is material is not the test. An objective standard of disclosure applies, “that is, whether a reasonable person in the assured’s position would know that the particular fact is material”.26 The assured is required to provide the insurer with all known circumstances that materially affect the insurer’s risk.27 This duty to disclose applies even where no inquiry has been made.28 It is immaterial that information received by the assured is, in fact, untrue; the policy is avoided if the assured, without knowledge of its untruth, failed to disclose it.29 Any omission to communicate a material fact that the assured is under an obligation to disclose will vitiate the policy whether such omission is intentional or results from mistake, accident, forgetfulness or inadvertence; and fraud is not necessary.30 8.8 Although it would be prudent to provide the testimony of the actual underwriter who wrote the risk to explain that certain facts were material and would have influenced his decision with respect to the risks insured, the courts have accepted testimony of an expert underwriter in order to prove these necessary elements.31 The United States Supreme Court has not considered this issue directly, but prior decisions indicate that an objective standard of materiality is the focus, not the actual underwriter’s state of mind.32 8.9 Court decisions do not define what is material, except to say that it must be something that would have controlled the underwriter’s decision.33 The insurer must prove that he relied on or would have relied on this information.34 Where evidence is presented that the underwriter would have written the policy in any event, such as when a following underwriter is relying on the lead underwriter rather than relying on information furnished by the assured, the necessary element of reliance is missing.35 The remedy of avoidance 8.10 If there is non-disclosure or misrepresentation, the insurer may avoid the contract.36 Avoidance most often occurs as a result of a particular claim that brings to light material facts that had not been disclosed to insurers. When an insurer seeks to avoid the contract, it may not simply deny a particular claim for it is the entire contract that is voidable by the insurer. In certain states, the insurer must commence an action for declaratory judgment 24. See Knight. 25. See Mutual Benefit Life Ins Co v. JMR Elecs Corp, 848 F.2d 30, 32–33 (2d Cir. 1988). 26. Knight. 27. St Paul Fire & Marine Ins Co v. Halifax Trawlers Inc, 495 F. Supp. 2d 232 (D. Mass. 2007). 28. Grande v. St Paul Fire & Marine Ins Co, 436 F.3d 277, 283 (1st Cir. 2006). 29. Gulfstream Cargo v. Reliance Ins Co, 409 F.2d 974 (5th Cir. 1969). 30. Compagnie de Reassurance d’lle de France v. New England Reins Corp, 944 F. Supp. 986, 993 (D. Mass. 1996); Thebes Shipping Inc v. Assicurazioni Ausonia SpA, 599 F. Supp. 405 (SDNY 1984). 31. M’Lanahan; Sun Mut Ins Co v. Ocean Ins Co, 107 U.S. 485, 509 (1882). 32. See Staring. 33. Btesh v. Royal Ins Co, 49 F.2d 720 (2d Cir. 1931). 34. Masters’ Ships. 35. Puritan Ins Co v. Eagle SS Co, 779 F.2d 866 (2d Cir. 1985). It has been argued that cargo underwriters in the London market will not request information regarding, and will not rely on, loss records exceeding five years while negotiating the placement of cargo insurance. Sphere Drake Ins plc v. J. Shree Corp, 1999 AMC 1480 (SDNY 1999), aff’d 53 F. App’x 175 (2d Cir. 2002). 36. Commercial Union Ins Co v. Pesante, 459 F.3d 34, 37 (1st Cir. 2006).

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8.13

37

or rescission of the policy, and tender or return premium. In the context of marine cargo insurance, the premium may be for the entire open cargo policy where a multitude of shipments have occurred, as the courts have not been receptive to the argument that a particular certificate of insurance issued for a specific shipment constitutes the policy in question.38 Examples of non-disclosure 8.11 The seminal utmost good faith cargo case is Knight v. United State Fire Insurance Co,39 involving a shipment of statues that were lost when the carrying vessel sank. The court ruled that the assured’s non-disclosure of the prior London insurers’ cancellations, together with the cancelling underwriters’ opinion that the statues were over-valued and inauthentic, justified the United States underwriters’ avoidance of the policy. Knight asserted that the statues were authentic and properly valued. He contended that an assured’s duty to disclose a prior cancellation is not triggered where the cancellation is based on false information, because such information cannot materially affect a risk. The Court of Appeals explained that the veracity of the information was immaterial and commented40: “A reasonable assured in Knight’s position would know that other insurers providing virtually the same coverage for the same statues would not take on the risk or maintain the same premium without at least investigating the prior cancellation, if informed of it and the stated reasons therefore.”

8.12 The assured need not disclose any circumstance that is known or presumed to be known to the insurer. Where the means of information is equally open to both parties, there is no need for either to communicate to the other party “matters of general knowledge known to the mercantile community at large, including well-established customs and usages, geography and natural perils, and political and international conditions”.41 Knowledge of the broker 8.13 A broker is normally considered to be the agent of the assured for most purposes, such as in arranging insurance; therefore, his knowledge, representations and non-disclosures are imputed to the assured.42 Statements of the agent of the insurer, on the other hand, will bind the insurer.43 When an open cargo policy authorizes the named assured to issue certificates of insurance to consignees, the named assured may be considered the agent of the insurer; and knowledge of the agent will be imputed to the insurer.44 37. Masters’ Ships; State Farm Fire & Cas v. McDevitt, 2001 U.S. Dist. LEXIS 7529 (N.D. Cal. 2001); Stony Brook Marine Transp Corp v. Wilton, 1997 U.S. Dist. LEXIS 23146 (SDNY 1997) (the insurer need not tender a return of premium in the initial pleadings, where an insurer is defending an action commenced by the assured). 38. Tradeline, 266 F.3d 112 (there is an exception where a certificate is issued for additional coverage). The policy is not void, but voidable at the election of the insurer. The insurer’s right to avoid may be waived if the insurer fails to carry out its obligation to fully investigate the claim and decline coverage or commence a timely action for declaratory judgment and/or rescission. Stony Brook. 39. Knight. 40. Id. 41. 9 G. Couch, Insurance, 2nd edn, 1962, ss. 38:84–38:95; Clark v. Manufacturers’ Ins Co, 49 U.S. 235, 248 (1850); Anne Quinn Corp v. American Mfrs Mut Ins Co, 369 F. Supp. 1312 (SDNY 1973); Contractors Realty Co v. Ins Co of N Am, 469 F. Supp. 1287 (SDNY 1979). 42. Suydam v. Reed Stenhouse of Wash Inc, 820 F.2d 1506, 1511 (9th Cir. 1987). 43. Am Nat’l Fire Ins Co v. Kenealy, 72 F.3d 264 (2d Cir. 1995). 44. Tradeline, 266 F.3d 112. See fn. 18 above.

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Misrepresentation and non-disclosure in practice 8.14 There are special factors to be considered when analyzing issues involving misrepresentation and non-disclosure. First, there must be a misrepresentation of a present fact. A misrepresentation of a future fact is merely a promise to be made in good faith and will not be treated as a misrepresentation.45 Second, breach of the obligation of good faith is not imputed to innocent co-insureds or other third-party beneficiaries.46 Finally, the materiality of a non-disclosure is a factual issue to be decided only by the trier of fact, unless the relevant facts are undisputed, so that a court may decide the issue as a matter of law.47 Formalities, insurable interest and illegality Formalities 8.15 To the extent that marine insurance is regulated by the states, there may be certain regulations that affect documentary formalities with respect to insurance contracts. For instance, insurance contracts subject to regulation must often be written on approved forms.48 Under state law, except for exempt or surplus lines insurance, insurance providers are required to file all rates, supplementary rate information, policy forms and endorsements with the Department of Insurance.49 Ocean marine insurance, on the other hand, is usually exempt from state insurance laws.50 Contracts for marine insurance can be concluded without formalities.51 There may be a binding agreement, although some of the contract terms are not completed. All that is necessary is an agreement on the material terms.52 8.16 Courts recognize the validity of an oral contract of insurance for a limited period of time in order to allow for a policy to be issued.53 The assured must be identified, but only in general terms. Certificates of insurance provide marine insurance “for the account of whom it may concern”.54 This type of coverage provides insurance for anyone having an insurable interest at the time of the loss. The eventual assured may not be known to the underwriter at the time the certificate is issued.55 8.17 The policy should be signed by the insurer, but any written requirement imposed upon the assured by a policy term may be waived by the underwriter through the acceptance

45. Navegacion Goya SA v. Mut Boiler & Mach Ins Co, 411 F. Supp. 929 (SDNY 1975). 46. Transamerica Leasing Inc v. Institute of London Underwriters, 267 F.3d 1303 (11th Cir. 2001). 47. Knight. 48. These forms are available from specialized service providers, such as the Insurance Services Offices Inc: available at www.iso.com/About-ISO/Overview/About-ISO.html. For example, ISO publishes an Inland Marine Handbook. 49. See Miss. Code Ann. s. 83-2-7(1); see also Leonard v. Nationwide Mutual Ins Co, 2007 U.S. App. LEXIS 20947 (5th Cir. 2007). (The state insurance commissioner must reject any rate or policy form that contains inconsistent, ambiguous or misleading clauses or exceptions.) 50. See Flexi-Van Leasing Inc v. Through Transport Mutual Ins Assoc Ltd, 108 F. App’x 35 (3rd Cir. 2004) (New Jersey); Hartford Fire Ins Co v. Mitlof, 123 F. Supp. 2d 762 (SDNY 2000) (New York). 51. Thomas J. Schoenbaum, Admiralty and Maritime Law, 4th edn, 2001, s. 19-3. 52. Id. 53. Alex L. Parks, The Law and Practice of Marine Insurance and Average, 32, n. 38 (1987); see Great American Ins Co v. Maxey, 193 F.2d 151, 152, n. 2 (5th Cir. 1951); McBride v. Home Ins Co, 105 F. Supp. 116, 118 (E.D. La. 1952). 54. Canadian Co-Operative Wheat Producers Ltd v. Barge John Russell, 68 F.2d 901 (2d Cir. 1934). 55. Id.; Grain Processing Corp v. Continental Ins Co, 726 F.2d 403, 404 (8th Cir. 1984).

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of premium. The courts may apply state law formalities in certain circumstances where an assured seeks to avoid the enforcement of a particular exclusion, condition or warranty in an endorsement, but the assured failed to receive notice of any such endorsement.57 As a general rule, courts enforce policy terms and conditions that are not ambiguous despite the fact that the wording of an open cargo policy is so “prolix, diffuse and confused” that it is a “mystery how business can be conducted with such a verbal mismash”.58 Insurable interest 8.18 The issue of whether or not an assured has an insurable interest is to be considered independently of the terms of the particular policy. Marine insurance is a contract of indemnity. The existence of an insurable interest distinguishes indemnity contracts from prohibited gaming or wagering contracts.59 The public policy rule of insurable interest, however, has not been accepted as a technical defense to an otherwise valid contract.60 For this reason, the insured need not be the owner of the property insured, but must simply show a lawful and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage.61 8.19 There exists an entrenched principle of federal admiralty law on the issue of insurable interest in the marine insurance context.62 Insurable interests may take on many forms. The agent, factor, bailee, carrier, trustee, consignee, mortgagee and every other lien holder may insure goods, but only with respect to and to the extent of its own interest in the goods.63 “Great liberality is indulged” in determining whether a person has anything at hazard in the subject-matter of the insurance.64 In Groban v. The S.S. Pegu,65 the court stated: “any person has an insurable interest in property, by the existence of which he will gain an advantage, or by the destruction of which he will suffer a loss, whether he has or has not any title in, or lien upon, or possession of the property itself.”

The timing of the insurable interest must be considered in the context of where goods are sold from seller to buyer and risk and property pass during the period of the insured transit. Under a cost, insurance and freight (“CIF”) shipment contract, where title and risk of loss 56. Estee Lauder; see generally, Marine Insurance Survey: A Comparison of United States Law to the Marine Insurance Act of 1906, 20 Tul. Mar. L. J. 5 (1995). 57. See Hartford Acc & Indem Co v. Shaw, 273 F.2d 133 (8th Cir. 1959) (applying Missouri law). 58. City Stores Co v. Sun Ins Co of New York, 357 F. Supp. 1113, 1115 (SDNY 1972), aff’d 475 F.2d 1393 (2d Cir. 1973); see generally, A Comparison of United States Law to the Marine Insurance Act of 1906 20 Tul. Mar. L. J. 5 (1995). There is no established order of arranging clauses within a cargo policy. Arthur E. Brunck, Ocean Marine Insurance, 96 (1988). 59. China Union Lines Ltd v. American Marine Underwriters Inc, 1984 U.S. Dist. LEXIS 18719 (SDNY 1984). 60. Village of Constantine v. Home Ins Co, 427 F.2d 1338, 1340 (6th Cir. 1970). 61. Grant Gilmore and Charles L. Black Jr., The Law of Admiralty, 2nd edn, 1975, pp. 59–62. 62. Hooper v. Robinson, 98 U.S. 528, 537, 25 L. Ed. 219 (1878); ABB Power T&D Co v. Gothaer Versicherungsbank VVAG, 939 F. Supp. 1568 (S.D. Fla. 1996). 63. Gilmore at 59–62. 64. Id.; Insurable interest disputes arise in the context of fraudulent receipt cases, as the assured must have an insurable interest in existing and identified goods at the time of the loss. If, on the date of the loss, the title and right to possession of certain cargo is determined to belong to others, the assured has no lawful interest in the safety or preservation of the cargo. Curacao Trading Co v. Federal Ins Co, 50 F. Supp. 441 (SDNY 1942), aff’d 137 F.2d 911 (2d Cir.), cert. denied, 321 U.S. 765 (1943). 65. 331 F. Supp. 883 (SDNY 1971), aff’d Groban v. American Cas Co, 456 F.2d 685 (2d Cir. 1972).

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pass at the time of shipment, the assured/shipper maintains an insurable interest even after negotiation of the bills of lading so that the shipper is protected against a potential claim for damages by the buyer who has either accepted or rightfully rejected the damaged goods.66 8.20 The assured/consignee need not have title to or legally enforceable in rem rights in the property insured. If an assured/consignee has contracted to purchase goods where title and risk of loss pass upon delivery of the cargo to the carrier at point of shipment, such as under a free on board (“FOB”) shipment contract, the consignee still has an insurable interest in the goods when a loss occurs prior to delivery if it would cause the consignee to suffer a loss.67 In an FOB contract, both the consignee and the consignee’s purchaser (under an existing contract of sale) have insurable interests when the goods are damaged.68 However, where an alleged assured only has an anticipated commission or profit expected out of a sale of goods not yet contracted for at the time of the loss, it does not have an insurable interest.69 Illegality and public policy 8.21 There is an implied warranty of lawfulness. The warranty amounts to a stipulation that the trade in which the insured will engage will be lawful for the purpose of protecting the property insured; and that it shall not become unlawful by the misconduct and neglect of the insured. It appears that the assured must be in some degree of privity with respect to the illegality.70 Also, the illegality must be material to the risk of loss or related in some way to the loss suffered.71 In light of this lack of clarity, insurers include clauses in cargo policies, such as the American Institute “U.S. Economic and Trade Sanctions Clause”, which provides express standards and voids coverage when the clause is breached72: “U.S. ECONOMIC AND TRADE SANCTIONS CLAUSE Whenever coverage provided by this policy would be in violation of any U.S. economic or trade sanctions such as, but not limited to, those sanctions administered and enforced by the U.S. Treasury Department’s Office of Foreign Assets Control (‘OFAC’), such coverage shall be null and void. Similarly, any coverage relating to or referred to in any certificates or other evidences of insurance or any claim that would be in violation of U.S. economic or trade sanctions as described above shall also be null and void.”

66. Atlas Assur Co v. Harper Robinson Shipping Co, 508 F.2d 1381, 1386 (9th Cir. 1975). A seller of goods shipped under a CIF shipment contract retains an insurable interest in the goods even after shipment for various reasons, including its right to stop the goods in transit, or the fact that it delivered the goods and never received payment. Kalimian v. Liberty Mut Fire Ins Co, 300 F.2d 547, 549 (2d Cir. 1962), but see York-Shipley Atlantic Mut Ins. Co, 474 F.2d 8 (5th Cir), vacated on other grounds, 476 F.2d 1283 (5th Cir 1973); ABB Power. 67. Harrison v. Fortlage, 161 U.S. 57, 65 (1896); see Curacao Trading Co v. Federal Ins Co, 50 F. Supp. 441 (SDNY 1942), aff’d 137 F.2d 911 (2d Cir.), cert. denied, 321 U.S. 765 (1943); China Union Lines Ltd v. American Marine Underwriters Inc, 1984 U.S. Dist. LEXIS 18719 (SDNY 1984); Groban. 68. Groban. 69. Armada Supply Inc v. Wright, 858 F.2d 842 (2d Cir. 1988); G. Simons & Co v. New Bar of North America, 2005 U.S. Dist. LEXIS 9043 (SDNY 2005), aff’d on other grounds, 170 Fed. App’x. 77C (2d Cir. 2006). 70. Parks at 254; Pacific Queen Fisheries v. Symes, 307 F.2d 700 (9th Cir. 1962) (fishing vessel carrying gasoline cargo in violation of Tanker Act). 71. Northern Ins Co of New York v. Craig Lamm, 2007 AMC 901 (11th Cir. 2006). A breach of foreign revenue laws will not vitiate the insurance. Parks at 255. 72. American Institute Classification Clause: available at www.aimu.org./aimuforms/AIMU%20Classification%20Clause%20-%205.13.93.pdf.

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With the advent of electronically produced certificates of insurance, service providers have developed programs with “filters” to detect potential violations of United States economic or trade sanctions.73 8.22 Where a vessel and its cargo are seized by pirates, the question arises whether a payment of a ransom for the recovery of the cargo is illegal or contrary to public policy. In the United States, however, these issues become secondary to the problems raised while interpreting President Obama’s Executive Order of 13 April 2010, which imposes criminal sanctions for ransom payments for certain barred individuals or entities – “Blocking Property of Certain Persons Contributing to the Conflict in Somalia”.74 The order identifies categories of “blocked” persons based on their engagement in certain conduct prohibited by the order.75 A violation of the order or the regulations carries a potential of criminal and civil penalties, including fines and imprisonment.76

OPEN COVERS, POLICIES AND CERTIFICATES Open covers Modern open covers 8.23 Cargo is usually insured under an open cargo policy where the named assured/shipper of goods issues certificates of insurance on behalf of insurers to various consignees.77 The open cargo policy often has specific limits of liability depending upon the “per shipment” requirements, the manner of transport or the nature of the goods.78 Generally, there is no aggregate annual limit. The open policy attaches to all shipments made after a certain date and continues until either party gives notice of cancellation.79 8.24 In today’s market, it is usual for premiums to be charged on an estimated value of all contemplated shipments or total corporate sales at the start of a given policy year.80 A deposit premium is determined using a marine rate and a war rate, and is booked at some pre-determined interval, such as annually, semi-annually or quarterly. An adjustment is made against actual sales at the policy anniversary. Initially, a minimum non-refundable deposit premium is paid, based on the annual estimated value of the goods at risk. At the end of the year, if the actual value of the shipments exceeds the initially estimated values,

73. See VOF Bouwcombinatie Egmond v. Oceanteam Power & Umbilical BV, 644 F. Supp. 2d 411 (SDNY 2009). 74. Executive Order No. 13536, 75 Fed. Reg. 19869 (12 April 2010). 75. In order to pay a ransom under this order, an interested party will prepare a guidance application for submission to the United States Department of Treasury, Office of Foreign Assets Control (OFAC). An application may be submitted to OFAC even if the ransom payment has previously been made prior to the existence of the order. Bruce G. Paulsen and Ellen Lafferty, Hijacked: The Unlikely Interface Between Somali Piracy and the US Regulatory Regime, 85 Tul. L. Rev. 1241, 1255 (2011). 76. Id. at 1255–1256. 77. The goods are insured automatically when shipped, irrespective of when the certificate of insurance is issued. NY Mar Gen Ins Co v. Tradeline, 2000 AMC 2139 (SDNY 2000), rev’d on other grounds, 266 F.3d 112 (2d Cir. 2001); Matco Prods Inc v. Boston Old Colony Ins Co, 104 A.D.2d 793, 480 N.Y.S.2d 134 (1984). 78. Protection Mutual Ins Co v. Silgan Plastics Corp, 2000 U.S. Dist. LEXIS 11700 (SDNY 2000). 79. NY Mar Gen Ins Co v. Tradeline 2000 AMC 2139 (SDNY 2000). 80. In the past, the assured would declare individual shipments of cargo separately for voyages to designated destinations at rates of premium pre-agreed with insurers. Silgan Plastics.

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the assured is obligated to pay premium on the additional amount.81 Cargo insurance is not “class” rated and is a loss-rated business. The intention of underwriters is to obtain sufficient premiums to pay claims, pay fixed overhead costs and hope for some profit. Policies Various forms of open cargo policies 8.25 The open cover will be evidenced by a policy, but in the United States, the form of the policy may vary. Typically, an open cargo policy is prepared by brokers, underwriters or their agents. Often, the underwriters’ policies will include most of the clauses provided in the standard forms published by the American Institute of Marine Underwriters (hereinafter referred to as American Institute or “AIMU”).82 It is generally recognized that brokers’ policies contain different or additional clauses that broaden coverage. For example, the “Unexplained Shortage Clause”,83 the “Control of Damaged Goods Clause”84 or the “Voyage Clause”.85 Certificates of insurance Certificates described 8.26 A certificate of insurance is evidence of insurance that describes the cover for an individual shipment of cargo.86 In the United States, a certificate is often described as a certificate of insurance or a special marine policy. A certificate is issued to a buyer under a CIF contract, so as to comply with the seller’s obligation to provide insurance. A modern certificate will identify the core coverage terms, which are usually defined as all risks. All other provisions of coverage, however, are incorporated by reference to terms contained in the open policy or standard clauses as published by the American Institute.87 Certificates are often issued electronically via software systems supported by specialized service providers.88 81. Id. In the current market, declarations are not frequently used for premium-reporting purposes. It is the rare exception where individual shipment reports, bordereaux or certificates are presented to the underwriter for rating and billing. There may be exceptions for shippers of particular commodities, such as coffee, cocoa or steel. 82. The 2004 AIMU Cargo Clauses consist of four forms: (1) Free of Particular Average – American Conditions; (2) Free of Particular Average – English Conditions; (3) With Average; and (4) All Risks. AIMU forms menu. 83. Coast to Coast Seafood Inc v. Assurances Generales De France, 2002 AMC 2553 (Wash. App. 2002). 84. Am Home Assur Co v. Merck & Co Inc, 386 F. Supp. 2d 501 (SDNY 2005). 85. Farr Man Coffee Inc v. Arthur Henry Chester and Underwriter at Lloyd’s of London, 1993 U.S. Dist. LEXIS 8992 (SDNY 1993). 86. Tradeline, 2000 AMC 2139. See fn.79. 87. AIMU forms menu. Certain courts have held that incorporation of certain contract terms by reference is valid, as long as the contractual wording is specific and not ambiguous. Bacchus Assoc v. Hartford Fire Ins Co, 766 F. Supp. 104 (SDNY 1991). Other state courts have held, however, that any referenced endorsement must be attached and delivered to the assured prior to the loss in order to be effective. Hartford Acc & Indem Co v. Shaw, 273 F.2d 133 (8th Cir. 1959) (applying Missouri law). 88. George F. Chandler, The Electronic Marine Insurance Certificate, 8 Currents Int’l Trade L. J. 47 (1999). These software systems are programmed with “filters” capable of identifying potential United States Government sanction violations as administered by OFAC. See, e.g., Oceanwide: available at www.oceanwide.com; c.f. VOF Bouwcombinatie Egmond. In situations where these systems have insufficient information, additional inquiries may be made through the use of other compliance programs. See, e.g., World-check: available at www.worldcheck.com.

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The certificate holder as assured 8.27 There are various ways in which a certificate holder may become a party to the contract of insurance.89 When an assured issues a certificate expressly naming the intended cargo owner on the certificate, it becomes an assured under the contract. Even when the certificate is not countersigned, the named cargo owner is a third-party beneficiary of the insurance contract.90 Where a party is not named in the certificate, however, an endorsement is required on the certificate in order to effect an assignment.91 What terms bind the certificate holder? 8.28 The insurance acquired by an assured under a certificate of insurance is an enforceable contract, but is not a “stand-alone” policy.92 It only insures in respect of the particular shipment of goods covered by the certificate. The terms of that new contract depend on a consideration of the open cargo policy and the certificate. If the certificate provides broader coverage than the open policy, it may be given effect with respect to the certificate holder, but it may constitute a breach of contract under the open cargo policy with respect to the named insured.93 If the certificate restricts coverage, however, it will control, despite the broader coverage provided under the open cargo policy.94 In Greene v. Cheetham,95 the court explained that the crucial question in each case is whether the language of the main policy, or the language chosen by the assured for insertion in the certificates, defines the extent of coverage for the loss. The entire open coverage policy is applicable to the shipments, “but applicable only to the extent embraced within a reasonable interpretation of the insured’s intent as from the language it used in the certificates”.96 Ordinarily, the more specific declaration of coverage is binding instead of the all-inclusive provisions of the open policy, especially when the assured may delineate the extent of its own coverage.97

WARRANTIES, EXCLUSIONS AND OTHER TERMS Warranties Warranties defined 8.29 Warranties in marine insurance are conditions whereby “the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or 89. Hagan v. Scottish Ins Co, 186 U.S. 423, 429–30, 22 S. Ct. 862, 46 L. Ed. 1229 (1902). 90. Estee Lauder; Simons. 91. Simons; Olympo Transport Co of Puerto Rico Inc v. Certain Ins Cos at the Inst of London Underwriters, 103 F.3d 1 (1st Cir. 1996) (open cargo policy insuring shippers of cargo where the named assured has “received instructions to insure”, does not automatically apply to all shippers). 92. Tradeline, 266 F.3d 112; Estee Lauder. See fn.18. 93. Tradeline, 266 F.3d 112. See fn.18. 94. Id. 95. 293 F.2d 933 (2d Cir. 1961). 96. Id. 97. Id. Even where the open cover holder has passed the certificate to the buyer of the goods, it remains an assured under the open cargo policy in the event the buyer accepts the goods and sues for damages caused prior to the transfer of the bills of lading and certificates; or, alternatively, if the purchaser rightfully rejects the goods by reason of a damage arising prior to transfer of the risk of loss. Harper.

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whereby he affirms or negatives the existence of a particular state of facts”.98 As a general matter, warranties represent a promise by the insured to do or not to do something that the insurer considers significant to its risk of liability under the insurance contract.99 8.30 There are two types of warranties – express warranties and implied warranties. Cargo policies may contain express warranties tailored to a particular trade or specific situation.100 An express warranty is an undertaking written in a contract of insurance. Although no particular form of words is necessary, the creation of a warranty depends upon the parties’ intentions as contained in the four corners of the contract.101 Statements, such as “to the best of my knowledge or belief”, are not warranties.102 Curiously, clauses in a policy such as “warranted free from capture and seizure”, “warranted free from strikes, riots and civil commotions” or “warranted free of claim for loss of market or loss, damage or deterioration arising from delay” are construed as exclusions from coverage and are not warranties.103 Even the use of the term “warranty” does not present conclusive proof of whether a certain statement is a warranty. The statement must fall within the definition of a true warranty. There is no entrenched federal maritime law with respect to the construction of a marine insurance contract and, therefore, state law will be applied.104 8.31 There are implied warranties in marine insurance, such as the implied warranty of lawfulness or the implied warranty of seaworthiness. Cargo policies almost universally contain a “Seaworthiness Admitted” Clause, however, by which cargo underwriters admit the seaworthiness of the vessel in which the goods are carried.105 The effect of this clause is to negate the implied warranty of the vessel’s seaworthiness, as to cargo insurance.106 Moreover, the duty of utmost good faith with respect to the seaworthiness of a vessel does not apply to unseaworthiness developing after the inception of the policy, even where the cargo interest chartering the vessel becomes aware of the situation.107 Exact compliance: effect of breach 8.32 Under federal maritime law and the law of most states, strict or literal compliance with a warranty is required.108 The warranty must be fulfilled, even if it is collateral to the primary risk that is the subject-matter of the insurance contract.109 Compliance with 98. Thomas J. Schoenbaum, Warranties in the Law of Marine Insurance: Some Suggestions for Reform of English and American Law, 23 Tul. Mar. L. J. 267 (1999). 99. Commercial Union Ins Co v. Flagship Marine Services, 2000 AMC 1, 6 (2d Cir. 2000). 100. Continental Seafoods v. New Hampshire Fire Ins Co, 1964 AMC 196 (SDNY 1963) (shipment of shrimp warranted inspected by government authorities in the country of origin); Advani v. Lloyd’s, 1997 AMC 1851 (SDNY 1997), vacated on other grounds, 1998 AMC 2045 (2d Cir. 1998) (cargo bound for Egypt warranted full containers, door to door). 101. Schoenbaum, 23 Tul. Mar. L. J. 267, at 281–282. 102. Northwestern Mut Life Ins Co v. Gridley, 100 U.S. 614 (1879). 103. Resin Coatings Corp v. Fidelity and Cas Co of New York, 489 F. Supp. 73, 74 (S.D. Fla. 1980); Intermondale Trading Co v. North River Ins Co of NY, 100 F. Supp. 128, 132 (SDNY 1951); see Lanasa Fruit Steamship & Importing Co v. Universal Ins Co, 302 U.S. 556 (1938). 104. Flagship. 105. The endorsement, captioned AIMU Classification Clause (19 May 1993), does impose age and class restrictions on vessels carrying insured cargo. AIMU Classification Clause (19 May 1993): available at www. aimu.org./aimuforms/AIMU%20Classification%20Clause%20-%205.13.93.pdf. 106. Parks at 262; Escambia Treating Co v. Aetna Casualty and Surety Co, 1977 AMC 1285 (N.D. Fla. 1976). 107. Escambia. 108. Flagship. 109. Id.

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a warranty is a condition precedent to liability under the contract irrespective of causation.110 Courts abhor a forfeiture, however, and this rule of strict compliance was criticized in the United States Supreme Court case of Wilburn Boat Co v. Fireman’s Fund Insurance Co.111 In the Wilburn Boat case, the court explained that absent a well-established federal maritime law or a determination that the interests of national uniformity require that a rule of federal maritime law be fashioned, the interpretation of a contract of marine insurance will abide state law.112 Since the Wilburn Boat case, however, most American courts have applied the strict compliance rule.113 8.33 State law differs with respect to the consequences of a breach of warranty. One view holds that a breach of a warranty merely suspends coverage during the period of the breach. Coverage is reinstated automatically when the breach is corrected by the assured.114 A second line of cases indicates that the policy is voidable at the option of the insurer. It is not the breach that voids the insurance coverage, but the insurer’s legal pleadings which seek to avoid or void coverage.115 A number of cases apply state law to ameliorate the harsh rule of non-compliance with warranties. In some states, the insurer must demonstrate some type of causal connection between the breach of warranty and the loss.116 Finally, courts will enforce a warranty only if the wording of the clause is unambiguous.117 8.34 In order to avoid the harsh consequences of a breach of warranty, marine policies often contain a “Held Covered” Clause that allows coverage to continue even after the breach.118 For example, trading warranties are often held covered. There is no entrenched federal precedent with respect to the effect of a Held Covered Clause, and therefore state law will be applied.119 In Florida, the coverage continues despite a breach of a held covered trading warranty, as long as the breach is not wilful.120 Under such circumstances, the assured may provide notice to the insurer even after the loss has occurred. The insurer has the right to charge additional premium, but bears the burden of establishing the amount that would have been charged in the ordinary course of business prior to any loss.121 Waiver of warranties 8.35 A breach of warranty may be excused on the basis of either waiver or estoppel.122 Waiver is a voluntary and express decision to not exercise a contract right. Mere silence does not constitute a waiver.123 An authorized person must elect to waive a certain right; 110. Advani. 111. Wilburn Boat. 112. Id. 113. Graydon S. Staring and George L. Waddell, Marine Insurance, 73 Tul. L. Rev. 1619, 1650–52 (1999). 114. Schoenbaum, 23 Tul. Mar. L. J. 267, at 290; Graham v. Milky Way Barge Inc, 811 F.2d 881 (5th Cir. 1987). 115. Schoenbaum, 23 Tul. Mar. L. J. 267, at 291. 116. Flagship; FL ST s. 627.409(2); Tex. Ins. Code Ann. Art. 6.14 (1981); Reliance Ins Co v. The Escapade, 280 F.2d 482 (5th Cir. 1960); but see Home Insurance Co v. Vernon Holdings, 1995 AMC 369 (S.D. Fla. 1994) (there is an established admiralty rule of literal compliance with respect to trading and navigational warranties and a breach thereof voids the policy irrespective of causal relationship to the loss). 117. Employers Ins of Wausau v. Trotter Towing Corp, 834 F.2d 1206, 1210 (5th Cir. 1988). 118. Schoenbaum, 23 Tul. Mar. L. J. 267, at 301. 119. Hilton Oil Transp v. T. E. Jonas, 75 F.3d 627 (11th Cir. 1996). 120. Id. 121. Id. 122. Schoenbaum, 23 Tul. Mar. L. J. 267, at 302. 123. Robinson v. Home Ins Co, 73 F.2d 3 (5th Cir. 1934).

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and must be in possession of, or have the opportunity to be in possession of, full knowledge of the circumstances underlying the breach of warranty.124 Courts will estop an insurer from asserting a contract right when the assured is induced by the conduct of the insurer to take action to his detriment. The assured may establish estoppel by proving that the insurer, “by its conduct, … lulled [the assured] into sleeping on its rights under the insurance contract”.125 Under New York law, an insurer may not create coverage, however, by waiver or estoppel. In others words, if the policy does not provide coverage or otherwise excludes coverage, the insurer cannot create coverage by failing to reserve rights or decline coverage in a timely fashion.126 Exclusions The nature of exclusions 8.36 An exclusion from coverage must be given narrow and strict construction.127 The insurer has the burden of proving that the exclusion applies to the facts of the case by showing that it is stated in unmistakable and clear language, is not subject to another reasonable interpretation and applies to the particular circumstances.128 While interpreting contract terms, courts are to examine the reasonable expectations of the ordinary businessperson when making an ordinary business contract.129 Exclusions and causation 8.37 Analyzing causation in marine insurance is fraught with complexities. Professor Schoenbaum stated a general description of the rule130: “The proximate cause is the cause proximate in efficiency, not necessarily the cause nearest in time. A cause need not be exclusive to be proximate. No rule of thumb exists to determine proximate cause; instead each case requires separate analysis to decide which cause is proximate in efficiency. The true proximate cause is that which is dominant or predominant; effective or immediate; actual or real; the overriding or common sense cause. Where two causes exist, the court should properly look for the cause which rendered the loss inevitable, distinguishing between the proximate cause and the remote cause. If an interval of time exists during which the loss could have been prevented, the cause involved is most likely remote. A cause may be proximate even though the proximate cause would not have caused the loss but for the operation of a remote cause or causes.”

124. Suydam; Gulfstream. 125. N Am Foreign Trading Corp (New York law). 126. Albert J. Schiff Assoc., Inc. v. Flack, 51 N.Y.2d 692, 435 N.Y.S.2d 972, 417 N.E.2d 84 (1980) (New York law); In re Balfour Maclaine (conditions, such as late notice, are waived by election when an insurer knowingly fails to assert them in a disclaimer letter). 127. Westview Assocs v. Guaranty Nat’l Ins Co, 95 N.Y.2d 334, 339, 717 N.Y.S.2d 75, 77, 740 N.E.2d 220 (2000). 128. Continental Cas Co v. Rapid-American Corp, 80 N.Y.2d 640, 652, 593 N.Y.S.2d 966, 609 N.E.2d 506 (1993) (New York law). 129. Am Nat’l Fire Ins Co v. Mirasco Inc, 249 F. Supp. 2d 303 (SDNY 2003), vacated and remanded on other grounds, 144 F. App’x 171 (2d Cir. 2005). 130. Thomas J. Schoenbaum, Admiralty and Maritime Law, 2nd edn, 1994, s. 4-4.

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The study of “causation” commences with a choice of law analysis between state law and admiralty law according to the rationale of the Wilburn Boat case. For example, courts in Washington and New York recognize that the federal admiralty rule on the issue of proximate cause is stated much the same way under both federal and state law; in other words, where a loss occurs due to a combination of causes, and one of those causes is excluded by the policy, the question of coverage is resolved by deciding which cause is dominant or “efficient”.131 In Blaine Richards & Co v. Marine Indemnity Insurance Co of America,132 a case construing the Free of Capture and Seizure (“FC&S”) warranty, the court stated that in “cases involving detention, courts have generally not followed losses back to prior events … the common sense understanding [is] that the temporary physical loss … [is] caused by the detention”.133 In Kimta AS v. Royal Insurance Co, the court held that there is an established federal admiralty rule on how to apply the efficient proximate cause rule in the interpretation of the FC&S warranty in a marine cargo insurance policy.134 Federal Courts have consistently interpreted the FC&S Clause as providing that a “loss is due to seizure even if the seizure resulted from an insured peril, such as negligence of the master, so long as the insured peril did not endanger the cargo independently of the seizure”.135 8.38 In Lanasa Fruit Steamship & Importing Co v. Universal Ins Co,136 the Supreme Court of the United States considered an exclusion for damage or deterioration resulting from delay. The court held that the proximate cause of the deterioration of the bananas was the stranding of the vessel, which was an insured peril, and not the excluded cause of delay. After the Lanasa Fruit decision, the wording of the Delay Clause was amended by excluding loss resulting from delay and adding the phrase “whether caused by a peril insured against or otherwise”. This additional language has been enforced by the courts to exclude damage due to delay even when a peril insured against, such as a stranding, is a cause of the delay.137 Causation under the American Institute Clauses and the SR&CC Endorsement 8.39 To the extent that the American Institute Cargo Clauses and the SR&CC Endorsement138 contain language such as “caused by” or “resulting from”, the courts will most likely apply the proximate causation doctrine, unless state law is found to be applicable and the law of a particular state applies a different causation doctrine.139 Several exclusions

131. Kimta AS v. Royal Ins Co, 9 P.3d 239 (Wash. App. 2000) (applying Washington law); Continental Ins Co v. Arkwright Mutual Ins Co, 102 F.3d 30 (1st Cir. 1996) (applying New York law). In a terrorism case, the court stated that settled case law established a mechanical test of proximate causation for insurance cases, a test that looks only to the causes nearest to the loss, and not to remote causes. Pan Am World Airways Inc v. Aetna Casualty & Surety Co, 505 F.2d 989 (2d Cir. 1974), [1974] 1 Lloyd’s Rep. 207, aff’d [1975] 1 Lloyd’s Rep. 77. 132. 635 F.2d 1051, 1055 (2d Cir. 1980). 133. Id.; see Commodities Reserve Co v. St Paul Fire & Marine Ins Co, 879 F.2d 640, 642 (9th Cir. 1989). 134. Kimta. 135. Id. 136. Lanasa Fruit. 137. Kimta; see Archer-Daniels-Midland Co v. Phoenix Assur Co, 975 F. Supp. 1137, 1147 (S.D. Ill. 1997). 138. AIMU Endorsement for Open Policies (Cargo), Strikes, Riots & Civil Commotions (Form 12A): available at www.aimu.org./aimuforms/SRCC12A.pdf. 139. Great Northern Ins Co v. Dayco Corp, 637 F. Supp. 765 (SDNY 1986) (where a policy insures against direct damage by one element, but excludes damage caused by another element, the coverage extends to the loss even though the excluded element is a contributory cause).

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from coverage found in the Cargo Clauses and the SR&CC Endorsement, however, employ the phrase “arising out of” or “arising from”. The “arising out of” language must be construed broadly.140 The phrase “arising out of” is unambiguous and has a broader meaning than “caused by” or “resulted from”. It is ordinarily understood to mean “originating from”, “having its origin in”, “growing out of” or “flowing from”.141 It is to be applied broadly in the form of a “but for” test in determining coverage.142 The phrase “arising out of” does not require a finding of “proximate cause”. “‘Arising out of’ and ‘proximate cause’ describe two different concepts”.143 Conditions 8.40 A condition is an “act or event, other than a lapse of time, which, unless the condition is excused must occur before a duty to perform a promise in the agreement arises (condition precedent), or which discharges a duty of performance that has already arisen (condition subsequent)”.144 A condition precedent must be distinguished from a condition subsequent, as only the latter condition will result in an automatic discharge when breached.145 With respect to a condition subsequent, the “duty to perform a promised performance has already arisen and is discharged because it was agreed that it would be discharged if a certain event occurs”.146 True conditions are quite rare and most conditions are conditions precedent.147 A condition precedent is an act or event that must occur before a duty of performance of a promise arises.148 A breach of a condition precedent does not automatically terminate the duty to perform, but suspends the obligation of the other party to perform and renders it voidable.149 A promissory warranty in marine insurance qualifies as a condition precedent to coverage.150

ALL RISKS All risks All risks defined 8.41 The usual practice is to insure cargo on all risks terms. The American Institute All Risks Cargo Clauses 2004 provide151: “Unless otherwise specified below, this policy insures against ‘All Risks’ of physical loss or damage from any external cause irrespective of percentage, but excluding nevertheless the risks of ….” 140. Stouffer & Knight v. Continental Co, 96 Wash. App. 747, 982 P.2d 105 (1999). 141. Avemco Ins Co v. Mock, 44 Wash. App. 327, 329, 721 P.2d 34 (1986) (citation omitted). 142. US Underwriters Ins Co v. Zeugma Corp, 1998 U.S. Dist. LEXIS 14448 (SDNY 1998). 143. Toll Bridge Auth v. Aetna Ins Co, 54 Wash. App. 400, 407, 773 P.2d 906 (1989). 144. John D. Calamari and Joseph M. Perillo, The Law of Contracts, 3rd edn, 1987, s. 11-2. 145. Schoenbaum, 23 Tul. Mar. L. J. 267, at 294. 146. Calamari at s. 11-7. 147. Schoenbaum, 23 Tul. Mar. L. J. 267, at 294. 148. Id.; Restatement (First) of Contracts s. 250(a) (1932). 149. Schoenbaum, 23 Tul. Mar. L. J. 267, at 294. 150. Id.; Levine v. Aetna Ins Co, 139 F.2d 217 (2d Cir. 1943); Simons. 151. American Institute Cargo Clauses 2004 – All Risks (1 January 2004): available at www.aimu.org/aimuforms/Cargo%20Clauses%20All%20Risk%20(in%20tables).pdf.

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This section considers the meaning of the expression “all risks”, which is a term of art. All risks insurance is not “all loss” insurance. It is not a performance bond and may not provide coverage even when no express exclusion applies.152 Allowing insurance coverage on a certainty would violate public policy and encourage fraud. An insurance policy is not a warranty of soundness. Risk is a necessary component of insurance.153 Fortuity 8.42 An implied term in all policies is the requirement that a loss must have been caused by a fortuitous event. A fortuitous event is one that is not caused by: (1) inherent vice; (2) nature of the product itself; or (3) misconduct on the part of the assured. The loss must result from some form of accident and not be certain to occur.154 The “fortuity rule” is a creature of federal, not state law.155 Recent cases have analyzed the principle of fortuity from a subjective, instead of an objective standard. The actual knowledge of the assured must be considered156: “A fortuitous event … is an event which so far as the parties to the contract are aware, is dependent on chance. It may be beyond the power of any human being to bring the event to pass; it may be within the control of third persons; it may even be a past event, as the loss of a vessel, provided that the fact is unknown to the parties.”

The “fortuity doctrine” has evolved from an objective157 to a subjective inquiry158: “The modern rule … ignores any ‘concept of risk taking’ that was in the underwriter’s mind. It matters not whether loss was a physical certainty, but only whether the insured was aware that the loss would occur. … [T]his is a completely subjective standard. The court’s inquiry is limited to the knowledge of the named insured at bar; it makes no difference whether a reasonable and prudent insured would have been aware that loss was imminent.”

8.43 Fortuitous losses include those caused by negligence of the assured’s employees or the mysterious disappearance of cargo.159 However, a loss is not fortuitous if it results from fraud or the intentional conduct of the assured.160 Intentional acts of the assured are not fortuitous. For example, an Accumulation Clause in a warehouse endorsement to a cargo policy does not provide coverage above the limit of liability, when an assured’s employees 152. Wolstein v. Yorkshire Ins Co, 97 Wash. App. at 201, 985 P.2d 400 (1999). 153. Id. 154. See Dow Chemical Co v. Royal Indem Co, 635 F.2d 379 (5th Cir. 1981); Stephen A. Cozen and Richard C. Bennett, Fortuity: The Unnamed Exclusion, 20 Forum 222 (1985). 155. Youell v. Exxon Corp, 48 F.3d 105, 110–11, 1995 AMC 1147 (2d Cir. 1995), vacated on other grounds, 516 U.S. 801, 116 S. Ct. 43, 133 L. Ed. 2d 9 (1995). 156. Restatement (First) of Contracts, s. 291, comment (a); Morrison Grain Co v. Utica Mut Ins Co, 632 F.2d 424 (5th Cir. 1980). 157. Cozen (“If the loss was inevitable under every known physical and mechanical law, … it could not be deemed to be a ‘risk’ insured against; [t]he knowledge or ignorance of the insured was irrelevant”). 158. Id.; Compagnie des Bauxites de Guinee v. Insurance Co of North America, 724 F.2d 369 (3rd Cir. 1983); CXY Chemicals USA v. Gerling Global General Ins Co, 991 F. Supp. 770 (E.D. La. 1998). 159. Redna Marine Corp v. Poland, 46 FRD 81 (1969); Atlantic Lines Ltd v. American Motorists Ins Co, 547 F.2d 11 (2d Cir. 1976). 160. Ingersoll Milling Mach Co v. M/V Bodena, 829 F.2d 293, 307 (2d Cir. 1987); City of Burlington v. Indem Ins Co of N Am, 332 F.3d 38, 48 (2d Cir. 2003) (listing “intentional or fraudulent losses” as exceptions to fortuity); Royal Indem Co v. Deep Sea Int’l, 2007 U.S. Dist. LEXIS 51151 (SDNY 2007); see also, Nat’l Union Fire Ins Co of Pittsburgh, Pa v. Stroh Cos, 265 F.3d 97, 106 (2d Cir. 2001) (“[T]he fortuity doctrine holds that insurance is not available for losses that the policyholder knows of, planned, intended, or is aware are substantially certain to occur”).

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intentionally accumulate cargo in one warehouse location and fire erupts destroying all the cargo.161 Damages that flow from an assured’s intentional act cannot be considered fortuitous.162 The question is still open, however, as to whether a loss that results from mere reckless conduct is fortuitous.163 Recklessness is conduct that “falls somewhere between intent to do harm, which includes proceeding with knowledge that the harm is substantially certain to occur, and the mere unreasonable risk of harm to another involved in ordinary negligence”.164 Burden of proof 8.44 An assured “has the burden of establishing a prima facie case for recovery by proving: (1) the existence of an all risk policy, (2) an insurable interest in the subject of the insurance contract, and (3) the fortuitous loss of the covered property”.165 The burden of proof initially is on the assured to prove a fortuitous loss of the covered property within the policy period.166 The assured’s burden is slight, however, and proof need not be submitted as to the exact nature of or cause of the damage.167 Once the insured establishes that the insured cargo was in good order and condition upon attachment and was in bad condition on delivery, the burden of proof shifts to the cargo insurer to prove that the damage resulted from an excluded cause.168 Limitations and exclusions on all risks Wilful misconduct 8.45 In addition to the implied term of “fortuity”, the American Institute Clauses include an express exclusion for wilful misconduct: “3.A. This policy does not cover: … (2) Loss, damage or expense: (a) Attributable to wilful misconduct of the Assured ….”

161. St Paul Fire & Marine Ins Co Inc v. Novus Int’l Inc, 2011 U.S. Dist. LEXIS 150317 (SDNY 2011). 162. Id. 163. Youell v. Exxon Corp, 48 F.3d 105, 110–11, 1995 AMC 1147 (2d Cir. 1995), vacated on other grounds, 516 U.S. 801, 116 S. Ct. 43, 133 L. Ed. 2d 9 (1995); Youell v. Exxon Corp., 74 F.3d 373 (2d Cir. 1996); USA v. Water Quality Ins Syn, 2005 U.S. Dist. LEXIS 7128 (D. Me. 2005). 164. Youell v. Exxon Corp, 48 F.3d 105, 110–11, 1995 AMC 1147 (2d Cir. 1995), vacated on other grounds, 516 U.S. 801, 116 S. Ct. 43, 133 L. Ed. 2d 9 (1995); Youell v. Exxon Corp., 74 F.3d 373 (2d Cir. 1996). 165. Int’l Multifoods Corp v. Commercial Union Ins Co, 309 F.3d 76 (2d Cir. 2002); Ingersoll (internal citation omitted); In re Balfour Maclaine. 166. New Hampshire Ins Co v. Martech USA Inc, 993 F.2d 1195 (5th Cir. 1993); Ingersoll; Morrison Grain; Dow Chemical Co v. Royal Indem Co, 635 F.2d 379 (5th Cir. 1981); Ajiba Coussa v. Westchester Fire Ins Co, 1962 AMC 1805 (SDNY 1961) (when deterioration of the goods results from an inherent defect, the assured must prove a loss within the policy period by presenting evidence beyond a mere bill of lading, since the bill of lading is evidence only of apparent or external good condition); but see Morrison Grain. 167. Intermetal; Morrison Grain; In re Balfour Maclaine. 168. Northwest Mutual Life Ins Co v. Linard, 498 F.2d 556, 561 (2d Cir. 1974); Morrison Grain; Quattrociocchi v. Albany Ins Co, 1983 AMC 1152 (N.D. Ca. 1982). Where the insurer commences an action for declaratory judgment of non-liability under the policy, the method of allocating the burden of proof remains the same. Fireman’s Fund Ins Co v. Videfreeze Corp, 540 F.2d 1171, 1174 (3rd Cir. 1976); Centennial Ins Co v. Lithotech Sales LLC, 187 F. Supp. 2d 214 (D. N.J. 2001); aff’d 29 Fed. App’x. 835 (3rd Cir. 2002)

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This type of exclusion often receives judicial treatment in situations involving negligence of the insured’s employees or mysterious disappearances of cargo. All risks insurance covers these risks, but does not provide coverage where the loss occurs as a result of wilful conduct of the assured. In cases of alleged negligence, it does not cover wilful conduct measuring up to “knavery” or “design”.169 In cases of alleged mysterious disappearance of cargo, it does not cover a loss of goods resulting from the issuance of fraudulent warehouse receipts by the assured.170 Ordinary wear and tear 8.46 In addition to the implied term of “fortuity”, the American Institute Clauses exclude coverage for wear and tear: “3.A. This policy does not cover: … (1) Ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear ….”

Various kinds of commodities are subject to variations in weight, such as drying out over the passage of time. Some liquids may seep through their containers, while small fungible goods may slip through permeable bags. These types of normal losses are not recoverable under all risks insurance.171 In City of Burlington v. Indemnity Insurance Co of North America,172 the court stated173: “[L]osses due to normal wear and tear are not fortuitous. Entropy is not a matter of chance, but is our destiny. Such damage as is inevitable from ordinary wear and tear and inevitable depreciation is not within the policies. Normal wear and tear … is not an insurable risk, but a certainty.”

All risks cargo insurance does not cover ordinary wear and tear.174 The wear and tear exclusion, though often recited as one of the all risks exclusions, has rarely been the subject of independent interpretation. Wear and tear is generally understood, however, to occur over an extended period of time.175 Inherent vice 8.47 In addition to the implied term of “fortuity”, the American Institute Clauses exclude inherent vice: “3.A. This policy does not cover: … (2) Loss, damage or expense: … (b) caused by inherent vice or nature of the insured property ….”

All risks insurance covers against risks of physical loss or damage from any external cause. Inherent vice has been defined as “any existing defects, diseases, decay or inherent nature 169. Linard. 170. Curacao Trading; Nieschlag & Co Inc v. Atlantic Mutual Ins Co, 43 F. Supp. 797 (SDNY 1941), aff’d 126 F.2d 834 (2d Cir. 1942), cert. denied, 317 U.S. 640, 87 L. Ed. 516, 63 S. Ct. 31 (1942); see In re Balfour Maclaine. 171. Parks at 792. 172. City of Burlington. 173. Id. (citations omitted); Contractors Realty Co v. Ins Co of N Am, 469 F. Supp. 1287, 1293 (SDNY 1979). 174. Ingersoll (applying Illinois law); Multifoods (applying New York law). 175. Lone Eagle; Miller Marine Servs v. Travelers Prop Cas Ins Co, 2005 U.S. Dist. LEXIS 39906, 2005 AMC 2601 (EDNY 2005) aff’d 2006 U.S.App. LEXIS 24065 (2d Cir. 2006); Axis Reinsurance Co v. Resmondo, 2009 U.S. Dist. LEXIS 122778, 2009 AMC 2597 (M.D. Fla. 2009); Larsen v. Ins Co of N Am, 252 F. Supp. 458 (W.D. Wa. 1965), aff’d 362 F.2d 261 (9th Cir. 1968).

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of the commodity which will cause it to deteriorate with a lapse of time”.176 An “all risks event” does not include coverage for an event caused by the consummation, during the period of coverage, of an in-dwelling fault in the goods that had existed prior to the attachment of coverage.177 8.48 Courts uniformly have held that the insurer bears the burden of proof on the issue of inherent vice.178 The insurer must prove that a defect within the goods caused the damage without any other external cause. This burden may be met by proving that the inherent nature of the product caused it to deteriorate over the mere passage of time.179 In some instances, however, the insurer must effectively prove the non-existence of any external fortuitous event that would cause the results.180 Insufficiency of packing 8.49 In addition to the implied term of “fortuity”, the American Institute Clauses exclude coverage for improper packing: “3.A. This policy does not cover: … (2) Loss, damage or expense: … (d) resulting from insufficiency or unsuitability of packing or preparation of the insured property for the intended voyage. For the purposes of this clause, ‘packing’ shall be deemed to include stowage into an overseas container but only when such stowage is carried out prior to the commencement of the insured voyage or when performed by the Assured or his representative.”

Under the subjective fortuity standard, the insurer must prove that the insured had knowledge that the goods were improperly packed and that the damage was certain to occur as a result of the improper packing. Improper packing has also been considered an inherent vice, but the insurer must prove that the inherent vice, and not any external event, was the proximate cause of the loss.181 With an exclusion from coverage, the subjective knowledge of the assured is irrelevant, but the insurer still must prove that improper packing was the proximate cause of the loss. 8.50 Goods must be adequately packaged and prepared for transit in order to endure the ordinary hazards of the voyage.182 The principle of “proper packing” is sufficiently broad so as to include the fact that the assured must provide proper shipping instructions for the

176. Archer-Daniels-Midland Co v. Phoenix Assur Co, 975 F. Supp. 1129, 1136 (S.D. Ill. 1997). 177. Cheetham (an open cargo policy providing all risks coverage, including loss and/or deterioration of fish as a result of delay, does not provide coverage for an unfit condition that existed prior to attachment of the risk or was excluded as an inherent vice). See fn. 95 and 97. 178. Banco Nacional de Nicaragua v. Argonaut Ins Co, 681 F.2d 1337, 1340 (11th Cir. 1982); Morrison Grain; Formosa Plastics Corp v. Sturge, 684 F. Supp. 359, 366, 1988 AMC 333, 344 (SDNY 1987), aff’d 848 F.2d 390 (2d Cir. 1988). 179. Archer-Daniels-Midland Co, 975 F. Supp. 1129, at 1136; see GTE Corp v. Allendale Mut Ins Co, 258 F. Supp. 2d 364 (D. N.J. 2003), aff’d 372 F.3d 598 (3rd Cir. 2004); Port of Seattle v. Lexington Insurance Co, 111 Wn. App. 901, 48 P.3d 334 (Wash. App. 2002) (the Y2K limitation in computer programs contained their own “seeds of destruction” and were not threatened by an outside external force). 180. Donald T. Rave and Stacey Tranchina, Marine Cargo Insurance: An Overview, 66 Tul. L. Rev. 371 (1991); Perzy v. Intercargo, 827 F. Supp. 1365 (N.D. Ill. 1993). 181. CPH Int’l Inc v. Phoenix Assur Co, 1994 U.S. Dist. LEXIS 7751 (SDNY 1994) (garments fell off hangers during an air shipment, not due to the inherent vice of improper packaging, but due to turbulence during flight). 182. Pacific Tall Ships Co v. Kuehne & Nagel, 2000 AMC 866 (E.D. Ill. 2000) (damage to cargo was within the packing and preparation for transit exclusion when fumigation tablets were placed inside container without proper ventilation and destroyed cargo).

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183

safe transportation of the product. Brokers’ policies, however, usually exclude improper packing only where the packing or preparation for transit is carried out by the assured or its employees prior to the attachment of the insurance. Delay 8.51 In addition to the implied term of “fortuity”, the American Institute Clauses contain a Paramount Warranty excluding coverage for loss of market/delay: “Warranted free of claim for loss of market or for loss, damage, expense or deterioration arising from delay, whether caused by a peril insured against or otherwise.”

Courts interpreting the Delay Clause, where the phrase “whether caused by a peril insured against or otherwise” appears, have held that the exclusion applies irrespective of the fact that the delay may have been caused by an insured peril.184 However, the Delay Clause does not exclude delay expenses, such as interest charged on borrowed funds due to a delay in contract payments, when these extra expenses result from a wrongful denial of coverage.185 Loss of market 8.52 Additionally, the “Loss of Market/Delay Warranty” excludes coverage for “loss of market”. Loss of “market” and loss of “market value” are not equivalent terms. “Market” refers to matters external to any particular product item; in other words, those conditions that determine the degree to which supply of that commodity exceeds or falls short of demand. “Market value”, on the other hand, is a “function of qualities (e.g. state of repair) inherent in the individual item itself and refers to the price that the specific article with those qualities would command in a given market”. The exclusion of “loss of market” relates only to “market”, not “market value”.186 Insolvency 8.53 In addition to the implied term of “fortuity”, the American Institute Clauses contain an exclusion for insolvency: “A. This policy does not cover: … (2) Loss, damage or expense: … (c) arising from insolvency or financial default of the owners, managers, charterers, or operators of the vessel.”

This exclusion contains the phrase “arising from”, which has been interpreted by the courts to have a broader meaning than “proximate cause”. The insolvency of the assured need not be the direct cause of the loss. For example, if the insolvency of the assured results in property being abandoned and then stolen, the insolvency of the assured is the proximate

183. Id.; Blaine; Coexport Int’l v. New Hampshire Ins Co, 1991 U.S. Dist. LEXIS 6743 (N.D. Ill. 1991); Archer-Daniels-Midland Co v. Phoenix Assur Co, 975 F. Supp. 1137 (S.D. Ill. 1997). 184. Blaine; Coexport; Archer-Daniels-Midland Co, 975 F. Supp. 1137. See para. 8.38 above for the amendments to the wording of the delay exclusion which followed the decision in Lanasa Fruit. 185. Ingersoll. 186. Boyd Motors v. Employers Ins of Warsaw, 880 F.2d 270 (10th Cir. 1989); Mirasco (loss of market must occur in the original intended market); but see Interpetrol Bermuda Ltd v. Lloyd’s Underwriters, 588 F. Supp. 1199 (SDNY 1984) (bulk oil clauses and coverage for contamination).

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cause of the loss, not the theft of the property.187 Also, the exclusion for “insolvency or financial default” is not severable and applies to all parties making a claim under the insurance policy, such as a loss payees or an additional assured.188

WAR, STRIKES AND TERRORISM The limitations on cover for war risks 8.54 War risks are excluded from coverage under the FC&S Warranty in the American Institute Cargo Clauses. War risks are insured, however, under a separate war risk policy, such as the AIMU War Risk Open Policy (Cargo) (2 December 1993).189 The coverage is limited.190 Depending upon the particular risk insured, the duration of coverage is limited to port-to-port; or while the property is on board a waterborne conveyance. There is a maximum limit of 15 days for cargo to be discharged from an overseas vessel; and the policy terminates after discharge.191 There is coverage for goods loaded on a lighter, craft or vessel at shipment or when landed from said vessels at the discharge port, but only from the perils of mines and torpedoes.192 Goods being moved by land are not covered under the war risk policy, with an exception for mail.193 The limit of liability is by vessel and not by shipment. The Accumulation Clause is restricted to limited circumstances and is subject to a stated limit of liability.194 Coverage is provided for capture and seizure, but only due to war risks, not peacetime seizures.195 Coverage is excluded, however, for any claim based upon frustration of the insured voyage or adventure caused by arrests, restraints or detainments.196 The 1993 War Risk policy provides coverage for piracy, and also expressly covers general average and salvage charges.197 War risks

War, warlike operations, military or usurped power, civil war, revolution, rebellion and insurrection 8.55 Clause 1(a) of the American Institute War Risk Open Policy 1993 insures against the risks of198: “capture, seizure, destruction or damage by men-of-war, piracy, takings at sea, arrests, restraints, detainments and other warlike operations and acts of kings, princes and peoples in prosecution of 187. Transamerica. 188. Id. 189. AIMU War Risk Open Policy (Cargo) (2 December 1993): available at www.aimu.org/aimuforms/ War%20Risk%20Open%20Policy%20-%20December%202%20%20199. 190. Jose A. Guerrero, Jr., Marine Cargo Insurance, 2003, pp. 148–149. 191. Id. 192. Id.; AIMU War Risk Open Policy (Cargo) (2 December 1993). 193. Guerrero; AIMU War Risk Open Policy (Cargo) (2 December 1993). 194. Guerrero; AIMU War Risk Open Policy (Cargo) (2 December 1993). 195. Kimta. 196. AIMU War Risk Open Policy (Cargo) (2 December 1993). 197. Id. 198. Id.

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hostilities or in the application of sanctions under international agreements, whether before or after a declaration of war and whether by a belligerent or otherwise, including factions engaged in civil war, revolution, rebellion or insurrection, or civil strife arising therefrom; the imposition of martial law, military or usurped power ….”

Courts have taken two approaches while considering the factors that constitute “war”. The formal approach applies a technical meaning to the term, considering “war” in a legal sense; in other words, whether war has been formally and constitutionally declared.199 The liberal approach gives the term “war” an ordinary meaning. Every forceable contest between two governments, de facto or de jure, is war.200 “Warlike operations” is broader than war.201 The nature of the operation must be warlike in character. 202The operation must be conducted during wartime and there must be a proximity to the theater of war.203 Military or usurped power is that power “exerted by invading foreign enemies or by an internal armed force in rebellion” able to supplant the laws of the land and displace the constituted authorities.204 The group must control a substantial territory with the trappings of state sufficient to constitute a de facto government.205 A “civil war” consists of an attempt to overthrow an established government.206 The participants have declared their independence, cast off their allegiance and commenced hostilities against their former sovereign.207 Rebellion, revolution and civil war “are progressive stages in the development of civil unrest, the most rudimentary form of which is insurrection”.208 An “insurrection” involves a violent uprising by a group or movement acting for the purpose of overthrowing the constituted government and assuming de facto control.209 Capture, seizure, arrest, restraint and detainment 8.56 Clause 4A of the American Institute Cargo Clauses contains a Paramount Warranty captioned the FC&S Warranty, commonly known as the Free of Capture and Seizure Warranty. The clause provides: “Notwithstanding anything herein contained to the contrary, this insurance is warranted free from: (1) all consequences of capture, seizure, arrest, restraint, detainment, confiscation, pre-emption, requisition, nationalization, and the consequences thereof or any attempt thereat, whether in time of peace or war and whether lawful or otherwise ….”

199. Beley v. Penn Mut Life Ins Co, 373 Pa. 231 (1953). 200. War may be initiated by nations whether or not there is any declaration of war. Dole v. Merchs Mut Ins Co, 51 Me 465 (Me. 1863); Schneiderman v. Metropolitan Casualty, 14 A.D.2d 284 (N.Y. App. Div. 1961). 201. Pan Am World Airways Inc. v. Aetna Cas. & Surety Co, 368 F. Supp. 1098, 1107 (SDNY 1973). 202. US v. Standard Oil Co of NJ, 178 F.2d 488, 492 (2d Cir. 1949), aff’d, 340 U.S. 54 (1950). 203. Panama Transp Co v. US, 155 F. Supp. 699, 705 (SDNY 1957), aff’d 253 F.2d 758 (2d Cir. 1958); Meseck Towing Lines Inc v. Excess Ins Co Ltd, 77 F. Supp. 790, 792–93 (EDNY 1948). “Warlike operations” is an armed conflict between combatants; not intentional violence against civilians. Steven Plitt, The Changing Face of Global Terrorism and a New Look of War: An Analysis of the War-Risk Exclusion in the Wake of the Anniversary of September 11, and Beyond, 39 Willamette L. Rev. 31 (2003). 204. Pan Am, 505 F.2d 989, at 1011. 205. Id. at 1009. 206. Holiday Inns Inc v. Aetna Ins Co, 571 F. Supp. 1460, at 1466 (SDNY 1983). 207. Holiday Inns. 208. Pan Am, 505 F.2d 989, at 1017. 209. Holiday Inns.

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There is an express exclusion for piracy in clause 4B(4): “[A]ll consequences of civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or from the consequences of the imposition of martial law, military or usurped power, or piracy.”

The risks of capture, seizure and like perils are insured under the American Institute War Risk policy, but only as a result of war risks.210 Therefore, a peacetime seizure of cargo is not covered under a war risk policy and is excluded from coverage under the FC&S Clause in an all risks cargo policy.211 8.57 The exclusion is broadly construed in that loss or damage proximately caused by the seizure or detention is excluded from cover, despite the fact that a covered peril may have been the immediate cause of the loss.212 Any government seizure will be found to be an excluded risk under the FC&S Clause.213 For example, when goods are destroyed by a fire in a customs warehouse while being detained by customs for improper visa clarification, the FC&S Clause excludes coverage.214 8.58 The FC&S Clause excludes losses caused by government action taken to reject or embargo cargoes for breach of customs or health regulations. Insurance is available for “rejection” coverage. For an additional premium, a policy may be extended to cover the risks of rejection or condemnation by a government of the country of import or their agencies or departments.215 Coverage in the case of a government embargo is limited to return freight, but extended coverage is available for additional premium.216 Strikes, riots and civil commotions Strikes and strikers 8.59 Clause 4B of the American Institute Cargo Clauses contains a Paramount Warranty captioned the “SR&CC Warranty”, commonly known as the Strikes, Riots and Civil Commotion Warranty. The clause excludes loss, damage or expense caused by or resulting from: “strikes, lockouts, labor disturbances, riots, civil commotions, or acts of any person or persons, taking part in any such occurrence or disorders ….”

Coverage is usually provided, however, in an endorsement to the cargo policy. For example, the AIMU Endorsement for Open Policies (Cargo) – Strikes, Riots & Civil Commotions (Form 12A) provides: 210. OPE Shipping Ltd v. Allstate Ins Co, 687 F.2d 639 (2d Cir. 1982), cert. denied, 460 U.S. 1069, 103 S. Ct. 1523, 75 L. Ed. 2d 946 (1983); Kimta. 211. OPE Shipping; Kimta. 212. Northern Feather Int’l Inc v. Those Certain London Underwriters, 714 F. Supp. 1352 (D. N.J. 1989). 213. See Pan Am, 505 F.2d 898, at 1009; Intermetal (a non-governmental seizure of goods pursuant to a valid court order in order to satisfy a debt is not a fortuitous event). 214. Northern Feather; see, e.g., Commodities Reserve (detention of a vessel by Greek authorities resulting in transhipping of bean cargo); Blaine (detention of cargo by the U.S. Food & Drug Administration); Resin (detention by customs for improper declaration of value); Intermondale Trading Co v. North River Ins Co of NY, 100 F. Supp. 128 (SDNY 1951) (detention of a vessel for suspected illegal transport to Palestine); Kimta (seizure by Russian authorities for vessel’s violation of port authority orders); Multifoods (seizure of cargo by Russian Government for a matter not involving the insured cargo). 215. Mirasco (rejection insurance protects against acts of a government, including rejection, detention or miscarriage of administrative determination; it is a form of political risks insurance). 216. Id.

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“THIS INSURANCE ALSO COVERS: (1) Physical loss of or damage to property insured directly caused by strikers, locked-out workmen, or persons taking part in labor disturbances or riots or civil commotions ….”

The meaning of the word “strike” has been narrowly construed by the courts. A strike must consist of “workers of a common employer acting in concert to induce the employer to accede to their demands” and involve “a concerted cessation of employment”.217 It is not merely an attempt by a union “to coerce the making of contracts in contemplation of employment to be created”.218 There must be a relation of employer and employee; and there must be a quitting of work.219 A “lockout” has been defined as “the withholding of employment by an employer and the whole or partial closing of the business establishment in order to gain concessions from or resist demands of employees”.220 “Labor” has been defined to include laborers, as well as labor organizations and unions.221 Consequently, the phrase “labor disturbance” has broad application. 8.60 Coverage is limited to physical loss or damage to property directly caused by strikers, locked-out workmen or persons taking part in labor disturbances. There must be a “physical” loss or damage to property and there must be direct causation.222 The coverage is subject to a series of exclusions, including an exclusion for delay223: “Nothing in this endorsement shall be construed to cover any loss, damage or expense directly or indirectly arising from, contributed to or caused by any of the following, whether due to a peril insured against or otherwise: … (c) loss of market or loss, damage or deterioration arising from delay ….”

This clause is a broadly worded exclusion. Thus, the coverage provided by the SR&CC Endorsement would not extend to delay expenses incurred by cargo interests when a port of destination is closed as a result of strikes, lockouts or labor disturbances. Riots and civil commotions 8.61 The SR&CC Endorsement also covers damage directly caused by “riots or civil commotions”. The definition of the term “riot” has progressed through several stages – from a technical term to a matter of common sense. “Riot” has been defined as a “gathering of three or more persons” with a common purpose to do an unlawful act and with an apparent intention to use force or violence against anyone opposing this purpose.224 This artificial and technical definition of “riot” has been rejected in favor of “a popular and usual meaning which most accords common sense”.225 A “riot” occurs when some multitude of individu217. M. L. Arnold v. Gulf Pacific Lines, 1940 AMC 547 (5th Cir. 1940). 218. Id. 219. Id.; Webster’s dictionary defines “strike” as: “Act of quitting work; specifically, such an act done by mutual understanding by a body of workmen as a means of enforcing compliance with demands made on their employer; a stopping of work by workmen in order to obtain or resist a change in conditions of employment”. Id. 220. Webster’s Ninth New Collegiate Dictionary (1991). 221. See Id. 222. Cf. Wilker Bros Co v. Lumbermans Mut Cas Co, 529 F. Supp. 113 (SDNY 1981). 223. AIMU Endorsement for Open Policies (Cargo) – Strikes, Riots & Civil Commotions (Form 12A): available at www.aimu.org./aimuforms/SRCC12A.pdf. 224. Ins Co of N Am v. Rosenberg, 25 F.2d 635 (2d Cir. 1928); Pan Am. 368 F. Supp. 1098, at 1132–1133. 225. Rosenberg; Pan Am, 368 F. Supp. 1098, at 1132–1133.

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als gathers and “creates a tumult”.226 A riot is a “local disturbance, normally by a mob, not a complex, travelling conspiracy” of the kind involved in the hijacking of an airplane.227 8.62 ”Civil commotion” is covered under the SR&CC Endorsement to the extent that it directly causes physical loss of or damage to property, but “insurrection” is excluded from coverage under a broadly worded exclusion.228 A “civil commotion” is a local disturbance that is confined to an immediate area of its occurrence.229 It is essentially a domestic disturbance with occasional local or temporary outbreaks of violence.230 The essential element of an “insurrection”, on the other hand, is that a group or movement must have a specific purpose of overthrowing a constituted government and seizing its powers.231 Terrorism The cover for terrorism 8.63 Clause 4B(2) of the American Institute Clauses contains an SR&CC Warranty that excludes loss, damage or expense caused by or resulting from “vandalism, sabotage, or malicious act … carried out for political, terroristic or ideological purposes …”. However, Clause 3 of the AIMU Endorsement for Open Policies (Cargo) – Strikes, Riots & Civil Commotions (Form 12A) provides coverage for “[p]hysical loss of or damage to the property insured directly caused by the act or acts of one or more persons, whether or not agents of a sovereign power, carried out for political, terroristic or ideological purposes …”. There must be a physical loss or damage to the property insured and there must be direct causation.232 Coverage for terrorism in the AIMU 2008 SR&CC Endorsement TRIA (Form 12A) is limited to the duration of risk described in the endorsement.233 It does not provide coverage for risks excluded under the FC&S Warranty; nuclear risks excluded under the Extended RACE Clause; and for chemical, biological, bio-chemical or electromagnetic or electronic weapon risks excluded under the CBE Clause.234 Form 12A insures losses, however, which are otherwise covered by the insurance, when caused by certified acts of terrorism as defined by the Terrorism Risk Insurance Act (TRIA), pursuant to a “catch-all provision.235

226. Rosenberg; Pan Am, 368 F. Supp. 1098, at 1132–1133. 227. Pan Am, 368 F. Supp. 1098, at 1132–1133. 228. AIMU Endorsement for Open Policies (Cargo) – Strikes, Riots & Civil Commotions (Form 12A) (“Nothing in this endorsement shall be construed to cover any loss, damage or expense directly or indirectly arising from, contributed to or caused by any of the following, whether due to a peril insured against or otherwise: … (d) hostilities, warlike operations, civil war, revolution, rebellion or insurrection, or civil strife arising therefrom, except to the limited extent that the acts of certain agents acting secretly have been expressly covered above”). 229. Holiday Inns. 230. Pan Am, 505 F.2d 898, at 1019. 231. Pan Am, 368 F. Supp. 1098. 232. AIMU Endorsement for Open Policies (Cargo) – Strikes, Riots & Civil Commotions (Form 12A); New Market Investment Corp v. Fireman’s Fund Ins Co, 774 F. Supp. 909 (E.D. Pa. 1991); Coexport (coverage is not provided for incidental expenses). 233. AIMU Endorsement for Open Policies (Cargo) – Strikes, Riots & Civil Commotions (Form 12A). 234. Id. 235. Id. (“Notwithstanding the foregoing, nothing in this clause excludes coverage for insured losses, which are otherwise covered by this insurance, caused by certified acts of terrorism, as defined in the Terrorism Risk Insurance Act (P.L. #107-297), or any subsequent amendments or endorsements to the Act.”)

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8.64 According to TRIA, the definition of an “act of terrorism” is established on an ad hoc basis pursuant to a government certification process.236 An act of terrorism is any act that is certified by the Secretary of the Treasury, in concurrence with the Secretary of State, and the Attorney General of the United States: “(i) to be a violent act or an act that is dangerous to - (I) human life; (II) property; or (III) infrastructure; (ii) to have resulted in damage within the United States …, and (iii) to have been committed by an individual or individuals acting on behalf of any foreign person or foreign interest, as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States government by coercion”.237

Any act that occurs to a United States flag vessel (or a vessel principally in the United States, paying United States taxes and whose insurance is subject to United States regulation) is covered irrespective of where the event occurs.238 The broadly worded list of exclusions restricting “strikes, riots and civil commotions” coverage, also applies to terrorism coverage. 8.65 Care must be exercised while examining the terms of an endorsement to an open cargo policy. As a general rule of construction, conflicting clauses in an endorsement will be given effect over any clauses contained in an open cargo policy.239 In New Market Investment Corp v. Fireman’s Fund Ins Co,240 the court held that the terms in the SR&CC Endorsement conflicted with and invalidated the coverage terms and delay warranty contained in the open cargo policy.241 The endorsement did not limit coverage to “physical” loss or damage and did not exclude loss or damage resulting from delay “whether due to a peril insured against or otherwise”. The court ruled that the endorsement covered all loss or damage proximately caused by the terroristic acts including loss or damage attributable to delay.242 Weapons of mass destruction 8.66 Clause 4B(2) of the American Institute Clauses excludes all loss, damage or expense, whether in time of peace or war, caused by “any weapon of war employing atomic or nuclear fission and/or fusion and/or reaction or radioactive force or matter ….”243 Similarly, the American Institute War Risk Policy 1993 provides244:

236. 411. S. 2600, 107th Cong. 2(b) (2002). 237. Id. at 3(1)(A)(i)–(iii). 238. Id. (Acts committed in the course of a war declared by Congress, and losses that do not exceed US$5 million dollars in the aggregate, are excluded.) 239. New Market. 240. Id. 241. Frupac Intern’l Corp v. Fireman’s Fund Ins Co, 1990 U.S. Dist. LEXIS 16807 (E.D. Pa. 1990). 242. Id. (The court applied a “Lanasa Fruit” analysis, which mandates a determination of whether the acts of terrorism were the proximate cause of the loss, irrespective of the fact that some of the loss was attributable to delay.) 243. American Institute Cargo Clauses 2004 – All Risks (1 January 2004). 244. AIMU War Risk Open Policy (Cargo) (2 December 1993).

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“3. This insurance does not cover any loss, damage or expense directly or indirectly arising from, contributed to, or caused by any of the following, whether due to a peril insured against or otherwise: … (d) Nuclear reaction, radiation or radioactive contamination, regardless of how it was caused.”

This is an absolute exclusion from coverage, as courts have recognized that this language does not require proof of proximate causation.

DURATION OF THE INSURANCE How the duration of the insurance is regulated 8.67 Open cargo policies commence at a stated period of time and remain in force indefinitely until cancelled.245 Marine policies are divided into three categories based on: (1) where the risk begins and terminates without any regard to the actual situation of the ship or voyage – time policy; (2) where the voyage begins and ends – voyage policy; (3) both a time limitation upon the duration of the risk and specifying the voyage covered – mixed policy.246 Although cargo policies have been recognized as voyage policies, courts struggle while interpreting the terms of broader coverage found in non-standard “package” policies insuring vessels, cargo and other interests. This type of insurance has been analyzed while considering all three potential categories.247 8.68 The standard open cargo policy insures goods while in transit from “warehouse to warehouse”.248 This part of the chapter considers when the insurance attaches and terminates under the Warehouse-to-Warehouse Clause,249 the Marine Extension Clause250 and the “Duration of Risk – Transit Clause” contained in the American Institute Cargo Clauses.251 8.69 Duration of Risk Clauses are frequently modified to insure goods while being stored and while moving inland, both before and after transit. For instance, in Farr Man Coffee Inc v. Arthur Henry Chester and Underwriter at Lloyd’s of London,252 the court

245. Leslie J. Buglass, Marine Insurance and General Average in the United States, 2nd edn, 1981, p. 10. 246. Archer-Daniels-Midland Co, 975 F. Supp. 1137. 247. Id. 248. The Warehouse-to-Warehouse Clause insures goods while in the ordinary course of transit. During World War II, shipments were often delayed due to unforeseeable changes in route and port congestion. This led to the development of the Marine Extension Clauses, which were intended to continue coverage during periods of delay where the cause of the delay was beyond the control of the insured. William D. Winter, Marine Insurance: Its Principles and Practice, 3rd edn, 1952, pp. 162–164. 249. American Institute Cargo Clauses (February 1949): available at www.aimu.org/aimuforms/32B-8.pdf; see Lumber & Wood Products Inc v. New Hampshire Ins Co, 807 F.2d 916 (11th Cir. 1987). 250. See e.g., Marine Extension Clause, Open Policy-American Institute (May 1952): available at www.aimu. org./aimuforms/87B-60.pdf; Lumber & Wood Products. 251. American Institute Cargo Clauses 2004 – All Risks (1 January 2004). 252. Farr Man.

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considered a Duration of Risk Clause entitled the Voyage Clause, which provided as follows: “The voyage clause provides that coverage attaches: ‘from the time the subject matter becomes at the Assured’s risk or the Assured assumes interest and continues whilst the subject matter is in transit and/or in store or elsewhere and until the assured’s interest ceases and/or until finally delivered to final destination as required’.”253

This clause vastly broadens the duration of coverage. It extends cover “from the time the subject matter becomes at the assured’s risk or the assured assumes interest and continues whilst the subject matter is in transit and/or in store or elsewhere and until the assured’s interest ceases and/or until finally delivered to final destination as required”.254 Modern cargo policies often contain clauses providing coverage on this broad basis, or alternatively contain endorsements insuring warehouse storage risks where a separate premium is charged. The Transit Clause Attachment of risk 8.70 The attachment or commencement of the Transit Clause in the American Institute Cargo Clauses is similar to the wording contained in traditional Warehouse-to-Warehouse and Marine Extension Clauses and provides255: “A. (1)This insurance attaches from the time the insured property leaves the warehouse, or is delivered alongside or on board the overseas conveyance in accordance with the obligation of the Assured under the terms of sale, for the commencement of transit ….”

These Transit Clauses insure risks arising once the goods are in transit or stored pending imminent transit.256 Transit involves movement.257 Cargo cannot simultaneously be in “preparation for transit” and “in transit”.258 Transit has not commenced “unless the shipment has been moved to a point beyond the control of the seller”.259 Coverage does not attach where a vehicle carrying goods has not yet left the warehouse premises of origin,260

253. Id. 254. Id.; American Institute Cargo Clauses 2004 – All Risks (1 January 2004). 255. American Institute Cargo Clauses 2004 – All Risks (1 January 2004). 256. See e.g., Paul Marsh Inc v. Edward A. Goodman Co, 612 F. Supp. 635 (SDNY 1985); City Stores Co v. Sun Ins Co of New York, 357 F. Supp. 1113 (SDNY 1972), aff’d without op., 475 F.2d 1393 (2d Cir. 1973) (no coverage for goods destroyed by fire before reaching warehouse from which they would be shipped to the United States); Hillcrea Export & Import Co v. Universal Ins Co, 110 F. Supp. 204 (SDNY 1953), aff’d 212 F.2d 206 (2d Cir.), cert. denied, 348 U.S. 834, 99 L. Ed. 657, 75 S. Ct. 57 (1954) (covers risks arising in storage pending imminent transit, during transit, and storage immediately following transit). 257. See Hartford Cas Ins Co v. Banker’s Note Inc, 817 F. Supp. 1567, 1573 (N.D. Ga. 1993); San-Nap-Pak Mfg Co v. Firemen’s Ins Co of Newark NJ, 47 N.Y.S.2d 542 (City Ct. NY 1944); see also Saul Sorkin, Goods in Transit, s. 43.04 [2] (1999). 258. Pacific Tall Ships. 259. Id.; Rave at 375–376. 260. See e.g., Brammer Corp v. Holland-America Ins, 34 Misc. 2d 337, 228 N.Y.S.2d 512 (1962); San-NapPak; Kessler Export Corp v. Reliance Ins Co of Philadelphia, 1962 AMC 2429, 207 F. Supp. 355 (EDNY 1962); Den Gre Plastics Co v. Travelers Indem Co, 107 N.J. Super. 535, 259 A.2d 485 (Law Div. 1969).

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or where a fully loaded and sealed container rests in the shipper’s warehouse yard awaiting transport.261 The meaning of “in transit” is not ambiguous.262 “Ordinary course of transit” 8.71 The American Institute Clauses include an “ordinary course of transit” provision263: “6.A.(5) It is a condition of this insurance that there shall be no interruption or suspension of transit unless due to circumstances beyond the control of the Assured, Assignee, Consignee or Claimant and the Assured, Assignee, Consignee or Claimant shall act with reasonable dispatch in all circumstances within their control.”

This clause is similar to the traditional Marine Extension Clause, which provides that the assured is held covered if the ordinary course of transit is interrupted due to circumstances beyond the control of the assured. Coverage is afforded automatically without the requirement of prompt notice or the payment of an additional premium.264 8.72 The phrase “in transit” does not require that the goods remain in constant motion.265 It also does not mean that the goods must always remain in the custody of the carrier.266 In Ore and Chemical Corp v. Eagle Star Insurance Co,267 the Second Circuit held that268: “the true test … appears to be not whether movement was interrupted overnight, or over a weekend, but whether the goods, even though temporarily at rest, were still on their way, with any stoppage merely incidental to the main purpose of delivery …. In the final analysis, the outcome of a case such as this should be determined not by precise semantic shadings of terms of art, but by commonsense appraisal of the overall situation …. An interruption in the course of transport does not in itself remove the goods from coverage … that result will depend upon the extent and the purpose of the interruption.”

Coverage is not provided, however, if there is an interruption of transit at the direction of, or within the control of, the assured, which is not incidental to the main purpose of delivery.269 Coverage will be suspended for the period in which the assured requested an interruption of transit.270 The word “assured” or “insured” includes the named insured and any other party with an insurable interest, such as a shipper or consignee.271

261. Kessler; Brammer; San-Nap-Pak. 262. Pacific Tall Ships. 263. American Institute Cargo Clauses 2004 – All Risks (1 January 2004) (There is an additional provision addressing coverage for an interruption due to surveys). 264. American Institute Cargo Clauses Annotations, 8: available at www.mlaus.org/archives/library/836.pdf. 265. Kessler. 266. Id. 267. 489 F.2d 455, 457 (2d Cir. 1973). 268. Id. (quoting Ben Pulitzer Creations Inc v. Phoenix Ins Co, 47 Misc. 2d 801, 804, 263 N.Y.S.2d 373, 376 (N.Y. Civ. Ct. 1965), aff’d without op., 52 Misc. 2d 934, 276 N.Y.S.2d 1009 (App. Term 1st Dept 1966)); see Franklin v. Washington General Ins Corp, 62 Misc. 2d 965, 966–67, 310 N.Y.S.2d 648, 650 (Sup. Ct. N.Y. Co. 1970), aff’d without op., 36 A.D.2d 688, 319 N.Y.S.2d 383 (1st Dept 1971). 269. Switzerland Ins Co v. Hualey Knitwears, 1992 AMC 1394 (SDNY 1992). 270. Ajiba Coussa. 271. American Institute Cargo Clauses Annotations.

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Termination of risk 8.73 So far as termination of transit is concerned, the American Institute “Transit Clause” provides272: “6.A. (1) This insurance … continues until: (a) insured property is delivered to the Consignee’s or other final warehouse or place of storage at the intended destination; or (b) the insured property is delivered to any other warehouse or place of storage, whether prior to or at the intended destination, which the Assured (including any shipper, assignee, consignee or claimant that has control of the insured property at the relevant time) elects to use either: i. for storage other than in the ordinary course of transit; or ii. for allocation or distribution; or (c) the expiring of 60 days (30 days on air shipments) after completion of discharge from the overseas vessel (or aircraft), whichever shall first occur.”

This clause is similar to the wording found in traditional Duration of Risk Clauses. Final destination is determined by whether the consignee exercised custody and control over the goods, or accepted delivery of the goods.273 The majority of cases hold that transit has terminated where a vehicle delivering goods arrives at the warehouse premises of final destination and is still on the warehouse premises when the loss occurs.274 Delivery to the consignee’s destination warehouse terminates transit, and coverage under the cargo policy ceases.275 When a container has been delivered to the warehouse yard, and a cargo policy provides transit coverage and warehouse coverage pursuant to an endorsement, coverage is precluded because transit has ended, but the goods have not yet been stored inside the building.276 8.74 Delivery to a customs warehouse at a discharge area, however, is problematic. Taking goods to a customs warehouse as required by law for the purpose of clearance does not accomplish safe deposit in a destination warehouse, in the absence of some act or neglect of the assured indicating an intention to adopt the customs warehouse as a place of storage.277 In Great Southern Wood Preserving Inc v. American Home Assurance Co,278 the assured stored lumber in a temporary warehouse facility at the port while awaiting further transport to inland destinations. Hurricane Katrina struck the port and destroyed the lumber in the warehouse. The court stated that once the insured exercised dominion and control over the cargo, it no longer was in transit and coverage ceased. Great Southern argued that the lumber could not be under its dominion and control because the United States Department of Agriculture (“USDA”) had not as yet cleared and released the lumber. The court concluded that restrictions imposed by the USDA regulations do not annul the

272. American Institute Cargo Clauses 2004 – All Risks (1 January 2004). 273. American Institute Cargo Clauses Annotations. 274. See e.g., First American Artificial Flowers Inc v. AFIA Worldwide Ins, 1977 AMC 376 (N.Y. Sup. Ct. 1976); Boonton Handbag Co Inc v. Home Ins Co, 125 N.J. Super. 287, 310 A.2d 510 (1973). 275. Jomark Textiles Inc v. Int’l Fire and Marine Inc Co Ltd, 771 F. Supp. 577, 580 (SDNY 1989). 276. Royal Ins Co v. Sportswear Group LLC, 2001 AMC 154 (SDNY 2000). 277. Ocean Marine Ins Co v. Lindo, 30 F.2d 782 (9th Cir. 1929). 278. 292 F. App’x 8 (11th Cir. 2008).

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dominion and control exercised by Great Southern over the goods held exclusively in its possession.279 Forwarding to another destination 8.75 The American Institute Forwarding Clause states280: “6.A.(3) If while this insurance is still in force and before the expiry of 15 days from midnight on the day on which the discharge overside of the insured property from the overseas vessel at the final port of discharge is completed, the insured property is re-sold (not being a sale within the terms of Section 2(b)) and is to be forwarded to a destination other than that covered by this insurance, the insured property is covered hereunder while deposited at such port of discharge until again in transit or until expiry of the aforementioned 15 days whichever shall first occur. If a sale is effected after the expiry of the aforementioned 15 days while this insurance is still in force the protection afforded hereunder shall cease as from the time of the sale.”

According to these terms, insurance is extended in situations where the insured property is re-sold and forwarded to a destination other than that covered by the insurance, conditioned upon the insurance still being in force and subject to stated time periods.281 The insurance is extended automatically without any “held covered” requirements of notice and additional premium considerations. Delay, deviation and variations of the adventure 8.76 The American Institute Clauses include the following deviation/delay provision282: “6.A.(2) (a) This insurance specially to cover the insured property during deviation, delay, forced discharge, re-shipment, transshipment and any other variation of the adventure arising from the exercise of a liberty granted to the shipowner or charterer under the contract of affreightment. (b) In the event of the exercise of any liberty granted to the shipowner or charterer under the contract of affreightment whereby such contract is terminated at a port or place other than the original insured destination, this insurance continues until the insured property is sold and delivered at such port or place; or, if the insured property be not sold but is forwarded to the original insured destination or to any other destination this insurance continues until the insured property has been sold and delivered to the warehouse or place of storage as provided in section 1.”

This clause automatically extends the duration of the insurance where there is deviation, delay, forced discharge, re-shipment, transhipment and any other variation of the adventure arising from the exercise of a liberty granted to the shipowner or charterer under the contract of affreightment. The clause extends the duration of coverage if the assured can bring itself within the ambit of the specific matters mentioned in the clause. It applies to situations where the vessel operator has exercised “liberties” as provided in the contract of affreightment. This is to be distinguished from the circumstances of an unreasonable deviation, which is not permitted under the Liberties Clause, ousts the contract of affreightment, 279. Id. (a government hold on goods in the possession, custody and control of an insured does not render the goods “in transit” for purposes of insurance coverage); see Fireman’s Fund Ins Co v. Service Transp Co, 466 F. Supp. 934 (D.C. Md. 1979) (rejecting a claim that a coffee shipment that was subject to a Federal Drug Administration hold was “in the ordinary course of transit” when it was destroyed by fire at trucking company’s terminal). 280. American Institute Cargo Clauses 2004 – All Risks (1 January 2004). 281. American Institute Cargo Clauses Annotations. 282. American Institute Cargo Clauses 2004 – All Risks (1 January 2004).

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283

and makes the carrier an “insurer”. A material deviation may discharge underwriters from liability, depending upon coverage terms in the policy.284 The Warehouse-to-Warehouse Clause and the Marine Extension Clause, however, provide coverage for deviation from causes beyond the control of the assured.285 Termination of carriage and change of voyage Held covered and analogous provisions 8.77 The American Institute Cargo Clauses contain several held covered provisions. These clauses have been analyzed in the context of breach of warranty cases.286 In Campbell v. Hartford Fire Inc Co,287 the court stated that by including the Held Covered Clause, the insurer accepts the greater risk occasioned by a possible failure to comply with a warranty “on condition that the breach is not wilful, the assured gives prompt notice in the event a breach occurs and agrees to pay an additional premium”. Held covered provisions are construed according to state law.288 Termination of transit held covered provision 8.78 The American Institute Clauses provide in clause 6.A.(1)(c) that, in any event, the insurance terminates on the expiry of 60 days (30 days for air shipments) after completion of discharge from the overseas vessel (or aircraft), but there is a “held covered” provision concerning this termination provision that states: “6.A.(1)(c). … In the event of delay in excess of the limits specified in (c) above arising from circumstances beyond the control of the Assured, held covered at a premium to be named for an additional 30 days provided the Assured gives notice thereof to the Company as promptly as possible but in any event prior to the expiry of the original 60 days (30 days on air shipments) period.”

This clause extends coverage beyond the 60-day time limit after completion of discharge from an overseas vessel, where the insurance has not terminated due to delivery to destination or a place of storage. The delay must be due to circumstances beyond the control of the assured and the assured must give prompt notice prior to the expiration of the original 60-day period. A similar “held covered” provision was considered in Industrial Waxes Inc v. Brown,289 where goods were held in a South American customs warehouse at the port for more than five months awaiting transport to inland destinations. While the goods were at the warehouse, a fire ravaged the warehouse and destroyed the waxes. A delay of this length was not unusual and was a matter of common knowledge to exporters. The court denied coverage, reasoning that the assured failed to give prompt notice of the held covered event in order to avoid paying a relatively small warehouse extension rate premium.290 283. See Mitsubishi Int’l Corp v. SS Glyfada Spirit, 1978 AMC 480 (SDNY 1978); Escambia; Richker v. Lykes Bros-Ripley Steamship Co, 1935 AMC 319 (S.D. Tex. 1935). 284. Buglass at 39–41; see Citta di Messina, 169 F. 472, 474–75 (SDNY 1909). 285. Buglass at 39–41; see Citta di Messina. 286. See Hilton Oil; Fenby v. M/V Three D of Guernsey, 217 F. App’x 846 (11th Cir. 2007); Stanley B. Long, “Held Covered” Clauses in Marine Insurance Policies, 24 Ins. Counsel Journal 401, 402 (1957). 287. 533 F.2d 496 (9th Cir. 1976). 288. See Hilton Oil. 289. 258 F.2d 800, 1958 U.S. App. LEXIS 5354 (2d Cir. 1958). 290. Id.

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When an assured neglects to notify underwriters of a delay or interruption of transit that is held covered subject to giving notice, the assured bears the burden of presenting a reasonable excuse.291 Change of Voyage Clause 8.79 The American Institute “Change in Voyage/Omission or Error” Clause provides292: “6.A.(4) Held covered at a premium to be named in case of change of voyage or of any omission or error in the description of the interest, vessel or voyage.”

This clause is similar to the traditional Marine Extension Clause.293 If an assured’s purpose and intent is to insure a shipment commencing from point of origin to the ultimate destination, but the certificate of insurance describes a “port-to-port” shipment, this type of unintentional error in the description of the voyage is subject to correction. The correction may be made by the assured when the error is discovered, even if discovery occurs after the loss.294 The insurer is protected in the event of such correction by being able to adjust its premium, but the insurer must prove that in the ordinary course of business the premium would be different or higher.295 Consolidation/deconsolidation 8.80 The American Institute Clauses also contain a Container “Consolidation/Deconsolidation” Clause296: “6.C. This policy is extended to cover the insured property temporarily stopped in transit for the purpose of consolidation or deconsolidation in or from overseas containers for not exceeding 30 days whether the said stoppage in transit is within the control of the Assured or not. Held covered at an additional premium to be named for an additional 30 days provided the Assured gives notice thereof to the Company as promptly as possible but in any event prior to the expiry of the original 30 day period.”

This held covered provision applies even when the stoppage is within the control of the assured. It has a limitation, however, in that coverage will cease when transit ends, such as when the goods reach the final warehouse or when the assured exercises dominion and control over the goods when stored.297

291. Northern Feather. 292. American Institute Cargo Clauses 2004 – All Risks (1 January 2004). 293. Groban. 294. Id. 295. Id. 296. American Institute Cargo Clauses 2004 – All Risks (1 January 2004). 297. Guerrero at 127.

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CLAIMS AND LOSSES Claims Notification of loss: limitation of action 8.81 Open cargo policies generally contain a provision requiring prompt notice of loss. The American Institute Notice of Loss Clause states: “7.H. It is a condition of the Company’s liability that the Assured, Assignee, Consignee or Claimant promptly report any loss or damage which may give rise to a claim hereunder.”

State law governs and there are several issues to be considered: (1) whether the delay in reporting was unreasonable; (2) whether the insurer must establish prejudice caused by the delay; and (3) whether the insurer has waived or is estopped from asserting late notice as a defense.298 According to New York law, a two-month delay in reporting a mysterious disappearance of cargo is unreasonable as a matter of law.299 The majority rule, however, is that mere delay without any proof of prejudice by the insurer does not void coverage.300 Depending upon the particular wording, the prompt notice requirement may be considered a condition precedent to coverage or a warranty.301 Proof of prejudice is not necessary if prompt notice is stated as a condition of coverage, but will be necessary where the requirement is set forth as a warranty.302 In New York, the prompt notice of claim requirement is a condition precedent to coverage and the insurer need not prove prejudice.303 When an insurer investigates a claim, however, it may be estopped by its conduct to deny coverage based upon late notice.304 The late notice defense may be waived when an insurer disclaims coverage on specifically stated grounds and fails to raise the defense of late notice, if it has actual or constructive knowledge of the violation.305 8.82 The time limit for commencing an action on a marine insurance claim is dependent upon the state statute of limitations. In New York, the statute allows six years from the time of breach of contract. Most insurance contracts, however, contain an express time limit for bringing a lawsuit on the policy. The American Institute Notice of Suit Clause states: “7.J. No suit or action on this policy shall be sustainable in any Court of Law or Equity unless the Assured shall have complied in full with all the terms and conditions of this insurance, nor unless same shall be commenced within twelve (12) months after the loss, provided that where such limita-

298. Simons, 170 F. App’x 770; Big Lift v. Bellefonte Ins Co, 594 F. Supp. 701 (SDNY 1984). 299. Simons, 170 F. App’x 770; see Whalen v. W Assurance Co of Toronto, 185 F. 490 (2d Cir. 1911). 300. See e.g., Royal Ins Co v. Laurelton Welding Serv Inc, 2004 U.S. Dist. LEXIS 18287 (E.D. Pa. 2004); Davis at 516. 301. D&L Marine Transp Inc v. Suard Barge Service Inc, 2003 U.S. Dist. LEXIS 18177 (E.D. La. 2003) (Louisiana law). 302. Sears Roebuck & Co v. Hartford Accident & Indem Co, 313 P.2d 347 (1957); D&L Marine; Davis at 516. 303. Argo Corp v. Greater NY Mut Ins Co, 4 N.Y.3d 332 (2005); Spentrev Realty Corp v. United Nat’l Specialty Ins Co, 933 N.Y.S.2d 725 (2011). 304. Rock Transp Props Corp v. Hartford Fire Ins Co, 433 F.2d 152 (2d Cir. 1970). 305. State of NY v. Amro Realty Corp, 936 F.2d 1420 (2d Cir. 1991); Albert J. Schiff Assoc., Inc. v. Flack, 51 N.Y.2d 692, 435 N.Y.S.2d 972, 417 N.E.2d 84 (1980). New York passed a law in 2008 abolishing the “noprejudice rule”; the insurer is now required to prove prejudice in order to assert the late notice defense. This new law only applies to liability policies, not property policies. Eric Tausend, Note: “No-Prejudice” No More: New York and the Death of the No-Prejudice Rule, 61 Hastings L. J. 497 (2009), 2008 N.Y. Law ch. 388, 1088–1091.

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tion of time is prohibited by the laws of the State wherein this policy is issued, then no such suit or action shall be sustainable unless commenced within the shortest limitation of time permitted by the laws of such State.”

The wording of the clause must be carefully scrutinized. The clause requires that a lawsuit be commenced within 12 months after the loss. Where the trigger is date of “loss”, without any qualifying language, the courts in New York have found the word “loss” to be ambiguous.306 The word “loss” can refer “either to the damage incurred or to the accrual of the claim”.307 In order to avoid uncertainty, a Limitation of Action Clause should include language such as “one year from the date of the happening of the loss out of which the said claim arose” or one year “after the inception of the loss”.308 “Limitation of Action” Clauses usually contain a “savings” provision, which adopts a longer period of time when a state statute mandates a minimum period, such as two years, for commencement of an action. These suit time provisions have been enforced by the courts.309 Interest 8.83 Pre-judgment interest for insurance claims runs from various dates depending upon the circumstances of the underlying claim. Interest has been awarded from the date the claim was presented to the insurer310; from the date of denial of the claim311; from the date the claim should have been paid312; and from the date repairs to machinery were carried out (when the claim was for machinery damage).313 In admiralty cases, pre-judgment interest “should be granted in the absence of exceptional circumstances”.314 For example, a plaintiff’s undue delay in prosecuting a lawsuit may result in a denial of pre-judgment interest.315 8.84 Under federal maritime law, “the rate of pre-judgment interest is within the broad discretion of the district court”.316 “Awards of pre-judgment interest must not result in over-compensation of the plaintiff”,317 and should be determined according to “the income

306. Franco Apparel Group Inc v. National Liability & Fire Ins Co, 2011 U.S. Dist. LEXIS 72122 (SDNY 2011); Fabozzi v. Lexington Ins Co, 601 F.3d 88, 90–91 (2d Cir. 2010). 307. Franco; Fabozzi. The time at which a “claim” accrues is problematic. If the insurer requests further documentation when a claim is first submitted or if a denial of the claim is not delivered, it becomes questionable as to when the claim submission has become complete. It may be argued that the time period does not begin to run until the claim is finalized or the insurer declines the claim. 308. Franco. 309. Int’l School Services v. Northwestern Nat’l Ins Co, 710 F. Supp. 86 (SDNY 1989) (applying New York law); Satyam Imports Inc v. Underwriters at Lloyd’s, 2003 U.S. Dist. LEXIS 18350 (SDNY 2003); Stony Brook; Issa v. Reliance Ins Co of NY, 1989 AMC 1212 (SDNY 1988). The insurer may be estopped through conduct from asserting the suit time requirement. N Am Foreign Trading Corp. Evidence of communications or settlement negotiations or continuing investigations or requests for further documents either before or after the expiration of the time limit are not sufficient to prove waiver or estoppel. Issa; Gilbert Frank Corp v. Federal Ins Co, 520 N.E.2d 512 (1988); Satyam. 310. New Zealand Ins Co v. Earnmoor SS Co, 79 Fed. 368 (9th Cir. 1987). 311. George’s Radio and Television Co v. Ins Co of N Am, 536 F. Supp. 681 (D. Mo. 1982). 312. Welded Tube Co of America v. Hartford Fire Ins Co, 1973 AMC 555 (ED Pa. 1973). 313. Ingersoll. 314. Mitsui & Co v. American Export Lines, 636 F.2d 807, 823 (2d Cir. 1981). 315. City of Milwaukee v. Nat’l Gypsum Co, 515 U.S. 189 (1995). 316. Mentor Ins Co (UK) Ltd v. Brannkasse, 996 F.2d 506, 520 (2d Cir. 1993); see Interpool Ltd v. Bernuth Agencies, 129 F.3d 113 (2d Cir. 1997); Independent Bulk Transp Inc v. Morania Abaco, 676 F.2d 23, 26 (2d Cir. 1982). 317. Wickham Contracting Co v. Local Union No. 3, IBEW, 955 F.2d 831, 834 (2d Cir. 1992); Interpool.

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which the monetary damages would have earned, [which] should be measured by interest on short-term, risk free obligations”.318 Post-judgment interest in Federal Court, on the other hand, is mandated by statute to be a “uniform, constant rate based on the rate for federal paper, as specified in 28 U.S.C. § 1961”.319 Costs; award of attorneys’ fees 8.85 The American Rule states that attorneys’ fees are not recoverable absent a contractual or statutory provision providing for the award of attorneys’ fees to the prevailing party.320 There is a split in the decisions of the Circuit Courts of the United States as to whether attorneys’ fees may be awarded in admiralty suits brought against insurance companies for coverage.321 In American National Fire Ins Co v. Kenealy,322 the Court of Appeals for the Second Circuit held that there is an established federal admiralty rule that must be followed instead of state law. In admiralty lawsuits, there is a federal prohibition against awarding attorneys’ fees. Several other Circuits have followed this decision.323 In All Underwriters v. Weisberg,324 however, the Court of Appeals for the Eleventh Circuit stated that there is no federal admiralty rule prohibiting an award of attorneys’ fees in marine insurance contract actions; and therefore awarded attorneys’ fees in accordance with Florida state law.325 Consequential and punitive damages 8.86 It is beyond the scope of this chapter to consider the myriad of potential damages that may be awarded by a court in the event of a wrongful delay or refusal to make payment under a contract of insurance. Potential damages include consequential damages, collateral damages, statutory damages and punitive damages.326 It must be borne in mind, however, that courts apply state law with respect to such issues and decisions differ greatly. In New York, the law is very restrictive with respect to punitive damages.327 Punitive damages will not be awarded when an insurer vigorously disputes coverage even if the judge rules against the insurer.328 The case for punitive damage awards under admiralty law, however, is currently in a state of flux.329

318. Ingersoll (internal quotation marks and citation omitted); Interpool (The court awarded a 6% pre-judgment interest rate “parallel to the amount of interest that would be earned on short-term, risk-free investments”). 319. Ingersoll; Interpool. 320. Fashionwear (PVT) Ltd v. Regatta (USA) LLC, 2004 U.S. Dist. LEXIS 19769 (SDNY 2006); Folksamerica. 321. Kenealy. 322. Id. 323. David W. Robertson, The Outer Continental Shelf Lands Act’s Provisions on Jurisdiction, Remedies and Choice of Law: Correcting the Fifth Circuit’s Mistakes, 27 Mar. L. Com. 507, 566 (1996). 324. 222 F.3d 1309 (11th Cir. 2000). 325. Robertson at 566. There are many recognized exceptions where attorneys’ fees may be awarded, such as: (1) indemnity actions; (2) interpleader actions; (3) actions for bad faith; (4) declaratory judgment actions on liability insurance duty to defend issues; (5) contract actions with express provisions allowing for attorneys’ fees; (6) collateral matters, such as sue and labor expenses; and (7) sanctions imposed by federal judges. 326. A. S. Klein, Insurer’s Liability for Consequential or Punitive Damages for Wrongful Delay or Refusal to Make Payments Due Under Contracts, 47 A.L.R. 3d 314 (2012); see Ingersoll. 327. Rocanova v. Equitable Life Assur Soc’y, 83 N.Y.2d 603, 634 N.E.2d 940, 1994 N.Y. LEXIS 1064, 612 N.Y.S.2d 339 (1994). 328. Royal Ins Co of Am v. Deep Sea Int’l, 2004 U.S. Dist. LEXIS 5948 (SDNY 2004). 329. See Atlantic Sounding Co v. Townsend, 557 U.S. 404, 129 S. Ct. 2561, 174 L. Ed. 2d 382, 398 (2009).

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Good faith and fraudulent claims 8.87 An implied duty of good faith continues during the claims process. After the inception of the policy, however, a failure to disclose does provide a ground for avoidance of the contract.330 Therefore, the issue becomes whether there has been any fraud in the presentation of the claim. State law controls in this regard. In order to establish actionable fraud, a party must establish the following elements331: “(1) a false representation concerning a fact material to the transactions; (2) knowledge of the falsity of the statement or utter disregard for its truth; (3) intent to induce reliance on the misrepresentation; (4) reliance under circumstances manifesting a right to rely; and (5) injury resulting from the reliance.”

Total loss of cargo: actual and constructive The categorization of losses 8.88 Losses may be total or partial. A total loss can be either an actual total loss or a constructive total loss. In the past, it has been acknowledged that a cargo policy insures not only physical loss or damage to cargo, but also the “adventure”. The concept has been questioned, however, depending upon the particular wording of the policy. This section considers the limitations on physical loss of or damage to the subject-matter insured. All risks cargo insurance does not insure financial loss or other consequential loss, unless an express clause extends coverage. This section will address actual and constructive total loss of cargo, loss of the adventure and then partial losses. Loss of possession of the cargo: actual total loss 8.89 Conversion, theft and theft by false pretences, where an assured voluntarily parts with title or possession of property induced to do so by a fraudulent scheme, are covered losses under all risks insurance.332 Where an assured ships goods to an intended consignee as a consequence of fictitious sales contracts and purchase orders, it is physically deprived of the goods. It no longer has control over the goods and has received no compensation for them. The loss is not a mere credit loss or loss of an account receivable.333 8.90 As to the timing of the loss, there may be an actual total loss of cargo where there is a conversion of goods in the form of a refusal to release them during the currency of the policy, even though the goods are not sold or otherwise wrongly disposed of until after the policy expires. The taking of an assured’s merchandise resulting in permanent 330. Masters Ships, and see para. 8.6 above as to the obligations of pre-contractual disclosure. 331. DiSanto v. Safeco Ins Co of Am, 861 N.E.2d 573 (2006) (applying Ohio law); see Cofacredit SA v. Windsor Plumbing Supply Co Inc, 187 F.3d 229 (2d Cir. 1999) (applying New York law); Certain Underwriters at Lloyd’s v. Montford, 52 F.3d 219 (9th Cir. 1995) (applying California law); Continental Cas Co v. Skully, 2010 AMC 1959 (S.D. Cal. 2010); Ram v. Infinity Select Ins, 2011 U.S. Dist. LEXIS 83555 (N.D. Cal. 2011). 332. Farr Man; Great Northern Ins Co v. Dayco Corp, 620 F. Supp. 346 (SDNY 1985); Wexler Knitting Mills v. Atlantic Mut Ins Co, 382 Pa. Super. 405 (1989); but see Buckeye Cellulose Corp v. Atlantic Mut Ins Co, 643 F. Supp. 1030 (SDNY 1986). 333. Dayco; but see St Paul Fire & Marine Ins Co v. Sun Micro Systems Inc, 1992 AMC 2403 (N.D. Cal. 1992) (the assured shipped goods to a consignee, who, as part of a fraudulent scheme, never intended to pay for them; as the goods arrived at the intended destination, the court ruled that there was no physical loss during transit).

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dispossession is considered to be the cause of loss, even though the actual destruction or disposal of the property may result from some following event.334 The conversion of the goods occurs during the duration of coverage and any subsequent loss of the property is attributable to the peril causing the loss of control.335 8.91 There must be an irretrievable loss of possession of the goods in order to qualify as an actual total loss; loss of possession for a limited period of time will not qualify. For example, where a vessel carrier converted the assured’s goods for a period of one month while unsuccessfully attempting to sell them, but the assured regained possession of the goods without any consequent damage, the court held that the one month “hiatus in control” caused by the conversion was not sufficiently onerous to entitle the insured to recover under the cargo policy as a total loss.336 Loss of possession: constructive total loss 8.92 There may be a constructive total loss when the insured goods are sold short of destination as a result of an insured fortuitous event.337 When there is a settlement under the cargo policy, the term for this is a “salvage loss”. The assured receives the stated value of the goods less the proceeds of the salvage sale.338 An insured claiming a constructive total loss usually abandons or tenders abandonment to the insurer.339 Abandonment, however, is not an absolute prerequisite to a claim for constructive total loss. “It is not required if it would be a futile act, such as when the damaged property has already been sold or captured, or when an insurer has already disclaimed liability on an insurance contract”.340 8.93 An assured may not abandon property to underwriters without just cause.341 The assured is not entitled to sell the cargo short of destination for mere commercial expedience.342 A salvage loss settlement is only applicable where the cargo is impossible to forward, would likely be totally lost if forwarded, or the cost of recovering, reconditioning and forwarding would exceed the anticipated arrived value of the goods.343 If an actual or constructive total loss is not demonstrated, the assured may only recover on the basis of a partial loss.344 Under such circumstances, the assured may be entitled to recover sue and labor expenses, such as onward freight and various out-of-pocket expenses.345 334. Dayco; Multifoods; Pan Am, 505 F.2d 989. 335. Dayco; Multifoods. 336. Champion Int’l Corp v. Arkwright-Boston Mfr Mut Ins Co, 1982 AMC 2496 (SDNY 1982), aff’d 714 F.2d 112 (2d Cir. 1982). 337. Buglass at 113. 338. Id. 339. Rock Transp Prop Corp v. Hartford Fire Ins Co. 312 F.Supp. 341 (SDNY 1970) aff’d 433F.2d 152 (2d Cir. 1970) (this requirement prevents an insured from recovering the full value of the insurance contract based on total loss and, in addition, retaining the damaged property). A notice of abandonment is not treated in the industry as a prerequisite to a claim for constructive total loss; an assured with the indulgence of its insurer may defer a decision on abandonment until final settlement occurs; acceptance of the tender is rare; and waiver is an accepted practice. Brannkasse. 340. Rock Transp, 312 F.Supp. 341. 341. Am Home Assur Co v. Merck & Co, 386 F. Supp. 2d 501 (SDNY 2005). 342. Id. 343. Id. at 113–114. 344. Id. 345. Champion (sue and labor expenses include pilotage, maintenance, repairs, cargo discharge expenses, attachment bond, marshal fees, security guard fees and litigation expenses, including attorneys’ fees, not only to recover the cargo, but also to protect subrogation rights against third parties).

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8.94 Where goods are taken from the assured as a result of a lawful court order, or “the threat of lien or lawful sale”, the event is not a fortuitous loss under an all risks cargo policy.346 A business dispute is completely within the parties’ realm of control. In the “context of a commercial debtor-creditor relationship, it is to be expected that parties may resort to the courts for resolution of disputes arising out of such relationships”. The concept of risk that is inherent in all policies of insurance is lacking.347 Damage to the cargo: actual total loss 8.95 An absolute physical total loss cannot be a constructive total loss.348 An actual total loss only occurs when the property insured is completely destroyed, ceases to exist in specie or is “irretrievably placed beyond the control of the assured”.349 Damage to the cargo: constructive total loss 8.96 This situation occurs when the property still exists, but is in a damaged condition as opposed to when an actual total loss occurs. Under United States law, the insured may claim for a constructive total loss to cargo, where the goods are damaged to more than half of their value; however, the definition of constructive total loss is always modified by an express policy condition requiring that the property insured must reasonably be abandoned “on account of its actual total loss appearing to be unavoidable, or because it cannot be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred”.350 Physical loss or damage: what constitutes “damage”? 8.97 An all risks policy only insures cargo against “physical” loss or damage.351 There must be an “initial satisfactory state” that was changed into an “unsatisfactory state”.352 Certain cases have narrowly construed the physical loss or damage requirement. Physical loss does not occur when goods sustain no physical damage, but consumer confidence is eroded because of damage to other goods separately insured.353 The requirement precludes coverage when an assured merely suffers a detrimental impact unaccompanied by a distinct, demonstrable, physical alteration of the property. A diminution in value when customers learn that cargo has been exposed to fire, smoke, heat, water and mold, without proof of a physical alteration of the product, is not covered.354 To the extent that an assured

346. Intermetal. 347. Id.; see Fruehauf Corp v. Royal Exch Assur of Am Inc, 1984 AMC 1194 (9th Cir. 1983). 348. Hampton Roads Carriers v. Boston Ins Co, 150 F. Supp. 338 (D. Md. 1957); Am Marine Ins Group v. Neptunia Ins Co, 775 F. Supp. 703 (SDNY 1991). 349. Champion, 1982 AMC 2496, 2500. 350. Buglass at 113, and see American Institute Cargo Clauses – All Risks 2004 (1 January 2004), cl. 7.A. 351. Courts have broadly construed coverage, however, where the qualifier “physical” did not appear before the phrase “loss or damage”. See Chemical Bank v. Affiliated FM Ins, 815 F. Supp. 115 (SDNY 1993); Frupac; New Market (the SR&CC form was subsequently amended). 352. City of Burlington. 353. Borton & Sons Inc v. Travelers Ins Co, 2000 Wash. App. LEXIS 93 (2000). 354. Meridian Textiles Inc v. Indem Ins Co of N Am, 2008 AMC 1411 (C.D. Cal. 2008).

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seeks to recover for losses other than physical loss or damage, for example, loss in value or consequential damage or intangible damage, the policy does not provide coverage.355 8.98 Other cases, however, broadly construe the term “all risks of physical loss or damage from any external clause”. All risks cargo insurance encompasses coverage for “loss of value” of goods caused by an insured event. The insured may establish the physical extinction of property insured or the extinction of its value arising from perils insured against. Total loss of value to the owner is equivalent to total physical loss.356 A change in how a product is perceived as a result of an undue passage of time is the “functional equivalent of damage of a material nature or an alteration in physical composition”.357 When the U.S. Food and Drug Administration (“FDA”) halts the production of food product, so that an assured is unable to sell its products because of FDA regulations, the impairment of function and value is sufficient to support a finding of physical damage, whether or not the product could be safely consumed.358 8.99 In addition to the standard clauses found in an all risks cargo policies, a clause known as the Control of Damage Goods Clause (“CDG”) is often included in brokers’ policies insuring products, such as pharmaceuticals. Coverage under a broadly worded CDG Clause is triggered when property is deemed “unfit for use” by the assured as a result of the assured’s “reasonable interpretation of regulations promulgated by” government authorities, for example, the FDA. This type of CDG Clause is not an improper “fear of loss” provision, but an acknowledgement that the FDA regime governing the manufacture and sale of pharmaceuticals is intended to be largely self-regulatory.359 Loss of the adventure The general principle 8.100 Cases originating in the United Kingdom, while interpreting the British Marine Insurance Act of 1906, recognize that a marine cargo policy does not merely provide coverage for loss or damage to cargo, but also insures the “adventure”.360 When a voyage cannot be accomplished as a result of an insured peril, the extra expenses incurred by the cargo owner in bringing the shipment to its destination are particular charges on cargo recoverable under the policy, as one of the objects of insurance on goods is to “guarantee

355. See e.g., Columbia Knit Inc v. Affiliated FM Ins Co, 1999 U.S. Dist. LEXIS 11873 (D. Or. 1999); Blaine; Wichter Constr Co v. St Paul Fire and Marine Ins Co, 550 N.W.2d 1 (Minn. App. 1996). Where there is no proven physical damage to property, but the manufacturer of the machinery withdraws its warranty, there is no coverage. Glens Falls Ins Co v. Covert, 526 S.W.2d 222 (Tex. Civ. App. 1975). 356. US Surgical Corp v. US Fire Ins Co, 1990 Conn. Super. LEXIS 1361 (Conn. Sup. 1990). 357. Customized Distribution Servs v. Zurich Ins Co, 373 N.J. Super. 480, 862 A.2d 560 (N.J. Super. Ct. App. Div. 2004) (warehouse liability insurance). 358. General Mills Inc v. Gold Medal Ins, 622 N.W.2d 147 (Minn. Ct. App. 2001); see Pepsico Inc v. Winterthur Int’l Am Ins Co, 24 A.D.3d 743 (N.Y. Sup. Ct., App. Div., 2d Dept 2005), but see Source Food Tech Inc v. US Fid. & Guar Co, 465 F.3d 834 (8th Cir. 2006) (no physical loss or damage where the insured was unable to get a perfectly fit beef product to the United States from Canada because the United States Department of Agriculture had closed the border due to the threat of “mad cow” disease); City of Burlington (the insured must prove that the goods do not comply with a mandatory government regulation, not merely recommended industry standards). 359. Merck, 386 F. Supp. 2d 501. 360. Saul Sorkin, 5 Goods in Transit, s. 42.11 [2] (2007) (citing English cases).

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that the goods shall reach their destination”.361 These “particular charges” in forwarding the goods to destination are not precluded from coverage by the “delay” exclusion, because the claim is not for loss growing out of any damage to property insured, but rather is solely extra expenses regarding freight.362 A similar rationale has been applied under American law, while analyzing early war risk cover, where the policy expressly provided for payment of extra expenses in the event of certain fortuities where a “frustration” of the voyage occurred.363 8.101 All risks cargo policies may contain a “Perils Clause”, in addition to an All Risks Clause. The “Perils Clause” commences with the phrase: “Touching the adventures and perils which this company is contented to bear and takes upon itself …”. In the current market, however, all risks cargo policies may contain an All Risks Clause without the addition of a “Perils Clause”. In any event, it has been asserted that all risks policies do not insure the “adventure”. It has become quite common for brokers’ policies to contain additional clauses addressing coverage for transhipment costs and extra expenses incurred by the assured whenever a voyage is frustrated or interrupted, such as: “In the event of frustration, interruption and/or termination of the insured voyage from causes beyond the control of the Assured, this Policy will pay all extra expenses incurred by the Assured [for] forwarding the goods to the original or substituted final destination.”

Such clauses, however, raise the question of whether or not a separate “extra expense” clause creates a new peril when frustration, interruption or termination of the voyage occurs. In other words, is the clause subject to the All Risks Clause of the policy.364 8.102 Since the advent of all risks coverage, courts have not directly addressed the concept of insuring the “adventure”. Courts take an approach of examining: (1) the risks insured under the All Risks Clause; (2) the exclusions from coverage; and (3) the Sue and Labor Clause, which is recognized as providing separate insurance for the protection of property and the prevention of loss for a covered risk.365 In Commodities Reserve Co v. St Paul Fire & Marine Ins Co,366 the court analyzed an all risks cargo policy and held that cargo transhipment expenses were excluded from coverage under the FC&S Clause, as the expenses were proximately caused by a government seizure. The court ruled that there was no coverage under the Warehouse Clause and Forwarding Clause or for “particular charges”, as a covered peril must exist and these provisions do not negate policy exclusions. Also, there was no coverage under the Deviation and Marine Extension Clauses, as these 361. Firemen’s Fund Ins Co v. Trojan Powder Co, 253 F. 305 (9th Cir. 1918) (the court distinguished “particular charges” on cargo, which are expenses incurred in recovering or preserving the cargo, from “particular average” on cargo, which is actual damage done to or loss of part of the cargo). 362. Id. 363. See Baker Castor Oil Co v. Ins Co of N Am, 1945 AMC 168 (SDNY 1944) (the American Institute War Risk Clauses 1993, however, exclude coverage for frustration of the voyage). 364. Buglass at 167–172. Buglass, while analyzing older policy forms, states that the cover for “Warehousing and Forwarding” and the forwarding expense cover for “any package or packages which may be totally lost in loading, transhipment or discharge” with respect to a “free of particular average” warranty, introduce new perils insured against under the policy. Id. The courts, however, have held that these clauses do not add additional risks; and any loss must be caused by risks insured elsewhere in the policy. Dominican Import Co Inc v. Lloyd’s of London, 1981 AMC 2979 (4th Cir. 1981); J. A. Jones Construction Co v. Niagara Fire Ins Co, 170 F.2d 667 (4th Cir. 1948). 365. Kimta (applying Washington law); see Champion (onward freight was characterized as a sue and labor expense, rather than insuring the adventure). 366. Commodities Reserve.

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provisions merely continue the duration of coverage and do not negate the policy exclusions by adding a new peril. Finally, there was no coverage under the Sue and Labor Clause, as the expenses were not incurred to prevent a loss that would be covered under the policy.367 The Forwarding Charges Clause 8.103 The American Institute Clauses contain a separate clause providing for forwarding charges: “2. ADDITIONAL COVERAGES This policy shall also cover the following contributions and/or expenses: … Landing, Warehouse & Forwarding Charges: B. Landing, warehousing, forwarding and special charges incurred by reason of perils insured against.”

An insured peril must exist in order to recover these charges.368 The right to recover is subject to exclusions from coverage, such as FC&S, delay and insolvency.369 As discussed in prior sections, these exclusions are generally construed broadly when the wording appears in a standard format. Moreover, the Delay Clause has been interpreted to exclude coverage not only for delay damages, but also for delay expenses in the nature of sue and labor expenses.370 Partial loss: measure of indemnity Valued and unvalued policies 8.104 Marine cargo is generally insured on an agreed value basis. In the event of loss, the insurer is liable to indemnify the assured for a fixed sum. For example, property sold on the basis of a commercial invoice is valued, “premium included, at amount of invoice, including all charges in the invoice, and including prepaid and/or advanced and/or guaranteed freight, if any, plus 10%”.371 A Valuation Clause will bind the parties “regardless of whether the valuation reflects the actual present worth of the insured property”.372 A court will not disregard a Valuation Clause merely because the assured or the insurer “stands to earn a windfall or suffer a serious loss”.373 The Valuation Clause is an instance of stipulated damages and is conclusive in the absence of fraud.374 8.105 Disputes do arise, however, concerning the meaning of the term “commercial invoice” in the context of intra-company shipments. The assured is not entitled to a windfall whenever goods are shipped between subsidiary companies by unilaterally setting invoice prices that bear no relation to the actual cost or market value of the goods.375 Also, disputes

367. Id. 368. Id. 369. Id.; Blaine; Transamerica. 370. Archer-Daniels-Midland Co, 975 F. Supp. 1129, 1137; see Coexport. 371. Am Home Assur Co v. Merck & Co, 2005 U.S. Dist. LEXIS 7951 (SDNY 2005). 372. CPH Int’l Inc v. Phoenix Assur Co, 1994 U.S. Dist. LEXIS 7751 (SDNY 1994). 373. Id. 374. St Paul Fire & Marine Ins Co v. Pure Oil Co, 63 F.2d 771, 772 (2d Cir. 1933); CPH Int’l. 375. Merck, 2005 U.S. Dist. LEXIS 7951.

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arise when more than one invoice has been issued with respect to goods shipped. When two invoices apply to a shipment, the insured value is determined by the invoice reflecting the actual value of the goods to the assured.376 The phrase “invoice value” means “the amounts written into the invoices taken as of the time of shipment and it means nothing more”.377 However, there is no bright line rule that the invoice must accompany the shipment where there are multiple invoices and the policy allows otherwise.378 8.106 A fraudulent exaggeration of a claim is a defense to coverage, but the insurer bears a substantial burden of proof.379 If an assured fails to disclose or materially misrepresents facts regarding valuation prior to the inception of the policy, the insurer may consider an action to rescind or avoid the policy on grounds of utmost good faith.380 Cargo delivered damaged at destination: salvage losses 8.107 The adjustment of claims for cargo delivered damaged at destination differs from the adjustment for cargo delivered short of destination. Where the goods are delivered to a destination in damaged condition, the measure of indemnity is determined according to the following equation381: “P = SMV – DV/SMV where: SMV (sound market value at a particular location and time), DV (damaged market value as of that time and place), and P (percentage of deterioration). The resulting percentage is then applied to the insured value to obtain the amount of recovery under the particular policy.”

The sale of damaged goods at destination will be affected by the market price of sound goods. If the market has risen, the damaged goods might sell for as much as sound goods would have sold for, leaving the assured with no loss. If the market has fallen, the loss will be exaggerated and insurers will pay more because of the fall in the market, which causes a loss in value unrelated to the damage to the goods. Consequently, the equation applies a percentage depreciation to the insured value based on the gross sound and damaged values.382 This method of calculating the measure of indemnity is fundamental to marine insurance as a matter of law, but cargo policies often contain a Partial Loss Clause addressing the procedure to be followed.383 8.108 The practice of applying the equation to determine the measure of indemnity for partial loss at destination has fallen out of favor. Determining the sound market value at destination may prove to be difficult where a market price, such as a commodities market price, does not exist for the goods in question or is subject to debate. Most brokers’ forms 376. Groban. 377. Anchor Line v. Jackson, 9 F.2d 543, 545 (2d Cir. 1925). 378. Arkwright Mut Ins Co v. Warner-Lambert Co, 2001 AMC 1433 (3rd Cir. 2000). 379. See Eurospark Indus Inc v. Underwriters at Lloyd’s, 567 F. Supp. 2d 345 (EDNY 2008); In re Balfour Maclaine. 380. See Knight. 381. Armada Supply Inc v. Wright, 665 F. Supp. 1047 (SDNY 1987), aff’d in part and rev’d in part on other grounds, 858 F.2d 842 (2d Cir. 1988). 382. Buglass at 171–174. 383. Id. The Partial Loss Clause provides: “In case of partial loss by perils insured against, the proportion of loss shall be determined by a separation of the damaged portion of the insured property from the sound and by an agreed estimate (by survey) of the percentage of damage on such portion; or if such agreement is not practicable, then by public sale of such damaged portion for the account of the owner of the property and by comparison of the amount so realised with the sound market value”.

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in the United States contain a clause allowing the assured at its option to elect for an adjustment on a particular average basis or a salvage loss basis. 8.109 If the goods are damaged and sold short of their destination, the assured may be entitled to abandon the cargo to insurers and/or claim for a constructive total loss.384 Usually, the insurers will not accept the abandonment, but may agree to a salvage sale and advise the assured “to act as a prudent uninsured”.385 The sale of the distressed cargo will be carried out in the name of the assured, usually with the attendance of the insurer’s adjusters. The insurer will pay for a total loss of the cargo in the amount of the insured value less the proceeds of sale received by the assured. This is known as a “salvage loss” settlement. If the market has risen, a salvage loss basis will be more favorable for insurers; if the market has fallen, a salvage loss settlement will be more favorable for the assured. Underinsurance 8.110 Absent an express provision to the contrary, the doctrine of co-insurance applies to marine cargo as a matter of law.386 Where property is insured for less than its full value, the doctrine of co-insurance requires that the assured is deemed a co-insurer with respect to the excess value and must bear a proportionate share of the loss.387 The application of co-insurance is often referred to as a “co-insurance penalty”. The penalty is imposed to “deter an insured from under-insuring goods shipped, for the purpose of minimising premiums, and to penalize the insured for such underinsurance, where the loss exceeds the insurance coverage”.388 There is an exception to the rule, however, that is quite common considering the manner in which premium is calculated in modern open cargo policies. The co-insurance penalty does not apply where the assured declares the full value of the contemplated shipment in its “start-of-year” estimate in the form of a lump sum estimate, and the premium is paid on the basis of the full value. The assured has not under-valued or under-insured the shipment for the purpose of minimizing its premium. Under such circumstances, the application of the rule of co-insurance “would defeat the rule’s purpose”.389 Recoverable expenses Sue and labor 8.111 Marine cargo insurance provides coverage for sue and labor. Clause 2 of the American Institute Clauses states390:

384. See Champion. 385. Id. 386. Protection Mutual Ins Co v. Silgan Plastics Corp, 2000 U.S. Dist. LEXIS 11700 (SDNY 2000). With respect to non-marine property policies, there must be an express co-insurance clause in the contract. Id.; Commercial Union Ins Co v. Spanish American Stainless Corp, 1985 U.S. Dist. LEXIS 18456 (SDNY 1985); Margo Manuf Corp v. Chamlin, 1978 AMC 1274 (SDNY 1978). 387. 20th Century Foods PTE Ltd v. Home Ins Co, 1989 U.S. Dist. LEXIS 9843 (SDNY 1989). 388. Silgan Plastics. 389. Id. 390. American Institute Cargo Clauses 2004 – All Risks (1 January 2004).

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“Sue & Labor Charges E. Charges reasonably incurred pursuant to the duty set forth below, whether said efforts are successful or not: In the event of loss or misfortune, it is the duty of the Assured and any assignee of the Assured’s rights hereunder to take all reasonable measures to avert or minimize loss insured against by this policy and to ensure that all rights against third parties are preserved and exercised. The Company shall be liable in full for the charges incurred under this Clause whether the combined amount of physical loss or damage and Sue and Labor Charges exceeded the applicable policy limit or not.”

This clause is founded on the premise that an insured has a legal duty to prevent a loss; and must use due diligence to save and preserve insured property.391 The ultimate aim of the clause is twofold: (1) prevention of a loss or (2) mitigation of a loss once it occurs.392 An assured is obligated to exercise the care of a prudent uninsured cargo owner to protect insured property in order to minimize or prevent the loss for which the underwriter would be liable under the policy.393 It is not essential for there to have been an actual loss or damage to the property, as long as the charges were properly incurred to prevent a loss when the cargo was immediately threatened.394 Compliance is mandatory or the assured may be denied recovery under the policy.395 In exchange, the insurer must reimburse the assured for reasonably incurred expenses.396 8.112 The Sue and Labor Clause only covers costs incurred “in and about the defence, safeguard, and recovery of the goods”.397 Reimbursable costs must relate to preserving the cargo or mitigating its loss, and not simply to confer some tenuous or remote benefit on the insurer.398 The connection must be “fairly direct”.399 Courts have denied sue and labor expenses that have been deemed too remote, or not for the benefit of the cargo insurer.400

391. Am Home Assur Co v. Fore River Dock & Dredge Inc, 321 F. Supp. 2d 209, 216 (D. Mass. 2004); The Escapade. 392. Merck, 386 F. Supp. 2d 501; Fore River. The duty to mitigate damages under the Sue and Labor Clause is distinguishable from the duty to mitigate damages after a breach of the insurance contract by the insurer. The insurer must prove: (1) the reasonable actions that should have been taken; (2) that those actions would have reduced the damages; and (3) the amount of damages that would have been reduced. See Merck. 393. Merck, 386 F. Supp. 2d 501 (SDNY 2005) (“the duty is one of reasonable care in light of commercial and maritime practices”; it does not require all possible care or to follow the “wisest course”). 394. Buglass at 334 (it is not necessary to show an actual benefit to the insurer, but only that the charges were reasonably incurred in good faith with the intention of avoiding a loss that would be recoverable under the policy). 395. Id. 396. Int’l Commodities Export Corp v. Am Home Assur Co, 701 F. Supp. 448 (SDNY 1988), aff’d 896 F.2d 543 (2d Cir. 1990); Blasser Brothers v. Northern Pan-American Line, 628 F.2d 376 (5th Cir. 1980). Recoverable expenses have included the costs of: salvage operations to remove cargo for safekeeping; legal actions to preserve and secure release of cargo, seizure and maintenance of a vessel, pilotage fees, cargo discharge fees, marshal fees, security guard fees, attachment bond fees; inspection fees; barging and demurrage; customs bonds, duty and spill tax incurred to off-load damaged cargo for reconditioning; travel expenses for representatives to supervise reconditioning of cargo; and legal expenses for an action against the intended purchaser of the cargo for refusal to pay. Rave at 371. 397. Int’l Commodities. 398. Id. 399. Id. 400. Slay Warehouse Co v. Reliance Ins Co, 471 F.2d 1364 (8th Cir. 1973) (recovery allowed for some costs incurred as a result of protecting a third party’s property placed at risk when assured’s warehouse wall collapsed; but recovery denied for attorneys’ fees, photographer’ fees and costs of cleaning up debris); Int’l Commodities (attorneys’ fees denied for defense of the underlying cargo sales contract); Blasser (attorneys’ fees denied for action against the cargo insurer).

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8.113 The “Sue and Labor Clause” is separate insurance and supplementary to the obligation of the insurer to pay for any damages sustained. It is separate in a sense that the reimbursement to the assured is “in addition to, and over and beyond, the amount payable under or the dollar limits of, the named perils coverage”.401 The insurer must reimburse the assured for “the whole of reasonable sue and labor expenses incurred; without regard to the amount of the loss, or whether there has been a loss, or whether there is salvage and even where the property was ultimately declared a total loss”, as long as the efforts were reasonable.402 Additionally, as the Sue and Labor Clause is separate cover, any deductible in the policy does not apply to reduce the recovery of sue and labor expenses.403 Salvage 8.114 Salvage is a service voluntarily rendered to save maritime property from a peril at sea by those with no pre-existing legal duty.404 Salvage services rendered by a volunteer salvor without a contract, written or oral, is pure salvage and is not general average. General average, according to the York-Antwerp Rules, does not include compensation paid to voluntary salvors.405 Pure salvage is a particular average loss or a particular charge on the property salved.406 Salvage by contract, on the other hand, such as where the vessel owner enters in a Lloyd’s Open Form salvage contract with the salvor, is of the nature of general average under American law as it constitutes a “giving and not a taking”.407 These are only general principles, however, as the contract of affreightment often controls the issue of whether salvage is considered general average. The contract of affreightment may incorporate a stated edition of the York-Antwerp Rules, which may or may not include salvage expenses in general average. 408 8.115 Under United States law, “whether salvage services rendered under contract are general average or sue and labour charges is often difficult to determine”.409 It may become a significant issue because sue and labor charges constitute a separate policy limit, while salvage expenses by contract which are in the nature of general average may receive different treatment.410 Sue and labor charges are a subset of the more general term, particular charges or special charges.411 Particular charges are expenses specifically incurred by the assured for the safety or preservation of the subject-matter insured. Sue and labor charges are only those particular charges that are incurred for the benefit of the insurer to avert a loss that would be covered under the policy.412 General average losses and contributions, as well as pure salvage charges, are not sue and labor expenses.413 Certain expenses for 401. Fore River; Armada Supply, 858 F.2d 842, 855. 402. The Escapade. 403. See Armada Supply, 858 F.2d 842, 855. 404. Buglass at 314–315. 405. Buglass at 330. 406. Buglass at 314–315. 407. Id. 408. Compare 2004 York-Antwerp Rules with 1994 Rules. See Jonathan Spencer, Hull Insurance and General Average – Some Current Issues, 83 Tul. L. Rev. 1227 (2009). 409. Buglass at 332. 410. Id. at 315 and 332; Ultramar Canada Inc v. Mut Marine Office Inc, 1994 AMC 2409 (1994) (law of Canada). 411. Buglass at 332. 412. Id. at 334. 413. Spencer.

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salvage services contracted by or on behalf of the assured, however, will be subject to sue and labor consideration if expended for the benefit of the insurer for a covered peril.414 General average 8.116 Marine cargo insurance provides coverage for general average. Clause 7 of the American Institute Clauses states415: “General Average & Salvage Charges C. General Average contributions and Salvage Charges shall be payable according to United States laws and usage and/or as per foreign statement and/or as per York Antwerp Rules (as prescribed in whole or in part) if in accordance with the Contract of Affreightment.”

General average is a venerable doctrine of maritime law that dates back over 2,800 years.416 When a portion of ship or cargo is sacrificed to save the rest from a real and imminent peril, each owner of property saved contributes ratably toward the loss of those whose property has been sacrificed.417 General average contribution is independent of marine insurance and is owed even in the absence of cargo insurance. Cargo owners typically insure “themselves against a possible obligation arising from a general average situation”.418 Undervaluation of cargo will result in an assured’s general average contribution being reduced pro rata if the cargo is not insured for its full contributory value. Most cargo policies, however, contain a clause precluding the application of a co-insurance penalty.419 8.117 Three events typically create a general average situation420: “(1) A common danger to which ship, cargo, and crew were all exposed and which is imminent and apparently inevitable; (2) A voluntary sacrifice of a part for the benefit of the whole; and (3) Successful avoidance of the peril.”

An imminent danger is no longer a prerequisite; the danger need only be real and substantial.421 General average may be broken down into two classes: “those which arise from sacrifices of part of ship or cargo made to save the whole adventure, and those which arise out of extraordinary expenses incurred for the joint benefit of ship and cargo”.422 Expenditures made by the carrier to avert a peril must be made in good faith. There must be a real and substantial danger to the common venture. “Mere incidents of the voyage” do not give rise to an extraordinary common danger.423 The vessel owner will not be entitled to contribution where it is at fault in creating the situation, unless the fault is excused in accordance with exculpatory provisions found in the contract of carriage, such as the New Jason Clause.424 414. Id.; Davis at 518. 415. American Institute Cargo Clauses 2004 – All Risks (1 January 2004), cls 2A and 7C. 416. See generally, Gilmore and Black at s. 5-1. 417. Alamo Chemical Transp Co v. M/V Overseas Valdes, 469 F. Supp. 203, 215 (E.D. La., 1979). 418. Shavers Transp Co v. Travelers Indem Co, 481 F. Supp. 892 (D. Or. 1980). 419. Id. (“General Average and Salvage Charges are payable in full irrespective of comparison between the insured and contributory values”). 420. Barnard v. Adams, 51 U.S. 270 (1850). 421. Navigazione Generale Italiana v. Spencer Kellogg & Sons, 92 F.2d 41, 43 (2d Cir. 1937), cert. denied, 302 U.S. 751 (1937). 422. Shavers. 423. Eagle Terminal Tankers Inc v. Ins Co of USSR (Ingosstrakh) Ltd, 637 F.2d 890 (2d Cir. 1980); US v. Wessel Duval & Co, 1954 AMC 2070, 2086–87, 123 F. Supp. 318, 329 (SDNY 1954). 424. Eagle Terminal; Shavers; Bubble Up Int’l Ltd v. Transpacific Carriers Corp, 458 F. Supp. 1100 (SDNY 1978); Complaint of Flota Mercante Grancolombiana, 440 F. Supp. 704, 725–26 (SDNY 1977).

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8.118 Litigated general average disputes usually involve actions where the vessel owner commences an action for contribution in general average. Many cases involve machinery failures or vessel groundings, where the vessel owner incurs general average damage and expenditures.425 In order to recover in general average, the vessel owner must prove that a general average event actually occurred and that it has exercised due diligence to provide a seaworthy vessel at the commencement of the voyage.426 8.119 On rare occasions, cargo will assert a claim for general average contribution from the various interests including the vessel owner.427 Although such a claim will generally be brought by the insurer of the cargo in a subrogated capacity, the courts recognize that the actual claim for contribution in general average is distinct from the cargo owner’s rights under the contract of carriage.428 Where the contract of carriage is governed by the United States Carriage of Goods by Sea Act (“COGSA”), it determines the rights and responsibilities of cargo owners and shipowners. General average, however, “constitutes a separate liability doctrine that arises from participation in a common venture”.429 Consequently, the shipowner is not entitled to assert COGSA defenses, such as the package limitation, with respect to a cargo owner’s recovery of general average allowance for a sacrifice.430

SUBROGATION, DOUBLE INSURANCE AND RIGHTS OF CONTRIBUTION Subrogation Nature of the right compared to assignment 8.120 To the extent that an insurer makes payments to an assured under its policy, it is entitled to recover such payments from responsible third parties.431 An insurer has an equitable right of subrogation as a matter of law upon making payment to its insured for a cargo 425. Unseaworthiness of the vessel takes on many forms and is not limited to a mechanical failure of the vessel. It includes fatigue of the master and improper watchkeeping procedures. In re Ballard Shipping, 823 F. Supp. 68 (D.R.I. 1993). 426. Eagle Terminal. 427. Vogt Power Int’l Inc v. M/V Beluga Constellation, 2011 U.S. Dist. LEXIS 100470 (SDNY 2011). A general average event will usually be declared by the master; general average guarantees, bonds or cash deposits will be required before release of cargo; a general average statement will be prepared; and the average adjuster (on behalf of the shipowner) will proceed to collect general average contribution from the various interests in the common venture, including cargo. 428. Id. 429. Id. General average is separate and distinct from the COGSA “in that it provides a means of recovery based upon an equitable doctrine by which all parties in a common maritime venture proportionally share any losses resulting from a voluntary sacrifice of cargo in an emergency”. Although cargo claims for damage to cargo are brought against the shipowner under COGSA, claims in general average are “brought against the trustee of the General Average Fund to collect the owner’s proportionate share under the Adjustment”. Id.; see La Territorial De Seguros v. Shepard SS Co, 124 F. Supp. 287, 289 (EDNY 1954) (the Fire Statute does not prevent cargo owner from obtaining general average contribution). 430. Id. 431. Aetna Ins Co v. United Fruit Co, 304 U.S. 430 (1938). 432. Ingersoll (the equitable right exists even when the insurer makes a partial payment, but wrongfully refuses coverage for selected damage claims, and no written loan receipt, or subrogation receipt or assignment has been executed by the insured).

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loss. The assured retains a right to commence its own action for uninsured losses, subject to procedural rules of certain state courts.433 The general rule is that an insurer cannot subrogate against its own insured; however, there are cases that distinguish this rule based on the identity of interests and risks insured where multiple policies are involved.434 8.121 An assured may tender abandonment to the insurer for many reasons, including to minimize civil liability.435 If an insurer accepts an assured’s notice of abandonment, the insurer becomes liable for the whole of the insured value and also becomes entitled to all rights that the assured possesses in the thing insured.436 An assured’s act of conveying title, however, does not necessarily rise to the level of abandonment and does not preclude an assured from seeking additional damages from an alleged tortfeasor.437 In modern practice, the insurer usually rejects the notice of abandonment and disclaims any ownership in the property. 8.122 When a recovery action is commenced against a third party by the insurer for insured damages and by the assured for uninsured damages, some courts have held that there is an established federal admiralty rule with respect to valued policies which provides that an assured is a co-insured with respect to values in excess of insured values and therefore shares ratably in any recovery.438 Most courts, however, apply state law while addressing this issue. For example, in Florida, the assured must be fully compensated for its losses, such as for deductibles or uninsured losses, before the insurer can share in any recovery from a responsible third party.439 In any event, insurance contracts usually contain a clause that mandates pro rata apportionment of recovery proceeds and such clauses are generally enforced by the states. Exercise of subrogation rights in practice 8.123 In the Federal Courts of the United States, an action must be commenced by the “real party in interest”.440 If an assured is only partially compensated by its insurer, both the assured and the insurer are real parties in interest entitled to commence an action against a tortfeasor.441 When an insurer pays the assured for a covered loss, the insurer usually 433. See Risdale v. Universal Ins Co, 232 F. Supp. 472 (D. Mass. 1964). 434. Great Lakes Transit Corp v. Interstate SS Co, 301 U.S. 646 (1937); Davis at 551. 435. Continental Ins Co v. Clayton Hardtop Skiff, 367 F.2d 230 (3rd Cir. 1966). 436. Id.; Columbus-America Group v. Atlantic Mut Ins Co, 974 F.2d 450 (4th Cir. 1992) (insurers claimed that they were entitled to share in the recovery of gold salvaged from SS Central America, which sank in 1857; the court held that there was insufficient evidence to establish that the insurers intended to abandon their rights to the insured gold). 437. The Livingstone, 130 F. 746 (2d Cir. 1904). Even if property is a constructive total loss and the assured conveys title to the insurer as a product of the insurer’s subsequent right of subrogation, the assured still retains a right to seek recovery from the tortfeasor for any additional and uninsured damages. In re David Hlywiak v. Marc Hlywiak, 573 F. Supp. 2d 871 (D. N.J. 2008). 438. Standard Oil Co of NJ v. Universal Ins Co, 1933 AMC 675 (SDNY 1933); Adrian Shipping (Bermuda) Ltd v. Allstate Ins Co, 1987 U.S. Dist. LEXIS 5225 (E.D. La. 1987); Davis at 548–549. Whether “increased value” insurance will be considered a co-insurer” with a primary cargo insurer will depend upon the coverage. If the interests insured are identical, it may be considered a co-insurer and share ratably in any recovery. If the “increased value” insurance covers different risks, however, such as “lost profits”, it will not share ratably. Standard Marine Ins Co v. Scottish Metropolitan Assur Co, 283 U.S. 284, 75 L. Ed. 1037, 51 S. Ct. 371 (1931); see Armada Supply, 665 F. Supp. at 50–51. 439. Tampa Port Authority v. M/V Duchess, 65 F. Supp. 2d 1299 (M.D. Fla. 1997). 440. Fed. R. Civ. P. 17(a). 441. Junior Gallery Ltd v. Neptune Orient Lines Ltd, 1997 U.S. Dist. LEXIS 499 (SDNY 1997). If the real party in interest has not been properly named in the action, the courts allow amendment of the pleadings to the extent that any delay has not prejudiced the defendant. Id.; Aunt Jemima Mills Co v. Lloyd Royal Belge, 34 F.2d 120, 122 (2d Cir. 1929).

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demands that the assured execute a loan receipt or a subrogation receipt and/or an assignment of rights. A loan receipt is a device where the insurer loans funds to the assured and the assured remains the real party in interest in the action.442 There are many reasons for an insurer to request that an assured execute either a loan receipt, or a subrogation receipt containing additional assignment wording. For instance, when an insurer has paid a claim and commenced an action solely in subrogation, either in equity or pursuant to a loan receipt; the tortfeasor may defend on the basis that there was no insurance coverage under the policy and that the insurer was a mere “volunteer” not entitled to subrogation.443 Double insurance and contribution Double insurance: when does it occur? 8.124 Double insurance is categorized as “other insurance” in the United States.444 State law applies to “other insurance” issues.445 Double insurance occurs when two insurance contracts provide primary insurance, covering the same interest and the same risk.446 “Other Insurance” Clauses are applicable to insurance policies, even though they have been purchased by different assureds.447 Contribution between insurers 8.125 Open cargo policies generally contain a clause addressing “other insurance”. The American Institute “Other Insurance” Clause contains three main categories for consideration.448 The categories provide that the instant policy is: (1) excess insurance when the other insurance attaches first; (2) primary insurance when the instant insurance attaches first; or (3) to share pro rata when insurances attach simultaneously. 449 8.126 If two primary policies insure the same risk and the same interest, the assured or assureds can elect to make a claim on one insurer and not the other.450 The chosen

442. Davis at 550. Courts recognize the validity of a loan receipt to avoid “benefit of insurance” clauses in contracts of carriage where a carrier attempts to benefit from cargo insurance. However, in instances where an insurer uses the instrument to avoid a “waiver of subrogation provision” or a claim for ratable apportionment between co-insurers, the courts do not enforce the clause, concluding that the insurer who pays is actually the real party in interest. Id.; see Willamette-Western Corp v. Columbia Pacific Towing Corp, 466 F.2d 1390 (9th Cir. 1972); Am Dredging Co v. Federal Ins Co, 1970 AMC 1163 (SDNY 1970). 443. Junior Gallery. 444. See Contract Marine Carriers Inc v. Abbott Lab Int, 1993 U.S. Dist. LEXIS 4260 (SDNY 1993). 445. Id. 446. Contract Marine; Medical Malpractice Ins Assoc v. Medical Liability Mut Ins Co, 86 A.D.2d 476, 450 N.Y.S.2d 191, 193 (1st Dept 1982). In the past, New York courts resolved “other insurance” disputes by examining the policies to determine which was more specific. Id. The Court of Appeals for the State of New York, however, rejected “as an exercise in meaningless semantics” the effort to determine which policy was more specific. State Farm Fire & Cas Co v. LiMauro, 65 N.Y.2d 369, 492 N.Y.S.2d 534, 537 (1985). State law differs on whether the principle of “specific over general” still controls. See e.g., United States Fidelity & Guar Co v. Slifkin, 200 F. Supp. 563 (N.D. Ala. 1961) (blanket insurance); Hitz v. Allied Am Mut Ins Co, 2 Conn. Cir. Ct. 112 (1963). 447. Contract Marine; Davis Yarn Co v. Brooklyn Yarn Dye Co, 293 N.Y.236, 56 N.E.2d 564 (1944). 448. American Institute Cargo Clauses 2004 – All Risks (1 January 2004) (there is also a traditional “carrier beneficiary” Escape Clause). 449. Id. 450. See Royal Ins Co of Am v. Commercial Underwriters Ins Co, 2004 U.S. Dist. LEXIS 23275 (SDNY 2004).

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insurer, however, may seek contribution from the other insurer. Under New York law, “an insurer has a right in equity to collect a ratable contribution from any other insurer who is also liable for the same loss”.451 This right is generally determined by application of the “Other Insurance” Clauses contained in the policies, although state laws may differ depending upon the law of the state and the intent of the parties while negotiating the insurance portfolio.452 8.127 Courts recognize three basic types of “Other Insurance” Clauses found in primary policies: escape, excess and pro rata.453 An “Escape” Clause attempts to release the insurer from all liability, if other coverage is available. An “Excess” Clause provides that if other insurance exists, the “excess” policy provides coverage in excess of the other policy’s limit. A Pro Rata Clause seeks to allocate the amount of contribution between the policies.454 Generally, a policy with an Escape Clause prevails over a policy with an Excess or Pro Rata Clause455; a policy with an Excess Clause prevails over a policy with a Pro Rata Clause; and where both policies contain Pro Rata Clauses, allocation is appropriate.456

451. Multifoods (two concurrent policies contribute to a loss according to the “Other Insurance” Clauses in primary policies only; an excess “Other Insurance” Clause in a primary policy will not render a policy sold as primary insurance, excess to a true excess policy sold on a higher tier of coverage). 452. Barry R. Ostrager, Insurance Coverage Disputes, 14th edn, 2008, pp. 900–915 (the minority rule states that all “Other Insurance” Clauses, regardless of their nature, are “mutually repugnant”). 453. Inst for Shipboard Educ v. Cigna Worldwide Ins Co, 22 F.d 414, 419 (2d Cir. 1994); see Ostrager. 454. Ostrager. 455. Pennsylvania and New York state laws consider Escape Clauses void as against the public policy of the state, so that a policy with an Escape Clause becomes the primary insurance. Institute for Shipboard Education (Pennsylvania); Kipper v. Universal Underwriters Group, 304 A.D.2d 62, 756 N.Y.S.2d 682 (4th Dept 2003) (New York). 456. Ostrager at 906–915. State law differs on whether the allocation is based upon a percentage derived from the respective policy limits of the policies involved; or whether the allocation should merely be based upon a percentage derived from the number of policies involved. Id. State law also varies on the manner in which the deductible or self-insured retention is calculated, such as whether the deductible is taken into account prior to or after apportionment of coverage, or is not taken into account at all. See, e.g., Ins Co of N Am v. West of England Shipowners Mut Ins Assoc, 1995 U.S. Dist. LEXIS 16282, 16283 (E.D. La. 1995); Cargill Inc v. Commercial Union Ins Co, 889 F.2d 174, 180 (8th Cir. 1989) (“We consider deductibles before pro-rating”).

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I TA L I A N L AW A N D P R A C T I C E Francesco Siccardi1

INTRODUCTION Foreword History 9.1 Insurance was born as marine insurance (insurance of land risks followed centuries later) and was and remains centred upon the concept of risk of the maritime adventure, a risk shared by all those taking part in that adventure. The bearing of this risk was originally conceived as an element of contracts of various kinds entered into in connection with a voyage of a vessel, such as the sale of goods carried, or the loan to the Master (foenus nauticum). It was only around the beginning of the fourteenth century that the risk became, in substance although not yet formally, the subject-matter itself of such contract: although not yet so named, the contract of insurance was born.2 9.2 It is generally considered that the first contracts of insurance were stipulated in the city of Genoa in the first half of the fourteenth century.3 Very careful historical researches4 conducted in recent times have revealed that on 18 March 1343 by a deed before Notary Tomaso Casanova, Amichetto Pinello agreed to insure for an amount of 680 golden florins in favour of Guglielmo Avedotto, 10 cloth bales to be carried onboard Santa Catalina under the command of Valentino Pinello, for the voyage from Porto Pisano to an unnamed Sicilian port. This was one of five similar deeds which preceded a contract, until recently regarded as the first, drawn up by the same notary in the early evening of 23 October 1347 to cover the hull of the “cocca”,5 Santa Chiara, for a voyage to Maiorca, in favour of the Owner Bartolomeo Beres, for an amount of 107 Genoese lire and for a period of six months. These contracts, drawn up on a Form in use through the fourteenth century, were “dressed” as loan contracts: in practice – in the first contract – Pinello avers to have entered with Avedotto into a free loan for 680 florins on the understanding that in case of safe arrival of the bales the contract would be deemed null and void. This artful scheme, which was adopted to avoid the prohibition to practice usury, strongly condemned by the Roman Church, was soon abandoned in favour of a structure similar to a sale and purchase contract, as this seemed to more closely approach the real nature of the transaction: it is in a deed dated 17 September 1362 that Notary Teramo Maggiolo opens the season 1. Partner, Siccardi Bregante & C., Genoa and Milan. 2. S. Ferrarini, Le Assicurazioni Marittime, 3rd edn, 1991, Milano, pp. 2–3. G. Righetti Trattato di Diritto Marittimo, III, pp. 1022–1037. 3. G. Giacchero, Storia delle Assicurazioni Marittime – L’esperienza genovese dal Medioevo all’età contemporanea – edited by Italia Assicurazioni. 4. A total of 260,000 notarial deeds have been studied by Genoese scholars. 5. A cocca was a type of medieval merchant ship.

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of the newly dressed insurance contracts, but the artifice is the same: a large quantity of goods are insured for a voyage from Aigues Mortes to Ephesus or Rhodes by a group of eight Genoese and two Florentine underwriters who purchase (fictitiously) the goods but undertake to pay for them only if the goods will be lost. In reality what the 10 merchants were purchasing was the risk and the contract was void in case of safe arrival precisely because the risk did not materialise. 9.3 A Decree by the Genoese Doge Gabriele Adorno in 1369 will draw a line between illegal transactions and lawful deals and a further law in 1380 will mention specifically insurance, although prohibiting insurance on foreign flag ships or goods carried on board those ships. These rules were not destined to last: with the rapid expansion of the Genoa Republic in the eastern and central Mediterranean by the setting of active colonies and the consequent booming of inter-mediterranean trades, and with the dominant influence of the Florence culture in the European commercial and financial markets, the prohibition to insure foreign interests was practically ignored and indeed repealed by a Decree of 1408 except for voyages beyond Gibraltar. The insurance market becomes truly international. Before the Genoese Notaries and in subsequent times before the “sensale” (broker), contracts are entered to cover ships and goods for voyages ranging from east Mediterranean to the Atlantic Coast with an increasing group of Genoese and Florentine underwriters.6 The growing influence of the truly multiform culture of Florence will at that point play a fundamental role towards the birth of the first modern insurance contracts released from spurious forms and characterised by a (yet not regulated) freedom of contract where underwriters agree to take upon themselves the risk in its several features including the barratry of the master: this way of drafting insurance contracts was called “ad florentinam” (Florentine style) and this formula will designate the scope itself of the risk taken upon by underwriters.7 9.4 The Genoese and Florentine lawmakers8 will not come, though, to issue comprehensive statutes on insurance: it will belong to the Barcelona Ordinances the merit, in 1435 through 1484, to have codified for the first time this very important aspect of the commercial life and open the road to the first comprehensive law: the Guidon de La Mer, followed by the Ordonnance de la Marine, to the eighteenth and nineteenth centuries modern European laws, to the Marine Insurance Act 1906 and other contemporary legislation, but no doubt this merit is to be shared with the notaries and the merchants of the cities of Genoa and Florence with whom the origins of marine insurance truly lies.

6. Just to mention a few examples: In 1398 various underwriters take upon themselves the risk of voyage of Turkish alum valued 1,000 florins for a voyage to a port in the Flanders; in 1412, eight underwriters take a risk over 750 florins on goods from Kios to Southampton; in 1428 a group of Genoese underwriters insure goods loaded in Edinburgh by a Mr Spinola destined to Middlebourg. 7. In a contract dated 1459 the following can be read: “Et intelligatur assecurantes currere rixicum ad florentinam, ita quod teneantur de guasto, marcido, furto, manchamento, ribaldaria patroni, etiam si mutasset viagium et de represaliis et in omnibus et per omnia pro ut obligentur assecuratores ad florentinam”. A sort of very early All Risks Cover. 8. Various other decrees were issued by Genoa in 1406 and 1408, Florence in 1463 and Venice in 1468.

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Legal sources Civil code 9.5 Insurance is primarily governed by the Civil Code, Articles 1882 through 1932 which cover general principles, non-life, life insurance and reinsurance and are in part, by virtue of Article 1885, applicable to marine insurance “insofar as it is not governed by the Code of Navigation”.9 This rule must be read in conjunction with Article 1 of the Code of Navigation which outlines the sources of navigation law. These are (in decreasing order of rank): the Code of Navigation and the other special rules on navigation, that is, laws, byelaws and customs related to navigation. In case no special provision related to navigation is applicable, the gap is filled by analogy with other special rules on navigation. If no analogy is possible, finally, the rules of civil law apply. Read jointly, Article 1885 of the Civil Code and Article 1 of the Code of Navigation give the insurance provisions of the Civil Code the status of special rules of maritime law. In practice this means that they apply to marine insurance as far as they are not specifically departed from by the Code of Navigation. Code of navigation 9.6 The Code of Navigation contains two sets of rule for marine (Articles 514 through 547) and air (Articles 996 through 1021) insurance, which provide, within the framework of the Civil Code’s general principles, a specific regime given the peculiar nature of the risks of navigation.10 Forms of contract 9.7 The Civil Code and the Code of Navigation lay down only a few general rules and statutory exclusions in the matter of scope of cover, which is thus left to the agreement of the parties (see Article 1905 of the Civil Code). Freedom of contract has always characterised the insurance field, and another main source of insurance law and practice is thus represented by standard forms of contract.11 The Italian market has, over the years, produced its own Forms both for hull and cargo (marine and air insurance). Reference will be made in the following chapters to the most relevant Forms in common use and in particular to the Cargo Policy 2006 (hereinafter also referred to as the “Cargo Policy”). This is structured as a multimodal form of contract, suitable for different types of carriage. It begins with general terms governing insurance in general, to which various clauses (including foreign clauses) can later be attached to govern the particular risks, exclusions and duration required by the assured (e.g., clause 1 all risks, clause 2 named 9. As a result of this provision Arts 1892, 1893, 1901, 1904, 1905, 1907, 1908, 1909, 1910, 1911, 1913, 1915, 1916, 1917 and 1932 of the Civil Code apply to marine and air insurance (see also Cass. 21 July 1962 n. 1989, Mass. F.I. 1962). 10. Rules on Insurance Companies, Regulatory Bodies and other public or general aspects are contained in the Code of Insurance a comprehensive legislative scheme introduced by law 7 September 2005 n. 209, which also incorporates the rules of mandatory liability insurance applicable to pleasure navigation. 11. Article 1932 enumerates the rules of the Civil Code which cannot be varied by agreement unless in terms which are more favourable to the assured: these are, for marine insurance: 1892 – 1893 – 1901 – 1915 see paras 9.24 et seq. and 9.101 and 9.115 et seq. below.

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risks). The Italian market makes frequent use of English Forms in both hull and cargo insurance.

SUBJECT MATTER OF INSURANCE: INSURABLE INTEREST Subject-matter of insurance General 9.8 The Civil Code does not define or mention specific interests which may be the subject of insurance except for distinguishing property/liability and life insurance. The Code of Navigation instead specifies the subject-matters insured in Articles 515 through 520, 526, 527 and 536 for marine and Article 1001 for air insurance. Goods 9.9 Article 516 provides: “The insurance of the goods covers their value, in sound condition, at the place of destination and at the time of unloading. If such a value cannot be ascertained, the insurable value is represented by the price of the goods at the place and time of loading, increased by ten percent for expected profits, as well as by the loading expenses, the freight due or prepaid lost or not lost and the insurance expenses.”

Not all goods can be insured under the standard terms of the Cargo Policy. The current edition of the policy12 in Article 14 lists a number of goods, the insurance cover for which can only be obtained by special agreement.13 As it can be seen from Article 15, the insurable value of the goods may be calculated in two ways, either by taking the value at destination14; or the value at the origin increased by a number of components, among which is 10% of the price as expected profits.15 This alternative calculation is more frequently adopted as it has the advantages of making market fluctuations irrelevant and also limiting the measure of indemnity to the loss of the goods themselves excluding indirect consequences. Expected profits (increased value) 9.10 Article 1905 of the Civil Code provides that “the insurer is only liable for expected profits if he has expressly undertaken to cover them”. Expected profits may be separately insured according to Article 518 of the Code of Navigation: 12. See for details about this policy para. 9.52 et seq. below. 13. These are refrigerated goods, valuables, precious, artworks, livestock, goods in damaged condition and dangerous goods. 14. This rule is at variance with the general principle (Art. 1908 of the Civil Code) according to which the insurable value is the value at the time of loss, but it can be explained considering that the goods are in transit; the value at destination is also the test to assess the measure of indemnity for the liability of the carrier (Art. 1696 of the Civil Code). G. Righetti, p. 1217. 15. Furthermore in the practice the customs duties are added considering that goods damaged are not exempted from those duties, see Ferrarini, p. 86. The same rule is contained in Art. 1001 for cargo carried by air. See also para. 9.21 below.

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9.12

“The insurance of the expected profits on goods covers the greater commercial value that at the moment of the conclusion of the contract it may be expected the goods will have on arrival in sound condition, at the place of destination, deduction made of carriage and insurance costs. The provisions concerning the insurance on goods are applicable, as far as possible, to the insurance of the expected profits.”

Both Articles 516 and 518 of the Code of Navigation allow the merchant to cover the profit which he expects to derive from the trading of goods and more specifically the greater value which, by effect of transportation to destination, the goods will likely achieve at the arrival in sound condition in the designated place. It is therefore the party in which the (insurable) interest in the goods is vested who has also an insurable interest in expected profits. As a consequence of the provision of Article 516, the expected profit is already part of the value of the goods because, as previously mentioned (paragraph 9.9) a 10% or more is added to the value at origin. Accordingly, a separate insurance of the profit (as provided by Article 518) is seldom taken though it would be perfectly lawful, provided the assured have a real prospect of profit, and not merely a hope, and provided also that the loss is caused by a risk of navigation (not by delay).16 Freight 9.11 Separate insurance of the freight prepaid or due, ship and/or cargo “lost or not lost” is contemplated by Article 520 of the Code of Navigation that recalls the rule of insurance on goods. In practice the freight is generally considered as part of the value of the goods17 and does not need to be separately covered. Nothing prevents, though, the taking of such insurance separately in the presence of an insurable interest by the shipper, or the party entitled to take delivery of the goods. Where the value of the goods, the freight and the expected profits are separately insured, it has been held18 that the insurance on freight covers cost advanced against the risk of not enjoying the service for which the cost was incurred and such cover, therefore, includes those events (such as the arrest of the ship before loading and before departure) which, though not affecting the goods, cause the assured to lose the service for which the freight was paid. Assured’s liability (general average and salvage charges) 9.12 In both hull and cargo insurance the assured may incur liability for payment of general average (G/A) and salvage charges. He has therefore an insurable interest to cover such potential liability. As it will be seen in more detail in paragraph 9.79, salvage is not specifically mentioned in the Code of Navigation whilst two rules are laid down for G/A: under Article 526 of the Code of Navigation the insurer is to indemnify the assured for contribution in G/A; under Article 536 of the Code of Navigation the insurer indemnifies the assured for G/A sacrifices and expenditures.

16. Ferrarini, p. 88; Righetti, p. 1220. 17. As typically in the sale on CIF terms. 18. App. Genova 9 November 1949, Ass., 1950, II, 62.

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Other pecuniary interests 9.13 In cargo insurance cover is not infrequently offered to FOB and C&F sellers for the so-called seller’s interest on terms as offered in the international market: the interest of seller arises whenever goods are lost or damaged and are rejected by the buyer by refusing delivery of goods or tender of the negotiable documents. The risk covered is physical loss or damage to the goods (by which rejection is triggered) and not the mere refusal of delivery.19 Insurable interest and the indemnity principle Interest defined 9.14 An insurable interest is an essential element of the contract of insurance, for there has to be an interest to preserve the property exposed to risk in order to stipulate a valid insurance. This principle the laid down in Article 1904 of the Civil Code: “A contract of insurance against property damage is void if, when such insurance is effected, the assured has no interest in the subject-matter in relation to which he may be compensated in case of damage”.20 There is currently no statutory definition, in Italian Law, of insurable interest,21 but both scholars and the courts describe it as a relationship between a person (either natural or corporate) and property22 exposed to the risk of an accident such that a person may suffer a loss thereby. The relationship has to be, in principle, of a legal nature not merely factual23 and will ordinarily consist in the ownership of the property at risk.24 However, it may extend to several other kinds of relationships such as: proprietary rights over the goods of another (the roman law “usufruct”); the rights of a mortgagee; the rights of a creditor enjoying a registered lien; the rights of a creditor who has attached the debtor’s assets, over such assets, and the rights of a lessee.25 It has been ruled26 more generally that an insurable interest exists in other cases where a person is exposed to suffer the consequences of a loss affecting the property. In marine insurance, in particular, the concept of insurable interest 19. Cover is offered to an FOB or C&F seller for the transit from the assured storage depot or warehouse up to delivery to the carrying vessel or aircraft at the place of loading. Insurance is subject to “Standard Marine Policy Form incorporating cover against risk as per contract wording”. The interest to the insurance of the seller ceases ordinarily when cargo is loaded on the oversea vessel or more generally delivered to a carrier. See also para. 9.14 and fn. 24 below. Cover in favour of FOB/C&F seller not bound to arrange insurance, where full payment is received before shipment, is offered with retrospective inception if the buyer fails or refuses to accept the shipping documents or refuses the goods because of error or omission by the assured, failure to obtain import’s permission, the exercise by the seller of a lien or interruption of transit in the safeguard of his rights by the assured, but conditions of cover are as in the previous case. 20. But in practice reference is made at the time of the loss, see para 9.15 and fn. 30 below. 21. Historically, Art. 606 of the Code of Commerce of 1882 provided that insurance can be taken to cover anything having a monetary value exposed to the risk of navigation. This rule has not been reproduced in the Code of Navigation. 22. In liability insurance the property at risk is the assured’s entire assets and liabilities. 23. It may be factual for the party stipulating insurance on behalf of another: Cass. 5 June 2007 n. 13058, Dir. Mar. 2008, 468 (see para. 9.41 below). 24. The owner of the goods purchased, however, holds an insurable interest where passage of title is expressly reserved but risk has passed. As a consequence, it has been held that the seller who has passed title and risk is not holding an insurable interest even though price has not yet been paid because he is a mere unsecured creditor: Volpe Putzolu, Commentario Breve al Diritto delle Assicurazioni, Padova 2010, p. 63 sub-article 1904 of the Civil Code. But the seller has title to the indemnity if the loss occurred before interest passed to the buyer (see Arbitral Award 19 December 1994, Dir. Mar. 1995, 1115; Cass. 8 July 1998, Mass. F.I. 1998, 762). 25. Cass. 6 November 2002 n. 15552 Dir. Mar. 2002, 870. 26. Cass. 19 May 2004 n. 9469, Ass., 2005, II, 2,10.

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9.16

has been elaborated and widened to include other kinds of relationship such as the interest of a bareboat-charter of a ship, the interest of a shipowner in the goods carried for the payment of G/A contributions following a casualty, and the interest which the owner of a ship involved in a collision has in the colliding vessel for damage suffered by his own vessel. 9.15 An insurable interest may also be found in the liability which a person may incur in relation to a property as in the case of a bailee, or forwarder or carrier for goods stored, shipped or carried. Insurable interest also extends to liabilities arising from the operation of a ship (e.g., the liability of the shipowner for accidents to passengers, or crew, fines etc).27 It is therefore correct to state, even in the absence of a definition, that every interest exposed to risk in maritime adventure is insurable.28 Insurable interest ought to exist at the time of inception of insurance, but in practice this does not prevent insurance being arranged over future interests.29 In practice an insurer may only object that there is no insurable interest if there is no such interest at the time of the loss.30 The co-existence of different insurable interests on a property (e.g., the owner and a mortgagee of a ship) does not mean that if both take an insurance, there is double insurance, as the interests covered are of a different nature (a different relationship between the person and the subject-matter insured). For the transfer of the interest see paragraph 9.47 et seq. Indemnity principle in general 9.16 The insurable interest and the measure of such interest (the insurable value) are the basis of the indemnity principle, the cardinal rule of insurance law, for the contract of insurance is entered into precisely for the purpose of compensating the assured for the loss suffered. The insurance cannot be a source of the assured’s (unjust) enrichment, as this might instigate an interest to the realisation of the risk insured, thus infringing a public policy principle and frustrating the fundamentals of the contract of insurance. The indemnity principle is stated in Article 1905 of the Civil Code reading: “The insurer is bound to indemnify the insured for the loss he has suffered as a consequence of the operation of a peril, in the manner and to the extent stipulated in the contract”. The indemnity principle as a public policy principle cannot be departed from by the parties31 but, at the same time, a too formalistic adherence to it would affect the possibility to meet specific needs (i.e., interests) in the variable and evolving business life.32 Thus it is nowadays usual to see covers by which the insurer undertakes to indemnify the cost of replacement of a property as new (see below paragraph 9.18).

27. Ferrarini, pp. 80–81. 28. Typical example the expected profits on goods (see para. 9.10 above). 29. Ferrarini, p. 81 and T. Genova 6 February 1978, Dir. Mar. 1979, 382. 30. Righetti, p. 1191 and T. Genova 6 February 1978, Dir. Mar. 1979, 382. 31. In this respect see Art. 1909 of the Civil Code, discussed at para. 9.19 below. 32. An example is in the law itself which, by the second paragraph of Art. 1905 of the Civil Code, allows insurance of expected profits and in Art. 1908 fourth paragraph of the Civil Code, by which insurance can be taken to cover damage to crops (fructus industriales) the value of which, for the purpose of measuring the indemnity, is determined having regard to what they would have been worth when come to maturity. In marine cargo insurance – as we have seen – the expected profits on goods are mentioned as a component to determine the insurable value which, by Art. 516 of the Code of Navigation is the value at destination or, if that value cannot be ascertained, the price of the goods in the place and at the time of loading increased by a 10% as expected profit as well as by the loading charges, freight and insurance.

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Indemnity principle rules 9.17 In the implementation of the indemnity principle, Articles 1907, 1908 and 1909 of the Civil Code lay down rules for the assessment of the measure of indemnity payable to the assured. These rules are centred on two pivotal concepts, the “insurable value” and the “insured value”. The first designates the value of the insurable interest and is the limit within which insurance can be taken.33 The second is the value for which insurance is taken. 9.18 By Article 1908, first sub-paragraph, the insurable value, that is, the maximum amount for which the interest may be insured, is the value that the subject-matter insured has at the time of loss. The insured value, being the amount for which the interest is insured, is such portion (either the entire insurable value or part thereof) for which insurance is taken: as a consequence the assured can cover his interest wholly or in part. If the insurance is for part of the insurable value as determined in accordance with the above rule (underinsurance), the insurer shall pay such part of the loss as the insured value bears to the insurable value of the subject-matter insured at the date of the loss34 (Article 1907 of the Civil Code). The practice provides various methods to obviate the consequences of underinsurance, the most common of which are clauses known as “primo rischio assoluto” and “primo rischio relativo”.35 In storage insurance another common stipulation is the “assicurazione flottante a denunce posticipate” (“floating insurance with deferred declarations”) where the insurer covers, by virtue of monthly declarations, sums in excess up to an upper limit; the assured is bound to give notice of the stock for each preceding month and of the average daily stock of that month. The insurance value is assessed on the basis of the last declaration and, if at the time of loss the (insurable) value of one or more lots, separately accounted for, exceeds the insured value as determined, the underinsurance rule will be applied. A similar arrangement is achieved through the so-called leeway clause which combines the system of a predetermined increase of the insured value within a given percentage with automatic cover within that limit of (unexpected) increase of (insurable) value. Article 1908 of the Civil Code applies the indemnity principle: the assured cannot receive more than what the property was worth (to him) at the time the risk operated. However, in a modern perspective this rule can be departed from, whilst abiding by the indemnity principle, by covering the so-called valore a nuovo, that is, the cost (normally higher) for replacing36 the (entire) property lost with a new one.37 9.19 As a further implementation of the indemnity principle, Article 1909 of the Civil Code lays down rules in the event that insurance is placed for an amount (insured value) in excess of the actual value (insurable value) of the subject-matter insured. If the assured has acted fraudulently the contract is void; if there is no fraudulent intent the contract is deemed as validly stipulated for an insured value equivalent to the insurable value. 33. Not necessarily the value of the subject matter insured but no more than it. 34. Cass 27 October 1965 n. 2274, Ass., 1966, II, 138. 35. Under the first stipulation the insurer undertakes to pay up to the limit (i.e., sum) insured irrespective of the (insurable) value of the subject matter; under the second one, the proportion is applied only where the underinsurance exceeds a given limit. These clauses are in use in theft or fire insurance and generally where the assessment of an insurable value is practically complex or difficult to determine. 36. Not to be compared to the “replacement clause” in cargo insurance for which see infra para. 9.128. 37. A stipulation which for some scholars does infringe the indemnity principle.

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9.21

Valued policies 9.20 A way of departing from the rule of the first sub-paragraph of Article 1908 of the Civil Code is by agreement on the insurable value, namely the valued policy: the second sub-paragraph reads: “However, the value of the insured property can be established at the time of making the contract by means of an estimate accepted in writing by the parties”. But the third sub-paragraph clarifies: “The value of the insured property declared in the policy or other document is not equivalent to an estimate”. For this rule to be properly understood it is to be borne in mind that the contract must contain a sum insured which is the limit of the measure of indemnity payable, but not necessarily the “value of insurance” (insurable value). Even if the limit also represents the full insurable value, this does not turn the policy into a valued one; this can only be achieved through a specific stipulation in the policy by which a value is agreed. In marine hull insurance (not in cargo) the third sub-paragraph of Article 1908 is reversed by Article 515 of the Code of Navigation stating “unless otherwise agreed upon, the declaration of the value of the ship contained in the policy is equivalent to valuation”.38 In practice for a cargo policy to be a valued one,39 there have to be two limits: the agreed value and the sum insured.40 The question whether a valuation contained in an agreed value policy can be challenged by the parties41 has been debated in the past and generally it has been submitted that the value can only be challenged in case of fraud or forgery.42 In more recent times a thorough review of the issue has brought a scholar43 to the conclusion that in certain (but very limited) circumstances a valuation which is exorbitant can be challenged. In the practice of the market, however, this is very rarely if at all done and exorbitant valuations become relevant only in the context of a challenge to a claim for fraud of the assured, such as in scuttling cases.44 9.21 The rule in Article 515 of the Code of Navigation does not apply to (marine) cargo insurance where the policy is, in principle, an unvalued one unless a stipulation known as “valga o no” is entered into. Nevertheless the effects of an agreed valued policy are frequently achieved in practice by allowing the assured to cover the expected profits in a measure in excess of the 10% provided for by Article 516 of the Code of Navigation: in other words any difference between the insurable value of the goods and the insured value is ignored by assuming that the difference is deemed to cover the expected profits

38. This rule has historical but also practical reasons, in particular because it is the practice of the parties, in marine hull policies, to state the value of the ship and valuing the policy is a way of protecting the assured against the volatility of the ship sale market. 39. The valuation does not in itself prevent an underinsurance if there is a gap between the value and the sum insured but does not allow the underwriters to apply an underinsurance whenever the value of the subject matter insured is increased between the time of the valuation and the time of loss. 40. Although in the practice of the market a policy on hull with only a sum insured is treated as a valued policy (see Righetti, p. 1118). 41. The value is not binding obviously for third parties. 42. Cass 5.4.1955 n. 978, Ass., 1957, II, 3. 43. Partesotti “La Polizza Stimata” Padova, 1967, p. 90 et seq. Against this conclusion, see Ferrarini, p. 277. According to Righetti pp. 1394–1397, a distinction must be drawn between the case of an unconscious wrong declaration of value, and where the excessive value is consciously declared by the assured: in that case the valued policy can be challenged and the insurance will take effect for the actual insurable value. The contract is void, instead, whenever the assured has acted with a fraudulent intent. 44. But the binding effect of the valuation does not prevent insurers raising a question as to the value if the physical substance of the subject matter insured is affected (as in the case of a damage to a ship or the shipment of part only of a lot of goods); Ferrarini, p. 282.

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element. The current Cargo Policy is – in principle – an unvalued one. Article 15 lays down rules for assessing the insurable value similar to those of Article 516 of the Code of Navigation and also includes in Article 15 (a) a percentage increase for expected profits (as shown in the attached schedule) as well as freight, insurance, fiscal and custom duties. Article 21 of the Cargo Policy recalls the rule of Article 1907 of the Civil Code in the matter of underinsurance, subject, however, to the rules of practice just mentioned. The property must be exposed to risk of loss 9.22 Just as there cannot be valid insurance in the absence of an insurable interest (Article 1904 of the Civil Code), equally the contract is void if the risk never existed or has ceased to exist before inception (Article 1895 of the Civil Code). In each case this is because the insurable interest consists of nothing less than a relationship between a person and a property exposed to a risk and the risk is the possibility that the property may suffer a loss. The two concepts interrelate to each other: a person selling his property has no further insurable interest but it can also be said that the risk for him has ceased to exist. It is submitted that cessation of risk does not necessarily coincide with occurrence of loss, not only because the risk may continue to exist after a loss (as in the case of a partial loss) but also because the realisation of a risk does not deprive the assured of an insurable interest which may be covered against other risks. From drawing a conceptual distinction between risk and loss it is argued that retroactive insurance may be validly stipulated.46 Apprehended risk (lost or not lost) 9.23 Contrary to the general rule, Article 514 of the Code of Navigation (“rischio putativo” or apprehended risk) provides that, where the loss has already occurred the contract is void only if the loss is known to either at the parties: knowledge is presumed, subject to evidence to the contrary.47 This rule applies to the insurance of goods in transit48 where the loss has taken place before the contract was concluded but within the period of insurance stipulated: if the risk took place before the insurance attached, for example, before the goods were in transit under the duration clause (see, e.g., clause 1 (all risks) Article 3) then the contract is void.49

DUTY OF GOOD FAITH AND DISCLOSURE Misrepresentation and non-disclosure 9.24 The contract of insurance is “uberrimae fidei” and it is thus incumbent on to the assured to represent the risk that he intends to pass to the insurer in a correct and complete

45. Ferrarini, p. 281. 46. Volpe Putzolu Commentario Breve p. 35, but contrary to this view App. Milano 23 February 1968, Ass., 1969, II, 83. 47. The same rule applies if the risk never existed or has ceased to exist. 48. App. Trieste 4 May 1985, Dir. Mar. 1986, 426. 49. Arbitral Award 14 April 1993, Dir. Mar. 1994, 536 and Cass. 24 April 1961 n. 219, Dir. Mar. 62, 25.

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manner. This principle is not positively stated in a rule of the Civil Code but derived from the consequences of the breach of the duty of disclosure and correct representation laid down in Articles 1892 and 1893 of the Civil Code. These articles draw a distinction depending on whether or not the assured has acted intentionally or with gross negligence. 9.25 Where the assured has acted intentionally or with gross negligence with respect to circumstances which, if known to the insurer, would have caused him to withhold his consent to the contract, or to enter into it under different terms and conditions, the insurer may avoid the contract.50 The right of avoidance is lost if the insurer fails to give notice of his intention within three months of the time he has knowledge of the misrepresentation or of the non-disclosure. If the loss occurs in the three-month period, the insurer is not bound to indemnify the assured (Article 1892 of the Civil Code). 9.26 If the assured has misrepresented or failed to disclose material circumstances unintentionally or without gross negligence, misrepresentation and non-disclosure are not grounds for avoidance of the contract. Nevertheless, the insurer has the right to terminate the contract by means of a declaration to the assured, within three months of the time he has knowledge of the misrepresentation or of the non-disclosure. If the loss occurs before the insurer has had such knowledge, the amount of the indemnity due to the assured is reduced in the same proportion as the premium charged bears to the premium which the insurer would have quoted had the material circumstance been made known to him (Article 1893 of the Civil Code).51 9.27 By Article 1894 of the Civil Code the rules of Articles 1892 and 1893 are made applicable to the assured in cases of insurance arranged for his account by another person. As a consequence, the duty of correct representation and disclosure of material circumstances is not only to be complied with by the contracting party, but also by the assured if he is aware of any such material circumstances (see paragraphs 9.41 and 9.42 below). 9.28 The avoidance of the contract is subject to the presence of all of the three following conditions: (a) misrepresentation or non-disclosure by the assured; (b) inducement of the insurer by such misrepresentation or non-disclosure to accept the risk, or to accept the risk on the terms proposed; (c) an act or omission intentionally or grossly negligent in the misrepresentation or the non-disclosure.52 9.29 With respect to conditions (b) the insurer has a duty to make it as clear as possible to the assured the elements that he considers material for the representation and evaluation of the risk.53 The fact that a given circumstance is included in a questionnaire (e.g., a proposal form) submitted by the insurer can indicate that this circumstance is regarded as material.54 The practice of the submission of a questionnaire is not followed, though, in cargo insurance. With respect to points (a) and (c), the insurer bears the burden of proof, concerning the falsity or the incompleteness of the information given by the assured, as well as of the assured’s intentional conduct or gross negligence.55 Finally, under point (c), intentionality and gross negligence implies that the assured is aware, or should have been 50. Thus it is material what would be material to an underwriter, not the assured in order to properly assess the risk. 51. It is recalled that pursuant to Art. 1932 of the Civil Code, the legal regime may be varied by agreement only in favour of the assured. 52. Cass. 24 March 2006 n. 7246, Ass., 2006, II, 315 and Cass. 13 July 2010 n. 16406, Ass., 2010, II, 749. 53. Cass. 20 November 1990 n. 11206, Giust. Civ. 1991, I, 925. 54. Cass. 4 April 1991 n. 3501, Rep. F.I. Ass. 79. 55. Cass. 21 July 1990 n. 7456, Mass. F.I. 1990, 873.

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aware, not only of the non-disclosed or misrepresented circumstances, but also that they would lead the insurer not to agree to the contract.56 9.30 In cargo insurance, the Cargo Policy, after having set out in Article 1 the rules of law summarised above, lists in Article 12 and Article 26 a number of circumstances which the insurer considers material: – whether the insured voyage is in continuation of a previous one or a re-forwarding; – whether the assured has agreed terms providing for the carrier’s exoneration or limitation of liability beyond those provided for by law or international conventions57 – the name of the ship – whether the assured has agreed to the carriage on deck or by transhipment (excluding voyages on ferries or box ships). Variation of risk during contract 9.31 Changes to the risk insured during the contract are contemplated by Articles 1896, 1897 and 1898 of the Civil Code. If the risk ceases to exist after inception of the insurance, the contract is dissolved by operation of law, that is, independently from and even against the will of the parties (Article 1896 of the Civil Code) as the law does not allow a contract of insurance in the absence of risk.58 Equally if the risk is legally not insurable the contract is dissolved.59 9.32 If the risk is diminished and notice is given by the assured, where diminution is such that, had it been known at the time of stipulation of the contract, the insurer would have asked a lesser premium, the insurer cannot charge, when the next premium or instalment of premium falls due, more than such lesser premium, but he may terminate the contract within one month of the assured’s notice (Article 1897 of the Civil Code). Changes are relevant only if they are material (or, as the law says, such that the insurer would have quoted a different premium) and not merely temporary.60 9.33 Article 1898 of the Civil Code governs increase of the risk drawing a distinction between two different cases: (a) the risk is increased during the life of the contract of insurance in such a manner that had the insurer known the real situation he would have not entered into the contract and (b) the increase is such that the insurer would have charged a higher premium. In both instances the assured is bound to give immediate notice to the insurer who is entitled to terminate the contract by giving notice to the assured within a month of the date of the notice or of the time he, the insurer, has become aware of the increase of the risk.

56. Cass. 20 November 1990 n. 11206, cited above. 57. Customary B/L or C/P clauses are instead considered not material as they are deemed to be known to the insurer. 58. Cass. 29 March 2005 n. 6561, Ass., 2005, II, 251. 59. Cass. 9 December 1985 n. 6212, RGG 1986, 314. 60. Cass. 13 May 1997 n. 1883, Ass., 1978, II, 2, 197.

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Termination takes effect on receipt of the insurer’s notice by the assured in the first case, where the insurer would not have accepted the risk, and takes effect within 15 days in the second case, where the insurer would only have accepted the risk at a higher premium. If the loss occurs before notice of termination, and before its effectiveness, the insurer is not bound to indemnify the assured where he would not have accepted the risk (the first case). In the second case (higher premium) the insurer is entitled to reduce the indemnity in the proportion which the higher premium that would have been charged bears to the premium charged. Increase in the risk only is relevant (i) when it arises after inception of insurance (ii) is due to some external factors; (iii) was unforeseeable and actually not foreseen and (iv) material.61 9.34 In marine insurance two rules, which partially differ from the provisions of Article 1898 of the Civil Code, are contained in Articles 522 and 523 of the Code of Navigation Article 522 of the Code of Navigation departs from Article 1898 of the Civil Code by ruling that the insurer is not liable where, as a result of action taken by the assured, the risk is changed or increased to such extent that, had the new state of affairs existed and been known to the insurer at the time of entering into the contract, he would have not agreed to insure, or would have insured on different terms.62 The second sub-paragraph of Article 522 adds that the insurer is liable if the risk is changed or increased by an act to help others, or in the pursuance of a common interest, or is due to a insured risk, or if it has not influenced the occurrence of loss, or affected the measure of indemnity due from the insurer. There are therefore two main differences with the regime of the general law: change or increase of risk is not material if it is not due to act or omission of the assured and if it does not have an influence on the loss or the measure of indemnity. Furthermore the assured is not bound to give notice of any change or increase in the risk.63 9.35 The reasons for such differences are twofold64: on one hand, it does not appear appropriate in marine insurance to give relevance to the increase of risk which does not depend on the assured’s act or omission: on the other hand, the rather stringent regime of Article 1898, based on the mandatory notice of the increase, and on the rule of the proportional reduction of the indemnity, does not fit with the way marine insurance works in practice. Nevertheless, Article 522 of the Code of Navigation opens with the words: “unless otherwise agreed” to signify that where the parties wish to depart from the legal (maritime) regime and revert to the rules of Article 1898 of the Civil Code they can do so. Article 1898 of the Civil Code, however, is itself listed in Article 1932 of the Civil Code as one of the provisions which can only be varied by an agreement in favour of the assured: therefore in the case of an increase of risk a stipulation which would make the assured’s position more stringent would be invalid and unenforceable. 9.36 Article 523 of the Code of Navigation rules specific instances of change of risk: change of course, change of voyage and change of the ship, which are separately considered for hull and cargo insurance. If the change is due to the assured, the insurer only answers

61. Cass. 18 January 2000 n. 500 Rep. F.I., Ass., 73. 62. Not merely with a different premium as Art. 1898 states: See Pasanisi: Dir. Mar. 1958, p. 358. 63. The question therefore arises whether the insurer, having become otherwise aware of the increase, who does not terminate the contract, remains entitled to refuse the indemnity in case of loss: the question is answered in the negative (Ferrarini, p. 172). 64. Ferrarini, p. 169.

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if the loss takes places during the original voyage, unless he proves that the change has influenced the occurrence of loss. In cargo insurance, Article 523 of the Code of Navigation states that the insurer is not bound to pay the indemnity if the goods are loaded on a ship different from that named in the policy. Where the policy does not name the ship,65 the assured is bound to give notice to the insurer of the name,66 save if the goods are loaded on a liner ship. Failing such notice the insurer is released from any obligation. Transhipment from the named ship to another ship is also an example of change of risk and the assured is bound to declare it because the insurer may expressly accept the risk when entering into the contract, save when transhipment is a feature of a specific voyage which is known (because notorious) to the insurer.67 Aggravation and diminution of risk are specifically mentioned by, respectively, Articles 7 and 8 of the Cargo Policy; however, these two articles simply make reference to the legal regime of Article 1898 of the Civil Code (aggravation see paragraph 9.33. above) and Article 1897 of the Civil Code (diminution see paragraph 9.32. above). Loading on deck is also specifically contemplated by the Cargo Policy: the assured must inform the insurer if he has consented to carry the goods on deck or to trans-ship them (Article 26); carriage on deck without the knowledge of the contracting party is subject to a specific regime by Article 28.68

FORMATION OF THE CONTRACT OF INSURANCE Formation of the contract – general Formalities 9.37 The contract of insurance is not subject to a particular form and it is perfected when the party having advanced the proposal has knowledge of the acceptance of the other party: proposal and acceptance may be given verbally or in writing or implied from conduct.69 Article 1887 of the Civil Code, provides that a written proposal submitted to the insurer cannot be revoked for 15 days. In the practice of the market these rules are rarely applied, since it is usual for the insurer or his agent to solicit the prospective assured, whilst for the insurance of complex risks the contract is the result of negotiations between the two parties; frequently through an insurance broker, as is the practice in marine insurance. 9.38 Although no particular form is required70 for the validity of the contract, Article 1888 of the Civil Code provides: “A contract of insurance shall be evidenced in writing”.71 Thus the contract, though valid in principle, cannot be proved orally before a court, and written evidence of the contract must be produced.72 Such evidence may be given

65. Insurance is then called in quovis. 66. So provides Art. 26 of the PM 2006 as also mentioned in para. 9.30 above. 67. Cass. 20 February 2006 n. 3654, Dir. Trasp. 2008, 473. 68. See para. 9.78 below. 69. The payment of premium if the proposal comes from the insurer amounts to acceptance, but acceptance by the insurer of payment of a premium at the time of submission of the proposal does not mean acceptance by the insurer of such proposal (Cass.21 November 1983 n. 6932, R.G.L. 1984, 243). 70. Unless the parties so stipulate. 71. Article 4 of P.M. 2006 requires that any amendment to the contract be made in writing. 72. As a consequence of the provision of Art. 1888 of the Civil Code, evidence of a contract of insurance cannot be given by oral testimony, unless in the special circumstances provided for by Art. 2724 of the Civil Code.

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by a written proposal and acceptance provided they contain the terms and conditions, but invariably the contract is evidenced in a policy of insurance containing the terms agreed.73 Terms and conditions of the contract are usually drawn up and proposed by the insurer in a standard form and adhered to by the assured. 9.39 Clauses containing general terms and conditions submitted by the insurer are subject to the rules of Article 1341 of the Civil Code: (i) they are enforceable vis-à-vis the assured only if he had or could have had, using ordinary diligence, knowledge of them74 at the time of entering into the contract; (ii) clauses limiting the liability of the insurer must be specifically approved by the assured.75 Rules for consumer protection also apply pursuant to Directive 13/1993 EC of 5 April 1993. These rules have been incorporated in the Code of Insurance (see footnote 10), whose Article 166 provides that “The contract and any other document delivered by the Insurer must be drawn up in clear and complete terms. Clauses which contain forfeiture of rights, nullity or limitation of the scope of cover or duties for the contracting party or the assured must be written in conspicuous characters”. The above rules are, however, of infrequent application in marine insurance where terms and conditions are represented by forms of very frequent use well known in the industry. Policies and certificates 9.40 In practice, when the parties have reached an agreement, either verbally or through the exchange of written communications (proposal/acceptance), a policy is issued by the insurer and executed by the parties. The policy may cover a single risk, for an identified period and contain the other main terms, but especially in marine cargo insurance, the policy is frequently stipulated leaving some terms open for subsequent declarations: this is the “Polizza in abbonamento” (Floating Policy) or “Open Cover”.76 The practice of the insurance market in cargo insurance is that a policy is usually only issued in case of open covers, whilst single voyage contracts are evidenced through the issue of a certificate of insurance. A certificate is a simpler document executed by the insurer containing the main terms of the contract, in particular, the name of the assured, the subject-matter insured, the voyage, the ship’s name and reference to the applicable (general) terms such as Cargo Policy 2006 and specific Forms such as clause 1 (all risks).The certificate is also issued 73. The policy need not be signed by both parties, the signature of the insurer is sufficient. See App. Genova 22 April 2006, Dir. Trasp. 2008, I, 257. 74. According to Cass. n. 7763/2005, Mass. Giust. Civ. 2005, 7, effective knowledge of the contents of such terms, as being part of the provisions on which his consent was given, is necessary. 75. The second paragraph of Art. 1341 of the Civil Code, provides. “In any case conditions are ineffective unless specifically approved in writing, which establish in favour of the party who has drawn them up in advance, limitation of liability, the right of withdrawing from the contract or of suspending its performance or which impose time limits involving forfeitures on the other party, limitations on the right to raise defences, restriction on contractual freedom in relation to third party, tacit extension or renewal of the contract, arbitration clauses or derogations from the competence of Court”. Specific approval takes the form of a separate signature of the contract in the part where the vexatious clause is contained or recalled (Cass. 20 June 1997 n. 5533, Mass. F.I. 1997, 537). See also para. 9.101 below. 76. Floating Policy terms are contained in Arts 35 and 36 of P.M. 2006. For an analysis of the Floating Policy, see Righetti pp. 1375–1385; see also Cass. 3 July 1991 n. 7300, Mass. F.I. 1991, 642.

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for single declarations under the Floating Policy. The single voyage certificate raises the problem whether general terms incorporated by simple reference may be relied upon by the insurer against the assured who has not signed (as it is the practice) the certificate. The traditional view77 is that the assured, by relying on the certificate issued by the insurer, cannot deny that he has accepted its terms, but general terms and condition not incorporated by reference in the certificate cannot be relied upon by the insurer.78 Parties to the contract of insurance 9.41 A distinction has to be drawn between the party entering into the insurance contract (the “contracting party”) and the party on whose behalf the contract of insurance is effected (“the assured ”). Although these two capacities are usually vested in the same person, the contracting party and the assured may be (and in marine insurance are frequently) different persons. Insurance can therefore be taken by one person on his own account or in the name or on account of another. Furthermore, and in cases where it is expected that the interest in the insurance may be vested by way of transfer to other persons, insurance can be taken “on account of whom it may concern”. Insurance in the name of another may be ratified by the party concerned and until then the contracting party is bound to perform the contract (Article 1890 of the Civil Code). More important, in practice, is the insurance taken out on behalf of another or for “whom it may concern” (Article 1891 of the Civil Code).79 In such cases, the contracting party is bound to perform the obligations of the contract (e.g., payment of premium) except those which, by their nature, can only be performed by the assured (e.g., sue and labour duties) whilst rights arising from the contract are vested in the assured.80 This latter will be usually identified at the time of the loss: it will normally be the owner of the goods in transit determined in accordance with the rules governing the sale: for example, the buyer in a CIF contract81 unless passage of title is reserved.82 But it may also be someone else like the pledgee to whom the goods have been pledged through an endorsement of a Bill of Lading.83 Interest will not pass to the seller even though the sale price has been returned to him and another parcel of goods delivered.84 9.42 Defences that can be raised against the contracting party (such as failure to pay the premium or misrepresentation) can be raised by the insurer against the assured (if he is 77. Ferrarini, p. 270 citing App. Firenze 26 July 1960, Ass., 1960, II, 252 and earlier judgments. 78. This principle may require some further consideration in the light of the most recent judgments on the enforceability of general terms (Cass. 2005 n. 7763 cited at fn. 74), but see also App. Genova 13 December 2005, Dir. Mar. 2007, 198 – Cass. 2005/7763, which has ruled that the mere incorporation by reference of general terms may not be sufficient in the absence of effective knowledge of those terms to make them enforceable vis-à-vis the assured. Knowledge however is to be judged by considering whether the assured may be aware of the terms incorporated having regard to the fact that they are largely adopted in the practice of the market, e.g., a certificate incorporating ICC (B) by reference would be likely to be judged as sufficient to make the ICC (B) enforceable as these terms are well known in the market. 79. This is not a contract for a benefit of a third party (Art. 1411 of the Civil Code,) and, as a consequence, the contracting party never has title even if the assured were to refuse the benefit (Cass. Full Bench 18 April 2002 n. 5556, Mass. F.I. 2002, 405). 80. The contracting party cannot therefore claim the indemnity unless there is the consent of the assured (Cass. 10 November 2003 n. 16826, G.D. 2003, 49) which may be given by endorsement of the policy or also be implied (Cass. 29 November 1979 n. 627, Dir. Mar. 2001, 1399). 81. App. Milano 19 December 2000, Dir. Mar. 2002, 1355. 82. App. Roma 18 September 2008, Dir. Mar. 2009, 503 and Cass. 9 July 2009 n. 10770, Dir. Mar. 2009, 172. 83. Ferrarini, p. 254. 84. Cass. 2002/5556 cited at fn. 78.

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aware of the misrepresentation: Article 1894 of the Civil Code) but the insurer cannot raise against the assured breach of those obligations that are personal to the contracting party and of which the assured was not aware.85 9.43 In cargo insurance of domestic carriage, especially by truck, an insurance “for whom it may concern” is frequently stipulated by the carrier to cover the interest of the cargo owner. When the contract also contains a waiver of subrogation rights against the carrier, it is unclear whether the contract may be categorised as liability insurance.86 9.44 An insurer taking upon himself the risk, in consideration of a premium, may sometimes share the risk with other insurers: coinsurance is regulated by Article 1911 of the Civil Code which states that each of the coinsurers is bound to pay the indemnity for the part of the risk he has taken even if a single insurance contract has been entered into, there being no joint and several liability among coinsurers.87 The leadership clause does not turn the coinsurers’ obligation into a joint one. Accordingly, the leader has no title to sue in subrogation for the others88 and cannot be sued for the other coinsurers unless the leadership clause is extended to the power of representation in legal proceedings.89 Neither can the leader receive a Notice of Abandonment for the Coinsurers.90 It is doubtful whether written claims by the assured against the leader may avoid the time bar vis-à-vis all coinsurers.91 9.45 In accordance with EC Directives, Italian law (L. 11.11.1986 n. 772) has introduced the “European Community coinsurance” which is now governed by Articles 161 and 162 of the Code of Insurance. According to Article 161, certain categories of risks (including insurance of goods in transit) located within the territory of the Republic, may be shared with insurance companies having their principal place of business in other EU (or Economic Space) Member States,92 provided one of them at least is located in a State different from that of the leading company. According to Article 162 of the Code of Insurance, the insurance shall be evidenced in a single contract and handled by one of the insurers on account of and for the interest of all the others and the leader shall perform the functions as provided for in the leadership clause and by (international) usage. These provisions open the debate about the extent of the rights and obligations conferred on the leader as elaborated by the judgments of the courts with regard to “domestic coinsurance”.93 Double insurance 9.46 Double insurance occurs where separate insurance contracts are entered into with two or more insurers where the (a) subject-matter insured (e.g., cargo) (b) risk (e.g., perils of 85. Cass. 9 April 2009 n. 8670, Ass., 2009, II, 2, 305. 86. For the negative Cass. 29 March 1999 n. 2789, Dir. Mar. 2001, 713; Cass. 18 May 2006 n. 11679, Dir. Mar. 2007, 823 and Righetti, p. 1197; for the affirmative Cass. 16 February 2000 n. 1712, Dir. Mar. 2001, 1092. See also ICC, cl. 15.2. 87. The rules of Art. 1911 are recalled by Art. 6 of P.M. 2006 by which there is no joint and several liability even where the policy is signed by the sole leading underwriter. See Cass. 12 December 1997 n. 12610, Giust. Civ. Mass, 1997, 2369. 88. Cass. 11 June 1990 n. 5673, Mass. F.I. 1990, 707. 89. Cass. 9 June 2003 n. 9194, Giust. Civ. 2004, I, 737. 90. Ferrarini, p. 484. 91. For the negative Cass. 28 January 2005 n. 1754, Dir. Mar. 2006, 831 n. 3302 for the affirmative Cass. 19 May 2004 n. 9469, Dir. Mar. 2006, 815. 92. Namely the 27 EU Member States and the EFTA States. 93. Righetti, pp. 1401–1404.

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the sea) (c) period (a voyage or time policy) and (d) interest (ownership)94 are the same. In that case the assured must give notice to each insurer of all insurance covers taken under penalty of forfeiture of his right to the indemnity, if he intentionally fails to do so with dishonest intent. In case of loss the assured must give notice to all insurers and may claim the indemnity – within the limit of each of the sums insured – from any one of the insurers, provided the total sum received does not exceed the amount of the loss.95 An insurer who has paid is entitled to recoup from the other insurers the amount due by each of them within the limits and in proportion to the sums respectively insured (Article 1910 of the Civil Code). Assignment of insurance 9.47 The general principle (which does not apply to marine cargo insurance) is that the subject-matter insured may be transferred by contract and the insurance assigned by giving notice to the insurer. The old rule,96 which terminated the insurance on sale, has been reversed by Article 1918 of the Civil Code according to which the sale97 of the subject-matter insured does not now cause the termination of the insurance contract though the original assured is bound to give notice of the sale to the insurer and to the purchaser. The insurance contract and rights and obligations of the assured are only then passed on to the purchaser, unless he declares that he does not intend to be assignee of the contract. The insurer, in turn, is entitled within 10 days of the notice, to terminate the contract. 9.48 If, however, the contract of insurance takes the form of a policy to order, or to the bearer, no notice is required and both the insurer and the purchaser remain bound by the contract: “If the insurance policy is made to the order or to the bearer, transfer of the policy implies the transfer of the right to the indemnity against the insurer with the effects of an assignment” (Article 1899 of the Civil Code). A policy to order, or to the bearer, is not a document of title and as a consequence, not only is the insurer entitled to raise the same defences as he has against the original assured, but the endorsement or delivery of the policy does not dispense with the requirement that the endorsee must prove his insurable interest. The policy is not of itself evidence of sufficient entitlement.98 Similarly the notice requirements in Article 1918 of the Civil Code do not apply whenever an insurance is taken out in the interest of “whom it may concern”, pursuant to Article 1891 of the Civil Code. 9.49 For marine cargo insurance, Article 517 of the Code of Navigation does not make the transfer of the insurance subject to the notice requirements of Article 1918 of the Civil Code. In the case of a “change of the insured”,99 insurance continues in favour of the new assured without the requirement for notice to the insurer and neither the insurer nor the new assured can terminate the contract: this simpler rule is justified by the need to favour

94. Even where the contracting party is not always the same person Cass. 23 December 1993 n. 12763 Giust. Civ. 1994, I, 644 (see also Art. 5 P.M. 2006). 95. Cass. 10 April 2002 n. 5119, F.I. 2002, I, 2039. 96. Article 439 Code of Commerce. 97. The transfer of the subject matter insured may be a sale or another contract by which title passes; but what is meant, essentially, is a transfer of the insurable interest; thus if the insurance was taken by a mortgagee the contract will be transferred onto the person acquiring the credit of the mortgagee even though title to the mortgaged property does not pass. 98. Ferrarini, p. 250. 99. Wording which is equivalent to the “transfer” of Art. 1918, namely in the ordinary course of things the sale of the subject-matter insured.

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the circulation of the insurance contract during the insured voyage irrespective of who is or will be the assured at the time of loss. Article 517 of the Code of Navigation applies even if no policy is issued, although in practice invariably a certificate of insurance is signed and delivered to the (first) assured.100 It is unclear whether the seller is bound to give notice to the buyer: it is submitted that the answer is that there is no such requirement in marine insurance law, and in practice, in the context of an international sale contract, the transfer of the insurance contract is an element of the negotiation (as it is, e.g., in the case of a CIF transaction) so the point rarely, if ever, arises.

TYPES OF POLICIES IN USE Contract models 9.50 Forms of contracts for cargo insurance have been in use since before the beginning of this century. The market has elaborated its own comprehensive sets of contractual rules and until relatively recent times old policy forms have been adopted; until the sixties the most popular policy form for cargo insurance was the Italian Policy of Marine Insurance on Goods 1933 edition. This policy was amended in 1978 (although the original structure has been maintained). The Italian market, however, has become, especially in the hull business, heavily dependent upon the reinsurance market and particularly the London market, with the result that the insurance terms and conditions have been in recent times more and more influenced by English cargo clauses (in particular, the Institute Cargo Clauses). 9.51 The 1933/78 Policy Form constituted a set of comprehensive conditions of insurance including, inter alia, the risks covered and exclusions. This was used in combination with English clauses with the result that the combination of Italian and English clauses was causing a dangerous overlapping of conditions, and also a problem as to what was the governing law.101 9.52 To remedy this situation a totally new policy was adopted in 1983. This policy was conceived on the innovative idea of offering a modular instrument to the market. It was thus structured as a multiform document inclusive of (i) a separate set of rules for general terms and conditions and (ii) clauses attached for the scope of the particular cover required in each case. By this means the parties could adapt the cover to their needs by using (and attaching to the first set of general terms) an appropriate set of rules to govern the method of transport and scope of the risks required by a particular assured, for example, all risks, named risks, war risks etc. This allowed the basic Cargo Policy to cover sea, air, land and rail carriage as well as to make use of different Italian and foreign clauses, notably the Clause N.1/Cargo 2006 (all risks) and, where required (e.g., by foreign buyers), the Institute Cargo Clauses.

100. Article 16 of the Cargo Policy provides that the insurance may be transferred by endorsement on the policy or certificate and that the insurer is entitled to raise against the assignee all defences he might have raised against the assignor. 101. Evialis SA v. S.I.A.T. [2003] 2 Lloyd’s Rep. 377, Dir. Mar. 2005, 1069 – Righetti, pp. 1165–1187.

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The Cargo Policy 2006 edn 9.53 The 1983 policy was replaced by a 1998 edition and now a 2006 edition is in use: The “Polizza di Assicurazione delle Merci Trasportate” (referred to as the “Cargo Policy”) is the most recent general Cargo Policy Form introduced in the market.102 The policy is divided into Sections: – A schedule containing the main identity data and terms (such as sums insured, means of conveyance, premium); – Definitions – General terms and conditions – Terms governing transport by assured’s owned or operated means of transport – Terms governing carriage by sea, air or inland waters – Terms governing time or multiple voyage insurance (i.e., open covers) – Optional scope of cover forms are then attached and may be incorporated into the contract. These are: Cargo 1: Pieno Rischio (all risks) Cargo 2: Rischi Base (named risks) Cargo 3: Autocarri o Ferrovie (goods carried by trucks or train) Cargo 4: Scioperi (strikes) Cargo 5: Guerra (war) Foreign Forms: (e.g., Institute Cargo Clauses or others). The two first Forms (hereinafter referred as “clause 1” and “clause 2”) are specifically offered to cover risks by sea or air. Article 11 under the heading “Terms of Insurance” provides that the contract is governed by the General Terms as varied by incorporation of specific Forms of cover or additional terms. Governing law and jurisdiction 9.54 Article 10 of the Cargo Policy provides that the governing law of the contract is Italian law, but where cover is granted under the terms of foreign clauses, such terms will be governed by the law of the country from where those clauses originated, subject to the mandatory rules of Italian Law. As a consequence of the above, in case of incorporation of the Institute Cargo Clauses these will be construed as they are by the English courts even though Italian law remains the law of the contract.103 9.55 General principles in the matter of governing law are now laid down in Regulation (EC) No. 593/2008 of 17 June 2008 on the Law Applicable to Contractual Obligations

102. Through ANIA the National Association of Insurance Companies. 103. See E. Piombino Dir. Mar. 1989, 1216, and compare Evialis SA v. S.I.A.T. [2003] 2 Lloyd’s Rep. 377 cited at fn. 101.

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(“Rome I”) which applies to contracts entered into on or after 17 November 2009. 7 applies to insurance contracts covering “large risks” and provides:

Article

“1. This Article shall apply to contracts referred to in paragraph 2, whether or not the risk covered is situated in a Member State, and to all other insurance contracts covering risks situated inside the territory of the Member State. It shall not apply to reinsurance contracts; 2. An insurance contract covering a large risk as defined in Article 5(d) of the First Council Directive 73/239/EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance shall be governed by the law chosen by the parties in accordance with Article 3 of this Regulation. To the extent that the applicable law has not been chosen by the parties, the insurance contract shall be governed by the law of the country where the insurer has his habitual residence. Where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with another country, the law of that other country shall apply.”

Damage to goods in transit, irrespective of the means of conveyance (form of transport) are within the risks mentioned in paragraph 2 as falling within “large risks” (note 5 of Annex A to the Directive) and for such risks the parties are free to choose the applicable law.105 9.56 So far as jurisdiction is concerned, Article 10 of the Cargo Policy provides that all disputes arising under the contract shall be subject to Italian jurisdiction. The validity of a jurisdiction clause in a contract of insurance, in so far as the European Union legal system is concerned, is to be tested in the light of the provisions of the Judgments Regulation (EC) No. 44/2001 which is considered in Chapter 2, Jurisdiction and Applicable Law.106 Article 23 of the regulation includes a requirement that an agreement conferring jurisdiction shall be either: “(a) in writing or evidenced in writing; or (b) in a form which accords with practices which the parties have established between themselves; or (c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.”

This matter has been referred to a court in Italy, under the previous regime of the Brussels Convention which contained identical provisions in Article 17. An English shipper had taken insurance on goods in transit with an Italian insurance company under the terms of the then current Cargo Policy (1983 edn) containing a clause conferring jurisdiction on the Italian courts. The court found that such a clause was enforceable as it was entered in a form which accorded with the usage of international trade.107 In a more recent judgment,108 the Italian Supreme Court has been called to judge the enforceability of the exclusive English jurisdiction clause contained in the “MAR Form 91”. The court ruled that this 104. For a more detailed consideration of Rome I, see Chapter 2 (Jurisdiction and Applicable Law) at para. 2.45 et seq. above. 105. See further para. 2.46 et seq. above. 106. At para. 2.4 et seq. above. 107. App. Genova 30 March 1994, Dir. Mar. 1994, 808. 108. Cass. (Full Bench) 2 April 2007, Dir. Mar. 2008, 446 and see Righetti, “Contratti di assicurazione maritttime: criteri di giurisdizione e requisiti di forma delle clausole di proroga della giurisdizione in forza della Convenzione di Bruxelles del 1968 e Regolamento CE n. 44/2001”, who comments favourably on the decision.

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clause did not comply with the requirements for its validity/enforceability provided for by Article 17 (Article 23 Regulation 44/2001) in the absence of evidence that its contents had been agreed; that reference had been made to it in one of the documents signed by the parties, and that the MAR Form itself had been handed over to the assured. The court further stated that the jurisdiction clause in the MAR Form would be deemed enforceable if evidence was brought that the adoption of such a clause had become an international commercial practice of which the assured knew, or should have known. Specific cover for storage risks 9.57 Storage risks are in principle not part of the ordinary Cargo Policy cover which is devised to insure goods in transit and only limited storage periods connected therewith. As the marine transit insurance market does not offer standard forms of storage insurance, this is arranged with adapted forms or ad hoc clauses. In the case of storage as an ancillary requirement of the assured, that is, for clients who do not have a storage activity as part of their core business, this is covered by extending, within the framework of the ordinary Cargo Policy, the storage periods in the assured’s depots. When storage is an element of the assured’s business (e.g., storage of production stocks) or is core business, either specific ad hoc clauses are attached to the Cargo Policy, or use is made of the general Fire Policy Form (this covers complex industrial compounds with different assets, e.g., buildings, installations, machinery, goods etc). Usually the scope of cover is limited to a number of land risks such as fire (and the like: explosion, lighting, short-circuit etc) theft, robbery and some ancillary risks. Sometimes cover is extended to risks of storage within the assured subcontractors’ premises, as occurs in the case of material or semi-finished products delivered by the assured to sub-contractors for manufacturing. Liability to cargo and other property covers 9.58 An increasingly large amount of insurance business is now dedicated to the insurance of the haulier’s liability in consequence of the expansion of haulage in Italy. The land carrier usually has liability insurance cover under the terms of the current form (known as the Carrier’s Liability Policy) to insure his liability vis-à-vis the cargo owner. However, as hauliers are, by Italian law, entitled to limit liability for loss or damage to the goods carried to a very low amount,109 this cover proves frequently inadequate for the protection of the cargo owner (who is ultimately the haulier’s client). To remedy this the haulier, especially in the case of large transportation companies entering into contracts for multiple transportations for big industries, offer cover in two combined fashions: on one hand, the usual carrier’s liability; on the other hand, they arrange (as contracting party: see paragraph 9.41 above) a property insurance for “whom it may concern” on the goods carried. The carrier is the assured under the first cover, while the party having an insurable interest in the 109. By L. 21 November 2005 n. 286 the relevant article of the Civil Code in the matter of land carrier’s liability (Art. 1696) has been amended to provide for a limitation of €1,00 (one) for each kilogram of cargo lost or damaged for domestic transportation, and the limit provided for by Art. 23, third paragraph of the CMR (DST 8.33/kg) for international transportation. The limit can only be varied in favour of the cargo owner (and only if specifically allowed by special law in favour of the carrier). The limit does not apply in the event that the loss or damage is due to the intentional wrongdoing or gross negligence of carrier, his subcontractors or employees. Doubts have been expressed about whether this law may conflict with constitutional principles.

278

DURATION OF THE INSURANCE

9.61

subject-matter insured at the time of loss is the assured under the second cover. Forms of policy are also in use to cover the liability of terminal (port or airport) operators.

DURATION OF THE INSURANCE When does the insurance take effect? 9.59 The general rule in the matter of duration of non-life insurance is laid down in Article 1899 of the Civil Code according to which “insurance takes effect from midnight of the day in which the contract is entered and terminates at midnight of the last day of the period stipulated in the contract”. Effectiveness, therefore, does not coincide, necessarily, with the validity of the contract which is when the parties reach their agreement on all terms. Furthermore, the rule being non mandatory can be varied by stipulating a different (later) time of inception.110 This rule is to be coordinated with Article 1901 of the Civil Code in the matter of payment of premium, under which insurance enforceability is stayed until the premium is paid.111 The contract terminates at the date stipulated but may be brought to an end before that in certain circumstances, for example, by virtue of the total loss of the subject-matter insured, by the cessation of the risk, or by discharge by breach.112 Article 1899 of the Civil Code grants the insured an optional right of cancellation where the insurance covers more than one year. Statutory rules on duration 9.60 Specific rules on duration are contained in Article 532 of the Code of Navigation for marine cargo and Article 1005 of the Code of Navigation for air cargo insurance. Under the first rule insurance takes effect from the time when the goods leave the land to be loaded onboard the ship and terminates with the unloading of the goods at the place of destination. In the event that unloading is prolonged for more than 30 days from arrival at destination, irrespective of quarantine or force majeure, the insurance terminates on the thirtieth day. Cover is extended for a maximum duration of 15 days if goods are placed on lighters in the place of loading, or destination, for the purpose of loading or unloading. 9.61 Insurance taken after commencement of the voyage takes effect from the time indicated in the contract, or, in the absence of an indication, from midnight of the day of the conclusion of the contract. Article 1005 of the Code of Navigation in turn provides that insurance takes effect from the time goods are delivered to the carrier and continues until redelivery to the consignee in the carrier’s warehouse, or within 48 hours of arrival in that warehouse whichever is earlier. Where there is carriage by air and an aircraft is unable to continue the journey, so that the goods are on-forwarded by land or sea, the insurance is extended to cover the relevant perils. 110. But arguably not an earlier one: Cass. 24 March 1982 n. 1855, Giust. Civ. 1982, 1, 1161. Even if an earlier inception were validly stipulated the contract would be void in the absence of an insured risk (save for the case of the “apprehended” risk, Art. 514 of the Code of Navigation, see para. 9.23 above). A later time of inception is typical for voyage insurance. 111. See further para. 9.104 below where payment of premium is considered. 112. The discharge operates as a matter of law in the event of failure to pay the premium (Art. 1901 of the Civil Code, see para. 9.104 below), whilst termination in the case of the insurer’s breach is subject to a decision of the court.

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Warehouse to warehouse and transit clauses 9.62 By adoption of the so-called warehouse to warehouse clause, the practice has for considerable time gone beyond the traditional concept of the duration of insurance measured by the sea or air voyage.113 By this clause cover is extended to the voyage/period of time from the original place of departure of the goods for transit, until arrival at the final destination named in the policy. Use of the warehouse to warehouse clause with old forms of policy, notably the 1933 Cargo Policy, raised serious problems of construction principally as to whether it implied an extension of the cover to risks other than those to which goods are exposed during the carriage by sea (or air), bearing in mind that the policy (1933) was limited to traditional marine risks. This difficult question was answered by scholars on the basis that the risks clause was not intended to change the nature of the cover (marine insurance) and that only eiusdem generis risks, strictly analogous to marine risks, were deemed to be covered in the course of pre and post sea/air passage.114 9.63 By the introduction of the new 1983 Cargo Policy the intention was radically changed as this policy adopted a warehouse to warehouse clause almost identical to the Transit Clause in the Institute Cargo Clauses 1982. This clause now appears within the article of the contract concerned with risks covered and exclusions,115 thereby making it clear that the perils, whether all risks, or named risks (based largely on traditional marine perils), are covered during the entire transit.116 Thus the incorporation of the warehouse to warehouse clause into modern Italian cargo policies, with some minor differences, has brought Italian market practice in line with the English/international practice. 9.64 The 2006 Cargo Policy’s duration rules are contained in each separate scope of cover Form. The two main (“marine”) Forms, clause 1 (all risks) and clause 2 (named risks), contain an almost identical set of rules which follow in good part clauses 8, 9 and 10 of the Institute Cargo Clauses 1/1/1982. Articles 3.I and 3.II may be summarised as follows: Art. 3.I (i) Insurance attaches from the time the subject matter insured leaves the warehouse or place of storage for the commencement of the insured voyage117 and continues during the ordinary course of transit: it may be noted that the Cargo Policy, unlike the Institute Cargo Clauses 1/1/2009, does not cover handling of the goods within the storage place for purpose of loading; nor the loading or stowage; however Art. 3, II extends cover to loading and unloading (designated as the “lifting of the goods to load/unload them”) if such operations are at risk for the assured. The Cargo Policy thereby provides cover which is similar to that provided in the Institute Cargo Clauses 1/1/2009. (ii) Insurance terminates on delivery: – in the receiver’s warehouse or other final warehouse or storage area at the destination named, provided it is within the geographical limits of the policy; 113. Generally on this clause: Rose – Ass., 1966, I, 537 – Cass. 9 June 2004 n. 10968, Dir. Trasp. 2005, 1021. 114. D. Bocchese – Dir. Trasp. 1995, 894, but see App. Genova 6 June 2001, Dir. Mar. 2003, 869. 115. See para. 9.75 et seq. below. 116. The problem does certainly not arise for the All Risks Form, whilst it could for the named Risks Form; however the list of risks includes also typical land perils, Bocchese cit., 298 and also Cass. 17 May 1990 n. 4294, Mass. F.I. 1990, 602. 117. But not before then: T. Genova, 28 February 2006, Dir. Mar. 2007, 243.

280

DURATION OF THE INSURANCE

9.64

– in any other warehouse or storage area at the named destination, or any intermediate location which the assured elects to use either for storage other than in the ordinary course of transit or for distribution, within the geographical limits of the policy; – in any event insurance terminates at midnight of the 8th day after arrival for land carriage; at midnight of the 60th day from completion of unloading in the final port of discharge for carriage by sea; at midnight of the 30th day after completion of unloading in the final airport of discharge for carriage by air. Art. 3.II

– loading and unloading into the carrying vehicle – when it is at risk of the assured – are covered; this provision is not in Cl. 2 covering Named Perils but only in the All risks cover in Cl. 1.; – goods stowed into the carrying vehicle before commencement of the voyage are covered for a maximum period of 3 days, but risk of theft is subject to the “warranty” (see para 9.102 below) that the vehicle is locked and that it is parked in guarded premises with the antitheft device on; – storage in a warehouse or in storage premises owned or managed by the assured, or the contracting party, are always excluded. It can be seen that Cargo Policy is at variance with the Institute Cargo Clauses 1/1/1982 in that it grants short storage period on the vehicle in contrast with clause 8.1.3 of the Institute Cargo Clauses and the equivalent provisions in the Institute Cargo Clauses 2009. The provisions of Article 3.III may be summarised as follows: Article 3.III (a): in case of forwarding to a different destination insurance, whilst remaining subject to termination as provided in Article. 3.I, terminates at the time of commencement of the voyage to the new destination. This rule is substantially identical to clause 8.2 of the Institute Cargo Clauses; Article 3.III (b): (sea and air carriage): insurance remains in force during delay beyond the control of the assured, any deviation, forced discharge, reshipment or transhipment or variation of the adventure arising from the exercise of a liberty granted to shipowners, charterers or carriers. This rule also reproduces in substance the relevant provision (clause 8.3) of the Institute Cargo Clauses with a few amendments to the wording. Article 3.III (c): in the event the charter or contract of carriage is terminated in a port (airport) or place other than the agreed destination for reasons beyond the control of the assured, or transit in otherwise terminated, the insurance terminates unless the assured requests it to be continued and an additional premium, if required, paid. In this event cover continues until the goods are sold and delivered in that port (but subject to the time periods of Article 3.I) or at the expiry of those time periods, if the goods are forwarded to the original or any other destination within the geographical limits of the policy. In this case too, but with different wording, Article 3.III (c) reproduces clause 9.1, of the Institute Cargo Clauses. The duration rules in clause 2 (named perils) are the same with the exception of Article 3.II as there is no cover for loading and unloading under this more limited form of cover.

281

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9.65 The cover for goods carried by truck or rail on land under clause 3 (truck/rail) contains a shorter clause on duration providing warehouse to warehouse cover in terms as per Article 3.I of clause 1, all other provisions of the latter being specifically for sea transit. 9.66 The cover for strikes and related risks under clause 4 (strikes risks) contains duration provisions which are the same as in clause 1 (all risks) with the exception of the second part of clause 3, II (storage onboard vehicles). Article 4 of clause 4 (strikes risks) provides that if the destination is changed by a decision of the assured, and provided prompt notice is given, cover continues but only upon terms and premium agreed by the parties. Duration of the insurance for war risks 9.67 In accordance with international practice, the cover for war risks under clause 5 (war risks) has its own different rules on duration. Articles 3 and 4, which are to a large extent comparable to the Transit Clause (clause 5) of the Institute War Clauses (Cargo) 1/1/2009 (IWCC), may be summarised as follows: – Article 3(a)–(b): insurance attaches as the subject matter insured is loaded on board the vessel or conveyance and terminates when it leaves the carrying conveyance to be unloaded or on expiry of 15 days of the day of arrival (compare clauses 5.1.1., 5.1.2 of the IWCC). – Article 3(c): if the carrying vehicle resumes the voyage without the subject matter insured having been discharged, subject to notice and payment of an additional premium, cover continues until discharge at the final or substituted destination (compare clause 5.1.4 of the IWCC). – Article 3(d): if goods reach an intermediate place or a port of refuge, without the voyage being terminated, insurance continues for a maximum period of 15 days from the day of arrival subject to payment of an additional premium, and insurance continues also after discharge if goods remain at such place or port. Insurance if terminated reattaches if the goods are loaded on the new conveyance for continuation and completion of the voyage. This provision is similar but not as clear as clause 5.2 of the IWCC. – Article 3(e): if the voyage is terminated at a port or place other than the destination, this port or place shall be deemed the final port of discharge. If the subject matter insured is reshipped to the original or another destination insurance reattaches subject to prompt notice and payment of an additional premium. This clause is similar to clause 5.3 of the IWCC but in this case too the wording is less clear. – Article 5(b): insurance against risks of mines and derelict torpedoes, is extended whilst the subject matter insured is onboard craft to be loaded on the vessel or after discharge from the vessel but not beyond 60 days after discharge (compare clause 5.4 of the IWCC). Definitions of “carrying means” (oversea vessel), “arrival” and “place” are contained in the latter part of the clause. – Article 4: change of voyage or destination, covers both forced change (subject to notice and payment of an additional premium) and change by the assured (cover subject to agreement on terms and premium) and is similar to clauses 5.5 and 6 of the IWCC.

282

SCOPE OF COVER

9.70

SCOPE OF COVER Preliminary issues Risks covered and exclusions – statutory rules 9.68 Article 1905 of the Civil Code states: “The insurer is bound to indemnity the insured for the loss he has suffered as a consequence of the operation of a peril in the manner and to the extent stipulated in the contract”. The parties are thus free to agree the extent of the cover and, in particular, what risks will be covered, subject, however, to the following statutory exclusions: (i) Under Article 1900 of the Civil Code the insurer is not answerable if the loss or damage is caused by the intentional wrongdoing or gross negligence118 of the assured, unless otherwise agreed for gross negligence, but the insurer is answerable for the acts committed intentionally or with gross negligence by the servants of the assured; (ii) Under Article 1906 of the Civil Code the insurer is not answerable, unless otherwise agreed, for loss or damage caused by inherent vice of the subject-matter insured, unless he has been informed of the vice119; (iii) Under Article 1912 of the Civil Code, unless otherwise agreed, the insurer is not liable for loss or damage caused by earthquake, war, insurrection or riots. As it can be seen, all the above risks except for intentional acts (or omissions) may be undertaken by the insurer and, in practice, they are frequently insured. Intentional conduct can under no circumstances be covered because it is a public policy principle that the assured cannot transfer to another the consequences of its own wilful wrong act and the taking of such risk would undermine the indemnity principle. 9.69 Article 524 of the Code of Navigation provides that in hull insurance the insurer is liable for the negligence of the master and crew, provided the assured has not taken part in the negligence; in cargo insurance there is no such restriction and cover is extended to the intentional acts and omissions of the master and the crew. Causation 9.70 The problem of causation consists in determining when a peril insured against has caused an insured loss which the insurer is bound to indemnify. Causation is a twofold problem: on the one hand, it consists of selecting the criteria, based on which it can be said whether one peril among others has caused a loss; on the other hand, it relates to the extent of the cover as the parties are (within statutory limits) free to agree which perils are undertaken by the insurer and which are excluded. There are no statutory criteria for causation in Italian insurance (or indeed civil) law120 and various theories have been debated and elaborated by scholars and

118. See para. 9.83, below, for more details. 119. If the vice has merely increased the damage the insurer answers only for such part of the damage which the subject matter would have suffered in the absence of vice. 120. Rules on causation are provided in criminal law (Art. 41 of the Penal Code).

283

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before the courts. In summary the first distinction to be drawn is between what may have occasioned an event and what has caused it.121 Having taken all the factors which have concurred (at the same or different time, in the same context or in a chain of subsequent occurrences) in the ultimate result, causation consists in selecting those to which the parties have given the most relevance when agreeing the scope of the cover. Italian authorities have since long discarded both the theory of the so-called conditio sine qua non, under which all the factors having concurred to the result are the cause of it, and the so-called causa proxima (“causa proxima non remota spectatur”), under which the factor closest in time is relevant. The theory adopted may be described as the “adequate” cause: cause is the factor preceding the effect which, besides being a necessary condition of it, may be deemed under the rule of experience (“id quod plerumque accidit”) apt to have caused such effect, bearing in mind that each case is to be investigated it its specific features and not decided on mere statistical criteria.122 This theory is ultimately similar to the concept of “proximate in efficiency” elaborated by English case law.123 9.71 A second problem, flowing from the first, arises when two or more factors contribute to produce the effect. If, as it is ordinarily the case, one follows the other, a distinction needs to be made depending on whether the first factor is cause of the second, or not. In the former case, the intermediate cause becomes irrelevant (“causa causae est causa causati”): for example, lighting causes a short circuit causing a fire: the cause of the fire is lighting. In the latter, the proximity criterion prevails and the cause which is closest to the event is deemed to the cause: for example, a ship which is in risk of sinking due to a storm is torpedoed and founders: the war is the cause, unless it can be proved that the first factor had already brought about an inevitable loss. 9.72 The question may arise whether, among concurrent causes, one is covered and the other is not mentioned in the contract of insurance, or is excluded from the cover. The insurer is bound to indemnify the assured in the first case, where the cause of the loss is not mentioned, but not in the second case, where it is excluded.124 The problem of concurrence of causes opens the debate to the theory of causation. It is suggested, by one eminent author,125 that insurance law should apply the principles of other fields of law, like tort law, so that in case of concurrent causes (a peril insured against and an exclusion) there should not be need to select a “predominant” cause, but rather to determine the incidence of each factor and to limit the liability of the insurer (rather than affirm or deny it) to the extent that the risk covered has caused the loss. It is to be noted that the earlier Italian scope of cover clauses126 provided that the insurer was not liable whether the loss was caused “directly or indirectly” by one of the exclusions: this wording provided, in theory at least, underwriters with quite a strong defence to deny liability where an exclusion operated, albeit indirectly. These words have disappeared in the current Cargo Policy. Burden of proof 9.73 Causation is closely connected with the burden of proof: is the assured to give evidence that the loss was caused by a peril insured against, or has the insurer to prove that 121. Typically the state of war is an example of situations which may characterise but not necessarily cause an event. 122. Ferrarini, p. 165. Cass. 10 May 2000 n. 5962, Rep. F.I., 2000, 553. 123. See Chapter 3 (English Law) at para. 3.30 above. 124. Examples taken from Ferrarini, p. 167. See, for the similar position under English law, para. 3.30 above. 125. Righetti, pp. 1308–1329. 126. The 1983 Policy cl. 1.

284

SCOPE OF COVER

9.75

the loss was caused by an excluded peril? A distinction must be drawn between all risks and named risks cover. The general and traditional view is that in the event of cover for a generality of risks (as provided by Article 521 of the Code of Navigation – see paragraph 9.75 – or as it is in the All Risks Clause) the assured is required to prove, by way of prima facie evidence, that the loss is generally consequent upon or incidental to the navigation and in the case, for example, of total loss of the goods carried on board, that they were loaded as per the Bill of Lading and not redelivered.127 However, where named risks are covered it is the assured’s burden to prove that the specific peril has caused the loss.128 It is incumbent to the insurer in both cases to bring evidence that an exclusion has caused the loss, in which event the burden will shift back on the assured.129 9.74 These rules, which cannot be taken as applying rigidly, are regarded as consistent with the general rule on burden of proof laid down by Article 2697 of the Civil Code. This requires that the party asserting a right has to give evidence of the facts on which this right arises, whilst it is incumbent on the party resisting the demand to prove the facts on which denial of the right is asserted that is, defences to the claim.130 Nevertheless recent judgments in the insurance field131 seem to depart from this view and have ruled that it is consistent with the general principle of Article 2697 of the Civil Code that the plaintiff in the action must give evidence of all the facts on which his right is based and that, as a consequence, it is for the plaintiff assured to prove the scope of the contract. Accordingly, if the insurer merely alleges that an exclusion may have operated, the burden is on the assured to bring evidence against this allegation. If this line of judgments is confirmed, the assured’s position, even in an all risks cover, may become more difficult, but it is submitted that it is doubtful whether these judgments are correct. Risks covered General 9.75 In marine insurance the traditional view is that the insurer answers for a generality of risks: this is confirmed by Article 521 of the Code of Navigation by virtue of which the risks insured are: storm, sinking, collision, jettison, explosions, fire, piracy, plunder and in general all perils of the sea (“accidenti della navigazione”). The traditional view of the generality of risks has been reconsidered under the influence of the English case law, and of the evolution of this leading market. Accordingly, despite the presence of the rule of Article 521 of the Code of Navigation, it is nowadays submitted that “generality of risks” does not mean “all risks” and that “perils of the sea” does not include perils “on the sea”. On the other hand, it is also said that, while “perils of the sea” refer to fortuitous events, 127. T. Genova 28 October 1989, Dir. Mar. 1990, 396; see also App. Venezia 2 December 2009, Dir. Mar. 2011, 342 and a Note of Commentary by A. Boglione: “Assicurazione merci: la clausola All Risks in rapporto alle disposizioni contrattuali delimitative del rischio e all’incidenza degli oneri probatori in diritto italiano e inglese”. App. Firenze 9 March 1984, Dir. Mar 1985, 354; Ferrarini, p. 158. But see also T. Milano 7 July 2010, Dir. Mar. 2011, 936, according to which the assured carries the burden to identify the specific peril operating even if the policy covers “all accidents”. This judgment is not approved by a commentator. 128. Ferrarini, p. 159. 129. See T. Genova 28 October 1989 cited at fn. 123. 130. T. Modena 12 November 2002, Dir. Mar. 2004, 249. 131. Cass. 23 February 1998 n. 1946, Rep. F.I., 1998, 210; Cass. 10 November 2003 n. 16831, Rep. F.I. 2003, 1498; T. Verona 12 April 2003, Dir. Mar. 2005, 1376.

285

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which do not include inevitable occurrences, the weather does not need to be of an extraordinary or exceptional nature, so that bad weather causing damage is a peril of the sea even if not amounting to a storm of extraordinary violence.132 The parties are nevertheless free to extend the scope of cover and in the practice of the marine cargo insurance the adoption of All Risks Forms is very frequent, with the result that not only all perils of the sea but also “extraneous” risks are covered.133 All risks 9.76 Clause 1 of the Cargo Policy is the All Risks Form. Article 1 provides “This insurance covers physical and direct damage to the subject matter insured caused by all risks except as excluded in Art. 2”. Article 2 contains the exclusions. Article 3 is duration of cover, already considered in paragraph 9.58 et seq. Named risks 9.77 Clause 2 of the Cargo Policy is the Named Risks Form. Article 1.I contains a list of the Risks covered, which is divided into two paragraphs: – under letters (a) through (g) the marine risks; – under letters (h) through (k) risks of a non-marine kind are covered “in the course of land transport and connected storage”. The first set of risks compares with risks covered in the Institute Cargo Clauses (B) and (C) but with some additions.134 The second set includes risks which are, in part only, to be found in the Institute Cargo Clauses (B) and (C).135 Article 1.II extends cover to total loss of the subject-matter insured caused by perils of the sea not named in the preceding paragraphs (thus changing cover in case of total loss into all risks). Deck cargo 9.78 As indicated earlier in this chapter,136 cover for goods carried on deck (where the assured is unaware of such stowage) is subject to the specific regime in Article 28 of the Cargo Policy which restricts cover to the named risks in sub-paragraphs (a) through letter (f) of Article 1 of clause 2 (named risks), namely the traditional marine perils, broadly equivalent to the risks of the Institute Cargo Clauses (C). General average and salvage 9.79 In the Code of Navigation three Articles are dedicated to G/A. Article 536 provides that the insurer is to indemnify the assured in its entirety, both for G/A sacrifices and 132. Ferrarini, pp. 110–113. 133. Ferrarini, ibid. 134. Touch and go; ship submerged, fall of aircraft, washing overboard, fall of packages into the sea during loading/unloading or transshipment, vandalism and sabotage. 135. In particular: flooding, inundation, sea storm, snow storm, land sliding, avalanche, breakage of bridge, collapse of road or railway, wetting by rain of goods stored in closed premises or carried in container or van. 136. See para. 9.36 above.

286

SCOPE OF COVER

9.82

137

expenditure, subject to the insurer’s right to be subrogated to the assured’s right vis-à-vis the other parties to the adventure, if those sacrifices and expenditures are allowed in G/A. The same rule is laid down by Article 29 of the Cargo Policy. Article 526 of the Code of Navigation provides that the insurer is to indemnify the assured for the amount due to be paid by him as G/A contribution; the Cargo Policy stipulates in similar terms but clarifies that G/A charges are only covered provided they are not incurred to avoid or mitigate perils excluded. This is in accordance with traditional practice (reversing the position under clause 2 of the Institute Cargo Clauses). Article 537 of the Code of Navigation sets out the rule to determine the measure of indemnity due, by providing that the contribution is to be calculated taking as the insurable value the contributory value, even in case of a valued policy. It further provides that the indemnity is to be the same as the contribution calculated by the Adjustment, provided notice of the Adjustment proceedings has been given to the insurer to allow him to participate in the proceedings.138 The Cargo Policy does not make reference to the rule of the Code of Navigation and states that insurers will recognise a G/A Adjustment established in conformity with the law of the contract of carriage or the usages of the port of destination. 9.80 The Code of Navigation does not mention salvage.139 However, it is a well-settled principle that the marine insurer answers for salvage when incurred for the avoidance of a peril insured against.140 In practice the Cargo Policy in Article 29 contemplates reimbursement for salvage, albeit using the negative formula (salvage charges are covered provided they are not incurred for avoidance of perils excluded). 9.81 In addition to the other rules relating to the provision of G/A or salvage guarantees, and the calculation of the measure of indemnity in case of different currencies, Article 29 concludes by stating the principle that the limit of the insurer’s indemnity is the sum insured. Accordingly, G/A contribution and/or salvage are payable up to the extent that, when added to the indemnifiable loss or damage, they do not exceed the sum insured. A second limit is, usually, stipulated to cover sue and labour expenses: see paragraph 9.113. Forwarding charges – loss of adventure 9.82 By Article 30 of the Cargo Policy the insurer undertakes to indemnify the assured for forwarding charges reasonably incurred for unloading, stowing and forwarding to destination the subject-matter insured whenever, as a result of the operation of a risk covered, the voyage is terminated in a place other than that of the destination. However, this is subject to a proviso that the charges are only recoverable to the extent that the relevant amount, including the aggregate of the amount of the loss, and any contribution to G/A and salvage, does not exceed the sum insured.141 Forwarding charges are not recoverable when caused by negli137. Some doubts about whether the expenditures should be indemnified in its entirety is, however, advanced by Ferrarini, p. 188. 138. Under Arts. 610 through 619 of the Code of Navigation a special proceeding to adjust the G/A under control of a Judge is to be followed. The practice has since long abandoned this rule and private Adjustments by mutually appointed professional Adjusters are recognised as binding. 139. Not to be confused with sue and labour expenses for which the word “salvataggio” (salvage) is improperly used by Art. 1914 of the Civil Code, and 534 of the Code of Navigation (see para. 9.113 et seq. below). 140. In case of total loss, is salvage covered if only incurred in an unsuccessful attempt to avoid the total loss? The prevailing opinion is that whenever salvage is specifically mentioned in the cover the insurer is bound to indemnify if liability is incurred by the assured to pay a salvage remuneration. 141. In conformity with the rule of Art. 534 of the Code of Navigation as those charges may qualify as “salvage” (i.e., sue and labour) charges under Art. 1914 of the Civil Code, and Art. 534 of the Code of Navigation.

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gence, insolvency, failure to pay, or other financial default of the assured and his employees. As this wording makes clear, the insurer does not answer for the loss of the adventure per se, and will only indemnify the assured for (properly incurred) forwarding costs whenever the “adventure” is terminated “as a result of the operation of a risk covered”.142 Similarly sue and labour charges are indemnified if incurred to avert or minimise a peril insured against.143 Exclusions Wilful misconduct (“dolo”) and gross negligence (“colpa grave”) 9.83 Under Article 1900 of the Civil Code the insurer is not liable if the loss is caused by intentional wrongdoing (“dolo”)144 nor, unless otherwise agreed, is he liable for gross negligence of the assured (“colpa grave”) which is defined as a faulty act or omission by which a person disregards the minimum rules of prudence and carefulness.145 However, the insurer answers for the intentional wrongdoing or gross negligence of the assured’s servants.146 The rationale behind these rules is to be found in the indemnity principle, as the legislator does not allow insurance of risks that cause the assured to have an interest to the destruction of the subject-matter insured thereby turning the insurance contract into a wagering contract. That explains why the rule may be departed from, as Article 1900 of the Civil Code indicates, for gross negligence but not for intentional wrongdoing. For the same reasons sub-paragraph 2 of Article 1900 allows cover for “dolo” and “colpa grave” of the assured’s servants.147 In liability insurance the rule in Article 1900 is inverted as the insurer is answerable with the sole exclusion of the “dolo”.148 9.84 The rule in Article 1900 of the Civil Code can be varied by agreement in favour of the insurer by excluding ordinary negligence or excluding cover for the acts of servants: both stipulations, however, are considered particularly burdensome and are therefore subject to the special regime of Article 1341 of the Civil Code,149 and therefore rarely 142. Ferrarini, pp. 183, 306 and 317. However, see also para. 9.132 below. 143. See para. 9.113 et seq. below 144. Both “dolo” and “colpa grave” derive from Roman law and do not correspond to common law concepts.“Dolo” is the action (or omission) by which the assured causes the loss or damage but it does not require the intention to illegally obtain payment of the insurance indemnity (“dolo specifico”) (as it was once judged: App. Trieste 17 April 1959) as it also extends to cases where the intentional act is pursued for another purpose (the so-called dolo eventuale). 145. “Colpa grave” is defined in Cass. 14 September 1999 n. 9782; Cass. 19 November 2001 n. 1445, Dir. Mar. 2003, 1300, and is to be contrasted with “colpa lieve” (“ordinary negligence” which is behaviour in disregard of the “pater familias” (i.e., ordinary) canons of diligence (App. Milan 27 September 1974 in Rep. F.I. 1975, Ass., n. 120)). 146. Courts have ruled that in case of insurance in favour of another person, where the contracting party does not necessarily coincide with the beneficiary (the assured), the actions of each of those persons are not affected by the position of the other (Trib. Roma 12 May 1998 but contrary App. Milano 5 March 1996, Resp. Civ. Prev. 1997, 483) and that in a case of a plurality of assureds in a property insurance each of them is a third party vis-àvis the others and the conduct of one is irrelevant for the right of indemnity of the other (Cass. 25 November 2005 n. 24901, Mass. Giust. Civ. 2005, 11). 147. Because cover of their liability does not infringe the indemnity principle in that servants do not have an incentive to cause the loss (Cass. 21 November 1966 n. 2779, F.I., 1967, I, 2612 and others). Thus, to avoid answering for the assured’s “dolo” in case of corporate persons, the insurer must bring evidence that the facts or omissions are referable to those having the power of legal representation (such as a chairman or a managing director) see App. Milano 5 March 1996 cit., see below at para. 9.85 what the Cargo Policy provides in this regard. 148. In compulsory motor insurance the insurer is bound to indemnify the third party for the loss or damage caused by the “dolo” of the assured but he is entitled to a recourse action against the latter. 149. Cass. 18.10.990 n. 10170, G.C. 1991, I, 932 and others. See also on burdensome clause para. 9.39 above.

288

SCOPE OF COVER

9.86

stipulated. The “dolo” or “colpa grave” represent defences of the insurer and therefore he has the burden proving that the loss has been caused by the assured’s behaviour150; but specific clauses by which payment of the indemnity is made subject to evidence by the assured of his non-involvement are allowed, although again considered burdensome. 9.85 In marine insurance a further provision relating to the conduct of the assured is laid down by Article 524 of the Code of Navigation. Under this rule, in the insurance of the hull, the insurer is answerable for the negligence of the master and the crew provided the assured has not taken part in the negligence, namely that he has not played a conscious role in the servant’s act or omission. In cargo insurance the insurer answers also in case of “dolo” of the master and crew.151 In the Cargo Policy clause 1 (all risks) the exclusion relating to the conduct of the assured follows the statutory rule of Article 1900 of the Civil Code (“dolo” and “colpa grave”) but, unlike that article, extends to the “dolo” of the assured’s servants. Article 2a also provides that, if the assured is a corporate body, reference shall be had to the acts or omissions of the legal representatives, of the directors and of those employees who are vested with managerial powers in transportation or insurance services. This rule, in practice, extends the exclusion of “colpa grave” to some of the assured’s servants and seems to go beyond the usual construction of the “alter ego” rule in English marine insurance.152 9.86 Article 2 of clause 1 (all risks) is thus at variance with the Institute Cargo Clauses in three respects: – the exclusion does not coincide with wilful misconduct153; – the exclusion of intentional conduct (“dolo”) of the employees; and – the extended meaning of the assured’s alter ego. It is important also to mention the fact that the Cargo Policy does not contain exclusions of unseaworthiness and unfitness which compare with those in the Institute Cargo Clauses (see, the exclusion of the unseaworthiness of the vessel or craft in clause 5.1.1. of the Institute Cargo Clauses and the exclusion of the unfitness of the container or conveyance in clause 5.1.2 of the Institute Cargo Clauses).154 The 1983 and 1998 Cargo Policies both addressed this important issue in terms which varied from a rather stringent rule in 1983 (by which the insurer was made not answerable in the case of “gross negligence of the assured in the employment of the ship155 where he has control, or in selecting the ship or the forwarding agent or other intermediary”) to a more general and more balanced one in 1998 “gross negligence of the assured in selecting the carrier or the ship”. The 2006 edition of the Cargo Policy is silent and it is submitted that the general rule of Article 2a applies to these situations, so that the insurer may avoid payment of the loss if he proves that it was 150. But see judgments cited in para. 9.74 above. 151. Barratry is thus always covered and the Cargo Policy does not contain an exclusion like cl. 4.7 of the ICC (B). 152. It is worth mentioning that the Cargo Policy has adopted a more stringent test than the 1998 Ed. where the exclusion was limited to “dolo” and to the negligence amounting to reckless conduct; the formula had been taken from International Conventions (LLMC 76 – CLC 1992 and others) and read (in free translation) “acts or omissions committed recklessly and with knowledge that damage will probably result”. 153. The differences between the English and Italian concepts are well illustrated by Righetti, pp. 1329–1335. 154. Although this latter may, in the case of a container, be deemed to be included in exclusion 2c. see para. 9.90 below. 155. The word actually used is “carrying vehicle” as applicable to non-sea-carriage.

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caused by some grossly negligent conduct of the assured relating to the selection of the carrier or of the carrying vehicle. Inherent vice 9.87 Article 1906 of the Civil Code provides that, unless otherwise agreed (i) the insurer is not answerable for loss or damage caused by inherent vice unless the vice has been made known to him and (ii) that, if the inherent vice has increased the damage, the insurer answers only for such part of the damage as he would have answered for had there been no vice. The parties are free to agree otherwise, namely to make the insurer liable for inherent vice and, conversely, to exclude cover where inherent vice has contributed even partially to the cause of the damage. Inherent vice is something inherent to the subject-matter insured, not originating from an external factor, and may either be due to the nature of the subjectmatter or to an abnormal (i.e., not ordinary) factor or defect; it follows that what the parties may agree to cover is the abnormal defect which may or may not affect the subject-matter, not a “natural condition for this will inevitably produce the damage”.156 The duty to disclose matters material to the risk to the insurer, under Articles 1892 and 1893 of the Civil Code, raises the question of the circumstances in which these Articles apply in the context of inherent vice: the answer is that those rules apply whenever the vice affects the risk, so that it must be disclosed, whilst Article 1906 of the Civil Code applies if inherent vice causes or increases the damage.157 9.88 Article 2d of clause 1 of the Cargo Policy (all risks) and clause 2 (named risks) excludes loss or damage caused by “inherent vice, inherent nature of the subject matter insured, inability to withstand to temperature variations, spontaneous combustion, fermentation and ordinary loss of weight” (or volume). These exclusions are all to be regarded as falling within the meaning of inherent vice, except that relating to temperature, which raises some doubts.158 This article does not mention “ordinary leakage” nor “ordinary wear and tear” but the first and, presumably, the second would be deemed to fall within the category of inherent vice or nature of the subject-matter insured. Insufficiency of packing 9.89 Insufficiency of packing is generally regarded as falling within the category of inherent vice.159 This exclusion appears under Article 2b of clause 1 (all risks) and clause 2 (named risks), but there is no further qualification, as there is in clause 4.3 of the Institute Cargo Clauses 2009, which limits the exclusion to cases where the packing is carried out by the assured, or their employees, or takes place prior to the attachment of the insurance. It would thus appear that under the Cargo Policy the assured may not recover his loss even where he has not carried out, and could not ascertain, the defect of packing or preparation, unless he brings evidence that the loss was brought about by some other external cause.160 156. Salandra “Commentario del Codice Civile Scialoja-Branca”, p. 311. 157. De Gregorio-Fanelli, p. 122. 158. If the goods cannot withstand ordinary variations it is because they are affected by some vice or because of the inherent nature. If the variation is extraordinary a fortuity must have occurred. 159. Ferrarini, p. 135. 160. In this respect see App. Genova 21 March 2000 in Dir. Mar. 2002, 1330.

290

SCOPE OF COVER

9.94

Other exclusions in clause 1 (all risks) 9.90 Under Article 2c of the Cargo Policy clause 1 (all risks) the insurer does not cover loss or damage caused by bad stowage on the carrying vehicle or container or like means, nor does he cover inadequate protection of the subject-matter insured for carriage, where such operations, bad stowage and inadequate protection, are carried out by or under the control of the assured or his employees. This exclusion is also to be compared with clause 4.3 of the Institute Cargo Clauses, in the sense that stowage in the container falls within the meaning of packing, but the English conditions do not exclude bad stowage in the carrying vehicle.161 The wording of Article 2c of the Cargo Policy suggests that the exclusion also operates where stowage or preparation are carried out by independent contractors under the assured’s control. 9.91 Article 2e of the Cargo Policy excludes loss or damage caused by delay even though the delay is caused by a peril insured against.162 This article does not reinstate cover for G/A expenses (as it does clause 4.5 of the Institute Cargo Clauses), but G/A expenditures consequent upon delay are covered by virtue of Article 29 of the policy.163 9.92 Article 2f excludes “contraband, prohibited or illegal traffic and commerce”. Although Italian law has a rule by which a contract is void if its object is illegal, this would not prohibit the insurance of an illegal trade because illegality would affect the underlying transaction not the insurance, thus the need of this exclusion which recalls the English implied warranty of legality of the insurance contract (section 41 of the Marine Insurance Act 1906). 9.93 So far as insolvency is concerned, unlike the Institute Cargo Clauses, the Cargo Policy does not contain a provision similar to clause 4.6 of those clauses which exclude loss damage or expense caused by insolvency or financial default of the owners, managers, charterers or operators of the vessel. Something comparable was contained in the 1983 edition of the Italian policy but was not reproduced in either the 1998 or the current edition. Nevertheless, it may be assumed that the insurer would be entitled to raise a defence by giving evidence that the assured was or could have been aware of the precarious economic situation of the carrier when he negotiated the contract of carriage and notwithstanding that entered into it. Accordingly, provided the gross negligence of the assured is proved, insurers would have a defence. 9.94 Article 2g, h and i, of the Cargo Policy contain the customary war exclusions which are reinstated in clause 5 (war risks). The exclusions mirror those in clause 6 of the Institute Cargo Clauses 2009 with only two differences: (i) In article 2h there is no mention of detainment, but this may be deemed to be included in the definition of arrest; (ii) The Cargo Policy includes “impediment or restraint of trade” which does not appear in the Institute Cargo Clauses.

161. A very unlikely event in liner traffic and generally infrequent. However it should be stressed that these Conditions are not conceived only for carriage by sea. 162. The earlier edition mentioned also the “loss of market” which has been considered redundant in view of the opening sentence of Art. 1 (“physical loss and damage”). 163. See para. 9.79 and also para. 9.82 above for cover of forwarding charges.

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The Cargo Policy excepts piracy from the exclusions of capture, seizure etc in Article 2h (likewise clause 6.2 of the Institute Cargo Clauses) and piracy is therefore a peril insured against in All Risks Clause 1.164 9.95 Article 2j and k are the customary strike risks exclusions reinstated by clause 4 (strike risks) and are to be compared with Article 7 of the Institute Cargo Clauses 2009. Article 2j corresponds with Articles 7.1 and 7.2 but it includes the words “acting for social– political motives” which are comparable in part with clause 7.4 of the Institute Cargo Clauses 2009 where “ideological political or religious motives” are similarly excluded. Article 2k excludes “acts of terrorism” without defining “terrorism” as compared to the new wording of Article 7.3 of the Institute Cargo Clauses 2009 where terrorism is now widely defined. 9.96 Article 2l sets out the nuclear exclusions which are almost literally taken from an English clause in use in the market (the Institute Extended Radioactive Contamination Exclusion Clause 01/11/2002, known as RACE) and are to be compared with the more concise Institute Cargo Clauses 4.7 wording. The practice in the English market is for RACE to be used on all cargo risks so that the narrower exclusion in clause 4.7 of the Institute Cargo Clauses 4.7 has no application and the position is the same under the Cargo Policy. Exclusions in clause 2 (named risks) 9.97 Article 2 of clause 2 (named risks) is, in all but two respects, identical to clause 1 (all risks). First, in Article 2a there is an exclusion for the risks of theft and robbery, unless occurring after operation of one of the perils insured against and provided the circumstances have prevented the adoption of avoidance measures. Second, in Article 2i (corresponding to Article 2h of the All Risk Clause) there is no mention of piracy which is therefore not included among the perils insured against as a named peril under clause 2. Exclusions in clause 3 (goods carried by truck or rail) 9.98 The exclusions in Article 2 are identical to those of clause 2 (named risks). Exclusions in clause number 4 (strikes risks) 9.99 The exclusions in Article 2 include all those of clause 1 (all risks) (excluding naturally 2j, strikes and 2k, terrorism) but with two additions: (i) In Article 2a failure of intervention due to absence, insufficiency or hindrance of workers, or lack or insufficiency of energy or fuel, consequent upon strikes, lock outs, acts against the exercise of work, riots, civil commotions or social-political events. This seems to reflect the position under the Institute Cargo Clauses which exclude loss or damage caused by strikers (clause 7.1) and losses resulting from strikes (clause 7.2), but only damage done by strikers is covered under the Institute Strikes Clauses (Cargo) 164. But it is not covered in the Named Risk Clause (cl. n. 2); see para. 9.97 below.

292

TERMS, WARRANTIES AND CONDITIONS

9.101

(clause 1.1). The Institute Strikes Clauses also exclude (clause 3.7) loss damage or expense arising from the absence, shortage or withholding of labour. In similar fashion, but by a different route, the Cargo Policy Clause. 4 (strikes risks) covers physical and direct damage done by strikers but not losses caused by lack of workers or fuel consequent upon a strike. (ii) In Article 2g non-completion of the insured voyage. The Institute Strikes Clauses (Cargo) similarly exclude (clause 3.8) “any claim based on loss of or frustration of the voyage or adventure”. Exclusion in clause 5 (war risks) 9.100 The exclusions in Article 2 are the same as in Article 2a–f and l of clause 1 (all risks) and contain a further exclusion in the same terms as Article 2g of clause 4 (non-completion of the insured voyage) equivalent to the similar exclusion in the Frustration Clause (clause 3.7) of the Institute Cargo Clauses (War).

TERMS, WARRANTIES AND CONDITIONS Terms 9.101 In the Italian legal terminology the terms of the contract are called “clausole contrattuali” (clauses) or “condizioni” (conditions).165 The latter is also used to designate conditions precedent or subsequent. Under Italian law there is no distinction between terms such as warranties, intermediate terms and conditions, as there is in common law.166 Termination or rescission of a contract is not dependent upon breach of a stipulation of a given kind but on the seriousness of the breach committed. In insurance law, however, an important distinction must be drawn between two kinds of contractual terms: on one hand, terms which define the subject-matter of the contract (such as a clause which provides that a given event is not covered),167 and, on the other hand, terms by which the insurer seeks to limit his liability or the consequences of his breach.168 The first category includes clauses which make cover conditional upon the taking of certain preventive measures: these clauses are not considered unduly burdensome.169 An example of the second category has been held by the court to include a clause excluding cover for the gross negligence of the servants of the assured (which is, by law, covered by Article 1900 of the Civil Code unless otherwise agreed).170 Burdensome clauses are subject to the provisions of Article 1341 of the Civil Code (see paragraph 9.39 above) and are ineffective unless specifically acknowledged and 165. Art. 11 of the Cargo Policy is titled “Condizioni di Assicurazione” (Terms of Insurance). It is also frequent to use General Terms and Conditions to designate terms applying to a contract in general as distinguished from “Specific Conditions”. 166. For the English law position as to warranties, exclusions and conditions, see para. 3.24 et seq. below. 167. Cass. 24 November 1978 n. 5531, Mass. F.I. 1978, 1092 and see App. Venezia 2 December 2009, Dir. Mar. 2011, 542 so ruling in relation to cl. 4.3 of the ICC. 168. The distinction is drawn clearly by Cass. 4 February 2002 n. 1430, Ass., 1002, II, 2 and now by Cass. 7 April 2010 n. 8235, Ass., 2010, II, 353. 169. Unless the measure required were impossible or difficult to implement: Cass. 21 October 1994 n. 8643, Giust. Civ. 1995, 629. 170. Cass. 18 October 1990 n. 1070, Mass. F.I. 1990, 1140.

293

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agreed in writing by the other party. Examples of burdensome conditions, favouring the party who has drawn them up include: limitations on liability, a liberty of withdrawing from the contract or of suspending its performance, terms which impose time limits involving forfeitures of rights for the other party, limitations on the right to raise defences, restrictions on contractual freedom in relations with third parties, tacit extensions or renewals of the contract, arbitration clauses, and clauses which derogate from the competence of the courts.171 Warranties – conditions precedent to insurance 9.102 Italian insurance law does not recognise the legal concept of a “warranty”. However, a broadly corresponding contractual regime, and a similar result in practice, may be achieved by agreeing a condition precedent, namely a stipulation by which the liability of the insurer (or, indeed, the contract itself) is made dependent upon a given condition (such as, typically, the taking of appropriate loss prevention measures, for example, an anti-theft device in theft insurance). Although Italian law does not contain strict provisions such as those imposed by section 33(3) of the Marine Insurance Act 1906, the courts tend to apply similar concepts. In particular, it has been ruled that causation is not material in the case of breach of a condition precedent, and that the insurer is discharged irrespective of the fact that the breach has not caused or contributed to the loss, precisely because the condition precedent is not a limit of cover but a pre-condition to it.172 9.103 The Cargo Policy contains conditions precedent in Articles 23.1 and 23.2 in the article governing insurance of goods carried by vehicles owned or managed by the contracting party. These conditions call for the adoption of appropriate preventive measures with regard to the theft of the vehicle, or of packages on the vehicle, or parking premises. A typical marine condition precedent is the “Classification Clause” (Article 27) by which cover is provided on condition that the goods are carried on ships classed as per attached classification schedule. The classification schedule typically restricts the insurance to vessels that are not over-age and are classed with recognised classification societies. Cover is offered for vessels not complying with those conditions only on terms and premium to be agreed.173

PREMIUM Payment of premiums 9.104 The premium is the consideration for the insurer to take upon himself the risk and pay the indemnity in case of loss. The statutory rule in the matter of payment of premium (Article 1901 of the Civil Code, which applies to marine insurance by virtue of Article 171. Specific approval takes the form of a separate signature of the contract in the part where the burdensome clause is set out (Cass. 20 June 1997 n. 5533 fn. 74). 172. Cass. 28 November 1998 n. 12083, Ass., 1999, II, 276 – Cass. 27 July 2001 n. 10290, Ass., 2001, II, 226 – T. Verona 30 September 2003, Dir. Mar. 2005, 1407; Cass. 28 April 2010 n. 10194, Ass., 2010, 2, 372. Two judgments have gone in the opposite direction: Cass. 6 December 1982 n. 6656, Mass. F.I. 1982, 1302 and 14 July 1989 n. 3318, Mass. F.I. 89487. 173. On the Classification Clause as a “condition precedent” T. Milano 17 May 2005, Dir. Mar. 2005, 1219.

294

PREMIUM

9.107

1885 of the Civil Code) provides that in case of failure to pay the (full) premium (or the first instalment) at the due date the insurance is suspended until midnight of the day of payment; in case of failure to pay any subsequent instalments of premium the cover is suspended from midnight on the 15th day after the date such instalment was due. The Cargo Policy Article 2 similarly provides that insurance takes effect at midnight of the day indicated in the policy if the premium has been paid or, in the absence of payment, on the date of payment of the premium.174 The policy further provides that if subsequent instalments are not paid cover is suspended from midnight of the 15th day after the instalment of premium was due and is reinstated at midnight on the day of payment. 9.105 The premium is payable by the party who has entered into the contract: the contracting party. Accordingly, if the insurance is taken out by someone in the name of, and on behalf of, another, it is this latter named party who must pay, whilst, if the policy is in the contracting party’s name, but on behalf of “others” or for “whom it may concern”, the contracting party (not the assured) is liable for the premium. However, the contracting party enjoys a statutory lien over the insurance proceeds for the reimbursement of the sum paid (Article 1901 of the Civil Code); if the contracting party does not pay the premium the insurer is entitled to raise a defence against the assured (Article 1891 of the Civil Code).175 The obligation is joint and several if the assured are two or more persons. 9.106 By market practice, the rules for the payment of premium are applied with considerable flexibility in marine insurance and it is not unusual for the insurer to accept payment after the issue of the policy.176 The matter of delayed payment becomes particularly relevant whenever cover is documented by a certificate of insurance and this is endorsed in favour of subsequent holders. In view of the reliance that the third party certificate holder places on the existence of a valid cover, it is submitted that the insurer cannot rely on a defence of non-payment of premium to invalidate cover, because release of a certificate without prior payment of premium is implied evidence of the insurer’s agreement not to make cover conditional upon such payment.177 9.107 In cargo insurance tariffs predetermining the amount of premium are usually applied; the premium varies in relation to the type of commodities, the voyage, the means

174. In the Italian text (“il premio o le rate di premio successive”) the rule seems to refer also to the original full premium and not only to subsequent instalments. However this was not the drafters’ intention, as they were merely intending to follow the legal regime in Art. 1901 of the Civil Code. It follows that the 15 days period of grace is granted only for subsequent premium/instalments. The insurer cannot rely on Art. 1901 whenever he has accepted a delayed payment as this amounts to a waiver of his right to invoke the breach (Cass. 19 July 2004 n. 13344, Mass. Giust. Civ. 2004, 9) such a defence would be contrary to good faith in the performance of the contract (Cass. 26 January 2006 n. 1698, Mass. Giust. Civ. 2006, 1223). 175. Cass. 25 July 1992 n. 8971, AC 1993, 35. 176. The existence of a usage of trade which would prevail over Art. 1901 of the Civil Code has been suggested, and, in any event, this rule is considered inappropriate to govern the payment of premium in marine insurance: Righetti, pp. 1417–1430. 177. Ferrarini, p. 348.

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of transport and other factors. Cargo insurance tariffs do not merely include rates but extend to regulate the other terms and conditions of the insurance, for example, deductibles, customary loss allowances etc.178

CLAIMS, LOSSES AND SETTLEMENT Loss and damage to cargo Damage defined 9.108 In the Cargo Policy “damage” is defined as the loss or “average” caused by the peril insured against. The policy, whether against all risks, named risks, war or strikes, uniformly provides in Article 1 that the insurer is bound to pay the “physical and direct damage” suffered, to mark the principle that insurance only covers the actual value of the subject-matter insured lost or damaged and that, unless otherwise agreed, the insurer only covers the damnum emergens not the lucrum cessans (loss of profit). It is implied in the above definition that the damage may affect part (“particular average”) or the whole (“total loss”) of the subject-matter insured. As discussed earlier in this chapter,179 the insurer also undertakes to indemnify the assured for damage caused by a G/A act (“G/A sacrifice”) as well as for charges incurred (G/A expenditure)180 as if they were a particular average loss: Cargo Policy (Article 29).

Claims Total loss 9.109 Although Italian law does not formally draw a distinction between actual and constructive total loss, total loss is “actual” whenever the subject-matter insured founders or is destroyed, or so damaged to cease to be a thing of the kind insured. A total loss is “constructive” when the subject-matter is missing or damaged beyond repair in which case a total loss may be claimed through abandonment to the insurer (see paragraph 9.131 et seq.).

178. Methodology of calculation of premium and terms of payment may be different depending on the type of cover stipulated, such as floating policies or storage covers; typically a premium regulation clause providing for payment of a minimum advanced premium followed by a balance to be assessed on the variable factors (quantity/ quality/duration of cover etc.) are agreed. A question debated is whether failure by the assured to provide details for the adjustment of premiums should be deemed equivalent to failure to pay the premium for the insurer is unable to calculate the balance of premium due. Recent judgments (Cass. 18 February 2005 n. 3370, Ass., 2006, IV, 201; C. App. Firenze 2 March 2006 – Cass. Full Chamber 15 February 2007 n. 4631, F.I. 2007, 9, 2447) have ruled that such failure cannot be considered as amounting to a failure of payment of premium and represents a separate breach of contract to be evaluated bearing in mind the good faith of the parties in the performance of the contract and seriousness of the breach. 179. See para. 9.79 above. 180. The indemnity is subject to the rule of underinsurance if the insurable value exceeds the value at the time of the loss. The value at the end of the voyage, which matters for the purpose of calculating the indemnity for G/A contribution, is not relevant here. A deductible is not applied to G/A sacrifices.

296

CLAIMS, LOSSES AND SETTLEMENT

9.113

Successive losses 9.110 The traditional rule in the matter of successive losses is contained in Article 539 of the Code of Navigation under which the insurer is liable for successive losses occurring during a voyage only up to the amount of the sum insured (contrary to section 77(1) Marine Insurance Act 1906). The Italian rule is relevant for hull insurance but is frequently departed from by adoption of the Institute Clauses. Notice of loss 9.111 By Article 1913 of the Civil Code the assured must give notice of loss to the insurer or its agent within three days of the occurrence of the loss, or of the date he has had knowledge of the loss. The notice is not necessary181 if, in that period of time, the insurer takes part in operations for the prevention of further loss, or salvage, or investigations into the accident. The notice does not need to follow a particular form,182 nor need it be detailed. It suffices if it is such as to allow the insurer to make the required investigation and/or intervention. However, the notice would fail its purpose if it were not followed by such other communications, and provision of information coming to the knowledge of the assured, as may appear appropriate for the proper handling of the claim. 9.112 An additional rule in the matter of notice of loss is contained in Article 533 of the Code of Navigation by virtue of which, in cargo insurance, the assured is bound to give notice when the vessel is “declared unfit to sail”, even if the goods have not suffered loss. The rule implies, in practice, that the ship has become unseaworthy, but, given its wording, it is unclear when, and from whom, the cargo assured should derive confirmation of such unseaworthiness. It seems that this duty will arise whenever the carrier makes a declaration abandoning the voyage, or if the Harbour Authorities refuse to allow the ship to sail in view of her condition. Under the Cargo Policy (Article 17), the assured is given more detailed duties beyond a simple notice of claim and these will be considered in paragraph 9.116 et seq.

Sue and labour Duty to minimise loss 9.113 Under the heading “Duty of Sue and Labour”183 Article 1914 of the Civil Code provides that the assured is bound to do everything in his power to avert or minimise the loss. Expenditure incurred by the assured for that purpose is recoverable from the insurer in the proportion that the value of the subject-matter insured at the time of loss bears to the insurable value. This rule applies even if the aggregate of such sue and labour expenditure, and of the loss, exceeds the sum insured, and even if the purpose of averting or minimising 181. The notice allows the insurer to investigate the accident and, if he so elects, to take part in operations to salvage the goods (Cass. 11 March 2005 n. 5435 in Giust. Civ. 2006, 1, 1852). 182. Unless this is stipulated and the relevant rule specifically approved by the assured (Cass. 23 June 1975 n. 2493, Mass. F.I. 1975, 597). 183. The word “salvage” is used in the statute, not in its technical meaning of maritime salvage, but as prevention or preservation from loss. In the circumstances the term “sue and labour” has therefore been used in the text to be consistent with the treatment of sue and labour in other parts of this book. For this distinction, see T. Genova 17 January 1966, Dir. Mar. 1966, 67; T. Firenze 29 April 1959, Dir. Mar. 1961, 313.

297

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the loss has not been achieved, unless the expenditure has been incurred “improvidently” (imprudently). Physical damage inadvertently caused to the subject-matter insured resulting from attempts to minimise the loss are to be made good by the insurer. The insurer is entitled to take part in operations to minimise the loss including salvage operations. However, while such intervention does not prejudice the insurer’s ultimate rights, he is bound to advance the expenditure by contributing in proportion to the insured value, if so requested by the assured. 9.114 The duty of sue and labour may arise even before the loss occurs, for the assured is bound to do what he can, where a loss is imminent, to avoid (in all or in part) the operation of a peril or the production of a loss.184 The assured is required to act in good faith and diligently, although there is a debate whether ordinary due diligence,185 or a higher degree of care, is required.186 9.115 A specific rule is laid down by Article 534 of the Code of Navigation for marine insurance. Under this rule the duty of sue and labour is extended to the master of the ship, and to the servants and agents of the assured (hull or cargo) including onshore personnel.187 The second paragraph of Article 534 provides that the parties to the contract may depart from the rule of Article 1914 of the Civil Code that provides for reimbursement of sue and labour in excess of the sum insured. Under the marine rule in Article 534 of the Code of Navigation, the insurer may limit reimbursement of sue and labour expenditure to the sum insured by agreeing that the sue and labour and the indemnity (for the loss or damage) shall not together exceed that sum.188 Assured’s duties in the Cargo Policy 9.116 As mentioned above, the duties of the assured in the matter of notice of loss and sue and labour are extensively covered by Article 17 of the Cargo Policy under the heading “Duties in case of loss”. The assured is required to: – give immediate notice and take the measures required to avert or minimise a loss and to recover and preserve the goods;

184. Cass. 28 January 2005 n. 1749, Ass., 2005, III, 192. It is, however, important to draw a distinction between the duty of salvage and the assured’s undertaking to adopt measures or to follow a given conduct in order to avoid the loss (such as typically when a “warranty” is incorporated in the policy: Cass. 7 November 1991 n. 11877, Mass. F.I. 1991, 1047 – Cass. 8 January 2004 n. 83, Ass., 2004, 2, 128 (contra 7 September 1984 n. 4786, Resp. Civ. Prev. 2004, 742 disapproved by scholars)). See para 9.102 above. 185. The “pater familias” diligence (Cass. 27 February 2002 n. 2909, Mass. Giust. Civ. 2002, 337). 186. Some scholars take this view and submit that the degree of effort required by the assured is to be tested, bearing in mind the specific circumstances, from both an objective and subjective view of the case. 187. It is to be borne in mind, however, that under Art. 524 of the Code of Navigation the insurer is answerable for the negligence of the master and crew and in cargo insurance also for their intentional conduct so that breach of the duty sue and labour falling on servants may rarely by relied upon in practice although a distinction must be drawn between causing the loss and averting it, or its consequences. 188. The corresponding rule of Art. 1914 of the Civil Code, cannot be varied by agreement except with a stipulation more favourable to the assured, but any such variation becomes legitimate in marine insurance by virtue of Art. 534 of the Code of Navigation and a clause that so provides is not a burdensome clause subject to specific approval by virtue of Art. 1341 of the Civil Code, – see Cass. 28 June 1984 n. 3835 – Giust. Civ. Mass. 1984, f. 6. It is also submitted that an agreement to limit the insurer’s obligation, as provided by Art. 534 of the Code of Navigation, would not affect the right of the assured to restoration of damage caused to avert or minimise the loss, as those damages would fall within the concept of loss insured rather than sue and labour.

298

CLAIMS, LOSSES AND SETTLEMENT

9.118

– file adequate reserves on the delivery documents and submit a written protest to the carrier or other bailee; – apply for the intervention of the average agent189 or surveyor for the ascertainments, if possible, jointly with any parties liable for the loss; – not to alter, except as required for its preservation or other valid reasons, the conditions of the carrying vehicle and of the cargo; – take such other steps as are necessary for safeguarding the insurer’s subrogation rights or any other steps considered appropriate; – refrain from settling and/or cashing any recovery sum without the insurer’s consent.190 The obligation of the assured to safeguard subrogation rights is also provided for by Article 1916 of the Civil Code (see, paragraph 9.145). 9.117 Article 21 of the Cargo Policy follows the statutory rule of Article 1914 of the Civil Code which provides that the insurer will indemnify the assured for sue and labour even if the aggregate of those costs and the loss exceeds the sum insured. The reason for this is that the Cargo Policy is not only a marine insurance policy. In the matter of liability insurance (such as G/A and salvage) the costs of defence, for example, of claims by salvors for salvage, are deemed to fall into the category of sue and labour costs. The question arises in that case whether such costs can be recovered in full even in excess of the sum insured. Defence costs are subject to a specific rule (Article 1917 of the Civil Code) under which such costs are recoverable from insurers in an additional amount not exceeding one quarter of the sum insured.191 Accordingly, the preferred view is that sue and labour costs are recoverable even in excess of the sum insured, up to a limit of one quarter of the sum insured. Breach of duty 9.118 The consequences of the assured’s breach of the duties to give notice, and to sue and labour to minimise loss, are set out in Article 1915 of the Civil Code which draws a distinction between intentional failure192 and breach by negligence.193 In the former case, the assured forfeits his right to the indemnity: in the latter, the insurer is entitled to reduce the amount of the indemnity proportionately to the prejudice suffered by reason of the assured’s negligent breach. The insurer has the burden of proving either the intentional or negligent breach.194 Article 1915 of the Civil Code cannot be varied by agreement, except

189. It has been debated whether a request for the intervention of an Average Agent may (also) amount to a notice of claim to the Insurer. For the affirmative App. Napoli 26 March 1963, Ass., 1965, 2, 244 which is not approved by scholars. 190. A number of more specific and detailed duties are listed in Art. 18 of the Cargo Policy with regard to loss by theft or robbery in land transportation. 191. Ferrarini, p. 378. 192. According to court’s judgments there need not be a fraudulent intent to cause prejudice: the assured’s awareness of the duty and the will not to comply with it are sufficient elements (Cass. 11 March 2005 n. 5435, Dir. Ass., 2006, 1, 159; Cass. 8 April 1997 n. 3044, Mass. Giust. Civ. 1997, 556) but these judgments are disapproved by scholars who submit that the rule requires a fraudulent intent. 193. The assured’s own negligence matters, as the acts and omissions of his servants are covered (Art. 1900 of the Civil Code). 194. Cass. 20 March 1964 n. 631, Mass. F.I. 1964, 156 but see also Cass. 3 March 1989 n. 1196, Giust. Civ. Mass. 1989.

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by a stipulation more favourable to the assured, and therefore clauses imposing more severe sanctions in case of negligence are not enforceable. 9.119 It is uncertain whether insurance clauses providing for longer periods for notice of claim, but sanctioning the assured with forfeiture of the right of indemnity, are enforceable. After a first judgment to the contrary,195 the Supreme Court has ruled196 that such a clause, even if specifically approved, is not enforceable in view of the rule of Article 1915 of the Civil Code. The Cargo Policy (Article 17 last paragraph) merely sets out the provisions of Article 1915 (and 1916 of the Civil Code). In practice, however, these rules are seldom relied upon by insurers unless breach by the assured has effectively prejudiced the insurer’s right to properly intervene and/or investigate the accident. Settlement procedures General 9.120 Settlement procedures are usually dealt with in the policy and, in this context, rules are laid down by Articles 19, 20 and 22 of the Cargo Policy in the matter of investigating/ handling, adjusting and settling the claim. Investigating the claim 9.121 In practice, cargo insurance investigations are delegated by the insurer to his average agent (a Lloyd’s Agent or other agent appointed by the insurer). The average agent will conduct the necessary investigations or entrust them to a surveyor and will, ultimately, produce a survey report. This document serves as a basis to determine the cause of the loss and hence whether or not it has been due to a peril insured against and the extent of the loss suffered by the subject-matter insured.197 Evidence of claim 9.122 As a general rule (deriving from the principle laid down by Article 2697 of the Civil Code) the assured has the burden of proving his claim. Under the heading “demand of indemnity”, Article 20 of the Cargo Policy sets out this rule: the assured is bound (i) to give evidence about the amount of the loss and that it falls within the scope of cover; (ii) to prove that rights to the indemnity are vested in him and (iii) to deliver the documents that will entitle the insurer to exercise subrogation rights against third parties. 9.123 Article 20(a) provides that the assured shall submit to the insurers the survey report as indicated by Article 17,198 a copy of any complaint filed with the authorities, and any other document required to investigate the casualty. The assured may rely upon the contents of the survey report in order to discharge the burden of proof since it emanates from a person on whom the insurer relies. However, as the surveyor is an agent of the 195. Cass. 14 May 1998 n. 4889, Giust. Civ. 1999, 1, 489. 196. Cass. 11 March 2005 n. 5435, Giust. Civ. 2006, 1, 1952. 197. It is a settled principle that the average agent is not vested with power of representation of the insurer, and that as a consequence (i) he is not entitled to receive the notice of claim (despite some contrary view App. Napoli 26 March 1963, Ass., 1965, II, 244); (ii) his intervention does not prejudice the insurer’s rights; (iii) he cannot be sued as an agent of the insurer (T. Genova 25 July 1966 cited in fn. 184). 198. See para 9.116 above.

300

CLAIMS, LOSSES AND SETTLEMENT

9.127

insurer, the assured is not bound by the findings of the survey report and he may offer contrary evidence. Article 20(b) of the Cargo Policy requires the assured to exhibit a copy of any report of ascertainment carried out jointly with those who may be liable for the loss, and any other documents necessary for the recovery action. 9.124 Article 20(c) of the Cargo Policy requires the assured to submit the commercial invoice and other original documents (e.g., the packing list, or quality certificates) in order to ascertain the “nature, quality, quantity and value of the goods”, as well as the assured’s entitlement to the indemnity. These documents are intended to put the insurer in a position to ascertain such matters as: the original quantity and quality of the goods; their value at destination and whether they were affected by inherent vice.199 9.125 Article 20(d) of the Cargo Policy requires the assured to submit the original of the insurance certificate. However, this document is not taken as conclusive evidence of title, even if (as we have seen200) the certificate may be transferred by endorsement as a (form of) document of title.201 The evidence required for the insurer to pay the indemnity is that the claimant is the person who has the interest to the insurance (in principle, therefore, whoever has a proprietary right and, in general, the person bearing the risk of loss of the subject-matter insured).202 However, a bailee with whom goods are stored does not have such an interest.203 In practice, insurers will require submission of the Bill of Lading, the other transportation documents (Article 20a) and the commercial invoice (Article 20c). 9.126 Article 20(e) of the Cargo Policy finally requires the assured to indicate if other insurances have been taken out on the goods in which event a double insurance situation arises with the consequences provided for by Article 1910 of the Civil Code (see paragraph 9.46). Measure of indemnity 9.127 Article 19 of the Cargo Policy states that the loss is calculated by comparing the difference between the value of the goods in sound condition at the time and place of destination (as defined in Article 15204) and their value after the accident. In the event of a sale of goods in a damaged condition, the net proceeds of sale are taken as the value.205 The amount of the indemnity is reduced in the agreed proportion whenever an underinsur199. The insurer is not bound by the findings of the evidence so submitted: e.g., a clean Bill of Lading will not prevent the insurer from bringing evidence of pre-loading damage: App. Firenze 11 July 1981, Dir. Mar. 19, 260, App. Genova 19 May 1975, Dir. Mar. 1975, 640. 200. See paras 9.47 to 9.49 above. T. Vercelli 26 September 2002, Dir. Mar. 2003, 572. 201. An insurance certificate is not a proper document of title like a bill of exchange or a bill of lading, see: Cass. 24 April 1961 n. 1919, Dir. Mar. 1962, 25 – App. Genova 30 March 1960, Temi Gen. 1961, 7. 202. App. Torino 14 October 1988, Dir. Prat. Ass., 1990, 309. If the insurance is for “whom it may concern” by delivery of the goods to a carrier title is passed from the seller to the buyer who becomes the assured (Cass. 8 July 1994 n. 6455, Dir. Mar. 1995, 1026 – Cass. 8 July 1998 n. 6644, Rep. Foro It. 1998) and para. 9.14 above. As a further consequence, a carrier who has taken insurance on the carried goods is not vested with the insurance interest even though he has indemnified the owner for the loss in transit: Cass. 25 February 1995 n. 2140, Dir. Mar. 1996, 732 unless he has the express consent of the assured Cass. 3 July 1996, n. 6086, Dir. Mar. 1998, 380, Cass. 19 November 1999 n. 12823, Mass. F.I. 1999, 1234. 203. App. Genova 30 March 1994, Dir. Mar. 1994, 808. 204. Article 15 of the Cargo Policy lays down rules for calculation of the insurable value in substantial conformity with Art. 516 of the Code of Navigation see para. 9.9 above. 205. The correct method of calculation consists in comparing the proceeds with the value at destination and applying the resulting proportion to the insured value, so as to avoid market fluctuations: App. Palermo 20 April 1962, Ass., 1962, II, 174.

301

9.127

ITALIAN LAW AND PRACTICE

ance exists because of a difference between the value at destination and the sum insured.206 However, in practice the parties seldom adopt the value at destination method of calculation and apply the alternative method of the value at the origin adding the other components indicated in Article 516 of the Code of Navigation, for example, insurance, freight and expected profit. If a difference exists between this value and the value at destination, this difference is disregarded on the assumption that the percentage of expected profit makes up this difference.207 9.128 The last paragraph of Article 19 of the Cargo Policy contains the so-called Replacement Clause. This limits the measure of indemnity, in the event of the loss or damage that is capable of being repaired, to the cost of repair or replacement of the damaged part, excluding any depreciation. This mirrors the provisions of the Institute Replacement Clause 01/12/2008 used for machinery risks in the English practice. The limit of the indemnity is the sum insured to which the fees of the surveyor or average agent are added as provided for by Article 21 of the Cargo Policy. 9.129 The measure of indemnity due for G/A contribution is calculated by taking, as insurable value, the value at the end of the voyage and from that value deduction is made208 of the particular average (not G/A sacrifices) suffered prior to or after the G/A act, provided such particular averages are payable under the policy, but not if they are due to excluded perils, or otherwise not due. Payment of claims 9.130 Payment of the indemnity is made upon deduction of any uninsured portion and deductible. The insurer undertakes to settle the claim within 30 days of the assured having complied with the provisions of Article 20 of the Cargo Policy and against execution of a document of receipt and discharge (see Article 22 of the Cargo Policy). Abandonment 9.131 Italian law does not make a formal distinction between actual and constructive total loss for the purpose of abandonment. However, it is accepted that in practice, by the abandonment of the ship or goods to the insurer, the assured becomes entitled to a total loss in circumstances where, in theory, a total loss of the subject-matter insured may not exist, or may be difficult to prove.209 In the case of physical destruction or physical disappearance of the subject-matter insured, the assured does not need to abandon the subject-matter to the insurer to claim a total loss.210 On the other hand the assured is at liberty to treat the loss as a particular average loss (i.e., partial loss) and to claim the indemnity due for the cost of restoring the subject-matter insured.211 206. Unless the policy is valued: Cass. 21 July 1962 n. 1989, Riv. Dir. Nav. 1963, II, 86. 207. Nevertheless in the event of loss in transit, the insurer is entitled to deduct from the calculation those elements of the cost which have not been incurred, such as a freight payable at destination: Cass. 2 May 1933, Dir. Mar. 1933, 631. 208. As provided for by Art. 476 of the Code of Navigation. 209. The typical example and the case for which abandonment was originally conceived is when the ship is presumed lost or where the ship, though not ceasing to be a thing of the kind insured, is damaged beyond repair. 210. Ferrarini, p. 470. 211. Election of one or other method depends on various circumstances, in particular the value of the subject matter when repaired.

302

CLAIMS, LOSSES AND SETTLEMENT

9.135

9.132 Under Article 541 of the Code of Navigation abandonment in marine cargo insurance is possible in the following cases212: (a) where goods are totally lost; (b) if the ship is presumed lost (namely, by virtue of Article 162 of the Code of Navigation, on the expiry of a period of four months in the case of engine propelled ships or eight months in other cases); (c) on the expiry of three months for perishable goods and six months for other goods where the ship is lost or totally unable to sail and damaged beyond repair, without the goods having been unloaded and on-forwarded213; (d) where, irrespective of any expenditure, damage to the goods or loss in quantity exceeds three-fourths of their insurable value.214 The Cargo Policy, in Article 31, merely recalls Article 541 of the Code of Navigation, adding that the abandonment must be effected in the form prescribed by law.215 9.133 It should be noted that neither Article 541 of the Code of Navigation nor the Cargo Policy contemplate abandonment in the case provided for by section 60 (2)(i) of the Marine Insurance Act 1906, namely where “the assured is deprived of the possession of his ship or goods by a peril insured against” and recovery is unlikely or at a cost exceeding their value when recovered. In hull insurance, the matter was settled by arbitrators in favour of the assured and is now resolved by the Italian hull form “Camogli”, but in respect of cargo insurance the legal position remains unclear and is not resolved by the Cargo Policy.216 9.134 Clause 2 of the Cargo Policy (named risks), in Article 1.II, provides that, in air or sea voyages, the assured may claim a total loss directly caused by perils of the sea, not being one of the named perils listed in Article 1. The effect of this provision is to cover total loss due to unnamed perils of the sea whilst particular average (i.e., partial loss) is only covered if due by a peril named in the first part of Article 1.217 Article 1.II also extends the insurance against named risks to the loss of an entire package occurring during loading, unloading or transfer operations, where these operations are covered. 9.135 The right to abandon the subject-matter insured belongs to the assured whenever he has also a right of disposal.218 Accordingly a mortgagee would not be entitled to abandon,

212. Abandonment outside the cases contemplated by law or the policy is not allowed: Cass. 5 February 1975 n. 428 cit. 213. On this case see Cass. 5 February 1975 n. 428, Dir. Mar. 1975, 579. In the above example the loss is recoverable irrespective of evidence of physical damage to the subject-matter insured which seems to reflect the concept of loss of the adventure. 214. In the event that the Cargo Policy incorporates the ICC, the relevant rule (cl. 13) and s. 60 MIA will apply, abandonment being possible if the cost of repair exceeds their value on arrival. Similarly, Art. 1007 of the Code of Navigation provides for abandonment of goods in air insurance but with shorter time periods in the case of loss or disability of the aircraft. 215. Abandonment of freight is possible according to Art. 542 of the Code of Navigation when the right to the freight is lost and if the vessel is presumed lost. 216. In the “Golfo di Palermo”, a vessel blocked in the Shatt Al Arab, an Arbitration Tribunal ruled that incorporation of the War and Strikes Clauses (Hulls) Time entitled the assured to abandon the ship, where it was deprived of possession because the vessel was “forcibly detained”: Lodo Arbitrale 11 March 1982, Dir. Mar. 1982, 276. 217. See para. 9.77 above. 218. T. Trapani 11 August 1956, Ass., 1957, II, 154; T. Napoli 22 October 1953, Ass., 1954, II, 152.

303

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nor would a forwarding agent or an endorsee of the Bill of Lading, for the endorsement gives him only a right to redelivery from the carrier.219 9.136 A notice of abandonment has to be served to all coinsurers because it implies a transfer of title, but, arguably, can be served on the agent of the (sole) insurer who has executed the policy.220 The notice must be given within two months if the casualty giving rise to it has occurred within Europe or Mediterranean sea countries or four months in other cases.221 The notice of abandonment in the case of goods needs to be given by registered mail (Article 543 of the Code of Navigation). This period of time is considered a time bar (and not a time limitation period: see paragraph 9.149) and, in the absence of notice, the right is lost, but, as with any time bar, it can be extended by agreement.222 The period starts at the time of the loss provided the assured has had such knowledge of the facts as to lead him to believe that a situation giving rise to the right of abandonment may in theory exist.223 However, this is not a settled point,224 and the period of time may start to run from the date of the casualty or if, later, the date the assured has had knowledge of it. Some doubts have also been raised as to whether, in the case of goods lying on a damaged ship, the 2/4 month period should start from the casualty to the ship or after the period of 3/6 months (Article 541 of the Code of Navigation, as discussed in para. 9.132 above): the latter view seems to be preferred.225 9.137 The abandonment of the subject-matter insured must be unconditional and include everything which is at the risk of the insurer226 and all rights which the assured may have towards third parties (Article 545 of the Code of Navigation). Furthermore (by Article 544), the notice of abandonment must indicate if there is other insurance on the goods and whether the subject-matter insured is burdened by rights attaching to the property or guarantees. In the event of misrepresentation in the notice the assured loses his rights to the indemnity. 9.138 An insurer is entitled to reject the notice of abandonment (by registered mail) within 30 days of receiving it; the insurer need not provide reasons for the rejection and is not prevented from raising other defences in any future proceedings (Article 546 of the Code of Navigation).227 In the event of rejection of the notice of abandonment, the assured is bound to obtain judgment for the validation of his notice. In the event rejection is not made or, if made, the abandonment is validated by judgment of a court, two consequences follow: (i) the insurer is bound to pay the insurance indemnity; (ii) the rights to the subjectmatter insured are transferred to the insurer. However, the insurer is entitled within 10 days of the abandonment being accepted, or validated by the court, to refuse transfer of

219. Ferrarini, p. 483. 220. Ferrarini, p. 484 (see also para. 9.44 above). 221. App. Milano 20 July 1982, Ass., 1983, II, 29 including Black Sea and Azov Sea Cass. 16 November 1954 n. 4231, Dir. Mar. 1955, 226. 222. T. Roma 29 February 1954, Ass., 1954, II, 34. 223. T. Genoa 16 January 1976 in Giur. Ligure 1977, criticized by Ferrarini, p. 488; see also Arbitration Award 11 March 1982, Dir. Mar. 1982, 276. 224. See to the contrary App. Roma 21 November 1950, Riv. Dir. Nav., 1950, II, 257 and Righetti, p. 149. 225. Ferrarini, p. 489. 226. Thus in the event of loss of goods on board a ship which entitles the assured to claim a total loss, abandonment must include the goods which have meanwhile been unloaded and the indemnity will cover the value of all goods: Ferrarini, p. 491 227. T. Genova 16 May 1953, Ass., 1953, II, 195.

304

SUBROGATION

9.141

title (Article 546), and in that case any right, as well as any burden over the subject-matter insured, remains with the assured/owner.228

SUBROGATION General 9.139 An insurer who has paid a claim is subrogated, up to the amount paid, to the rights of the assured against third parties liable for the loss or damage (Article 1916 of the Civil Code). Subrogation is considered as a particular kind of assignment of rights229 whose rationale is, according to some scholars, to avoid the assured obtaining unjust enrichment through two different sources.230 However, other scholars and recent judgments deny this view, as the rights of the assured/damaged party arise from two distinct contracts one of which has, as a consideration, the payment of the insurance premium.231 9.140 Subrogation does not operate automatically as matter of law it being necessary for the insurer to pay the indemnity and to give notice of the payment (without any particular formality) to the third party232 and of his intention to enforce his subrogated rights.233 By virtue of such notice the assured is deprived (pro-tanto) of his entitlement to claim against the third party from the moment the notice is received.234 9.141 The prevailing view235 is that the right of subrogation is governed by the law of the contract of insurance, so that a foreign underwriter suing a carrier in Italy must provide evidence that a right of subrogation is provided for under such law. A different problem, which also arises when the right of subrogation is relied upon by a foreign individual or corporation, arises from the requirement of “reciprocity” (Article 16 of the Preliminary Provisions of the Civil Code). It has been held in this regard that the person concerned should give evidence that in the state of citizenship, or incorporation, the same right is recognised without discrimination for an Italian national.236

228. However, the insurer does not lose the right of subrogation as this right depends upon payment of the insurance indemnity, not upon acceptance of the title on the subject-matter insured. 229. Cass. 17 May 2007 n. 11457, FI 2008, 4, 1216; Cass. 24 November 2005 n. 24806. 230. See also Cass. 7 October 1997 n. 9742, Mass. F.I. 1997, 978. 231. Cass. 6 December 2004 n. 22883, Giust. Civ. Mass. 2004, 42. 232. Cass. 25 March 2002, Dir. Mar. 2004, 474 – A loan receipt has sometimes been considered sufficient. It has, however, been ruled that the insurer sued by the assured may join the third party in the proceedings in the exercise of a conditional right of subrogation Cass. 27 February 2004 n. 4014 Giust. Civ. Mass. 2004, 2. Furthermore, it has been ruled that proof of payment is not required whenever the insurers’ entitlement is derived from an assignment of rights rather than from statutory subrogation, T. Prato 14 May 2005, Dir. Mar. 2005, 565. 233. Usually by submitting a subrogation form duly executed Cass. 17 May 2007 n. 11457 cit. Cass. 24 November 2005 n. 24806 cit. 234. Cass. 6 December 2004 n. 22883 cit. 235. Ferrarini, p. 451 A. Boglione “La surroga assicurativa in diritto italiano e inglese”, Ass., 2002, I, 487 and 2003, I, 43. See also Cass. Full Bench 11 April 1981 n. 2112, Mass. F.I. 1981, Ass. 236. Cass. 29 January 1976 n. 279, F.I. 1976, I, 1264; T. Genova 26 September 1988, Dir. Mar. 1970, 740.

305

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Extent of subrogation 9.142 Insurers’ subrogation rights are limited, on one hand by the extent of damage caused by the third party, and, on the other hand, by the amount of the insurance indemnity.237 Accordingly, where the damage exceeds the insurance indemnity the assured remains entitled to claim the difference between the latter and the former and thus for uninsured losses.238 In the event that there are concurrent rights of both insurer and assured against a third party (due to underinsurance, deductibles etc) it is submitted that the assured’s rights should be preferred and rank prior to those of the insurer up to the recovery of the assured’s entire damage.239 9.143 A particular problem arises whenever the assured has contributed by his action or omission to the cause of the damage. The prevailing view of the courts is that the insurer’s rights ought not to be prejudiced by the fault of the assured, except to the extent that such fault reduces the amount due by the third party, and that, therefore, the insurer should recover his full credit up to this extent.240 Against this view it has been observed by scholars241 that, given the fact that the insurer is not entitled to refuse the indemnity for the assured’s negligence, equally he (the insurer) is only entitled to recover from the third party the amount which reflects the third party’s share of liability. The correct method on this basis is therefore that the amount due by the third party, as a consequence of his own liability, is assessed and on this amount the two claimants satisfy their claim. However, for the reason given in paragraph 9.142, it is submitted that the assured will be entitled to recover any uninsured portion of loss before the insurer may satisfy his claim. 9.144 As a consequence of the derivative nature of subrogation rights, the insurer is put in the same position as the assured vis-à-vis a third party who may raise the same defences he could have raised against the assured, for example, time limitation.242 However, a third party is not entitled to raise any defences relating to the insurance contract (except those which prohibit subrogation) and, in particular, the third party cannot rely on the voidness

237. Cass. 23 May 1996 n. 4755, Dir. Econ. Ass., 1997, 659. 238. However, in the event of abandonment of the subject-matter insured the insurer is entitled to retain for himself all benefits deriving from the transfer of rights consequent upon the abandonment, for these rights are not a consequence of subrogation. Ferrarini, p. 453. 239. Ferrarini, p. 453. This is particularly important when, as is frequently the case in marine insurance, a carrier relies upon a statutory limitation or where the carrier is insolvent. Interest on the sum recovered is payable to the assured up until the time of payment of the indemnity and to the insurer thereafter. In the event of recovery of a G/A contribution the subrogated underwriter may recover a sum proportionately higher than that paid as a consequence of a contributory value of the subject-matter insured being higher than the insured value (see Art. 537 of the Code of Navigation considered above); in this case the assured is entitled to his share of the sum recovered (see Ferrarini, p. 455). 240. Cass. 29 October 2002 n. 15243, Giust. Civ. Mass. 2002, 1854. 241. Ferrarini, p. 459 – Ferrarini “Riflessioni sui limiti della surroga assicurativa”, Ass., 1995, I, 13. 242. The insurer may therefore rely upon steps the assured may have taken before time expired and is conversely prejudiced by the assured’s lack of action: Cass. 3 December 2002 n. 17157, Giust. Civ. Mass. 2002, 2108; according to the same judgment the assured is bound to take steps to avoid the claim becoming time barred even after payment of the indemnity, until the insurer gives notice to the third party (Cass. 8 June 1992 n. 7057 in Giust. Civ. 1993 I, 1911) but this decision is criticised. It is unclear whether the assured should also start legal proceedings against the third party whenever a time bar may prejudice the recovery: some judgments have found that the assured is not bound to take action if he has informed the insurer of the existence of a time bar. This view is, correctly, criticised by others, and in any event this duty is specifically imposed by Art. 17 of the Cargo Policy.

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of the insurance contract (e.g., because the risk never existed) or the payment of the claim to a person not entitled to receive it.243 Breach of duty to safeguard subrogation 9.145 According to Article 1916 sub-article 3, of the Civil Code, the assured is liable to the insurer for any prejudice caused to the insurer’s right of subrogation. Article 17 of the Cargo Policy (see paragraph 9.116 above) details the duties of the assured to minimise the loss, a breach of which may infringe Article 1916. In so far as the consequences of a breach are concerned, Article 19 of the Cargo Policy makes reference to Article 1915 of the Civil Code; these rules have been considered earlier.244 It has been suggested that the insurer is entitled to deduct from the insurance indemnity the amount that he would have been entitled to recover from the third party had the assured not prejudiced the insurer’s rights. This view has not been accepted by judgments of the Supreme Court according to which the insurer is not entitled to refuse payment of the indemnity as a consequence of a mere allegation of such prejudice but must give evidence of the prejudice suffered and is only entitled to refuse the indemnity, or reduce it, where clear evidence of such prejudice exists.245 Waiver 9.146 The right of subrogation may be waived by the insurer either before or after the loss or by the terms of the policy itself. It has been held that a waiver of subrogation is not to be construed as an agreement to insure the liability of the third party.246

DAMAGES AND LIMITATION Damages for delay in payment 9.147 By virtue of the general rule in the matter of performance of obligations (Articles 1182 and 1183 of the Civil Code), as construed by reference to the insurance contract,247 the indemnity is payable at the insurer’s (or agent’s) place of business. In order for the insurer to be in default (after expiry of the 30-day time limit of Article 22 of the Cargo Policy) a formal demand by the assured is necessary. However, if the insurer delays the settlement by making it conditional on requirements beyond those provided for in the contract, or if, wrongfully, he refuses to pay the claim, the insurer is in default. An insurer is bound to compensate damage suffered by the assured as a consequence of a wrongful delay in the settlement or payment of a claim. According to the decisions of the Italian courts,248 243. Cass. 27 February 2004 n. 4014, Giust. Civ. Mass. 2004, 2; Cass. 9 March 2010 n. 5668, Ass., 2010, II, 370. 244. See para. 9.118 supra. 245. Cass. 19 May 2005 n. 9464, Dir. Mar. 2005, 815. 246. Cass. 24 March 1999 n. 2789, Dir. Mar. 2001, 713 but see for a different view Ferrarini, p. 447. 247. Cass. Full Bench 20 November 1976 n. 4358, F.I. 1977, I, 2311. 248. For recent judgments Cass. 11 January 2007 n. 395, Ass., 2008, I, 3; Cass. 20 August 2001 n. 4753, Mass. Giust. Civ. 2001, 641 and several earlier ones. The loss is calculated by making reference to cost of living official indexes. Some doubts have been raised as to this solution by scholars: Ferrarini, p. 408 and also Cass. 16 February 2000, Dir. Mar. 2001, 1092.

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the obligation of the insurer to pay claims is categorised as a “value debt” as opposed to a “pecuniary debt”. The consequence is that where there is depreciation in the currency of the loss (or that of the policy, if the exchange rate to the currency of loss varies) the insurer is to make good the relevant loss.249 For both value and pecuniary debts interest is then added to the amount due,250 but only after the assessment of such amount, that is, after judgment. In practice the unpaid indemnity will be “valued” by the judge and on that sum interest will be applied thereafter.251 In certain circumstances the assured may be entitled to recover further losses provided evidence is given that the insurer’s refusal to pay, or any delay in payment, was wrongful. The assured may be entitled to recover the loss that has been suffered according to the ordinary rules on causation: for example, where the assured was in a precarious financial condition and the breach of contract of the insurer has caused him to go into liquidation. However, this is a rather unusual scenario in marine insurance litigation. Limitation 9.148 Rights arising from a contract of marine insurance are subject to a time limit (“prescrizione”) of one year from the time of the loss (Article 547 of the Code of Navigation).252 Article 2952 of the Civil Code similarly provided for a time limitation of one year, now extended to two for general insurance law. 9.149 Under Italian law, the time limit can be protected by either commencing legal action (or appointing an arbitrator if disputes are subject to arbitration) or by renewing the demand by means of a formal communication (in practice a registered letter) in which case a new period starts to run.253 Time limitation is distinguished from time bar (“decadenza”) a provision (imposed by statute or by contractual agreement) under which a right is extinguished in the absence of the action provided for (e.g., starting a legal action); see Articles 2964 and 2966 of the Civil Code. A time limit is sometimes contractually agreed in contracts of insurance. Such a limit is valid by Article 2965 of the Civil Code, which generally also allows contractual time bar to be extended by agreement (provided it does not refer to inalienable rights: Article 2968); by contrast the duration of a statutory time limitation cannot be extended by agreement, though it can be waived after expiry.254 9.150 The one-year limit starts to run at the time of the loss or, if later, when the assured becomes aware of it, but this rule can be and is varied in contract by agreeing different rules for the commencement of the period.255 It is submitted that whenever the contract provides 249. In monetary debts the debtor is not so bound but the creditor is entitled to give evidence that, despite the nominal value of its credit, he has suffered a loss for having been deprived of the sum and of the possibility of employing it as an earning asset (several judgments have been rendered on this issue). 250. That is in value debts, the amount after calculation of the depreciation and, for pecuniary loss, the loss of which evidence is given. 251. Cass. 18 February 2000 n. 1834, Mass. Giust. Civ. 2000, 386; Cass. 10 May 2000 n. 5988, Mass. Giust. Civ. 2000, 984 and others. 252. The time limit applies to all rights arising from the contract, e.g., the right to reimbursement of sue and labour expenditure Cass. 18 February 2010 n. 3913, Ass., 2010, II, 1364. 253. A notice of loss has been considered a valid communication to this effect Cass. 14 February 2000, Dir. Mar. 2001, 1428 – contra T. Milano 27 August 2007, Dir. Mar. 2008, 225. 254. It should be noted that the same right may be subject to a contractual time bar and also to statutory limitation (Art. 2967 of the Civil Code,) so that avoiding the time bar does not necessarily fully protect the right. 255. What cannot be varied is the duration, not the starting point.

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that the insurer is allowed a period of time for the review of the assured’s claim upon submission of the relevant documents, a new period of time starts to run upon presentation of the documents. This new period is suspended during the time that the insurer considers the claim and only re-continues to run after those deliberations are completed.256 Similarly, if settlement of the insurance claim is made conditional upon the assured carrying out repairs to the vessel, or the goods (e.g., machinery) it is submitted that time will be suspended during the period of repair.257 In the event of a presumed loss of the ship, Article 547 of the Code of Navigation provides that the period starts to run from the time the ship is cancelled from the Register and this rule also applies for the insurance of the goods carried by that ship.258 A claim for contribution in G/A is subject to the same time limitation period of one year, but time only starts to run from the date of the G/A adjustment.259 The statutory time limitation is also applicable to a claim for sue and labour expenses.260 Obligations arising between insurers under the coinsurance clause are governed instead by the general time limitation rule: a claim of a coinsurer against the leading company is thus subject to a ten-year time limit.261

256. Cass. 27 January 1984 n. 651, Dir. Mar. 1985, 308. 257. Cass. 27 March 1979 n. 1776, Mass. Giust. Civ. 1979, p. 3. 258. Righetti, p. 1518. 259. T. Genoa 9 December 1946, Ass., 1947, II, 71. 260. Cass. 26 July 2002 n. 11052, Ass., 2003, II, Mass. 3 and Cass. 18 February 2010 n. 3913, Ass., 2010, II 364. 261. T. Genova 15 June 2009, Dir. Mar. 2011, 563.

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CHAPTER 10

G E R M A N L AW A N D P R A C T I C E Joachim F. Bartels*

LEGAL SOURCES History 10.1 Marine cargo insurance in Germany is traditionally based on standard insurance conditions, which in olden times were established solely by the insurers or their agents, predominantly at the seaports of Hamburg and Bremen. Nowadays, insurance conditions are drafted and recommended for use by the cargo insurers’ association (Deutscher Transportversicherer Verband, “DTV”) after consultation with the interested parties in the market. 10.2 The insurer’s conditions for Hamburg can be traced back to 1677.1 By and large, attempts to reach conformity in the conditions to be applied did not succeed. In Bremen, for many years, Dutch policies were signed for marine insurance risks; in 1818, the Bremen insurers agreed on a general plan for their area and on 1 January 1854, the “Insurance Conditions of the Bremen Marine Underwriters” was introduced. In Northern Germany, except Bremen, the “Allgemeine Seeversicherungs-Bedingungen von 1867” (General Marine Insurance Conditions of 1867) applied as from 1 January 1868. For inland transport, insurers often continued to cover marine insurance risks on their own conditions. 10.3 Statutory rules for marine cargo insurance were issued in Germany for the first time by the General German Commercial Code (“ADHGB”), which was enacted as from 1861 – in the absence of a centralised German state – by most of the German individual states for their own area. In 1871, after the creation of the German Reich, this code became an Act of the Reich itself. In 1897, the ADHGB was replaced by the German Commercial Code (“HGB”). The stipulations on marine cargo insurance in the ADHGB remained almost entirely unaltered in sections 778 to 900 of the HGB. These provisions did not apply compulsorily. An “Insurance Contracts Act” (“Versicherungsvertragsgesetz”2), dated 30 May 1908, came into force on 1 January 1910. It contained provisions for cargo insurance during land transport, but marine cargo insurance was expressly excluded (section 186 of the Insurance Contracts Act 1908). 10.4 The provisions for marine insurance in the HGB and the Insurance Contracts Act of 1908 induced insurers and other parties concerned to review the insurance conditions for marine insurance. This led to the “Allgemeine Deutsche Seeversicherungs-Bedingungen” (the ADS General Rules of Marine Insurance) of 1919, which have applied since 1 January *Partner, Blaum Dettmers Rabstein, Bremen, Germany. 1. These explanations are based on Ritter-Abraham, Das Recht der Seeversicherung, 2nd edn, 1967, volume 1, Einleitung (preliminary remarks), note 3 et seq. 2. This is referred to as the “Insurance Contracts Act 1908” in contrast to the new Insurance Contracts Act of 2007 that came into force in 2008, which replaced it, and is referred to as the “Insurance Contracts Act”.

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1920. These conditions contain general rules for all areas of marine insurance and special rules for hull insurance and for marine cargo insurance, respectively. Further rules concern the insurance of anticipated profit, loss of hire and special situations, as well as multimodal transports, the applicable law and the place of jurisdiction. 10.5 In 1947, the provisions for marine cargo insurance were supplemented by the “Zusatzbedingungen zu den ADS für die Güterversicherung (1947)” (Additional Clauses for Cargo Insurance (1947)) in order to adapt the special rules for cargo insurance in sections 80 to 99 of the ADS General Rules of Marine Insurance to new developments in the trade. However, these provisions were deemed insufficient and this led again to the application of various special conditions and individual clauses in the market. At the end of 1972, on the initiative of the DTV cargo insurers’ association, and in consultation and agreement with the interested trade associations, standard conditions for marine cargo insurance were finally developed, replacing sections 80 to 99 of the ADS General Rules of Marine Insurance and also the additional clauses of 1947. These conditions, named “ADS Güterversicherung 1973” (the ADS General Rules of Cargo Insurance 1973), were recommended for use by the insurers as from 1 January 1973. In addition to these, the general rules of the ADS General Rules of Marine Insurance remained applicable, to which clause 9.6.2 of the ADS General Rules of Cargo Insurance 1973 refers. In 1984 and 1994, respectively, these ADS cargo conditions were partly amended.3 10.6 Since 2000, the ADS General Rules of Cargo Insurance have not been adapted to recent developments and/or updated by the DTV cargo insurers’ association. In their place, the “DTV-Güterversicherungsbedingungen 2000” (DTV-Cargo Insurance Clauses 2000) have been recommended for use by insurers. The present edition of these conditions is that of the year 2011.4 The DTV-Cargo Conditions 10.7 The DTV-Cargo Conditions are self-contained conditions for the insurance of cargo carried by any means of transport, which no longer refer to the ADS General Rules of Marine Insurance. As regards content, to a large extent they have taken over the rules of the ADS General Rules of Cargo Insurance 1973/84/94 and, in part, those of the ADS General Rules of Marine Insurance. Additionally, the provisions of the Insurance Contracts Act are applicable unless the insurance contract concerns the risks of transport exclusively by sea, in which respect the applicability of the Insurance Contracts Act is expressly excluded (section 209 of the Insurance Contracts Act). The DTV-Cargo Conditions were drafted primarily for the insurance of individual transports (like the ADS General Rules of Cargo Insurance 1973/84/94). In practice, however, open cover insurance contracts in the form of general or turnover policies prevail. For such insurance contracts, the DTV-Cargo Conditions are applied via the additional “Bestimmungen für die laufende Versicherung” (Clauses for Open Policies). In 1963, general rules of cago insurance were especially developed for inland transports as “Allgemeine Deutsche 3. The ADS General Rules of Marine Insurance and special DTV Hull Clauses for hull and machinery insurance have been replaced since 2010 by the “DTV – Allgemeine Deutsche Seeschiffs Versicherungsbedingungen 2009” (DTV – German Standard Terms and Conditions for Insurance for Ocean-Going Vessels 2009). These conditions have been recommended for use in vessel’s hull insurance as from 1 January 2010. 4. These conditions are referred to as the “DTV-Cargo Conditions” or as “DTV-Cargo”.

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Binnen-Transportversicherungs-Bedingungen” (General German Inland Transport Insurance Conditions 1963). However, these conditions were not accepted in the market because of their restricted extent of coverage. They are no longer updated by the DTV cargo insurers’ association. Instead, the DTV-Cargo Conditions are now commonly agreed for inland transports as there are no modern conditions especially developed for inland transports. As the special conditions for inland transport in sections 130 to 141 of the Insurance Contracts Act are not generally mandatory, the DTV-Cargo Conditions replace these when contractually agreed.5 10.8 In summary, in the German insurance market, agreement to the DTV-Cargo Conditions is recommended by the competent association of insurers for the insurance of carriage of goods by sea, road, rail, inland waterway or airfreight. The provisions of the Insurance Contracts Act also apply if the applicable conditions do not exclude the Act unless the cover is for transport exclusively by sea when the Act applies. The special provisions for the insurance of inland transports according to sections 130 to 141 of the Insurance Contracts Act are, in practice, completely replaced by the DTV-Cargo Conditions. Present statutory provisions 10.9 In general, the legal regime of insurance contracts is laid down in the “Versicherungsvertragsgesetz” (the Insurance Contracts Act) of 23 November 2007, which came into force on 1 January 2008. It replaced the Insurance Contracts Act of 1908. Part 1 of the Insurance Contracts Act 2007 contains general provisions that apply to all categories of insurances (sections 1 to 99 of the Insurance Contracts Act). Individual categories of insurance are dealt with in part 2. Chapter 3 of part 2 of the Insurance Contracts Act (sections 130 to 141) contains provisions on cargo transport insurance. These provisions only refer to the transport of goods by road, rail or inland waterway (section 130(1) of the Act) and do not apply to the insurance of goods carried exclusively by sea (section 209) or by air. 10.10 Since the coming into force of the Insurance Contracts Act on 1 January 2008, the insurance of goods carried exclusively by sea is no longer subject to a special statute, because at that time, sections 778 to 900 and section 905 of the HGB, which contained the provisions for marine insurance, were repealed without replacement. These provisions of the HGB, being non-mandatory law, were, in practice, not applied to cargo insurance contracts as they were regularly replaced by the standard conditions of insurers, namely, the ADS General Rules of Marine Insurance in combination with the ADS General Rules of Cargo Insurance 1973/84/94 and – since the year 2000 – by the DTV-Cargo Conditions. 10.11 Accordingly, sections 778 to 900, and section 905 of the HGB were repealed as being, in practice, “dead law”. This, however, has the consequence that, should the incorporation of the DTV-Cargo Conditions into the insurance contract fail to be valid for any reason, there are no legal provisions governing cargo insurance in cases of carriage purely by sea. In such cases, only the general civil law applies in addition to any individual contractual agreements. In practice, however, the insurance of goods for carriage exclusively by sea is an exception nowadays because, in most cases, multimodal transport is agreed. The insurance of multimodal transport risks is not an insurance of the carriage 5. The ADS General Rules of Cargo Insurance 1973/84/94 are still applicable to policies where these conditions have not been replaced by the DTV-Cargo Conditions.

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of goods exclusively by sea and is therefore not subject to the exception rule in section 209 of the Insurance Contracts Act, which excludes from the applicability of the act only transports by sea.6 10.12 The Insurance Contracts Act contains compulsory and semi-compulsory provisions that restrict the parties’ freedom of contract. The contracting parties may, however, contract out of these restricting provisions if the subject-matter of the insurance is a “large risk” within the meaning of Article 10(1), sentence 2, of the Introductory Act to the Insurance Contracts Act (the EGVVG: Introductory Act), or if the goods are insured under an open policy. In these cases, any agreements differing from the compulsory or semicompulsory provisions of the Insurance Contracts Act must be set out in the insurance contract either expressly or by the incorporation of standard insurance conditions, such as the DTV-Cargo Conditions, otherwise the compulsory and semi-compulsory legal provisions are still applicable. A “large risk” (according to Article 10(1) of the EGVVG: Introductory Act) is defined, in particular, to include cases where the insurance contract covers the risks of “damage to, or loss of, goods in transit” irrespective of the form of transport.7 This refers, therefore, to the insurance of goods in case of multimodal transports, transports by road, rail, inland waterway, by airfreight or by sea. The definition of “large risks” is based on the Second Council Directive on Non-Life Insurance (88/357 EEC of 22 June 1988). 10.13 In summary, as to cargo insurance, the statutory regime is as follows: (a) carriage exclusively by sea: the provisions of the Insurance Contracts Act are not applicable; where agreed, standard insurance conditions of insurers are applicable, for example, the DTV-Cargo Conditions; otherwise the German Civil Code applies; (b) carriage by road, rail or inland waterway vessel: the provisions of the Insurance Contracts Act are applicable (general part, sections 1 to 99, and special rules in sections 130 to 141); all these provisions may be contracted out of by incorporating standard insurance conditions; (c) carriage by air: the provisions of the general part of the Insurance Contracts Act (sections 1 to 99) are applicable, but there are no special provisions for the insurance of air transport in the Insurance Contracts Act; the provisions in the general part of the Insurance Contracts Act may be contracted out of by incorporating standard insurance conditions; (d) multimodal transports: the provisions of the general part of the Insurance Contracts Act (sections 1 to 99) are applicable; if a leg of transport is performed by truck, rail or inland waterway, the special provisions in sections 130 to 141 of the Act are also applicable; all these provisions may be contracted out of by incorporating standard insurance conditions; (a)–(d): like all standard business conditions, the standard insurance conditions of the insurers are subject to judicial supervision. 6. This question is in dispute. See Schleif, “Die Seeversicherung nach altem und neuem Recht”, VersR 2010, 1281 (with further references). 7. For further consideration the meaning of the term “large risks”, as defined in the Non-Life Directive 73/239/ EEC, as amended by 88/357/EEC, on which the Introductory Act of the Insurance Contracts Act is based, see para. 2.8 above in the context of jurisdiction.

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SUBJECT-MATTER OF INSURANCE General 10.14 The subject-matter of cargo insurance is not the goods described in the insurance contract, as such, but the interest that the assured, or a third party, has in seeing that the goods survive the perils of transport and associated storage.8 This interest is subjective in so far as it is determined by the relationship of the bearer of this interest (the assured) to the object (the goods) and is, at the same time, an objective interest as it must be an objectively economically assessable interest.9 The goods, as such, are only of indirect importance. Insurable interest: property; similar interests 10.15 Different persons may have, at the same time, different interests in the safe arrival of the goods. There are, for example, the following cases: • • •

•

in the first place, there is the owner’s interest in his goods the interest of a pledgee of the goods the interest of a buyer of the goods who is not yet the owner but already bears the risk of loss of or damage to the goods during transport and who has to pay the purchase price in case of loss of or damage to the goods (e.g., sales shipments)10 the liability interest of a person who transports the goods (by himself or by subcontractors) and who, in his own name, takes out a cargo insurance cover instead of a liability insurance.

10.16 In the aforementioned cases, the insurable interest is valued at the amount of the financial loss that the bearer of the interest suffers where there is loss of or damage to the goods. The guideline for the monetary interest is the value of the goods carried. 10.17 In general, the courts are willing to assume an insurable interest whenever the assured has any economic interest whatsoever in the safe arrival of the goods undamaged, and whenever the assured may be affected financially by loss or damage. The German Federal Court, for example,11 acknowledged the insurable interest of a buyer who had bought goods “FOB Hong Kong airport” that were exchanged for valueless imitations on the inland pre-carriage to the airport in circumstances where the purchase price had to be paid by a documentary letter of credit to be opened by the buyer. The German Federal Court held that the buyer had an insurable interest on the grounds that he was insured against the risk that in case of loss of or damage to the goods for unknown reasons (including during the pre-carriage), payment to the seller was to be effected under the letter of credit against presentation of the documents, and, accordingly, the buyer would have to pay the bank,

8. Settled jurisprudence since RG, 10 June 1922, RGZ 104, 409. 9. Kollhosser, “Bereicherungsverbot, Neuwertversicherungen, Entwertungsgrenzen und Wiederherstellungsklauseln”, VersR 1997, 521, 522. 10. RG, 22 October 1927, RGZ 118, 254; BGH, IV ZR 100/99 of 18 October 2000, juris, note 10 (real estate purchase contract). 11. BGH, 3 October 1983, VersR 1984, 56.

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though it was uncertain whether the seller would repay the purchase price or indemnify the loss.12 10.18 In another case,13 a cost and freight (“C&F”) seller contracted by an additional agreement with the buyer to take the risk of damage during transit (“delivery ex wharf [port of destination] in good condition”). Although the ownership in the goods had been transferred to the buyer on negotiation of the bills of lading, the risk of damage during transport remained with the seller and thus he had an insurable interest. Other economic insurable interests 10.19 Furthermore, there can be insurable interests whose monetary value is not based on the value of the goods but on the expenses or profits connected with the goods and their carriage. Clause 1.1.3 of the DTV-Cargo Conditions expressly mentions the following as insurable: • • • • • •

anticipated profit increased value duty freight taxes and charges other costs

10.20 These interests are insurable, either together with the interest in the goods or separately, by section 1(1) of the ADS General Rules of Marine Insurance and clause 7.9 of the ADS General Rules of Cargo Insurance 1973. In such cases, whether such a profit is realised, or expenses such as duty, freight, taxes etc are incurred in vain, depends on the transport being performed without damage to the goods. Accordingly, the respective bearer of the risk of such losses has an insurable interest. 10.21 It follows that if there are different insurable interests of different assureds in the same goods during the same carriage, these are separate subject-matters insured under the insurance contract and there is no double insurance.14 Anticipated profit 10.22 Anticipated profit is the profit expected upon arrival of the goods in a sound condition at the place of destination. This profit is that of the buyer of the goods, as the profit of the seller is contained in the invoice value of the goods. The insurability of this interest in the anticipated profit was provided for in section 808 of the HGB, in section 53 of the Insurance Contracts Act 1908 and in section 1(2) of the ADS General Rules of Marine Insurance,

12. As the goods were exchanged against valueless imitations on the pre-carriage, this judgment has often been criticised, justifiably reasoning that the insurer has taken the risk only from “FOB Hong Kong airport”, an agreement that prevails over the printed condition “from warehouse to warehouse” in the policy, see “Enge, Beginn der Güterversicherung bei der Haus-zu-Haus-Klausel und Interesse des FOB-Käufers”, VersR 1984, 511; Sieg, “Versicherte Interessen bei der Güterversicherung des FOB-Käufers”, TranspR 1995, 19. 13. OLG Hamburg, 18 August 1983, VersR 1983, 1151. 14. RG, 10 June 1922, RGZ 104, 409.

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10.24

and can now be found in clause 1.1.3 of the DTV-Cargo Conditions. The amount of anticipated profit is agreed at a lump sum at the time of the conclusion of the insurance contract. If the cargo and the anticipated profit are insured jointly, an anticipated profit of 10% of the value of the goods is normally assumed.15 This assumption will not be checked in comparison to the actually achievable profit. Under the Insurance Contracts Act, the amount of anticipated profit can be fixed by the parties in line with their freedom of contract as long as the agreed value does not “considerably exceed” the actually achievable profit.16 Under the DTV-Cargo Conditions, the parties may also agree a fixed amount of anticipated profit, thus excluding a later dispute between the parties as to the amount to be indemnified,17 unless the agreed amount differs by a “substantial amount” from the real insured value. In such cases, the insurer may request a reduction of the agreed amount (clause 10.5 DTV-Cargo). Whereas, if the Insurance Contracts Act applies, the agreement of an agreed amount that “exceeds considerably” the amount to be expected is void (section 76, sentence 2, of the Insurance Contracts Act). Under the Act, the assessment is based on the insurable value of the interest. The insurer may also request a reduction of the agreed amount if a “considerable” difference from the actually anticipated profit has occurred during the period of cover, for example, because the conditions in the market have changed (due to a change in the actual arrival date of the goods at the place of destination or, in case of loss, the expected time of arrival).18 By clause 1.2 DTV-Cargo (as from the edition 2011) insurance cover is now expressly granted only if it is not in contravention of any sanctions or embargoes enacted by the European Union or Germany or – with regard to Iran – enacted by the USA (as far as these are not in contravention of European or German legislative provisions). 10.23 The parties may also agree that the amount of the assessment may only be reduced if the difference from the actual market price amounts, for example, to 20% or 25%. This type of agreement is appropriate in cases where there is considerable fluctuation of prices in the respective market. However, insurers’ right to have the amount of the assessment reduced cannot be completely excluded by contract.19 Increased value 10.24 Increased value occurs, for example, if the market value of the goods increases during the voyage, or if a devaluation of the currency of the insurance policy takes place in relation to the currency in which the goods are generally traded. The insurance of this increased value is based on the value of the goods at the time of arrival at the place of destination and is thus to be distinguished from the insurance of anticipated profit. 15. Section 801(2) of the German Commercial Code; s. 101 of the ADS General Rules of Marine Insurance; cl. 10.3 DTV-Cargo. 16. Generally, the excess regarded as permissible is 10%: BGH, VersR 2001, 749; OLG Hamburg, VersR 1978, 635; Armbrüster, in: Prölss/Martin, Versicherungsvertragsgesetz, 28th edn, s. 76 of the Insurance Contracts Act, note 13; Looks, “Taxe, Neuwertversicherung und Bereicherungsverbot”, VersR 1991, 731. By some, the limit is seen at only 20%: Sieg, “Betrachtungen zur Gewinndeckung in der Seeversicherung”, VersR 1997, 649/652. Also Stahl, “Die Taxe in der Seeversicherung”, VersR 2004, 558. 17. Section 793 of the German Commercial Code; s. 57 of the Insurance Contracts Act 1908; s. 76 of the Insurance Contracts Act. 18. BGH, VersR 1979, 861; different view: Armbrüster (fn. 16), s. 76 of the Insurance Contracts Act, note 11. 19. Sieg (fn. 16) VersR 1997, 652; Armbrüster (fn. 16), s. 76 of the Insurance Contracts Act, note 18; Enge, Transportversicherung, 3rd edn, 1996, p. 74; Ehlers, Thume/de la Motte, Transportversicherungsrecht, 2nd edn, 2011, AVB Güter, cl. 10.5, no. 314.

317

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10.25 The increased value of goods has always been considered as an insurable interest, although this interest is not mentioned in either section 778 et seq. of the HGB or in section 1(2) of the ADS General Rules of Marine Insurance. The insurable interests listed in section 1(2) of the ADS General Rules of Marine Insurance are, however, only examples of such interests (“in particular”) and the list does not limit specific cases. Both clause 7.9 of the ADS General Rules of Cargo Insurance 1973 and clause 1.1.3 of the DTV-Cargo Conditions expressly mention increased value as an insurable interest. 10.26 Where the interest in the cargo and the increased value are covered with different insurers, the settlement of the increased value insurance in case of damage follows that of the cargo insurance. Expenses for sue and labour and costs for on-forwarding of the goods to their intended destination are borne by the two insurers in proportion to the respective insurable amounts.20 Freight 10.27 According to clause 10.2 of the DTV-Cargo Conditions, the freight ultimately paid is included in the insured value of the goods, and the sum insured has to be assessed accordingly. Freight is regarded as “ultimately paid” even in cases where it has not actually been paid to the carrier, but has to be paid in any event according to the contract of affreightment regardless of the outcome of the voyage (e.g., “freight payable vessel and/ or cargo lost or not lost”).21 Where the sea freight is insured but the goods are lost during pre-carriage to the port of loading, the insurer does not have a duty to indemnify as the risk covered has not yet attached.22 Illegality 10.28 The insured interest has to be a legal one. The legal system does not recognise an insurable interest that results from a legally disapproved underlying transaction. If the underlying transaction is legally invalid due to a violation of law, this invalidity shall not be avoided or mitigated in its effect in case of loss or damage, in that the insurer has, nevertheless, to take the risks resulting from such an invalid transaction. The answer to the question whether there is an insurable interest or not is determined according to the jurisprudence by applying the provisions of the German Civil Code on the invalidity of transactions that violate a legal prohibition (section 134 of the German Civil Code) or are contrary to public policy (section 138 of the German Civil Code). If the transaction is in breach of sections 134 or 138 of the German Civil Code, this results in there not being an insurable interest and therefore in the invalidity of the insurance contract according to section 2 of the ADS General Rules of Marine Insurance.23 The DTV-Cargo Conditions do not repeat this legal consequence as being self-evident.24 Legal prohibitions according to section 134 of the German Civil Code may be derived from all German laws and regulations, and treaties binding on Germany and EU directives. From the point of view of the international cargo transport, the Foreign Trade Regulations 25 and the War Weapons Control Act may be 20. Ehlers (fn. 19), AVB Güter, cl. 1, no. 24. 21. Ritter-Abraham (fn. 1), s. 1 of the ADS General Rules of Marine Insurance, no. 77. 22. Clause 17.7 DTV-Cargo; cl. 7.9 of the ADS General Rules of Cargo Insurance 1973. 23. BGH, VersR 1962, 659. 24. See Ehlers, Güterversicherungsbedingungen (DTV-Güter 2000), 2nd edn, 2003 (“GVB”), cl. 1, notes 4, 10. 25. These were applicable in the case BGHZ 77, 88 (decision of 28 April 1980).

318

SUBJECT-MATTER OF INSURANCE

10.30

mentioned as particular examples. Foreign laws have no effect in Germany and, therefore, the provisions of section 134 of the German Civil Code do not apply to foreign laws, which, however, may be relevant as regards the prohibition of acts that are contrary to public policy (section 138 of the German Civil Code). 10.29 The courts have developed the general principle as follows: “An interest is not insurable if the insurer – had he known of the violation of public policy – would not have been able to take over the insurance cover without the contract being invalid according to s. 138 of the German Civil Code”.26 The Federal High Court (Supreme Court) (BGH) regarded an insurance contract concerning the transport of objects of cultural value from Nigeria to Germany as violating section 138 of the German Civil Code, thus being invalid, because by this transport the laws of Nigeria for the protection of cultural assets were violated.27 In a further decision, regulations of the USA as to an embargo imposed on the export of strategically important goods led to the invalidity of the insurance contract according to section 138 of the German Civil Code and section 2 of the ADS General Rules of Marine Insurance.28 If, however, the question of violation of foreign customs and import terms is concerned, this generally does not lead to a denial of an insurable interest, because the protection of public policy does not extend to mere foreign fiscal interests.29 Moreover, if such a violation only occurs after the termination of the insured voyage, it does not invalidate the insurance contract because there was no lack of an insurable interest at the time of occurrence.30 Relevant point in time 10.30 The insurable interest of the assured has to exist at the time of the damage. It need not be in existence when the insurance contract is concluded – for example, insurance cover for goods to be acquired only in the future – on the other hand, it must not already have ceased to exist at the time of the damage (e.g., the assured seller has no interest where he has been paid and ownership in the goods has passed to the buyer upon payment). The insurance contract is terminated if the assured ceases to have an insurable interest before the occurrence of the loss. This, however, is only the case if all aspects of the insured interest are no longer continuing in existence,31 and not if the interest discontinues temporarily.32 It is generally understood that an insurable interest still continues after the insured goods are damaged during the voyage, as they can still be further damaged or be totally lost until the end of the insured voyage. If the goods are damaged and subsequently become a total loss, the insurer only pays for the total loss (and not the initial damage), but costs incurred for ascertaining or mitigating the initial damage are settled under the policy in addition the total loss (clauses 2.3.1.2.1 and 2.3.1.2.3 of the DTV-Cargo Conditions).

26. BGH, 22 June 1972, BGHZ 59, 82 = VersR 1972, 849; also BGH, 24 April 1962, VersR 1962, 659; OLG Hamburg, 18 August 1983, VersR 1983, 1151/1152; Ritter-Abraham (fn. 1), s. 2 of the ADS General Rules of Marine Insurance, note 9. 27. BGH, VersR 1972, 849. 28. BGH, VersR 1962, 659. 29. OLG Hamburg, VersR 1983, 1151; OLG Hamburg, TranspR 1994, 25. 30. BGH, VersR 1976, 678. 31. OLG Hamm, 5 December 1997, VersR 1999, 50 (fire insurance case); OLG Hamburg, VersR 1993, 48. 32. BGH, VersR 1988, 925; OLG Hamm, VersR 1999, 50.

319

10.31

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INSURABLE INTEREST AND THE INDEMNITY PRINCIPLE Insurable interest Definition 10.31 The legislator has not defined “insurable interest” but has intentionally left the definition to the jurisprudence and textbook writers as this term may be subject to change in the course of time.33 The Insurance Contracts Act mentions insurable interest as a requirement of the insurance contract in several provisions of the general conditions (in sections 1 to 87 of the Insurance Contracts Act) without giving an exact definition. For example: section 48 of the Insurance Contracts Act (insurance for “whom it may concern”, in cases where it is unknown if the applicant for insurance has insured his own interest, or that of a third party), section 53 of the Insurance Contracts Act (open policy under which the subject-matter insured is only mentioned as to the kind of goods), section 74(1) of the Insurance Contracts Act (the insured value is the value of the insurable interest), section 77 of the Insurance Contracts Act (insurance of the same interest with several insurers) and section 80 of the Insurance Contracts Act (no duty to pay the premium in case of lack of or discontinuation of the insurable interest). 10.32 By contrast, clause 1.1.1 of the DTV-Cargo Conditions emphasises more clearly the insurable interest as the basis of the insurance contract. This reads: “The subject-matter of the cargo insurance may be any monetary interest a person has in seeing that the goods survive the perils of transport and associated storage.”34

10.33 Section 2 of the ADS General Rules of Marine Insurance expresses the same principle: an insurance contract is invalid if there is no insurable interest. Today, the definition of “insurable interest” as laid down in clause 1.1.1 of the DTV-Cargo Conditions can be regarded as the generally recognised definition.35 Monetary interest 10.34 The subject-matter insured can only be an interest in the goods in so far as it can be expressed monetarily, that is, if it is of an economic nature, because the insurer only owes money in the case of an insured loss. This is expressly provided for in clause 1.1.1 of the DTV-Cargo Conditions by the words “any monetary interest”; it is also a consequence of the fact that according to section 141(1) of the Insurance Contracts Act, the insurer can acquit himself of all further obligations by paying the sum insured in case of an insured loss. On the other hand, the insurer cannot validly commit itself to indemnify more than the damage that has occurred.36

33. See Schweizer, Das versicherte Interesse, 1990. 34. See Appendix 10 below. DTV-Cargo Conditions. 35. See Kollhosser (fn. 9), VersR 1997, (fn. 9), 521. 36. BGH, VersR 1990, 488.

320

INSURABLE INTEREST AND THE INDEMNITY PRINCIPLE

10.39

Indemnity principle Sum insured 10.35 The sum insured as stated in the insurance contract and/or the certificate of insurance is the absolute limit of the insurer’s liability to indemnify the assured for loss of or damage to the goods irrespective of a higher amount of damage having occurred (clause 21.1 DTV-Cargo). There are, however, certain expenses and costs payable by the insurer in cases where the amount of the damage to the goods, and the amount of such expenses and costs, are higher than the sum insured: these are the expenses and costs mentioned in clauses 2.3.1.1 and 2.3.1.2 of the DTV-Cargo Conditions (contributions in general average, costs incurred to avert or minimise a loss, costs incurred on instructions from the insurer and the costs for assessing the insured loss or damage).37 The insurer’s duty to reimburse these expenses and costs, or to pay these in the first place, is therefore not limited by the amount of the sum insured. 10.36 If the insured goods suffer damage from a second separate loss after they have been repaired following a first loss, the original sum insured remains unchanged for this second (or further) loss and is not decreased by the amount of the insurance payment effected to indemnify the first loss (clause 21.2 DTV-Cargo). 10.37 Generally, the sum insured that is agreed between the parties equals the insured value of the goods (clause 10.1 DTV-Cargo).The insured value is the fair market value of the goods at destination or, in the absence of that value, their market value at the place of departure at the commencement of the cover, plus the cost of insurance, any costs incurred in delivering the goods to the carrier and the freight (clause 10.2 DTV-Cargo). 10.38 Special interests that are insurable according to clause 1.3.3 of the DTV-Cargo Conditions (anticipated profit etc38) are only insured upon express agreement and if their value is included in the sum insured (clause 10.3 DTV-Cargo). Unless otherwise agreed, the anticipated profit of the buyer is insured at 10% of the insured value of the goods without specific proof. Valued policies 10.39 Generally, if the assured claims from the insurer for loss of or damage to the insured goods, he has to establish the value of the goods as a measure of the insurer’s liability within the limits of the sum insured.39 This is different if the parties, upon concluding the insurance contract, have agreed the insured value of the goods at a fixed amount (clause 10.5 DTV-Cargo).40 Where the goods are lost, this amount is payable to the assured. If the fixed amount substantially exceeds the actual insurable value41 of the goods, the insurer is entitled to demand a reduction of the fixed amount (clause 10.5 DTV-Cargo). Some authorities consider that the level at which the excess is “substantial” is reached if an increase of

37. See para. 10.190 below for recovery of sue and labour expenses and para. 10.193 below for recovery of general average contributions. 38. See para. 10.19 above. 39. As to “claims and settlement”, see para. 10.145 et seq. below. 40. For hull and machinery insurance, see Stahl (fn. 16), VersR 2004, 558. 41. Insured value: see para. 10.37 above.

321

10.39

GERMAN LAW AND PRACTICE 42

10% is exceeded, whereas others only deem an increase of more than 20% as “substantial”.43 The parties cannot contract out of the right of the insurer to demand a reduction of the fixed amount for the insured value.44 Whereas the agreement of a sum insured for hull and machinery insurance is deemed to be an agreement for a fixed insured value,45 this is not so in cargo insurance where a fixed amount for the insured value must be expressly agreed. If the parties have agreed a fixed insurable value for the goods, but the goods are nevertheless insured for a lower amount, the insurer is only liable to indemnify the assured in the proportion that the sum for which the goods are insured bears to the fixed insurable amount (clause 10.5 DTV-Cargo, underinsurance). The actual value of the goods is irrelevant in this regard. Lodging of the claim 10.40 An insurance claim is extinguished if the assured does not lodge the claim with the insurer in writing within 15 months of the termination of the covered risk or, if the ship or other means of transport has disappeared, from the end of the period from which the loss has to be assumed46 (clause 16 DTV-Cargo). The “covered risk” refers to the termination of the cover for the particular transit, not to the end of the contractual insurance year or the termination of an open policy. This legal consequence accrues irrespective of any negligence on the part of the assured.47 It accrues even if the insurer has knowledge of the damage event and the loss or damage.48 Time bar 10.41 Claims under an insurance contract become time barred at the end of three years from the end of the year during which payment could be demanded (in case of general average, from the end of the year during which the contribution was demanded by submitting the general average adjustment), see clause 24.1 of the DTV-Cargo Conditions. This rule applies to claims against the insurer as well as to claims by the insurer (e.g., for the premium). This time limit is suspended during the period between the time the insurer receives the assured’s payment demand and the time the assured receives the insurer’s decision regarding the claim (clause 24.2 DTV-Cargo).

42. BGH, VersR 1979, 861; OLG Hamburg, VersR 1978, 635; Looks (fn. 16), VersR 1991, 731; cf. para. 10.22 and fn. 16 above. 43. Sieg (fn. 16), VersR 1997, 649/652. 44. Sieg (fn. 16), VersR 1997, 649/652; Ritter-Abraham (fn. 1), s. 6 of the ADS General Rules of Marine Insurance, note 36; Looks (fn. 16), VersR 1991, 732; Stahl (fn. 16), VersR 2004, 558; RGZ 94, 268 - necessity to distinguish from gambling contract; Armbrüster (fn. 16), s. 76 of the Insurance Contracts Act, note 18. 45. BGH, VersR 1992, 606; OLG Hamburg, VersR 1969, 227. 46. For details, see para. 10.153 et seq. below. 47. BGH, VersR 1972, 88. 48. BGH, VersR 1972, 88; Ehlers (fn. 19), AVB Güter, cl. 16, note 468.

322

DESCRIPTION OF THE RISK: DISCLOSURE

10.44

DESCRIPTION OF THE RISK: DISCLOSURE Duty of disclosure Material facts 10.42 Before entering into the insurance contract, the assured has a duty to inform the insurer of all material facts that are necessary for the insurer to evaluate the risk regarding the goods and the transit. Unless there is disclosure of these facts, normally only known to the assured, the insurer cannot correctly evaluate the risk and calculate the premium. The duty of disclosure on the part of the assured is laid down in section 19 et seq. of the Insurance Contracts Act and in the DTV-Cargo Conditions (clause 4 DTV-Cargo). These provisions differ from each other in some respects and if the DTV-Cargo Conditions are agreed, these conditions will prevail. Point in time for fulfilment of the duty 10.43 According to section 19(1), sentence 1, of the Insurance Contracts Act, the point in time at which the duty of disclosure has to be fulfilled is the time when the assured agrees to the contract terms. Similarly, according to clause 4.1 of the DTV-Cargo Conditions, the time when the insurance contract is concluded is the relevant time (“when concluding the contract”). This can be the point in time when the assured accepts the insurance proposal or it can be when the insurers accept the assured’s application for insurance. The provision in clause 4 of the DTV-Cargo Conditions refers to the case of an insurance of an individual transit or voyage,49 whereas, in practice, open covers prevail and take the form of a general policy or a turnover policy. In the case of an open cover, the duty to disclose does not refer to the individual transits, but to the kind of cargo (e.g., dangerous cargo), the route, the intended means of transport and other special facts known to the assured. In the case of an open cover, the relevant point in time is still when the insurance contract is concluded. If, with respect to any individual transit declared under an open cover, a relevant fact disclosed to the insurer has changed, and increased the risk, this has to be notified to the insurer at the time of the declaration (see also paragraph 10.52 below). Circumstances relevant to the risk 10.44 The duty to disclose refers to “all material facts and circumstances” (clause 4.1 DTV-Cargo). A fact or circumstance is material if it would have influenced the insurer in accepting, declining or rating the insurance (clause 4.1, sentence 2, DTV-Cargo). It may concern objective or subjective circumstances. Objective circumstances refer, for example, to a longer time for pre-storage of sensitive goods, the age of the vessel or the carriage of goods on deck. As a general rule, the assured has to voluntarily disclose all circumstances that may be material to the insurer’s decision and its calculation of the premium without waiting for the insurer’s questions.50 Whether the circumstances are material for the conclusion of the contract is to be judged from the point of view of a reasonable insurer.51 49. Ehlers (fn. 19), AVB Güter, cl. 4, note 187; Koller, in: Prölss/Martin, Versicherungsvertragsgesetz, 28th edn, 2010, DTV-Güter, cl. 4, note 1. 50. Koller (fn. 49), DTV-Güter, cl. 4, note 1. 51. Koller (fn. 49), DTV-Güter, cl. 4, note 1.

323

10.44

GERMAN LAW AND PRACTICE

Objectively, it is irrelevant whether the circumstances, or their materiality, were known to the assured when concluding the contract.52 The legal consequence of an infringement of the duty to disclose is that the insurer is discharged from liability, which also “applies if [the] information was not disclosed on account of the assured’s ignorance of the fact and this was due to gross negligence on his part” (clause 4.2 DTV-Cargo, paragraph 2). 10.45 Circumstances to which express or written questions of the insurer refer are understood to be material to the risk (clause 4.1, sentence 3, DTV-Cargo). On the other hand, not only circumstances that the insurer expressly queries are to be regarded as material to the risk. If the insurer asks the assured to state the circumstances material to the risk, according to written questions, the insurer will only be discharged from liability as a result of a material fact or circumstance not disclosed in response to that list of questions, and only if the assured has concealed this information with intent to deceive the insurer (clause 4.3, sentence 3, DTV-Cargo).53 Incorrect statements 10.46 The assured’s statements must be complete and correct; objectively, they have to be true to the full extent.54 However, the assured only needs to state circumstances known to him unless his ignorance is due to gross negligence.55 The assured must always answer questions put to him by the insurer completely and correctly. If the assured does not know the answers to the questions, he may note this down. If the assured leaves a question unanswered, or if the answer is unclear or obviously incomplete, the insurer has a duty to inquire. If the insurer does not do so, he may not invoke the legal consequence of an infringement of the duty to disclose.56 If the insurance contract is concluded by a representative of the assured, the representative’s knowledge of circumstances material to the risk is to be attributed to the assured (clause 4.1, sentence 4, DTV-Cargo). This does not apply if the assured’s ignorance is grossly negligent. If, however, the assured has generally instructed a representative57 to arrange insurance of the subject-matter to be insured, the representative’s acts and knowledge, including where his ignorance is grossly negligent, are to be attributed to the assured. Legal consequence 10.47 If the assured infringes the duty to disclose, the insurer is discharged from liability (clause 4.2, sentence 1, DTV-Cargo), unless otherwise agreed in the insurance contract. On the other hand, section 19(2) of the Insurance Contracts Act only grants the insurer a right to cancel the contract or, if the duty to disclose was not infringed intentionally or grossly negligently, to terminate the contract (section 19(3) of the Insurance Contracts Act). The DTV-Cargo provision, which is more favourable to the insurer, is legally valid.58 52. Koller (fn. 49), DTV-Güter, cl. 4, note 1. 53. Koller (fn. 49), DTV-Güter, cl. 4, note 7. 54. Koller (fn. 49), DTV-Güter, cl. 4, note 2. 55. Ehlers (fn. 19), AVB Güter, cl. 4, note 201. 56. Ehlers (fn. 24), GVB, cl. 4, note 16; Koller (fn. 49), DTV-Güter, cl. 4, note 2. 57. On the term of “representative”, see para. 10.181 below. 58. BGHZ 77, 88 (MV Janina) on the corresponding provisions of the ADS General Rules of Marine Insurance.

324

DESCRIPTION OF THE RISK: DISCLOSURE

10.50

The insurer is also discharged from liability if a circumstance, material to the risk, was not disclosed due to lack of knowledge of the assured and this lack of knowledge is due to his gross negligence (clause 4.2, sentence 2, DTV-Cargo).59 Ordinary negligence is not enough. The insurer, however, remains liable if the assured, in case of a loss, can prove that the infringement of the duty to disclose had no impact either on the occurrence of the loss or on the extent of the insurer’s liability (clause 4.2, sentence 3, DTV-Cargo). Where there is more than one contributing cause, this is, nevertheless, sufficient to be treated as impacting on the occurrence of the loss, or the insurer’s liability, for the purposes of this rule.60 10.48 Despite incomplete or incorrect disclosure, the insurer will not be discharged from liability if he had knowledge of the relevant circumstance or its incorrect disclosure (clause 4.3, sentence 1, DTV-Cargo). The same applies if the circumstances have been stated incorrectly or incompletely to the insurer without fault on the part of the assured (clause 4.3, sentence 2, DTV-Cargo). The onus of proof is on the assured. In this case, however, even slight negligence is detrimental to the assured.61 Fraudulent deception 10.49 Where an incorrect or incomplete disclosure of material circumstances constitutes a fraudulent deception of the insurer by the assured, the insurer has the right to avoid the insurance contract (clause 4.5 DTV-Cargo in combination with section 123 of the German Civil Code; section 22 of the Insurance Contracts Act in combination with section 123 of the German Civil Code). The preconditions are: • • •

•

the assured deceives the insurer by giving incorrect or incomplete disclosure of the circumstances; the assured thereby induces the insurer’s misapprehension regarding these circumstances; the assured is aware of the fact that the incorrect or incomplete disclosure of the circumstances is of importance to the insurer as to its decision and that the insurer, in case of correct and complete disclosure, would not have accepted the assured’s application for insurance, or only on conditions more unfavourable to the assured; there must be causation between the deception and the insurer’s decision to conclude the contract as agreed.62

Legal consequences of the insurer’s right to avoid 10.50 The avoidance has to be declared within one year from knowledge of the deception (section 124(1) of the German Civil Code). If avoidance is declared, the insurance contract is void from the beginning. All reciprocal benefits have to be returned according to the principle of unjust enrichment. This also applies to any claims already paid by the insurer and no causative link is necessary between the deception of the insurer and the

59. On the term “gross negligence”, see paras 10.109 and 10.110 below. 60. BGH, VersR 1990, 297. 61. Koller (fn. 49), DTV-Güter, cl. 4, note 4. 62. In detail, see Ehlers (fn. 24), GVB, cl. 4, notes 35–41.

325

10.50

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loss for which payment has been effected.63 According to section 39(1), sentence 2, of the Insurance Contracts Act – which remains applicable in the absence of a different provision in the DTV-Cargo Conditions – the insurer is entitled to pro rata insurance premium up to the time of the avoidance. Extra premium 10.51 If the insurer is liable to pay a claim, despite incorrect or incomplete disclosure, because the circumstances have been stated incorrectly or incompletely without fault on the part of the assured, the insurer may claim an extra premium. The additional premium must reflect the higher risk. Should the parties fail to agree on the amount of the extra premium, it has to be decided by the court in the exercise of its equitable discretion (section 315(3) of the German Civil Code). Change of risk Change or increase of risk 10.52 According to clause 5.1 of the DTV-Cargo Conditions, the assured may change the insured risk and may agree to a change of the risk by a third party. The insured must inform the insurer without delay of a change of risk (clause 5.2 DTV-Cargo) and the insurer, while entitled to an additional premium (clause 5.5 DTV-Cargo), is not entitled to cancel the policy on the grounds of a change of risk (clause 5.6 DTV-Cargo). This concerns only a change of the risk that is effected after conclusion of the insurance contract. If the risk is changed, or if a change of risk becomes known after the application for insurance, but before entering into the contract, the duty of disclosure will apply (clause 4 DTV-Cargo or section 19 of the Insurance Contracts Act).64 Increasing the risk is a variant of a change of the risk, albeit occurring most frequently in so far as a change of the risk often increases the exposure of the insurer. This provision in the DTV-Cargo Conditions is in contrast to the legal provision in section 23(1) of the Insurance Contracts Act, according to which the assured is prohibited from increasing the risk without the consent of the insurer, or from allowing a third party to do so. Section 23 of the Insurance Contracts Act only deals with an increase of the risk and not a change of the risk. The provision in clause 5.1 of the DTV-Cargo Conditions corresponds to the established provision in clause 2.1 of the ADS General Rules of Cargo Insurance 1973. 10.53 A change of risk occurs if there is a change regarding the facts or circumstances, as disclosed by the assured, or otherwise known to the insurer, on which the insurer based his decision to subscribe to the risk or his premium calculation. Clause 5.3 of the DTVCargo Conditions lists the following examples of a change of risk, which are not conclusive: • • • •

considerable delay in commencement or completion of the insured transport; major deviation from the route specified or the customary route; change to the port or airport of destination; the goods are stowed on deck. 63. Ehlers (fn. 24), GVB, cl. 4, note 41. 64. See para. 10.43 above.

326

DESCRIPTION OF THE RISK: DISCLOSURE

10.56

10.54 Where the assumed, or usual, duration of the transit is considerably delayed, or where there is a major deviation from the route, whether specified or customary, these are regarded as material increases of the risk if the insurer, had he been aware of them, would not have concluded the insurance contract, or would only have concluded instead of excluded it on different conditions, for example, at a higher deductible. In terms of delay, only events that are of “considerable” duration are regarded as materially increasing the risk. Non-recurring events that cause delays of only a short duration, which the insurer has to take into account when evaluating the risk, are not considered material.65 10.55 The carriage of goods on deck is not a risk agreed with the insurer even if the bill of lading conditions known to the insurer contain a general clause that permits the carriage of goods on deck,66 as the carrier’s ability to exclude liability for loss of or damage to cargo carried on deck further requires that the bill of lading on its face bears a respective note that the goods are in fact so carried. There is an increase in risk if the assured allows the carrier to carry the cargo on deck without the insurer’s consent. If the carrier stows the goods on deck without the assured’s consent, the assured remains covered in case of loss or damage. The assured, however, must not accept a carrier’s bill of lading with a stowed-on-deck notation on its face if he did not consent to it. An unusual limitation of liability in favour of the carrier,67 transhipment of goods at sea or the use of leaky containers,68 are also increases in the risk insured that must be agreed with insurers if they are to be covered. Duty to inform the insurer 10.56 Should the assured change the risk, or should he become aware of a change in the risk, he must inform the insurer immediately69 (clause 5.2 DTV-Cargo). All changes in the risk must be notified, not only increases of the risk. A change of the risk due to generally known circumstances need not be notified as the insurer has to know these.70 If, for example, border crossings are blocked due to a strike, the fact of the strike may be generally known, but not whether the insured goods are involved. The involvement of the particular shipment has, therefore, to be notified to the insurer. Only “considerable” circumstances affecting the risk have to be notified. Objective criteria are used to determine what “considerable” means. If in doubt, the assured must notify the change. The duty to notify the insurer only concerns changes in the risk that are known to the assured. Where the assured changes the risk himself, his knowledge is assumed and the assured bears the risk that his action is deemed to have changed the risk.71 If a change in the risk has been effected by a third party, only the actual knowledge of the assured is relevant, mere imputed knowledge does not trigger the duty to inform the insurer.72

65. BGHZ 7, 311; Ritter-Abraham (fn. 1), s. 23 of the ADS General Rules of Marine Insurance, note 13; Ehlers (fn. 24), GVB, cl. 5, note 9. 66. Koller (fn. 49), DTV-Güter, cl. 5, note 1; Ehlers (fn. 19), AVB Güter, cl. 5, note 227. 67. Ehlers (fn. 19), AVB Güter, cl. 5, note 223. 68. OLG Bremen, VersR 1987, 43. 69. Legal definition of “immediately” in s. 121 of the German Civil Code: “without undue delay”. 70. OLG Hamburg, VersR 1983, 1152. 71. Koller (fn. 49), DTV-Güter, cl. 5, note 3. 72. Ehlers (fn. 24), GVB, cl. 5, note 14; OLG Hamburg, Sasse, Deutsche Seeversicherung 1923 bis 1957, Sammlung, 1958, No. 474.

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Legal consequences 10.57 A failure by the assured to notify a change in the risk will only have legal consequences where there is an increase in the risk. Where the assured fails to disclose an increase in the risk, the insurer is discharged from liability to pay the claim, unless (a) the failure to notify was neither wilful nor the result of gross negligence (b) the increase in the risk, which was not notified, had no impact on the occurrence of the loss or on the extent of the insurer’s liability. 10.58 The assured bears the onus of proof in case (a) for lack of wilful intent and gross negligence and in case (b) for lack of causation (clause 5.4 DTV-Cargo).73 Failure to notify under this clause of the DTV-Cargo Conditions may coincide with other defences, for example, where the assured causes the loss or damage wilfully, or the loss results from the gross negligence of the assured (clause 3 DTV-Cargo).74 Extra premium 10.59 Where an increase in the risk has been notified in accordance with the insurance conditions set out above, the insurer may charge an additional premium for the greater risk (clause 5.5 DTV-Cargo). This additional premium is to be agreed between the parties and, in the absence of agreement, is to be determined by the court according to section 315(3) of the German Civil Code. There are exceptions to the insurer’s right to additional premium where the increase in the risk: (a) was in the insurer’s own interest; (b) was on humanitarian grounds; or (c) was caused by an insured event that posed a threat to the goods. The meaning of alternative (a) is unclear, possibly it means that by increasing the risk, greater overall damage would be prevented (this would be the same as alternative (c)).75 Alternative (b) applies, for example, if the route is changed, or the goods are exposed to a higher risk of loss, in order to save human life. Alternative (c) covers cases in which the increase in the risk is, at the same time, a measure to avert damage: for example, the goods are exposed to an enhanced risk of theft when the assured drives a truck laden with valuable goods from a secured car park onto the road and parks it there in order to save the goods from a fire in the car park.76 Fundamental change 10.60 A change in the risk in the sense of clause 5 of the DTV-Cargo Conditions assumes that the risk insured is not fundamentally changed, for example, that completely different goods are not shipped, or the goods are shipped by land instead of by sea. Clause 6.1 of the DTV-Cargo Conditions provides that the insurer is discharged from liability in the following cases: (a) the goods are carried by another means of transport than that agreed in the insurance contract; (b) the goods are transhipped, although in the insurance contract direct transport was specifically agreed; and (c) a particular means of transport or a 73. Ehlers (fn. 19), AVB Güter, cl. 5, note 236. 74. See para. 10.108 et seq. below. 75. Ehlers (fn. 24), GVB, cl. 5, note 31. 76. Example by Ehlers (fn. 24), GVB, cl. 5, note 32.

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THE CONTRACT OF INSURANCE

10.63

pre-determined route was specifically agreed. Alternative (a) relates not only to the means of transport – sea vessel or inland waterway vessel – but also to the type of vessel, for example, containership instead of reefer vessel. Alternative (c) applies if, for example, carriage by a heavy lift cargo vessel was agreed with the insurer, but the transport is actually performed by a multipurpose ship without equipment for heavy lift cargo.77 10.61 The insurer remains liable where, after the inception of the insurance, the route is changed, or the voyage is abandoned as a consequence of loss, without the assured’s consent (clause 6.2 DTV-Cargo). However, the provisions of clause 5 of the DTV-Cargo Conditions, relating to a change in the risk, apply and the assured has a duty to notify the insurer of the change of route or the abandonment of the transit, and has to pay insurers an extra premium where there is an increase in the risk. 10.62 Where, due to a loss, there is a change in the performance of the transit, clause 6.2 of the DTV-Cargo Conditions only provides for the continuance of the insurance cover itself. Any extra expenses incurred for transhipment, storage, on-carriage and the like are dealt with in clause 2.3.1.3 of the DTV-Cargo Conditions and the insurer is only liable for these expenses if they are the consequence of an insured event.78 The reasons for the abandonment of the voyage include an accident to the means of conveyance, such as a fire on board the vessel, insolvency of the shipowner or charterer etc.79

THE CONTRACT OF INSURANCE Formation of the contract Formal requirements 10.63 An insurance contract can be concluded verbally.80 It is not necessary that a policy is issued for the insurance contract to be valid.81 The policy follows the conclusion of the agreement and proves the contents of this concluded contract.82 According to section 3(1) of the Insurance Contracts Act, the insurer has to issue a policy in writing to the assured, and at the assured’s request, must also issue a document that is signed by the insurer. Section 3 of the Insurance Contracts Act is not mandatory, and clause 11.1 of the DTVCargo Conditions provides that the insurer is obliged to submit an insurance policy, which must only be signed as a deed at the assured’s request. The assured’s signature on the deed is not necessary as the insurer does not need to be provided with a signed copy. The document must state who concluded the contract, the risks insured and the conditions of the cover. If the conditions differ from legal provisions, this must be indicated or amendments supplied. Should standard general insurance conditions be part of the contract, these 77. For example, see Enge, Erläuterungen zu den of the ADS General Rules of Marine Insurance Güterversicherung 1973 und dazugehörigen DTV-Klauseln, 1973, p. 55. 78. See para. 10.190 below, which considers costs recoverable as sue and labour. 79. Ehlers (fn. 19), AVB Güter, cl. 6, note 253; Enge (fn. 77), p. 57 (the ADS General Rules of Cargo Insurance 1973). 80. Ritter-Abraham (fn. 1), s. 14 of the ADS General Rules of Marine Insurance, note 3; Ehlers (fn. 19), AVB Güter, cl. 11, note 318. 81. Ehlers (fn. 24), GVB, cl. 11, note 2. 82. Prölss, in: Prölss/Martin, Versicherungsvertragsgesetz, 28th edn, 2010, s. 3 of the Insurance Contracts Act, note 1.

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need not be set out in full. In such cases, a reference, in short form, for example, to the “DTV-Cargo Conditions”, is sufficient.83 Parties to the insurance: insurer and insured 10.64 The parties to the insurance contract are the insurer on the one hand and its contract partner, the policyholder, on the other hand. The policyholder need not be the person bearing the insurable interest: the contract may be entered into for the insurance of risks borne by a third party. The insurer’s duty is to indemnify loss or damage that has occurred due to an insured event vis-à-vis the person with the insurable interest. This person is described as the “assured” and it is assumed in this chapter that he is, at the same time, the policyholder. Only a company organised as a stock company, a public limited company, a mutual insurance company or a public corporation, may act as insurers.84 Assignment of insurance to beneficiary 10.65 Insurance certificates are often issued to the bearer in order to facilitate the trading of the insured goods on cost, insurance and freight (“CIF”) terms. In such cases, no formal assignment is necessary in order that the buyer of the goods becomes the assured; the certificate is simply handed over to the buyer together with the other purchase documents. 10.66 The certificate sets out the insurance conditions applicable (e.g., “DTV-Cargo” for all risks cover). The buyer of the goods and receiver of the certificate does not, however, become a party to the open cover policy or other form of insurance contract between the insurer and the policyholder. If the certificate refers to and seeks to incorporate the terms and conditions of the open cover policy or insurance contract, only terms and conditions that are not personal to the policyholder will be incorporated into the certificate. 10.67 An open cover contract, as such, is not transferable by assignment to a third party. Its terms and conditions, to a large extent, bind the policyholder as the contract partner, and the insurer cannot be forced to apply these terms and conditions in favour of a third party.

PAYMENT OF PREMIUMS Payable by whom 10.68 The insurance premium together with any additional costs and the insurance tax85 (the “premium”) is payable by the policyholder as the contract partner of the insurer. The assured, if not identical with the policyholder, is not liable for the premium. The insurance broker is not responsible for the premium. If an insurer employs an insurance agent, the premium is normally payable to such agent. This facilitates payment of the premium if various insurers participate in the cover through an agent. The insurance agent administers the contract for all participating insurers, credits each insurer for its proportion of the 83. Ritter-Abraham (fn. 1), s. 14 of the ADS General Rules of Marine Insurance, note 8; Ehlers (fn. 24), GVB, cl. 11, note 2. 84. Versicherungsaufsichtsgesetz (Act on Supervision of Insurance Companies). 85. Insurance tax is not payable for the insurance of goods carried internationally, s. 4 Versicherungssteuergesetz (Insurance Tax Act).

330

CONTRACTUAL TERMS

10.73

premium after deducting its commission etc, and later debits each insurer for its proportion of any claims. Due date 10.69 The premium is due immediately upon concluding the insurance contract (clause 12.1 DTV-Cargo) even if the cover only attaches later.86 The parties may agree otherwise. The premium is paid on time if payment is effected upon receipt by the policyholder of the insurance policy or the insurer’s premium advice (clause 12.2 DTV-Cargo). As a policy is often not issued, the premium advice, in practice, is usually decisive. Where there is an open cover, payment of the premium is always to be effected upon receipt of the premium advice (clause 5.3, Conditions for Open Covers). 10.70 If payment of the premium is not effected as above, the policyholder will be in default of payment upon receipt of a written reminder from the insurer setting a deadline for payment of at least two weeks (clause 12.3 DTV-Cargo). If the premium has still not been paid at the end of a further two weeks after the elapse of this deadline, the insurer may terminate the insurance contract without notice or, at his choice, at a later date. The premium remains payable nonetheless. If a loss occurs after the elapse of the deadline for payment of the premium, but before such payment is received, the insurer is not liable for the loss (clause 12.4 DTV-Cargo). The above-mentioned legal consequences may only be invoked by the insurer if he has advised the policyholder of them in writing. Sale of the insured goods 10.71 Where no policy has been issued and the insured goods are sold before the premium has been paid, the buyer is also liable for unpaid premiums jointly and severally with the policyholder (clause 14.1, sentence 2, DTV-Cargo). Where a policy has been issued, the insurer is liable to the buyer, despite the non-payment of premium unless the buyer knew or ought to have known about the non-payment (clause 14.2, sentence 1, DTV-Cargo). The buyer is entitled to cancel the insurance contract with immediate notice. This right to cancel lapses one month from the date of acquisition of the goods or the date the buyer became aware of the insurance, if later (clauses 14.6, 14.7 DTV-Cargo). 10.72 If a policy has been issued and the premium remains unpaid, the insurer remains liable to indemnify the buyer where there is a loss, unless the buyer knew that the premium was unpaid (clause 14.2, sentence 2, DTV-Cargo). Where the buyer is unaware that the premium has not been paid by the seller, the insurer is not entitled to cancel the insurance contract for non-payment of the premium by the buyer.

CONTRACTUAL TERMS Warranties 10.73 Under German insurance law, contractual terms that describe certain aspects of the subject-matter insured, or the state or condition in which it has to be in order that it be 86. Ehlers (fn. 19), AVB Güter, cl. 12, note 347.

331

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subject to the insurance cover, have a similar legal effect to “warranties” in English insurance law.87 If such contractual term has not been complied with, the insurer is discharged from liability without the necessity for any act or declaration of the insurer.88 In German insurance law, such contractual terms are called “Risikobegrenzungen” (limitation of risk subscribed, or restriction of risk subscribed). Examples include the age of the vessel used for the transport, or suitable packaging of the goods.89 By such contractual terms, the cover subscribed by the insurer is from the attachment of the risk to the situation where the conditions described in the warranty are met. 10.74 If a warranty term is breached, the insurer is discharged from liability. It is not necessary for the insurer to prove that the breach of warranty caused the damage. Neither is the discharge from liability dependent on negligence or other fault of the assured. A warranty-type term defines and limits what is insured, that is, the subject-matter insured. If the warranty term is not complied with, then the goods no longer form part of the subjectmatter insured. Conditions 10.75 Warranty terms are to be contrasted with terms under which the insurer’s liability is subject to the assured acting or not acting in a certain way. Contractual terms that introduce such conditions on the extent of the cover are called “Obliegenheiten” (which can be translated as “duties”). A breach of such duties cannot, of itself, be enforced by an insurer and a breach of these duties does not lead to damages payable by the assured unless there is a loss. Where there is a loss, a breach of duty may result in disadvantages for the assured whose claim against the insurer may be defeated or decreased because of such breach. The behaviour requested from the assured is the decisive characteristic feature of such terms. It is necessary for the insurer to describe the behaviour requested precisely in order that the assured is able to comply with his obligations.90 10.76 There is only one specific condition stipulated in the DTV-Cargo Conditions that has to be complied with prior to the occurrence of the damage event: the choice of a suitable means of transport. If, according to the insurance contract, the goods are to be carried by a specific means of transport, there are no further duties to be observed by the assured other than to employ this means. However, if the assured becomes aware of the unsuitability of this means of transport, he has to notify the insurer immediately (clause 7.2(2) DTV-Cargo) and possibly to abstain from dispatching the goods by this means. 10.77 Where no specific means of transport has been agreed with the insurer, the assured shall select and employ only such means of transport as is suitable for the carriage of the goods, assuming he is able to influence this choice for the intended carriage (clause 7.1(1) DTV-Cargo). The assured will not normally be able to influence the choice in cases where he is a CIF buyer or a buyer of goods in transit. A sea-going vessel, in order to be regarded as suitable, must meet the requirements of the DTV Classification and Age Clause; must 87. See Dunt, Marine Cargo Insurance, 2009, Informa, para. 6.1 et seq., and for a summary of the English position, see also para. 3.24 et seq. above. 88. See, in general, Prölss (fn. 82), s. 28 of the Insurance Contracts Act, note 5 et seq.; BGH, VersR 2008, 1107; BGH, VersR 2000, 969; BGH, VersR 1995, 328. 89. BGH, VersR 2002, 845; contrary view: Prölss (fn. 82), s. 28 of the Insurance Contracts Act, note 28. 90. Prölss (fn. 82), s. 28 of the Insurance Contracts Act, note 24.

332

10.80

CAUSATION 91

be certified in accordance with the ISM Code, where required; and her owner must be in possession of a valid Document of Compliance in accordance with the 1974 SOLAS Convention as amended. The assured, when booking the transport, must ensure that these requirements are fulfilled. The insurer is not liable for a loss if the assured breaches these obligations by way of a wilful or grossly negligent act unless the breach was not causative of the loss or damage or had no bearing on the scope of the indemnification (clause 7.2(1) DTV-Cargo). 10.78 If an unsuitable means of transport is employed, the goods will nevertheless be held covered if the assured was unable to exercise any influence on the choice of this means of transport, or if he exercised the diligence of a prudent businessman in choosing the carrier or forwarding agent (who decided on the choice of the means of transport). As soon as the assured becomes aware of the unsuitability of the means of transport, he is required to notify the insurer immediately and to pay a reasonable additional premium to be agreed with the insurer (clause 7.2(2) DTV-Cargo). Contractually agreed conditions 10.79 The insurer may impose special duties on the assured by agreement between the parties where the insurer regards such duties as necessary in view of any special characteristics of the goods or of the intended route, or the like. If the assured breaches such a duty wilfully, or by gross negligence, the legal consequences are the same as discussed in paragraph 10.77 above.

CAUSATION The principles of “adequacy” 10.80 An insurer is only liable for loss or damage suffered by the assured if the loss or damage was caused by an insured risk and not by circumstances (e.g., inherent vice) that are not covered by the insurance. Under German civil law, “principles of adequacy” have been developed to identify those causes of damage that are to be legally attributed to a person’s acts.92 A cause is considered “adequate” if it is “in general able to lead to the damage and not only under circumstances which are peculiar, improbable and are to be disregarded in the ordinary course of life”.93 These principles of causation apply to cargo insurance and, generally, do not cause difficulty where there is only one possible cause of the loss or damage. Difficulties can arise, however, if there are several causes of the loss or damage and not all these causes are insured risks. An example, which is often mentioned, is where, following a grounding, seawater penetrates into a vessel’s holds and the cargo stowed there suffers wet damage, and the delay of the voyage due to the grounding and the severe wetting leads to a further deterioration of the insured cargo. The possible “adequate” causes of the loss include: penetration of seawater, delay of the voyage, wetting of the cargo and deterioration of the cargo caused by the delay. The delay in the voyage and the deterioration 91. See Looks/Kraft, “Die zivilrechtlichen Auswirkungen des ISM Code”, TranspR 1998, 221. 92. General opinion; established jurisprudence, e.g., BGH, NJW 1981, 983. 93. BGH, NJW 1995, 126.

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of the cargo due to delay are not insured, whereas the penetration of seawater and the wet damage to the cargo are covered under the insurance. As far as the marine cargo insurance is concerned, the doctrine “causa proxima non remota spectatur est” has been developed to solve this conflict.94 Under this principle, in the example above, the grounding of the vessel followed by the penetration of water into her holds is to be regarded as the cause of the whole damage. Causa proxima 10.81 The yardstick for the doctrine of “causa proxima” is not the cause most proximate or closest in time, but the event that has caused the damage predominantly, or the cause that has to be regarded as the most effective for the occurrence of the damage.95 This principle is also called “cause proximate in efficiency”.96 An example of the application of this principle is a decision of the Hamburg Court of Appeal (OLG Hamburg).97 The facts were as follows: frozen goods were stowed too tightly in a reefer container and, for this reason, the fully functional refrigeration plant could not cool the goods sufficiently; deterioration damage occurred. The causa proxima for the deterioration was not inherent vice of the goods, but the inappropriately tight stowage. Therefore, the damage was covered under the insurance. 10.82 The principle of “causa proxima” is also invoked in cases that do not involve multiple “adequate” causes but raise the issue of intervening causation. For example, an insured vessel suffers damage due to grounding; before the repair work can start, the vessel is confiscated by an enemy government during wartime and is thereby lost; the war risk is not covered. The partial damage by grounding is covered as the claim for this damage is not extinguished by the later excluded war risk.98 In its reasoning, the Federal High Court (BGH) invoked the principle laid down in section 844 of the HGB,99 which provides that the insurer’s obligation to indemnify the assured for damage covered by the insurance is not extinguished due to further loss or damage resulting from a risk that is not covered, even if this results in a total loss. This is a principle generally applied in marine cargo insurance.100 It is also applied if the facts are the other way round, for example, where insured goods deteriorate on board the vessel due to inherent vice and the vessel sinks on her voyage afterwards. The cause of the damage remains “inherent vice” and as this risk is not covered, the insurer is not liable for so much of the loss as is attributable to inherent vice. 10.83 Although the doctrine of “causa proxima” was only applied by legal doctrine and jurisprudence to the carriage of goods by sea, falling within the scope of marine insurance law,101 it has now been expressly included in clause 2.6 of the DTV-Cargo Conditions. Its 94. Ehlers (fn. 24), GVB, cl. 2, note 246; Passehl, Die Beschaffenheitsschäden in der Seeversicherung unter Mitberücksichtigung des englischen und französischen Rechts, 1966, p. 71 et seq. 95. On the development of this jurisprudence and the doctrine leading to today’s understanding, see RitterAbraham (fn. 1), s. 28 of the ADS General Rules of Marine Insurance, note 22; BGH, VersR 2002, 845; BGH, VersR 1971, 1056; OLG Hamburg, VersR 1986, 1016; OLG Hamburg, VersR 1991, 544. 96. OLG Hamburg, VersR 1986, 1016/1018. 97. VersR 1991, 544. 98. BGHZ 2, 336. 99. In 2008, s. 844 of the German Commercial Code was repealed by the reform of the Insurance Contracts Act, see para. 10.9 et seq. above. 100. BGHZ 104, 356/360. 101. Sieg, in: Bruck/Möller, Versicherungsvertragsgesetz, 8th edn., s. 49 of the ADS General Rules of Marine Insurance, no. 144.

334

TYPES OF POLICY IN USE

10.86

applicability is thereby safeguarded for the insurance of goods on inland and air transports, which has previously been in dispute.102

TYPES OF POLICY IN USE Policies and open covers 10.84 The DTV-Cargo Conditions were drafted with individual transit insurance contracts in mind and this was also the case for the ADS General Rules of Cargo Insurance 1973 and the ADS General Rules of Marine Insurance.103 The provisions contained in clause 11 of the DTV-Cargo Conditions concerning the policy refer to insurance for such individual transits. 10.85 In practice, a cargo insurance contract may either insure an individual transit (as mentioned above) or be in the form of an open cover insuring more than one transit. An open cover, in turn, may operate as a general policy or be in the form of a turnover policy.104 The requirements for an open cover are set out in the “Bestimmungen für die laufende Versicherung” (Special Conditions for Open Policies), which supplement the provisions of the DTV-Cargo Conditions. These provisions do not use the term “general policy” or “turnover policy”, but apply a procedure of notification by declaration. Declarations may take one of two forms: either all transits and storage risks are notified individually, stating their insured value, or the turnover values of the goods carried and stored are notified in summary at certain intervals (e.g., monthly, quarterly). The document issued when agreement on such an insurance cover is concluded is called an “open policy”. It is, however, made clear in clause 6 of the Special Conditions for Open Policies that the term “policy” does not have the meaning used for the cover of individual transits as the word “policy” used in the Insurance Contracts Act or in clause 11 of the DTV-Cargo Conditions. Legal significance of the policy 10.86 The policy evidences the terms and conditions (contents) of the contract concluded with the assured. There is a presumption in favour of the correctness and completeness of the contents of the policy.105 As the policy is issued by the insurer and is not signed by the assured, the evidentiary value of the policy is directed initially against the insurer. The latter may prove the incorrectness or incompleteness.106 According to clause 11.4 of the DTV-Cargo Conditions, the evidentiary value of the policy becomes conclusive unless the assured contradicts its contents immediately after having received the document; a lack of or a delayed contradiction is regarded as approval of the terms of the policy. A similar rule is provided for in section 5(1) of the Insurance Contracts Act, which provides that the policy is conclusive evidence of the terms of the contract even where the terms of the policy 102. For the insurance of combined transports, the doctrine of “causa proxima” was also applicable when applying the ADS General Rules of Cargo Insurance 1973 (s. 124(3) of the ADS General Rules of Marine Insurance to which cl. 9.6 of the ADS General Rules of Cargo Insurance 1973 refers). 103. See Enge (fn. 77), p. VIII; Ehlers (fn. 19), AVB Güter, cl. 11, note 320. 104. See, e.g., Armbrüster (fn. 16), s. 53 of the Insurance Contracts Act, notes 6–9. 105. OLG Karlsruhe, VersR 1995, 909. 106. Ritter-Abraham (fn. 1), s. 14 of the ADS General Rules of Marine Insurance, note 9.

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differ from the insurance proposal or application unless the assured queries the terms of the policy in writing within one month after receipt. This rule is subject to the proviso that the insurer has pointed out to the assured that failure to query the policy terms will render them binding. According to section 5(2) of the Insurance Contracts Act, the insurer must highlight all and any differences in the terms of the policy from the proposal or application and the legal consequences of those differences. This provision is not applicable if the DTVCargo Conditions have been agreed. The provision in the Insurance Contracts Act referred to is a typical consumer protection clause. 10.87 If a policy has been issued, the insurer is not obliged to pay the indemnity until the policy is presented to the insurer by the holder (clause 11.2 DTV-Cargo), which also applies in cases where the policy is not issued “to order” but direct to the original assured. The policy need not be returned as the insurer has no right to claim its return. Unless the policy is presented, the insurer is not considered to be in arrears with the payment of a claim or any payment due in case of maturity. On the other hand, the insurer may pay without presentation of the policy if payment is effected to the beneficiary, and the policy does not contain a payment clause providing that payment can only be made on presentation or handing over of the policy. Without presentation of the policy, the insurer bears the risk of not being discharged from liability. If the policy is presented, the insurer is discharged upon payment to the holder even if the holder is not the true beneficiary, unless the insurer has had positive knowledge of the non-entitlement.107 This is because the policy is a document of identification in accordance with section 808 of the German Civil Code.108 However, where a policy, or a certificate of insurance, is issued under an open policy, and expressed to be issued in the name of the holder of the document, with a clause, for example, “in favour of the bearer” or “claims payable to the holder”, this is not a true negotiable document according to the jurisprudence and the textbooks.109 In cases of marine insurance, it is only a document of proof so that any defence, such as infringement of the pre-contractual obligation of disclosure or the duty to give notice of any increase in risk, can be invoked by the insurers, against the holder of the certificate. A policy or a certificate of cargo insurance is not intended to operate as a negotiable instrument as that is not its economic purpose and, accordingly, no rights separate from the insurance contract are created.110 If it is intended that the holder of a certificate should have better rights than the assignor, this needs to be laid down explicitly in the policy or in the certificate. 10.88 The policy may also be issued “to order”. In this case, it has to contain an explicit order clause. Such a policy is transferable by endorsement. It is a negotiable instrument and clause 11 of the DTV-Cargo Conditions does not apply, neither does section 14 of the ADS General Rules of Marine Insurance.

107. OLG Hamm, VersR 1996, 615; in dispute whether this also applies for grossly negligent lack of knowledge: in the affirmative, OLG Düsseldorf, NJW 1987, 654. 108. Ritter-Abraham (fn. 1), s. 14 of the ADS General Rules of Marine Insurance, note 24; expressly s. 4(1) of the Insurance Contracts Act, if the policy was issued in the name of the holder. 109. BGH, VersR 1962, 659; Ritter-Abraham (fn. 1), s. 14 of the ADS General Rules of Marine Insurance, note 29; Enge (fn. 19), p. 191 et seq. 110. Ehlers (fn. 19), AVB Güter, cl. 11, note 326; BGH, VersR 1962, 659.

336

RISKS COVERED

10.91

Certificate 10.89 A certificate is evidence of the terms and conditions of the insurance cover; it also functions as a promissory note as the insurer undertakes to pay the indemnity in accordance with the conditions mentioned in the certificate; and finally, it is a document of title as the insurer is entitled to discharge his liability by paying the holder of the certificate.111 An insurer issues a certificate under an open policy, as a form of framework contract, to prove the coverage for individual transits so as to enable the assured to negotiate the certificate to his customer, together with the other documents, for example, in a CIF sale of goods. The certificate is a deed on the insurance cover for an individual transit and is regarded as the “policy” by law and by the DTV-Cargo Conditions.

RISKS COVERED Risks insured All risks 10.90 In Germany, cargo insurance is traditionally insured on all risks terms subject to particular risks that are explicitly excluded from coverage by law or by general insurance conditions or terms individually agreed. Historically, section 820(1) of the HGB provided: “The insurer bears all risks to which the vessel or the cargo are exposed during the insurance period unless otherwise provided by this code or by contract”. In 1919, this section was, in practice, replaced by section 28 of the ADS General Rules of Marine Insurance, and it still applied in the ADS General Rules of Cargo Insurance 1973.112 This provision for all risks cover now appears, in almost identical wording, in clause 2.1 of the DTV-Cargo Conditions.113 Finally, as to transits on land and by inland waterways, section 130(1) of the Insurance Contracts Act provides that the insurer bears “all risks to which the cargo is exposed during the insurance period”. 10.91 The subject-matter of cargo insurance is the insurable interest in the goods described in the insurance contract.114 The term “risk” means the possibility of a disadvantageous event that threatens this insured interest. Within the scope of an insurance cover, this event has to be uncertain and unforeseeable. Should the risk materialise, this must be detrimental to the insured interest. The insurer bears the risk and indemnifies the assured for loss or damage attributable to the occurrence of the insured risk. Although the insurer bears “all risks”, it was often said in textbooks, with regard to the ADS General Rules of Cargo Insurance 1973, that a restriction on all risks cover could be inferred from the description of the insured interest in section 1(1) of the ADS General Rules of Marine Insurance. These rules refer to “the safe completion of a marine adventure” and this phrase had been construed to mean that the risk covered must be one closely connected to the 111. For details, see Enge (fn. 19), p. 190 et seq. 112. Section 28 of the ADS General Rules of Marine Insurance is also applicable for cargo insurance (cl. 9.6 of the ADS General Rules of Cargo Insurance 1973/84); cl. 1.1.1 of the ADS General Rules of Cargo Insurance 1973/84 repeats the all risks cover. 113. There are also special conditions on “restricted coverage”, which only differ in cl. 2 from these conditions as regards the extent of the insurance cover. 114. As to the insurable interest, see para. 10.31 above.

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performance of the “marine” or sea voyage.115 Accordingly, all risks did not extend to cover commercial risks, for example, the insolvency of the shipowner or charterer. However, the Federal High Court in the case of The MV Green Park116 decided to the contrary,117 and held that those risks that are excluded from all risks cover must be precisely and explicitly named in the contract. 10.92 In consequence of this judgment, the ADS General Rules of Cargo Insurance 1973 were amended in 1984 by adding explicit exclusions of losses caused by insolvency or delayed payment by the shipowner, charterer or operator of the vessel. Losses due to other financial disputes with these parties were also excluded (clause 1.1.2.5 of the ADS General Rules of Cargo Insurance 1973/84). The DTV-Cargo Conditions now describe the insurable interest in clause 1.1.1 as “any monetary interest that a person has in seeing that the goods survive the perils of transport and associated storage”. There is no restriction on the cover for risks closely and typically connected with transport or storage,118 but there are explicit exclusions, including an exclusion of insolvency or financial default of the shipowner (clause 2.4.1.6 DTV-Cargo).

EXCLUSIONS Introduction 10.93 According to the DTV-Cargo Conditions (full cover), the insurer bears all risks to which the goods are exposed during the insurance period (clause 2.1 DTV-Cargo). If an insured risk materialises and if this incident results in damage, the insurer is generally obliged to indemnify this damage. “Damage” means loss of or damage to the insured goods or other insured interest.119 However, war and certain related perils, as well as insolvency, are not covered under the all risks clauses by virtue of clause 2.4 of the DTV-Cargo Conditions.120 Moreover, damage due to certain causes is excluded by clause 2.5 of the DTVCargo Conditions. This stipulation can be traced back to the provisions in section 821 no. 3 of the HGB, section 131(2) of the Insurance Contracts Act 1908 and sections 28, 86 of the ADS General Rules of Marine Insurance.121 It corresponds essentially with clause 1.4 of the ADS General Rules of Cargo Insurance 1973. Loss or damage excluded from the insurance is now considered in detail. Perils such as war and insolvency, to which special rules apply, are then examined in paragraph 10.111 et seq. below.

115. See Enge (fn. 19), pp. 49-50; Looks, Neuere Rechtsprechung zum Recht der Gütertransport- und Kasko-Versicherung, Schriften des Deutschen Vereins für Internationales Seerecht, Reihe A, Heft 6, 1988, p. 13; Ritter-Abraham (fn. 1), s. 28 of the ADS General Rules of Marine Insurance, note 11; Sieg (fn. 101), s.49 of the ADS General Rules of Marine Insurance, note 130. 116. BGH, VersR 1981, 524 f. 117. Ehlers (fn. 24), GVB, cl. 2, note 12. 118. Ehlers (fn. 24), GVB, cl. 1, note 20. 119. See para. 10.127 et seq. below for the duration of storage risks. 120. As to war and insolvency, see para. 10.112 et seq. below. 121. Whereas a similar provision is missing in the Insurance Contracts Act.

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Exclusions Delay in the voyage 10.94 According to clause 2.5.1.1 of the DTV-Cargo Conditions,122 damage due to delay in delivery of the cargo is not covered under cargo insurance.123 The cause of the delay can be, for example, engine damage to the carrying truck, or the vessel, strikes or boycotts, roadblocks, collisions or inadequate loading. It may be due to a risk covered or not covered. A typical example of damage due to delay is loss in the market value of goods that have to arrive at the place of destination in time for certain occasions, for example, trade fairs and for Christmas business. If the delay in the voyage does not cause damage to the goods themselves, the insurer is not liable to indemnify such a loss in market value due to delayed arrival at the place of destination. 10.95 Where a delay in the voyage does not in itself lead to physical damage to the goods,124 a further cause may ensue. This can be, for example, the nature of the subjectmatter insured, if the goods are subject to inherent vice in the course of time. The natural properties of perishable goods, and not the delay of the voyage, are in such cases considered the relevant causa proxima.125 On the other hand, a risk covered can be the cause of the damage irrespective of an ensuing delay. In a case in the Hamburg Court of Appeal (OLG Hamburg of 18 August 1983),126 seawater penetrated a consignment of rice due to bad weather; the vessel had to wait for a longer time in the roads off Lagos, the port of destination, for discharge of the cargo; this long waiting time increased the wet damage to the rice. The initial damage to the cargo by penetration of seawater was covered by an all risks cargo insurance. The same applied to the increase in the damage due to the waiting time (delay of the voyage) because, without the preceding wet damage, the waiting time itself would not have caused any harm to the rice.127 The initial damage by seawater was also the causa proxima for the increase of the damage. Inherent vice or the nature of the subject-matter insured 10.96 Clause 2.5.1.2 of the DTV-Cargo Conditions128 provides that the insurer is not liable for inherent vice or the nature of the goods. If the nature of the subject-matter insured leads to physical damage to the cargo, which would have occurred during the ordinary course of the transit, this damage is not covered, as the insurance only covers damage due to unforeseen events caused by external hazards. Examples of damage to certain types of goods that occurs during the ordinary course of transit are self-heating of coal or cotton,129 mould, flash rust and natural loss. The ordinary breaking of glass or porcelain during transport is also subject to this exclusion if the cargo is so delicate that breakage may occur even by normal unavoidable strains during transport.130 However, in these cases, improper packaging of 122. See also cl. 1.4.1.1 of the ADS General Rules of Cargo Insurance 1973. 123. However, this damage may be covered by special DTV Clauses for the insurance of loss consequential to damage to goods and for exclusive financial loss. 124. See already Passehl (fn. 94), p. 84. 125. Causa proxima: see para. 10.81 above. 126. VersR 1983, 1151. 127. Contrary view by Enge (fn. 19), p. 121; as here: Ehlers (fn. 24), GVB, cl. 2, note 215. 128. Also cl. 1.4.1.2 of the ADS General Rules of Cargo Insurance 1973. 129. OLG Hamburg, VersR 1998, 580. 130. Still mentioned in s. 86 of the ADS General Rules of Marine Insurance.

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the goods is often the real cause for the damage (such damage is also excluded by clause 2.5.1.5 DTV-Cargo, see paragraph 10.103 below). 10.97 Insurers are not liable for damage due to self-ignition, self-heating or ship’s sweat, even if exterior events, to be anticipated during the voyage, were the cause of the damage (e.g., fluctuation in climate).131 Such risks are often specifically insured by individual agreement in the case of goods susceptible to such damage. In a case decided by the Court of Appeal of Hamburg (OLG Hamburg), kapok was specifically insured against self-heating; a fluctuation in climate that was to be anticipated during the voyage in question triggered the self-heating of the goods; it was only because of the special inclusion of the self-heating risk into the insurance cover that the insurers were liable to indemnify the claim.132 10.98 The term “inherent vice” refers to the natural biological or bacterial processes in the goods, which make them rot, mould, ferment or otherwise change. This is not only the case with perishable goods like fruit, vegetables, meat or fish, but also with chemicals if these are subject to a chemical process solely due to lapse of time. Customary differences in quantity, measure and weight 10.99 Clause 2.5.1.6 of the DTV-Cargo Conditions133 provides that the insurer is not liable for loss or damage arising from customary differences or losses in number, weight or measure of the goods. If there is a difference in the quantity, measure or weight customary in the trade, which is normal and known beforehand, this is not a consequence of an unforeseen insured event and such damage is not covered under cargo insurance. The extent of these differences depends on the kind of goods, the method of transport (e.g., packed or bulk cargo) and the climatic zones through which the goods travel. For example, with a bulk cargo of grain, there will always be a certain percentage of the loaded quantity that remains in the ship’s holds at the port of destination, which cannot be discharged by reasonable economic methods. The same applies for liquid goods, for example, crude oil.134 Loss in weight during transport can occur by normal evaporation of part of the moisture contained within the goods themselves, for example, in consignments of coffee or cocoa. 10.100 Apparent differences in weight established at the port of loading and of delivery may occur due to inexact methods of weighing, or the use of different methods of weighing, in different ports. Where the goods are sold on the basis of shipped weight, the buyer has to bear this risk, whereas this risk lies with the seller if sales are made on the basis of delivered weight, unless the decrease in weight has occurred due to unforeseeable exterior causes affecting the cargo. Loss and damage due to differences in weight that are to be anticipated as being customary in the trade are excluded.135 10.101 If the insurer and the assured agree on a deductible for differences or losses in quantity, measure and weight customary in the trade, such differences are regarded as settled by the agreed deductible, even if this deductible is agreed at a lower percentage than 131. Ritter-Abraham (fn. 1), s. 86 of the ADS General Rules of Marine Insurance, notes 7 and 16; OLG Hamburg, VersR 1998, 580/581. 132. OLG Hamburg, VersR 1998, 580. 133. Also cl. 1.4.1.3 of the ADS General Rules of Cargo Insurance 1973. 134. Despite “crude oil washing” or similar methods. 135. See as to this aspect, Enge (fn. 19), p. 148 et seq.

340

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10.104

customarily assumed in the trade for such differences. Should the latter customarily be, for example, 3%, but the agreed deductible is only 2%, only differences to the extent of 2% are excluded from the insurance payment.136 The deductible has to be agreed expressly for the coverage of these customary differences or losses. Ordinary air humidity or ordinary fluctuations in temperature 10.102 Clause 2.5.1.4 of the DTV-Cargo Conditions137 provides that the insurer is not liable for losses arising from ordinary humidity or fluctuations in temperature. Ordinary air humidity and ordinary fluctuations in temperature are perils that are not covered by the insurance as they are not fortuitous and unexpected events. Accordingly, loss or damage that results therefrom is not covered. Inappropriate or inadequate packing 10.103 Clause 2.5.1.5 of the DTV-Cargo Conditions138 provides that the insurer is not liable for inappropriate or inadequate packing or incorrect stowage in so far as the assured acted wilfully or with gross negligence. The method of packing the goods to be carried can have a considerable influence on whether the goods arrive safely at the place of delivery. The assured, as the buyer or the seller of the goods, is able to influence how the goods are packed for transport. Defects of the packing of the goods have always been a reason to exclude the insurer’s liability. In section 821 no. 3 of the HGB, section 131(2) of the Insurance Contracts Act 1908 and section 86 of the ADS General Rules of Marine Insurance, the exclusion of the insurer’s liability was based on “defective” packing as an objective cause of the damage. Negligence of the assured was irrelevant. Clause 1.4.1.5 of the ADS General Rules of Cargo Insurance 1973 refers, in this respect, to the lack or defect of packing “usual in the trade”. The packing need not be suitable for the intended carriage, it is sufficient that the particular packing is in a form usually applied in the trade. The yardstick is the usage customary at the place of loading.139 Negligence is irrelevant.140 The amendments of 1994 to the ADS General Rules of Cargo Insurance 1973 replaced the expression “usual in the trade” by the expression “adequate to the transport”. The objective requirements of the particular transport are to be taken into account. If packing is applied which is used in the trade but which does not comply with the objective criterion of being “adequate to the transport”, the insurer’s liability is excluded. Negligence of the assured is again irrelevant. 10.104 In practice, this exclusion of insurers’ liability was frequently amended by introducing a negligence clause to trigger the exclusion. Such a negligence clause has now been added to the exclusion of inadequate packing in clause 2.5.1.5 of the DTVCargo Conditions: insurers’ liability is only excluded if the assured caused the inadequate packing (or incorrect stowage) “wilfully or with gross negligence”. Whether the packing is “inadequate” depends on the requirements of the particular transit, which will include such matters as: the means of carriage used, the duration of the transport, any necessary 136. OLG Hamburg, Sasse (fn. 72), no. 381; Enge (fn. 19), p. 150; Ehlers (fn. 19), AVB Güter, cl. 2, note 156. 137. Also cl. 1.4.1.4 of the ADS General Rules of Cargo Insurance 1973. 138. Similarly, cl. 1.4.1.5 of the ADS General Rules of Cargo Insurance 1973. 139. BGH, VersR 1996, 1260. 140. BGH, VersR 1996, 1260; Enge (fn. 19), p. 125.

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transhipments of the goods and the different climatic zones to be passed.141 Only the foreseeable incidents and stresses of a normal transport are to be taken into account. No extraordinary standards are to be applied. Defects in the packing may be due to defective materials used, faulty methods of packing or inappropriate design for the packing. The courts have repeatedly treated the inappropriate stowage of goods in containers as defective packaging. The goods have to be properly stowed and secured in a container.142 The container is treated as part of the packaging of the goods carried therein.143 10.105 Clause 2.5.1.5 of the DTV-Cargo Conditions not only deals with inappropriate or inadequate packaging of the goods, but also with “incorrect stowage”. This is to be regarded as a cause of damage in its own right and encompasses all stowage of the goods in the hold or on the deck of the vessel if performed by the assured or persons representing him. The exclusion was previously found in clause 3.1 of the DTV Machinery Clause 1973 and has been transferred into this clause of the DTV-Cargo Conditions.144 10.106 The insurer is only discharged from liability if the assured has acted wilfully or with gross negligence, thereby causing the defects in the packaging. It is of importance to determine whether the assured is liable for the negligence of a third party that has performed the packing. If the assured instructs an external packing firm, it is obliged to carefully select them (e.g., with a view to the packers special knowledge as to seaworthy packaging) and to advise the packing firm with regard to any special characteristics of the goods, for example, if they are delicate or fragile. If the assured has developed the packaging design, he has a duty to instruct the packing firm accordingly and to supervise and control the performance of the packing. In all other cases, the faults of the external packing firm are not attributable to the assured; in particular, the firm is not the assured’s “representative” within the meaning of insurance law.145 The insurer has the onus of proof regarding “inadequate packaging” and “incorrect stowage”; however, if such is proved, the assured has the burden of exonerating itself as to wilfulness or gross negligence. Indirect loss/damage146 10.107 Clause 2.5.2 of the DTV-Cargo Conditions provides that the insurer is not liable for indirect loss or damage in whatever form. This exclusion of indirect damage of any kind from the insurer’s liability was also contained in clause 1.4.2 of the ADS General Rules of Cargo Insurance 1973. Clause 2.5.2 of the DTV-Cargo Conditions includes the words “unless otherwise agreed”. These added words indicate that indirect damage may be covered as part of the insurable interest, if so agreed. Examples of this include: anticipated profit, customs charges, freight, taxes and other charges according to clause 1.1.3 of the DTV-Cargo Conditions.147 Consequential losses suffered as a result of loss of or damage to the goods, and pure financial losses remain excluded.148 Cover for such risks may be 141. OLG Bremen, VersR 1988, 716. 142. BGH, VersR 1996, 1260; OLG Bremen, VersR 1988, 716. 143. BGH, VersR 1971, 559. 144. Ehlers (fn. 24), GVB, cl. 2, note 235; Koller (fn. 49), DTV-Güter, cl. 2, note 5; Koller, Transportrecht, 7th edn, 2010, s. 412 of the German Commercial Code, note 5. 145. Ehlers (fn. 19), AVB Güter, cl. 2, note 164; contrary view in OLG Karlsruhe, TranspR 1994, 445; Enge (fn. 19), p. 125. 146. Similarly, cl. 1.4.2 of the ADS General Rules of Cargo Insurance 1973. 147. See also para. 10.91 above for insurers’ view that commercial risks are not covered. 148. BGH, TranspR 2005, 38; Koller (fn. 49), DTV-Güter, cl. 2, note 5.

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WAR, STRIKES, TERRORISM AND INSOLVENCY

10.111

re-included into the insurance contract by agreeing a special clause, in particular the “DTVKlausel für die Versicherung von Güterfolge- und reinen Vermögensschäden” (the DTV clause for coverage of consequential losses suffered as a result of damage to goods and of pure financial losses). Consequential losses suffered as a result of damage to goods under this clause require physical loss of or damage to the goods themselves as a precondition to recovery under the insurance contract. Fault of the assured: wilful misconduct/gross negligence 10.108 Clause 3 of the DTV-Cargo Conditions provides that the insurer is not obliged to indemnify if the loss is caused by a wilful or grossly negligent act of the assured. If the assured causes the loss wilfully, this damage is not covered under the insurance because the loss was not caused by an unexpected external event. The insurers’ obligation to indemnify the assured is excluded. Under previous legal provisions and insurance conditions, the insurers’ liability was excluded in case of any fault of the assured, even in cases of slight negligence.149 The market has now restricted the exclusion to cases of wilful and grossly negligent acts of the assured. The legal provisions in clause 3 of the DTV-Cargo Conditions are now in line with section 137 of the Insurance Contracts Act. 10.109 A “wilful act” means an act done with knowledge and intention of the unlawful consequence of that act. The assured needs to know the factual circumstances of his act and must accept the result of it.150 Anybody who neglects the required due diligence to a considerably high extent or – according to a formula in common use – who does not take into account what is obvious, or does not take into consideration what everybody would have customarily considered in the circumstances, acts “grossly negligently”.151 10.110 The damage must have been caused by this behaviour. An intentional, or grossly negligent, omission to act is sufficient. This arises where the assured can control the causative event by taking obvious action to protect the subject-matter insured as any prudent uninsured person would do if they knew the circumstances.152 The Federal High Court (BGH) has affirmed this in a case in which the assured omitted to remove insured cars from a storage place to protect them from rising floods of a river although the danger was obvious and he could have done so in time.153

WAR, STRIKES, TERRORISM AND INSOLVENCY Perils not covered under all risks 10.111 Cargo insurance on the DTV-Cargo Conditions is, in principle, against all risks, but there are nevertheless some perils that are not generally covered, though some of these 149. Section 821(4) of the German Commercial Code; ss. 61, 130 of the Insurance Contracts Act 1908; s. 33(1) of the ADS General Rules of Marine Insurance. 150. Corresponding to the term “intent” in general civil law, see Grüneberg, in: Palandt, German Civil Code (BGB), 71st edn., 2012, s. 276, note 10. 151. BGH; NJW 1992, 316; Grüneberg (fn. 150), s. 277 of the German Civil Code, note 2. 152. BGH, VersR 1986, 962. 153. BGH, VersR 1976, 649.

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excluded risks can be re-included into the cover by agreeing special clauses (see paragraph 10.104 above). The perils not covered under all risks as listed in clause 2.4 of the DTVCargo Conditions are now considered. As the insurance is, in principle, against all risks, the risks excluded must be expressly named in the insurance, otherwise the insurer is bound by the all risks coverage.154 War, civil war and warlike events 10.112 The risks of war, civil war and warlike events are traditionally not covered by all risks cargo insurance, though cover may, in practice, be provided under the DTV War Risk Clauses. The DTV-Cargo Conditions use the same wording as clause 1.1.2.1 of the ADS General Rules of Marine Cargo Insurance 1973/84/94.155 In this respect, clause 2.4.1.1 of the DTV-Cargo Conditions excludes, “war, civil war or similar hostilities”. Losses that arise out of the use of hostile weapons of war, or from the existence of derelict weapons of war, are similarly excluded, as considered in paragraph 10.118 below. The reason why war risks are covered separately is that the damage caused by these risks is not foreseeable and the insured’s exposure cannot be calculated beforehand on the same basis as all risks cover. The various war and related risks excluded from the DTV-Cargo Conditions are now considered. 10.113 In terms of insurance law, “war” means any armed conflict between at least two states. “War” requires the use of weapons or the thrust of armed forces into foreign territories.156 Attacks by terrorists in areas other than the actual combat area are included within the term “war” if the attacks are part of the overall military planning or are promoted or expressly approved of by one of the parties at war.157 The exclusion of “war” does not apply to the violent actions of individuals or fanatical groups, but these losses may be excluded under clause 2.4.1.2 of the DTV-Cargo Conditions, which excludes violence by terrorists or political groups.158 10.114 In connection with the Iraq/Iran war, in a number of cases, consignees were deprived of consignments on vessels that were blocked in the Persian Gulf, because, in the foreseeable future, there was no chance that these consignments could be delivered. If the assured is irretrievably deprived of his goods, this is a loss even if the goods, as such, still exist without damage in substance.159 In the above example, the cause for the loss was the Iraq/Iran war and therefore there was no cover under the cargo insurance. The war risk was only covered where the goods were insured under the DTV War Risks Clauses and where the insurance extended to cover deprivation and not only physical loss. 10.115 “Civil war” is an armed conflict between rebellious groups and governmental forces within a state, and includes a conflict among opposing groups in a state to gain predominance where the constitutional government is no longer in office, or no longer has any effective power.160 154. BGH, VersR 1981, 524 (The Green Park). 155. See Fricke, “Rechtliche Probleme des Ausschlusses von Kriegsrisiken in AVB -II. Folge-”, VersR 2002, 6. 156. Fricke, “Rechtliche Probleme des Ausschlusses von Kriegsrisiken in AVB”, VersR 1991, 1098; Armbrüster (fn. 16), s. 2 AFB 2008, note 3 et seq.; OLG Hamburg, VersR 2003, 730. 157. Enge (fn. 19), p. 318; Fricke (fn. 156), VersR 1991, 1098; Armbrüster (fn. 16), s. 2 AFB 2008 notes 5, 23. 158. See para. 10.120 below. 159. See para. 10.151 below. 160. Enge (fn. 19), p. 318; Ehlers (fn. 24), GVB, cl. 2, note 153: even if the government can still exercise its power.

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10.120

10.116 Warlike events or “similar hostilities” are acts of violence between states although these states are not yet at war. 10.117 Clause 2.4.1.1 of the DTV-Cargo Conditions excludes risks arising out of the “hostile use of weapons of war” – whether war be declared or not. This alternative is only important if it is not clear whether the weapons of war were used during the existence of a war, civil war or warlike operation. The exclusion only applies if the weapon of war was, in fact, used in accordance with its designated “hostile” purpose and not for private purposes, or accidentally. Where, for example, a warship collides with a commercial vessel due to a nautical fault, that is not a “hostile use” of a weapon of war.161 Existence of derelict weapons of war 10.118 Loss or damage is excluded where it is caused by military equipment left over after a war, civil war or similar hostilities. There also has to be a causative link between the war etc and the existence of such military equipment. Accordingly, damage that occurs in connection with the transport of weapons in peacetime, or with the explosion of weapons in a depot in peacetime, is not subject to this exclusion. Strikes, lockouts etc 10.119 Clause 2.4.1.2 of the DTV-Cargo Conditions excludes “strikes, lock-outs [and] industrial unrest”, that is, the results of industrial conflicts. As to “strikes”, it is not essential that the strike is a legal strike, as defined by German labour law, as the word “strikes” includes a political strike and a strike out of solidarity. This clause excludes not only losses caused by the actions of the persons on strike but also the actions of sympathisers.162 In 1973, following the exclusion in the Institute Cargo Clauses of “persons taking part in labour disturbances”, the exclusion of the risk of “industrial unrest” was adopted in the ADS General Rules of Cargo Insurance 1973 and is now maintained in the DTV-Cargo Conditions. This is a general exclusion clause for violent actions due to labour unrests.163 10.120 Clause 2.4.1.2 of the DTV-Cargo Conditions also excludes a further group of risks defined as “acts of violence by terrorist or political groups – regardless of the number of people involved – riots and other civil commotions”. This exclusion is concerned with partly political and partly apolitical violence. In 1984, terrorist violent actions by individuals or groups were excluded by clause 1.1.2.2 of the ADS General Rules of Cargo Insurance. The action has to be politically motivated and violent and acts of sabotage for other, especially personal, reasons are covered by the insurance. The reference to “terrorist or political groups” means that the action must be directed against the government, even if only indirectly. This includes the case where the direct target of the violence is, for example, a private company. “Riots” means a riotous assembling of a considerable number of people who want to fight against the government.164 It is a preliminary stage of a civil war. “Civil commotions” differ from “riots” in that they are not necessarily politically motivated; they need not be directed against the government; and, in general, they are 161. Ehlers (fn. 19), AVB Güter, cl. 2, note 120; Enge (fn. 77), p. 19. 162. Enge (fn. 77), p. 19. 163. Enge (fn. 77), p. 20. 164. Enge (fn. 19), p. 317.

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violent actions against persons or objects.165 Violent actions of individuals during peaceful mass demonstrations are not subject to this exclusion. Confiscation, deprivation of possession or other acts of [the] authorities 10.121 Clause 2.4.1.3 of the DTV-Cargo Conditions excludes “confiscation, deprivation of possession, or other acts of [the] authorities”. “Confiscation” occurs where the power of disposition over the object is withdrawn or restricted by the government in favour of the state, for example, under customs laws or health laws.166 An “act of [the] authorities” may be an arrest, seizure or injunction to enforce third party’s claims under civil law. Should damage to goods be caused by a customs officer during a customs inspection, this is not an “act of [the] authorities” in the meaning of this clause167: on the one hand, there is insurance cover and, on the other hand, the state is liable to indemnify the damage. The exclusion of “other acts of [the] authorities” applies to all governmental measures, even if they only affect the goods indirectly, for example, by the blocking of roads, sea routes and ports. Frequently, the goods do not suffer damage, but after a certain time the assured can be deemed to have been irretrievably deprived of the goods, which are thus regarded as lost.168 Chemical, biological, biochemical substances etc 10.122 Clause 2.4.1.4 of the DTV-Cargo Conditions excludes risks resulting from the use of chemical, biological, biochemical substances or electromagnetic pulses used as weapons with a dangerous effect on public safety. The aforementioned substances must be used “as weapons”, that is purposefully aimed at people or objects with the intention of hurting, damaging or destroying them.169 Nuclear energy and ionising radiation 10.123 Clause 2.4.1.5 of the DTV-Cargo Conditions excludes nuclear energy and ionising radiation. This is a complete exclusion of any risks in connection with radioactive material, nuclear energy plants, nuclear weapons etc. In some circumstances, for example, the use of nuclear materials for peaceful commercial purposes, these risks may be covered, see paragraph 10.124 below. Cover for war, strikes and confiscation 10.124 Clause 2.4.2 of the DTV-Cargo Conditions provides that the risks excluded by clauses 2.4.1.1 (war), 2.4.1.2 (strikes) and 2.4.1.3 (confiscation) may be covered by the DTV War Clause, the DTV Strikes, Riots and Civil Commotions Clause and the DTV Confiscation Clause. The DTV War Clause only applies to the insurance of goods carried 165. BGH, VersR 1975, 126; BGH, VersR 1975, 175. 166. Enge (fn. 19), p. 52; Ehlers (fn. 19), AVB Güter, cl. 2, note 133; Ritter-Abraham (fn. 1), s. 35 of the ADS General Rules of Marine Insurance, note 20. 167. Ehlers, “Transportversicherung – Güterversicherung – Versicherung politischer Gefahren”, TranspR 2006,7, 14; Koller (fn. 49), DTV-Güter, cl. 2, note 4; different: OGH (Austrian Supreme Court), VersR 1988, 198. 168. See para. 10.151 below. 169. Ehlers (fn. 167), TranspR 2006, 13.

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WAR, STRIKES, TERRORISM AND INSOLVENCY

10.126

by sea or carried by international air transport. A separate special clause applying to the transport of goods by land or on rivers, and to intermediate storage of goods in the ordinary course of transit, covers the special risks of derelict weapons of war (“Derelict Weapons of War Clause”). Although not mentioned in clause 2.4.2 of the DTV-Cargo Conditions, it is possible to cover (amending the exclusion in clause 2.4.1.6 DTV-Cargo) the risk of damage to goods by radioactive isotopes (other than nuclear fuel) if these “are being prepared, transported, stored or used for commercial, agricultural, medical, scientific or other similar peaceful purposes” (Radioactive Isotopes Clause).170 Insolvency and financial default 10.125 Clause 2.4.1.6 of the DTV-Cargo Conditions provides that insolvency and financial default are not covered. For a long time, the insolvency or financial default of shipowners, charterers or the operators of vessels was considered by underwriters to be a commercial risk of the assured and not a peril of the sea. Underwriters took the view that the insurance cover is only against the risks of the “safe completion of a marine adventure” as described in section 1 of the ADS General Rules of Marine Insurance defining the insured interest.171 In 1981, the Federal High Court held that those risks that are excluded from all risks cover must be precisely and explicitly named in the contract.172 The words referring to the “safe completion of a marine adventure” in section 1 of the ADS General Rules of Marine Insurance do not fulfil this requirement. Accordingly, in 1984, an explicit exclusion of insolvency and financial default of the shipowners, charterers or operators of vessels, or other financial disputes with these parties, was inserted in the ADS General Rules of Cargo Insurance.173 This exclusion from cover is expressly restricted to the parties described in the exclusion so that the insolvency or financial default of, for example, the forwarding agent, road haulier or warehouse keeper is not excluded under this clause. 10.126 This clause in the ADS General Rules of Cargo Insurance 1973 has been altered in the DTV-Cargo Conditions in favour of the assured. The exclusion does not now apply if the assured proves that he has chosen the shipowner, charterer or operator of the vessel or the forwarding agent (who in turn will have engaged the shipowner etc) with the care of a prudent businessman. The assured has to prove the careful choice of the shipowner or other carrier, and the insurer has to prove the insolvency or default of the shipowner or carrier and that this caused the loss or damage. The exclusion does not apply if the assured is the buyer of the insured goods and, under the purchase contract, had no influence on the choice of the parties mentioned in the clauses, that is, shipowner, carrier etc. This is frequently the case under CIF or C&F terms unless the buyer has the express right to choose the carrier, which is sometimes agreed. Where the buyer has no influence on the choice of the shipowner, carrier etc, he is not disadvantaged under the insurance contract as the exclusion does not apply.174

170. Cf. also Enge (fn. 19), p. 119 (regarding the ADS General Rules of Cargo Insurance 1973). 171. Section 1(1) of the ADS General Rules of Marine Insurance reads in English translation: “Any monetary interest of a person in the safe completion of a marine adventure by a ship or cargo is insurable”, see para. 10.92 above. 172. BGH, VersR 1981, 524 (The Green Park). 173. Clause 1.1.2.5 of the ADS General Rules of Cargo Insurance 1973 (1984 edn). 174. Koller (fn. 49), DTV-Güter, cl. 2, note 4.

347

10.127

GERMAN LAW AND PRACTICE

DURATION OF THE INSURANCE Transit cover Warehouse to warehouse 10.127 The duration of the insurance cover is not set down by the law175 and, therefore, needs to be agreed between the parties. In this respect, clause 8.1 of the DTV-Cargo Conditions provides for the insurance to last from warehouse to warehouse.176 Commencement 10.128 The insurance cover attaches as soon as the goods have been removed from their place of storage at the place of dispatch177 for immediate transit. Any transport of the goods between two places (even within a town) that is not directly followed by the intended carriage is not covered. For example, the transit of the goods within the works or place of manufacture from the place of production or storage to the packing place is not covered. Whereas, by contrast, the movement of the goods within the works from the storage place to the loading platform from where they are to be directly loaded onto the carrying vehicle is covered under the insurance. 10.129 In order for the goods to be covered, they have to be moved from the place of storage for “immediate” transit. “Immediate” means “without deliberate hesitation”.178 If the goods have been moved in this sense to the loading ramp and loaded onto a truck, which, however, cannot leave the work’s premises because of an engine breakdown and the goods are lost by fire or theft overnight, they are covered by the insurance.179 The requirement for “immediate” transit also applies if the goods have begun their insured journey and are carried from the assured’s premises to an external packing firm to be packed without the intention of them staying there for a long time. Any damage to the goods during the carriage to the packing firm takes place during the insured period and is covered. If the goods need to be stored during the duration of the policy while at the packing firm, this can be arranged for a fixed period of days under clause 9 of the DTV-Cargo Conditions.180 10.130 The insurance commences at the point just described where the insurance covers a seller on free on board (“FOB”) terms. Accordingly, the FOB seller is covered from the moment the goods are removed for immediate transport from the place of storage and cover continues during the pre-carriage for which he bears the risk, for example, for the land carriage prior to the time when the goods cross the ship’s rail. The insurance cover for a buyer on FOB terms attaches at the time at which the risk of loss of or damage to the goods passes to him upon the goods crossing the ship’s rail (or respective loading onto another means of transport) at the FOB place. For the FOB buyer, the place of dispatch (in the sense of clause 8.1 DTV-Cargo) is the contractually agreed FOB place and not the original place of dispatch at the seller’s premises, if different from the FOB place. 175. Different in section 134 of the Insurance Contracts Act 1908 (warehouse to warehouse). 176. Similarly, cl. 5 of the ADS General Rules of Cargo Insurance 1973. 177. This can be the port of loading, for marine cargo insurance, or an inland place of loading for non-marine cargo insurance contracts. 178. Definition in s. 121(1) of the German Civil Code. 179. Example by Enge (fn. 19), p. 157. 180. For storage, see para. 10.139 et seq. below.

348

DURATION OF THE INSURANCE

10.135

Termination 10.131 Clause 8.2 of the DTV-Cargo Conditions lists the various events that lead to the termination of the insurance cover. The event that occurs first is the relevant one and triggers termination. Unless otherwise agreed, the catalogue of events listed is conclusive for the termination of the cover. The listed events are now considered. 10.132 First, the insurance cover terminates as soon as the goods arrive at the place of final delivery which the consignee has determined (clause 8.2.1 DTV-Cargo). If the goods have to be delivered to the consignee at the place of destination, and the consignee identifies a particular warehouse on his premises for delivery, the transit from the carrying vehicle to that warehouse is covered under the insurance. However, if the assured has the goods stored in a quay shed at the port of discharge, for reasons not connected with the transport, the insurance cover terminates. This applies even if the assured intended to dispose of the goods from the quay shed. This is not storage arranged within the meaning of clause 9 of the DTV-Cargo Conditions.181 10.133 Secondly, the insurance terminates if the goods, after having been discharged at the port or airport at the destination named in the policy, are forwarded to a different place of delivery not agreed in the insurance contract and if the risk is thereby increased (clause 8.2.2 DTV-Cargo). Such an increase in the risk is not to be assumed if, for example, a cargo that was initially to be discharged in, say, Hamburg, and delivered in Düsseldorf is sold afloat with Frankfurt agreed as the revised place of delivery. The forwarding of the cargo by truck from Hamburg as the seaport to Frankfurt rather than Dusseldorf does not normally increase the risk.182 It would be different if the new place of delivery is, for example, Moscow. In the latter case, the insurance cover would terminate at the commencement of the forwarding from the port of discharge. 10.134 Thirdly, the insurance cover terminates on the expiry of the number of days, agreed between the parties, after discharge of the goods from the vessel (or airplane)183 at the port or airport of destination (clause 8.2.3 DTV-Cargo).184 The agreed period of time covers storage after discharge and on-carriage of the goods as well as any delays falling within the agreed period. Cover continues in cases of transhipment of the goods on purely inland transport as long as the delay is not influenced by the assured. Therefore, if goods, which are being carried by truck from Hamburg to the Ukraine, are transhipped in Poland from one truck to another,185 the insurance cover remains unaffected even if this results in delays. 10.135 The insurance cover does not terminate under clause 8.2.3 of the DTV-Cargo Conditions if the expiry of the agreed period is caused by delay due to an insured loss, for example, a transport accident. However, a precondition of the extension of the period of cover is that the assured notifies the delay to the insurer immediately he knows of it and pays any additional premium due. This cover only applies to “the assured’s own interest”, which means that the cover does not apply if the goods are no longer at the risk of the assured.186 181. See para. 10.139 et seq. below and OLG Hamburg, VersR 1986, 438. 182. Example by Enge (fn. 19), p. 163. 183. Discharging into a lighter makes the time limit run, see Enge (fn. 77), p. 63. 184. Usually a time of 60 days is agreed in contracts for marine cargo insurance. 185. See Ehlers (fn. 19), AVB Güter, cl. 8, note 286. 186. Enge (fn. 77), p. 102; Ehlers (fn. 24), GVB, cl. 8, note 27.

349

10.136

GERMAN LAW AND PRACTICE

10.136 Fourthly, if goods are transported on Incoterms FOB or CFR, the seller’s insurance cover terminates when the goods are stowed on board the ocean-going vessel (clause 8.2.4 DTV-Cargo). This accords with Incoterms 2010, which now provide that delivery may take place by placing the goods on board (Incoterms 2010, A4). However, a possibility of double insurance exists if earlier versions of Incoterms are used in so far as these versions contemplate transfer of risk when the goods pass the ship’s rail. Accordingly, the buyer may take out cargo insurance as from the time of his bearing the risk from the ship’s rail. If damage occurs after the goods have passed the ship’s rail but before finalisation of their stowage on board the vessel, there will therefore be cover under both the seller’s and the buyer’s policies. 10.137 Fifthly, if the goods are sold due to an insured loss, the insurance cover terminates at the time of transfer of the risk in the goods, for example, to a salvage buyer (clause 8.2.5 DTV-Cargo). Where the carrying vessel has to enter a port of refuge because of engine failure, and she cannot continue the voyage, so the goods have to be discharged, the insurance cover for the goods continues to attach (clause 6.2 DTV-Cargo). In these circumstances, the insurer may request that the goods be sold by private sale or public auction, assuming they cannot be forwarded without incurring disproportionately high costs, or within a reasonable time (clause 17.6 DTV-Cargo). The provision in clause 8.2.5 of the DTV-Cargo Conditions, operating in conjunction with clause 17.6 of the DTV-Cargo Conditions, enables the insurer to restrict the period of the risk by requesting a sale that results in transfer of risk and, in turn, termination of the insurance. 10.138 Finally, the insurance cover for storage terminates at the expiry of any specially agreed period of time for storage arranged with insurers in accordance with clause 9.1 of the DTV-Cargo Conditions (clause 8.2.6 DTV-Cargo). Clause 8.2.6 of the DTV-Cargo Conditions is only concerned with storage specially arranged by the assured and not storage necessitated during transit where the assured can prove that he had no knowledge that the storage period would be extended. The cover for such storage risks, which requires notice and an additional premium, is dealt with by clause 9.2 of the DTV-Cargo Conditions. Storage risks 10.139 Cargo insurance in Germany traditionally covers all risks to which the goods are subjected during the duration of the insurance (clause 2.1(1) DTV-Cargo). Other economic insurable interests connected with the goods may be the subject of the insurance cover (see paragraph 10.19 above). Goods are not only insured when actually in transit, but also when they are stored during the duration of the cover. 10.140 The all risks cover under the DTV-Cargo Conditions includes risks during the storage of the goods during the duration of the insurance cover. This includes storage that becomes necessary during transit as well as storage arranged by the assured. The parties may agree on a number of days for cover for storage (clause 9.1 DTV-Cargo). In practice, a duration of 60 days is usually agreed. Specially arranged storage is only covered if it is connected with the transport and the insurance cover otherwise ends upon delivery of the goods to the place of storage. 10.141 Where storage of the goods is necessitated by the circumstances of the transit, the goods are held covered for the same time as has been agreed for a specially arranged storage of the goods, unless the parties have agreed otherwise. The goods are held covered in

350

CLAIMS AND SETTLEMENT

10.145

such a case even beyond the agreed time if the assured can prove that he had no knowledge of this extended period of storage or that he could not influence this extended duration by applying sound commercial practice (clause 9.2. DTV-Cargo). 10.142 Where transit is exclusively by sea or by air, the cover for any storage – whether arranged or necessitated by the transit – ends once the agreed time after discharge of the goods at the port of discharge or airport of destination has elapsed. There is no extended cover if the storage in fact takes longer (clause 9.2(3) DTV-Cargo referring to clause 8.2.3 DTV-Cargo), unless the extension of the storage is caused by an insured event.187 Pre-carriage goods or returned goods 10.143 The goods to be insured may have been carried on a pre-carriage not insured under the insurance in question. Such goods may have been transhipped, carried and stored before the insurance cover attaches. In practice, a special survey of the goods and their packing at the commencement of the following cover is rarely undertaken, which increases the risk for the insurer. Clause 2.2.1 of the DTV-Cargo Conditions provides that such goods are, however, insured on the same conditions as other goods. The assured must disclose the fact of the pre-carriage and, in case of loss or damage, must prove that the damage claimed occurred during the duration of the cover. The same applies to goods that are being returned and are insured for such return transport. These goods are likewise insured on the same conditions as other goods (clause 2.2.1 DTV-Cargo). 10.144 If the goods, which subject to the insurance contract, are already damaged at the time of inception of the cover, the insurer only indemnifies further damage if the previous damage did not have any influence on the damage that occurred during the insured period (clause 2.2.2 DTV-Cargo). If the previous damage contributed to the new damage, or to an increase of the new damage, the insurer is totally discharged from liability.188 The assured has the onus of proof if he contends that the previous damage has not caused or contributed to the further damage.189

CLAIMS AND SETTLEMENT Total and partial loss General 10.145 The amount to be paid by the insurer in case of an insured loss is dealt with in clause 17 of the DTV-Cargo Conditions. This provision corresponds to that in clause 7 of the ADS General Rules of Cargo Insurance 1973 with only minor amendments and editorial changes. Both provisions are based on the provisions of sections 91 and 92 of the ADS General Rules of Marine Insurance as well as section 854 et seq. of the HGB (the latter repealed in 2008).190 Clause 17 of the DTV-Cargo Conditions deals with cases of loss of goods, disappearance of goods and damage to the goods. Clause 17 also deals with the 187. See para. 10.141 above. 188. Ehlers (fn. 19), AVB Güter, cl. 2, note 52; Enge (fn. 19), p. 127. 189. Koller (fn. 49), DTV-Güter, cl. 2, note 2. 190. See Ehlers (fn. 24), GVB, cl. 17, notes 1, 3.

351

10.145

GERMAN LAW AND PRACTICE

repair or replacement of damaged or lost parts of the insured goods (not applicable in the case of a constructive total loss); the measure of indemnity in respect of used machines, devices, equipment, vehicles and their components; underinsurance; the sale of the insured goods before the end of the insured transport; the consequences of the non-materialisation of an anticipated insurable interest (e.g., as to profit); and, finally, the treatment of costs saved as a result of a loss. Loss of cargo 10.146 Clause 17.1 of the DTV-Cargo Conditions sets out the three situations in which a loss of cargo can occur: that the goods have been physically destroyed either totally or in part; that the assured has lost possession of the goods with no prospect of return; or that, in the opinion of a surveyor, the original properties or condition of the goods have been destroyed. These principles apply whether the whole consignment of insured goods is lost or damaged or only a part of it, resulting in a total loss of part. Total loss and partial loss differ from each other only to the extent of the goods affected and to the calculation of the indemnity to be paid by the insurer. Lost goods 10.147 According to clause 17.1 of the DTV-Cargo Conditions, a loss of goods occurs, first of all, when the goods have ceased to exist physically, for example, they are burnt due to a transport accident or – in case of liquid cargo – they leak out of a tank container due to an accident.191 The goods are also considered lost if they only exist in the form of scrap and debris.192 If fruit, grain, food or similar commodities are involved in an accident, a loss of the goods is assumed if they have perished to such an extent that they have to be destroyed.193 There is, however, no clear demarcation of this case from the above-mentioned third variant, that the original state or condition of the goods has been destroyed. 10.148 The distinction between total and partial loss under German insurance law only refers to the quantitative extent of the loss, that is, whether the insured cargo is lost in its entirety or only part of it. It is not a question of different degrees of impairment of the goods. If, for example, the goods arrive in a damaged condition at the place of destination, a (constructive) total loss only occurs where the cargo is no longer in a fit condition to be sold as the same product or commodity that was originally insured, even though damaged.194 Whereas, if the cargo can still be sold as such and achieves sales proceeds of, say, only 10% of the sound value, this is treated as damage to the goods and not a total loss. 10.149 In contrast to English insurance law, German law does not contain particular provisions defining a constructive total loss. However, where goods are damaged to such an extent that they are not repairable, or not worth repairing, or the repair costs would exceed the sound value of the goods, the claim for damage will be settled on the basis of a total loss.195 191. Koller (fn. 144), s. 425 of the German Commercial Code, note 4; Ehlers (fn. 19), AVB Güter, cl. 17, note 475. 192. Ehlers (fn. 19), AVB Güter, cl. 17, note 477. 193. Ehlers (fn. 19), AVB Güter, cl. 17, note 477; Enge (fn. 19), p. 196. 194. See Enge (fn. 19), p. 197. 195. Ehlers (fn. 19), AVB Güter, cl. 17, note 476; different view: Demuth, “Ist der CMR-Totalschaden als Verlust zu behandeln?”, TranspR 1996, 257.

352

CLAIMS AND SETTLEMENT

10.151

10.150 When settling an insurance claim, there are no peculiarities as to the difference between total and partial loss, unless the loss of part of a consignment of goods leads to a devaluation of the whole consignment. In that case, an economic total loss is to be assumed and to be dealt with under clause 17.1 of the DTV-Cargo Conditions. For example, a total loss occurred where a consignment of deep-frozen goods was damaged when it began to thaw during transport, which resulted in the veterinary authorities declaring the whole consignment as unfit for human consumption so that it had to be destroyed.196 A similar special case is dealt with in clause 17.4.2 of the DTV-Cargo Conditions, which provides that the claim is to be settled on the basis of a total loss if, during transit, part of the goods, which constitute a single entity, are lost or damaged. The individual components of a consignment of goods can be connected and associated economically to such an extent that only the complete entity of the consignment makes up the initial economic value. If part of such a consignment becomes lost or damaged, the value of the remaining part is decreased disproportionately in comparison to the initial total value, so that it is not adequate to indemnify the assured for a partial loss. Examples of such “pairs and sets”, as they are known in English practice, include: the two shoes of a pair of shoes, the jacket and trousers of a suit, and chessmen (individually crafted and not mass produced). Six antique dining-room chairs, not individually replaceable, can be treated as a “set” if such furniture is only generally traded with six chairs and the related dining-room table is designed for six chairs.197 Where the components of a machine have been dismantled for transport, these are not regarded as a “set”.198 Whether the insured goods are regarded as a “pair or set” within the meaning discussed in this paragraph has to be assessed by those trading in the respective section of the market. Loss of possession without prospect of recovery 10.151 If the insured goods are still physically in existence but cannot be recovered by the assured at an economically justifiable cost, there is a loss of goods, as the assured is irretrievably deprived of the goods. This is, for example, the case if trunks go over board during a sea voyage and they cannot be economically salvaged.199 Similar cases are theft, embezzlement or confiscation of the insured goods. A loss of goods is to be assumed if they have been misdelivered to a third party and they cannot be recovered in “the near future” either for practical or legal reasons.200 The length of the period that qualifies as falling within the words “in the near future” is to be determined on the facts of each case. Where the whereabouts of the goods is unknown, the assured must give the insurer adequate time to clarify the facts before demanding payment of the claim.201 In case of an inland transport, the time limit, according to section 424 of the HGB, may be applied, namely, of at least 20 days if it is a national transport, and of at least 30 days if it is an international transport. However, if the forwarder or carrier gives up the search for the lost goods, or if he refuses

196. BGH, NJW 1974, 1616 (CMR-transport). 197. See Ehlers (fn. 24), GVB, cl. 17, note 44. 198. Enge (fn. 19), p. 198; de la Motte, “CMR: Schaden – Entschädigung – Versicherung”, VersR 1988, 317; Ehlers (fn. 24), GVB, cl. 17, note 44. 199. OLG Hamburg, VersR 1987, 708; Ehlers (fn. 24), GVB, cl. 17, note 4. 200. BGH, VersR 1970, 437; BGH, NJW 1979, 2473; Ehlers (fn. 19), AVB Güter, cl. 17, note 475. 201. Koller (fn. 144), s. 425 of the German Commercial Code, note 8; Ehlers (fn. 24), GVB, cl. 17, note 4.

353

10.151

GERMAN LAW AND PRACTICE

to search, or if the costs of a search are unreasonable, the assured need not wait any longer for payment of the claim. Destruction of the original properties or condition of the goods 10.152 The third variant of a loss of cargo occurs if the incident has impacted the insured goods so that their condition has changed to such an extent that they can no longer be used for their intended purpose. This is, for example, the case if edible oil has been contaminated so heavily with industrial oil that separation is technically impossible, or not possible at a reasonable cost. In such circumstances, the contaminated oil can no longer be regarded as the insured cargo.202 Clause 17.1 of the DTV-Cargo Conditions requires the opinion of an expert to attest these facts. Disappearance 10.153 According to clause 17.2 of the DTV-Cargo Conditions, disappearance of the goods together with the means of transport is a further variant of a loss of goods. The goods and the means of transport must both have disappeared. It does not suffice that the means of transport has reached its destination, but the insured goods are no longer aboard, and it is unknown where the loss occurred.203 Alternatively, the means of transport may have disappeared, but the insured goods have been discharged at an intermediate point in transit and could still be economically delivered to the consignee. Disappearance of the goods may be assumed if the means of transport and the goods have not reached the place of destination within a certain fixed period (discussed in para. 10.155 below) after the expected time of arrival, and if there is no information on the whereabouts of the goods at the date when the assured claims indemnification.204 10.154 The insurer’s duty to indemnify where the goods have disappeared, further depends on the requirement that, in all likelihood, the loss of the goods is not the result of a risk excluded from the cover. According to the provisions of the DTV-Cargo Conditions, coverage of all risks excludes the risks in clause 2.4 of the DTV-Cargo Conditions, for example, war, civil war, strikes, civil commotions, confiscation, risks of nuclear energy and insolvency of the shipowner or charterer.205 There may also be further excluded risks agreed individually in the insurance contract. If, in all likelihood, the means of transport together with the cargo has disappeared due to events of war etc, there is no claim against the insurer. By applying the principles of “causa proxima” (clause 2.6 DTV-Cargo),206 the insurer has to prove the predominant probability of the occurrence of the excluded risk as the cause of the disappearance.207 10.155 In order to assume the disappearance of the goods, certain periods have to have expired since the expected date of arrival of the means of transport at the place of

202. Enge (fn. 19), p. 197. 203. This is a case of cl. 17.1 DTV-Cargo. 204. Clause 17.2, sentence 2, DTV-Cargo; cl. 7.2 of the ADS General Rules of Cargo Insurance 1973; s. 862(1) of the German Commercial Code (in the meantime repealed). 205. See para. 10.112 et seq. above. 206. See para. 10.81 above. 207. Ehlers (fn. 24), GVB, cl. 17, note 17.

354

CLAIMS AND SETTLEMENT

10.156

destination. Clause 17.2 of the DTV-Cargo Conditions provides for a general period of 60 days, but for European inland transports this period is reduced to 30 days. Where communication links are interrupted owing to war, civil war or inland civil commotions, these periods are extended, but not beyond a maximum period of 6 months (clause 17.2, sentence 3, DTV-Cargo). A further precondition is that by the time of the notice of claim, no information has been received about the whereabouts of the cargo from the carriers, and this applies regardless of whether the notice of claim has been given before or after expiry of the aforementioned periods. A “notice of claim” is given when the assured informs the insurer that the means of transport has not arrived and that no information has been received of the whereabouts of the cargo. The assured may give notice before expiry of the above-mentioned periods of disappearance,208 and this is desirable in order that the insurer has the opportunity to make investigations as soon as possible. The assured need not demand payment of the claim when providing information about the non-arrival of the means of transport and the missing goods.209 Information about the whereabouts of the means of transport does not affect the fact of disappearance if this information is received after expiry of the fixed periods of disappearance and after the notice of claim by the assured. Where the goods have disappeared and they re-appear afterwards, the assured can nevertheless demand the insurance sum, but the value of the goods that he recovers, or could have recovered, is deducted from the claim.210 If the insurer has already paid the claim, this payment has to be returned to the insurer based on the provisions of unjust enrichment according to the German Civil Code. Consequences of the loss or disappearance of goods 10.156 Where the goods are lost or have disappeared, the assured is entitled to an indemnity in the amount of the sum insured in the case of a total loss, or a proportion of the sum insured in case of a partial loss. The value of salvaged goods and the amount of any saved costs due to the loss are to be deducted (clauses 17.1, 17.7 DTV-Cargo). If the assured demands payment of the sum insured from the insurer, the insurer is entitled to request the transfer of the title to the goods (clause 18.1 DTV-Cargo). The insurer may only exercise this choice immediately upon notification of the circumstances of the loss, that is, as soon as he has information regarding the consequences of a possible transfer of title (e.g., regarding any liabilities that may be connected with the ownership of the goods, such as costs of removal and destruction).211 If the insurer chooses to accept a transfer of title, this only takes effect when the claim is paid in full.

208. For a different view, see Ehlers (fn. 24), GVB, cl. 17, note 16. 209. BGH, NJW 1981, 524. 210. BGH, VersR 1981, 524 (The Green Park). 211. Also see Enge (fn. 77), p. 73; Ehlers (fn. 19), AVB Güter, cl. 18, note 538.

355

10.157

GERMAN LAW AND PRACTICE

Damage to the goods General 10.157 According to clause 17.3 of the DTV-Cargo Conditions, damage to goods means a modification of the exterior or interior substance of the goods, which results in a decrease of value.212 Typical examples of damage to goods include cracks, dents, wetness, rust, deformation, soiling, contamination, spoilage and defrosting of deep-frozen goods.213 The term “damage” in clause 17.3 of the DTV-Cargo Conditions corresponds with the term used in clause 7.3.1 of the ADS General Rules of Cargo Insurance 1973, sections 93 and 94 of the ADS General Rules of Marine Insurance 1919 and in section 875 of the HGB.214 In the event of damage to goods, the assured has a choice between two alternatives for calculating the claim. This may be calculated either on the basis of a comparison between sound and damaged value, which is then applied to the sum insured (clause 17.3 DTV-Cargo) or the claim may be based on the cost of repairing the damaged goods (clause 17.4.1 DTVCargo). Calculation sound value/damaged value 10.158 Clause 17.3.1 of the DTV-Cargo Conditions provides that the indemnification due bears the same proportion to the sum insured as the gross damaged value bears to the gross sound value. For the calculation of this indemnity, it is necessary to determine the sound and damaged values of the goods at the place and time of delivery. The primary basis for the value is the value at which the goods are regularly traded in the market, if a trade in the goods exists. A listing on a commodity exchange or a price based on an established market is not necessary. There has only to be repeated trading in the goods.215 If such trading price is not determinable, the price of the goods at which they are generally sold is applicable. This is the price at which the goods can generally be sold without considering the individual situation of the parties concerned; however, one has to look at the market sector to which the assured belongs, whether this is the sector of the manufacturer, distributor or retailer. The actual price obtainable is decisive.216 10.159 The place of delivery is the place where the goods are delivered to the consignee and the insurance cover terminates. This is either the place originally provided for in the insurance contract or the place of sale if the voyage is abandoned before the goods reach their destination.217 The latter is often the case if the damage occurs before the goods reach their intended place of destination and if the damaged goods are sold there “as is” for the best possible price. Sound and damaged values are based on gross values, that is, including freight, customs duty, costs of delivery etc.218 These values are to be ascertained for the same day for the purpose of a fair comparison. 212. Ehlers (fn. 19), AVB Güter, cl. 17, note 483; Koller (fn. 144), s. 425 of the German Commercial Code, note 13. 213. See examples in Ehlers (fn. 24), GVB, cl. 17, note 21. 214. Ehlers (fn. 24), GVB, cl. 17, note 19. 215. See Koller (fn. 144), s. 429 of the German Commercial Code, note 4 et seq. 216. BGH, VersR 1994, 91 f; Ritter-Abraham (fn. 1), s. 90 of the ADS General Rules of Marine Insurance, note 3; Ehlers (fn. 24), GVB, cl. 10, note 16. 217. Ritter-Abraham (fn. 1), s. 88 of the ADS General Rules of Marine Insurance, note 16. 218. See Ritter-Abraham (fn. 1), s. 93 of the ADS General Rules of Marine Insurance, notes 6-12.

356

CLAIMS AND SETTLEMENT

10.162

10.160 The amount of indemnity due from the insurer is calculated by comparing the difference between the gross sound and damaged values and applying this proportion to the insured value. This calculation takes into account increases or decreases in market value. For example, the insured value of the goods is 1,000; the sound market value at the time of delivery is 1,200; the value in damaged condition is 400; the difference in relation to the sound value is two thirds; two thirds of the insured value equals 666,67, which is the amount to be paid. Should the sound market value at the time of delivery have decreased to 800 and the damaged value remain 400, the difference of 400 between these values is 50% of the sound value and therefore 50% of the insurance sum (=500) has to be paid by the insurer. 10.161 The ascertainment of the gross sound and damaged values at the place of delivery is normally carried out by the average adjuster nominated in the insurance contract or by an expert engaged for this purpose. It is often difficult to determine the value of damaged goods or to reach an agreed damaged value as between the insurer and the assured. In such cases, the value of the goods can be ascertained, at the insurer’s request, by private sale or public auction of the goods (clause 17.3.2 DTV-Cargo). The gross sales proceeds are then taken as the value of the damaged goods. The “gross sales proceeds” are the sales price without deduction of the costs of the sale or auction.219 The latter costs are costs incurred to ascertain the amount of the loss and have to be borne by the insurer separately in full, according to clause 2.3.1.2.3 of the DTV-Cargo Conditions (not only in the proportion that the sound value compared to the damaged value bears to the insured value). Immediately upon notification of the relevant information regarding the extent of the claim, the insurer may request that the damaged value of the goods be determined by private sale or public auction. If the request for sale or auction is made too late, the assured is not obliged to agree. Generally, the insurer will obtain the relevant claim information when provided with the survey report by the average adjuster or the other expert engaged. Calculation based on repair costs 10.162 The assured has a choice whether to claim the costs of repairing the damaged goods or of claiming a proportion of the insured value on the basis of a comparison of the gross and damaged values applied to the insured value (clause 17.4.1 DTV-Cargo). The necessary repair costs comprise: the cost of spare parts, wages for repair works carried out by third parties, repair costs carried out by the assured and ancillary costs (e.g., travelling expenses of mechanics, transport costs for spare parts or for the transport of the damaged goods to the repair facilities and back, and the insurance costs for transport). Extraordinary additional costs, for example, surcharges for working overtime or working on Sundays or public holidays, and additional freight for consignments by express or airfreight, are not reimbursed as they are incurred to prevent damage due to delay or business interruption, which are not covered. These costs would only be recoverable if the risks of delay and business interruption were co-insured under the insurance contract.220 The calculation of the amount of the necessary repair costs is carried out on the date when the damage has finally been ascertained, if necessary by engaging experts. Cost increases for work or materials 219. Ehlers (fn. 19), AVB Güter, cl. 17, note 489. 220. As to this, see Enge (fn. 19), p. 200; Ehlers (fn. 24), GVB, cl. 17, notes 37–39; Ehlers (fn. 19), AVB Güter, cl. 17, note 494.

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10.162

GERMAN LAW AND PRACTICE

that take place during the ordinary time needed to repair are reimbursed, whereas cost increases due to any delay in the start of the repair works are not reimbursed. Used machinery etc 10.163 Where the insured goods are used machinery, devices, equipment, vehicles or their parts, the insurer reimburses the repair costs without deduction of “new for old”. By installing new spare parts into used machines, their value can be increased even above the original insured value. Nevertheless, not deducting a sum “new for old” is legally valid as there is no rule against unjust enrichment under insurance law in general,221 and this rule has specifically been approved by the courts for cargo insurance.222 If the current value of the above-mentioned used equipment in sound condition at the time of ascertaining the damage amounts to less than 40% of its original sound value, the reimbursement payable shall not exceed the current value (clause 17.4.3 DTV-Cargo). This current value need not be identical with the replacement value; it is determined by deducting from the original value an amount that is based on the condition of the used machine at the time in question.223 The indemnity is still limited to the sum insured. Onus of proof for loss or damage 10.164 The assured has to prove that the alleged loss or damage occurred during the insurance period. In an all risks cover, according to law and the DTV-Cargo Conditions, the insurer – if denying liability – has to prove that the loss or damage was caused by an uninsured risk or by an event that was excluded or that the loss or damage is otherwise not covered under the insurance contract.224 The assured has to submit the required documents (invoices etc) concerning the amount of damage. Generally, the amount of damage is ascertained by an average adjuster or expert (surveyor). 10.165 Where a dispute arises between the parties as to the cause or the amount of the loss, each party may request an ascertainment by experts according to the procedure in clause 20 of the DTV-Cargo Conditions. The expert procedure is to be considered as one of fact finding, the experts do not act as arbitrators. Statements on the (legal) liability of the insurer are not normally made and should the experts nevertheless make such statements, they are not binding on the parties.225 Notice of claim and related duties 10.166 The assured shall notify the insurer immediately of any event that has caused loss or damage or that was of a nature to possibly cause such loss or damage (clause 15.1 DTVCargo).226 The insurer must be put in a position as soon as possible to take measures to avert the loss or damage or to minimise it. There is no specific sanction provided for in the 221. BGH, NJW 1998, 1072. 222. BGH, VersR 1994, 91. 223. BGH, NJW 1984, 2165; Ehlers (fn. 24), GVB, cl. 17, note 56. 224. See also para. 10.90 et seq. above for the general approach of the German courts to all risks. 225. BGH, VersR 1994, 91. 226. Koller (fn. 49), DTV-Güter, cl. 15, note 1; Ehlers (fn. 19), AVB Güter, cl. 15, note 412.

358

CLAIMS AND SETTLEMENT

10.170

DTV-Cargo Conditions if the assured does not fulfil this duty. If the non-compliance with this duty amounts, however, to a breach of the duty of the assured to avert or minimise the loss or damage, clauses 15.2 and 15.5 of the DTV-Cargo Conditions will apply, discharging the insurer from liability to the extent discussed below. 10.167 Where loss or damage occurs, the assured has, furthermore, to immediately consult the surveyor named in the insurance policy or certificate (clause 15.3 DTV-Cargo) in order that he may assess the damage and determine its cause and extent. The named surveyor is engaged by the insurer and has his confidence.227 He may not, therefore, be replaced by the assured. It is only if the named surveyor cannot be reached, or is not available, that the nearest Lloyd’s agent may be called upon in his stead. 10.168 The assured has a duty to give the insurer any information that is required to assess the insured loss or the extent of the liability of the insurer (clause 15.4 DTV-Cargo). As far as reasonable, the assured has to procure, secure and submit to the insurer the necessary evidence, including, for example, a statement of damage, an average certificate, the consignment note, the commercial invoice, delivery notes, letters of reserve against carriers or bailees and police reports. However, the assured does not have to make sure before loss that he has all the necessary proofs at hand in case a loss occurs, as was once argued by insurers.228 10.169 If the assured fails to fulfil the aforementioned duties wilfully or with gross negligence, the insurer is not liable to indemnify the loss (clause 15.5, sentence 1, DTVCargo).229 The insurer is, however, not discharged from liability in so far as the assured proves that the infringement of duty was neither the cause of the loss or damage nor had any influence on the extent of the insurer’s liability (clause 15.5, sentence 2, DTV-Cargo). This provision adopts principles of case law on section 6 of the Insurance Contracts Act 1908 (now section 82 of the Insurance Contracts Act),230 according to which the insurer remains liable if the assured fails to fulfil his duty wilfully or with gross negligence, but the infringement has no influence on the loss or the extent of the insurer’s liability. 10.170 The same legal consequence is provided for in section 28(2) of the Insurance Contracts Act. A breach of the duty to notify the insurer of the occurrence of a loss event (clause 15.1 DTV-Cargo) has no direct legal consequences, but may lead to a breach of other duties, for example, to avert or minimise the damage, with respective legal consequences. As the DTV-Cargo Conditions do not contain special provisions for legal consequences following a breach of an “Obliegenheit” (duty), the legal provisions in section 28 of the Insurance Contracts Act will apply.

227. OLG Hamburg, VersR 1992, 869; different view: Remé, “Deutsche Rechtsprechung zum Seeversicherungsrecht 1988 bis 1999”, VersR 2001, 414, 417. 228. OLG Hamburg, VersR 2008, 488 (regarding the ADS General Rules of Cargo Insurance 1973). 229. As to gross negligence, the provision in the Insurance Contracts Act is different: the insurer is only discharged from liability in proportion to the severity of fault (s. 82(3), sentence 2, of the Insurance Contracts Act). 230. BGHZ 53, 160; BGH, NJW 1973, 365; BGH, VersR 1993, 380.

359

10.171

GERMAN LAW AND PRACTICE

Duty to avert or minimise the loss/damage: sue and labour Safeguarding damaged goods 10.171 One of the most important duties of the assured after a loss is to avert or minimise the loss or damage as far as possible. If the insured goods are affected by damage, the assured must not allow the damage to increase if it is possible for him to avert the damage, by suitable and reasonable measures, or otherwise to minimise the extent of the damage. This obligation was legally laid down in section 819 of the HGB and in section 62(1) of the Insurance Contracts Act 1908 and is now to be found in section 82(1) of the Insurance Contracts Act; it was adopted in section 41(1) of the ADS General Rules of Marine Insurance and now in clause 15.2 of the DTV-Cargo Conditions. These rules are complemented by the agreement of an insurer to bear the costs connected with the measures taken to avert or minimise the loss, for example, in clause 2.3.2.1 of the DTV-Cargo Conditions (sue and labour costs231). 10.172 While the assured has to fulfil his obligation upon the “occurrence of the insured event”, neither the Insurance Contracts Act nor the DTV-Cargo Conditions expressly state when the insured event occurs. There would be no purpose to the obligation to avert or minimise the damage if this obligation only arose after the loss had taken place. The duty therefore arises at the point in time at which the loss or damage is imminent or would inevitably occur unless salvage measures are taken to arrest or minimise the loss.232 Whereas clause 15.2 of the DTV-Cargo Conditions does not state this precisely, clause 2.3.1.2.1 of the DTV-Cargo Conditions, which provides for the reimbursement of the sue and labour costs, says that the damage to be averted (for which these costs are to be reimbursed) must be imminent or must have occurred. The same rule must apply to the duty to avert or minimise the loss according to clause 15.2 of the DTV-Cargo Conditions. In order to fulfil this duty, the assured needs to be aware that the loss is imminent or has occurred.233 10.173 The insured goods need to be in danger of loss or damage. The duty to take measures to avert or minimise a loss only begins when the insured goods are are actually and directly endangered. There is no such obligation if an event generally insured against occurs, which has not yet endangered the insured goods themselves, for example, goods stored in the vicinity of the insured goods catch fire but this does not yet endanger the insured goods; if, in the circumstances, the insured goods are wetted as a precaution, this precautionary measure is not regarded as an act of sue and labour according to the law or the DTV-Cargo Conditions.234 However, it is always a question of fact whether the goods insured are so close to the fire, or a similar risk, to regard them as already being directly endangered. 10.174 If a loss occurs, the assured has “to avert or mitigate the damage as far as possible” (clause 15.2 DTV-Cargo). Clause 2.3.1.2.1 of the DTV-Cargo Conditions – dealing with the reimbursement of sue and labour costs – states that the duty is limited to 231. For recovery of sue and labour costs, see para. 10.190 below. 232. BGH, VersR 1985, 656; BGH, NJW 1991, 1609; BGH, VersR 1994, 1181; Ritter-Abraham (fn. 1), s. 32 of the ADS General Rules of Marine Insurance, note 12, s. 41 of the ADS General Rules of Marine Insurance, note 6; Looks, Die Verletzung der Rettungspflicht des Versicherungsnehmers in der Seeversicherung, VersR 2008, 883, 885. Different view: Voit, in: Prölss/Martin, Versicherungsvertragsgesetz, 28th edn, s. 82 of the Insurance Contracts Act, note 6. 233. BGH, VersR 2008, 906. 234. Voit (fn. 232), s. 82 of the Insurance Contracts Act, note 7.

360

CLAIMS AND SETTLEMENT

10.179

loss or damage, which is covered under the policy. The assured has no duty to take sue and labour measures concerning imminent damage or damage that has occurred, which is not recoverable from the insurer according to the insurance conditions. This is because it is either caused by an uninsured risk (e.g., war, strikes or confiscation, see clause 2.4 DTVCargo235), or is damage due to an excluded peril listed in clause 2.5 of the DTV-Cargo Conditions (e.g., inherent vice or inadequate packaging236), or the insurer is discharged from his duty because the loss has been caused by the assured deliberately or with gross negligence (clause 3 DTV-Cargo237). 10.175 If consequential damage is insured under the insurance contract, the duty to sue and labour also includes steps taken to avert or minimise such consequential damage. This is the case if the special clause covering consequential loss and pure financial losses has been incorporated into the insurance contract.238 10.176 The assured has a duty to observe the instructions of the insurer regarding the measures to be taken to avert or minimise a loss and to request such instructions from the insurer as far as the circumstances allow (clause 15.2 DTV-Cargo). The duty to sue and labour continues as long as there is a possibility of averting or minimising the loss or damage.239 Safeguarding insurers’ recourse claims 10.177 The duty to avert or minimise a loss includes the assured’s obligation to safeguard the insurers’ recourse claims against third parties who have caused the loss or damage (clause 15.6 DTV-Cargo). Such recourse claims are transferred by force of law to the insurer at the time he indemnifies the assured and to the extent of the indemnity (section 86 of the Insurance Contracts Act, clause 23.1 DTV-Cargo).240 This duty has always been regarded as indisputable as far as marine cargo insurance is concerned,241 but denied as far as land transports are concerned.242 As the DTV-Cargo Conditions are supposed to cover both areas, the express mention of this duty in the conditions was deemed necessary. 10.178 The assured must notify claims to the carrier or bailee within any time periods for notice of claims and must protect prescription periods, for example, the one-year time limit for claims against the carrier according to the Hague-Visby Rules, the HGB (freight claims against carriers) or the CMR provisions. By preserving these recourse claims against third parties, the insurer’s prospect of reducing his indemnity payment, to the extent to which the third party is liable, is preserved. 10.179 “Preserving and securing” recourse claims against third parties requires that the assured, besides observing time limits, gives all necessary information to the insurer and

235. See para. 10.112 et seq. above. 236. See para. 10.96 et seq. above. 237. See para. 10.108 above. 238. See para. 10.107 above. 239. OLG Saarbrücken, VersR 1998, 1499; Looks (fn. 232), VersR 2008, 883, 885. 240. See para. 10.195 below. 241. BGH, VersR 1993, 312; OLG Hamburg, VersR 1987, 708/710; also: RGZ: RGZ 112, 149/154; further: Ritter-Abraham (fn. 1), s. 41 of the ADS General Rules of Marine Insurance, note 9; Schlegelberger, Seeversicherungsrecht, 1960, s. 41 of the ADS General Rules of Marine Insurance, note 2; Enge (fn. 19), p. 109. 242. Bruck/Möller (fn. 101), s. 62 of the Insurance Contracts Act 1908, note 10; Sieg (fn. 101), s. 67 of the Insurance Contracts Act 1908, note 71.

361

10.179

GERMAN LAW AND PRACTICE

furnishes him with the documents essential for claiming against the third party in respect of the loss.243 These documents comprise, inter alia, police reports, statement of facts from forwarding agents, waybills and letters of reservation against third parties. However, the assured need only submit such documents as may reasonably be demanded from him. The assured needs to preserve and secure recourse claims against the third parties but generally need not take legal action. If special measures to secure the claim are necessary, instructions from the insurer should be obtained if there is time. Otherwise, the assured has to take steps himself. It is unclear under German law, and disputed, whether the assured has to institute legal proceedings on his own in order to preserve the claim in situations where it is not possible to obtain the insurers’ support or authority. It is submitted that such steps should only be required by the assured in cases where there was not enough time to inform the insurer and to ask for instructions.244 The costs incurred are to be borne by the insurer (sue and labour costs) if the preconditions for the duty to take such measures (see para. 10.174 above) are fulfilled. 10.180 If the assured wilfully or with gross negligence infringes the duty to preserve a recourse claim, the insurer is discharged from liability where this results in the insurer not being able to obtain reimbursement from the third party (clause 15.6, sentence 2, DTVCargo). If the third party is only liable for a limited amount, the insurer is only discharged from liability to this extent. The insurer has the onus of proof of establishing the facts that constitute an infringement of the duty. If these facts are proven, wilful breach of the duty by the assured is assumed; the assured has to discharge this assumption.245 The assured also has to exonerate himself from gross negligence,246 the more so as, objectively, the proven infringement of duty has been committed solely in the sphere of the assured. “Representatives” 10.181 The infringement of the duty to sue and labour is attributed to the assured if those who fail in the duty are “representatives” of the assured. According to a definition given by the Federal High Court (BGH), a representative is a person “which in the sphere of business to which the insured risk belongs acts on behalf of the assured as an agent or in a similar relationship; mere surrender of custody of the insured goods is not sufficient. A representative can only be someone who is authorised to act on behalf of the assured independently to a certain not insignificant extent (risk management)”.247 It depends on the facts of each case whether a person within the organisation of the assured complies with these particulars. “Representatives” in this sense do not include: the carrier, a warehouse keeper, a forwarding agent,248 the vessel’s master249 or the truck driver who caused the damage,250 nor would the term “representatives” include people who are independent businessmen 243. OLG Hamburg, VersR 2008, 488 (regarding the ADS General Rules of Cargo Insurance 1973). 244. LG Hamburg, 415-O-108/04, judgment 08 November 2004 (juris); Ehlers (fn. 19), AVB Güter, cl. 15.5, note 464. 245. BGH, VersR 1993, 960; Ehlers (fn. 24), GVB, cl. 15, note 52. 246. Koller (fn. 49), DTV-Güter, cl. 15, note 4. 247. BGH, NJW 1993, 1862; BGH, VersR 1996, 1229. 248. Sieg (fn. 12), TranspR 1995, 195. 249. BGH, NJW 1980, 2817; OLG Hamburg, VersR 1983, 1151; Ritter-Abraham (fn. 1), s. 33 of the ADS General Rules of Marine Insurance, note 42. 250. BGH, VersR 1986, 696; Ehlers (fn. 24), GVB, cl. 15, note 63 et seq.

362

CLAIMS AND SETTLEMENT

10.185

who have to fulfil only their own contractual obligations towards the assured, for example, an independent packing firm.251 10.182 If the assured instructs third parties, or employees, to deal with the damage and to fulfil the duties to sue and labour and/or to make declarations in the name of the assured, such declarations and information provided to the insurer are binding on the assured even if they are faulty, incorrect or incomplete.252 Should third parties or employees infringe the aforementioned duties (e.g., duty to give information) deliberately or with gross negligence, the legal consequences, as described above in para. 10.46, are for the assured’s account. Costs incurred by the assured 10.183 Where the assured has incurred costs by taking action to avert or minimise a loss, or to safeguard the insurer’s recourse claims against third parties, such costs are reimbursed by the insurer as sue and labour expenses.253 Settlement procedure Investigating the claim 10.184 In order for the insurer to be able to investigate the claim submitted by the assured, the insurer will request all necessary documents and information from the assured. This will include, in particular, the survey report on the cause and extent of the loss or damage, invoices, police reports if any, statements from the carrier and other documents proving the claim (which the assured has a duty to collect and safeguard after the loss254). Once all these documents and the information requested are at hand, insurers are entitled to an adequate time to check and consider their position before deciding on whether or not to pay the claim.255 Where the assured and the insurer cannot agree on the cause or the extent of the damage, they may request an ascertainment of the loss by experts (clause 20 DTV-Cargo), each party nominating an expert and the two experts appointing an umpire. The umpire will only decide on those points on which the two experts disagree. The findings of the two experts, or of the umpire, are binding on the assured and the insurer unless it is obvious that the findings deviate substantially from the facts (clause 20.6 DTV-Cargo). Evidence of claim 10.185 As the insurance cover is against all risks, the assured need only show that the loss or damage occurred during the insurance period. It is upon the insurer to prove that an excluded risk or peril caused the damage or that a warranty or condition was not complied

251. Karstaedt, Grundsätzliche Fragen der Drittzurechnung in den Allgemeinen Deutschen Seeversicherungsbedingungen, 1979, p. 105; different view: Enge (fn. 19), p. 125. 252. BGH, VersR 1993, 960; Ehlers (fn. 24), GVB, cl. 15, note 67. 253. See para. 10.190 below. 254. OLG Hamburg, VersR 2008, 488 (case concerning the ADS General Rules of Marine Insurance). 255. Koller (fn. 49), DTV-Güter, cl. 22, note 1; Ehlers (fn. 24), GVB, cl. 22, notes 5, 6; Ehlers (fn. 19), AVB Güter, cl. 22, note 591.

363

10.185

GERMAN LAW AND PRACTICE

with. As far as wilful intent or gross negligence are relevant to any exclusions, warranties or conditions, the assured has the onus of exonerating himself. Payment of the claim 10.186 The insurer has to pay the claim to the assured within two weeks from the time he was able to finally assess his liability and the extent of that liability (clause 22.1 DTVCargo). There is a slight difference in the corresponding provision in section 14 of the Insurance Contracts Act, according to which the insurer does not have the extra two weeks after final assessment of the claim. To be able to assess his liability, and its extent, the insurer will ask for the assured to submit the relevant documents and any other necessary information. Once these documents and the information have been received, a reasonable time is allowed to enable the insurer to check and consider the documents and information. This time may extend to two to four weeks or even to several months, depending on the facts and complexity of the case.256 10.187 If the assured does not cooperate and does not submit the documents and information that have been requested from him, time for payment of the claim will not fall due. The assured need not cooperate, the insurer cannot force such cooperation. Such behaviour is not to the disadvantage of the assured unless he infringes a contractual obligation. This is so even if the assured deliberately fails to submit the documents requested.257 The insurer has to wait to be able to assess the claim, the payment not becoming due; however, on the other hand, the claim against the insurer will not become time barred because the prescription time258 only starts to run from the end of the year during which the claim became mature. However, once the insurer has rejected the insurance claim, payment becomes due, whether or not the claim documents have been submitted to the insurer. Where the assured fails to submit the documents for an exceptionally long time, there is no limit to a claim being pursued though there could be an argument that to allow the claim to proceed would be against public policy (section 242 of the German Civil Code).259 10.188 If the insurer cannot finally assess the amount of the claim within one month from the date the claim was submitted, the assured is entitled to demand part payment of the minimum amount due, which presumably will be paid by the insurer as a payment on account (clause 22.1 DTV-Cargo). 10.189 Where damage to the goods occurs, the insurer has the right to discharge itself from all further liabilities by paying the sum insured to the assured (clause 19.1 DTVCargo). In this way, the insurer can avoid becoming liable for any further costs and expenses connected with the loss. This right must be exercised within, at the latest, one week from the time the insurer has knowledge of the loss and its direct consequences (clause 19.3 DTV-Cargo). Sue and labour costs that have arisen prior to the insurer’s exercise of this right remain payable, as well as costs that the insurer had already undertaken to pay (clause 19.2 DTV-Cargo). By such payment, the insurer does not obtain title to the subject-matter insured.

256. OLG Schleswig, VersR 1996, 93. 257. BGH, VersR 1994, 337. 258. See para. 10.201 below. 259. BGH, VersR 1990, 795.

364

CLAIMS AND SETTLEMENT

10.193

Recovery of sue and labour expenses 10.190 Whereas the insured has a duty to avert or mitigate the loss, the insurer has a duty to reimburse the insured for the costs incurred in connection therewith. This is provided for in detail in sections 83, 85 of the Insurance Contracts Act and in clause 2.3 of the DTVCargo Conditions. The costs incurred by the assured in averting and mitigating a loss are reimbursed as far as these could have been, without negligence, regarded at the time of the loss as reasonable in the circumstances (section 83(1), sentence 1, of the Insurance Contracts Act; clause 2.3.1.2 DTV-Cargo). These are the voluntary and involuntary financial losses of the assured that are the consequence of the assured’s measures. An involuntary financial loss includes, for example, measures taken to mitigate the loss which themselves cause damage to other goods of the assured not involved in the loss event (e.g., by extinguishing a fire).260 These costs are reimbursed even if the measures were unsuccessful (section 83(1), sentence 1, of the Insurance Contracts Act; clause 2.3.2 DTV-Cargo). These expenses are reimbursed even if, taken with other payments, they exceed the sum insured (clause 2.3.3 DTV-Cargo; according to section 83(3) of the Insurance Contracts Act this rule only applies to expenses incurred upon the insurer’s instructions). According to section 83(1), sentence 2, of the Insurance Contracts Act, but not the DTV-Cargo Conditions, the assured is entitled to receive an advance payment for sue and labour expenses from the insurer. Furthermore, all sue and labour expenses for averting or mitigating the loss or damage, which are incurred by the assured upon the insurer’s instruction, are to be reimbursed (section 83(1) of the Insurance Contracts Act; clause 2.3.1.2.2 DTV-Cargo). 10.191 Costs incurred by the assured for the evaluation and ascertainment of the insured damage are reimbursed in so far as these were reasonable in the circumstances, or were incurred upon the insurer’s instruction (section 85(1) of the Insurance Contracts Act, clause 2.3.1.2.3 DTV-Cargo). The costs of an expert are, according to the Insurance Contracts Act – but contrary to the DTV-Cargo – only to be reimbursed if there was a contractual obligation to consult an expert or if the insurer gave instructions to do so. 10.192 Expenses incurred for averting or mitigating a loss may include: the costs of reloading the goods due to a loss; the extra costs of transhipment of the goods and their temporary storage. These expenses are covered under clause 2.3.1.2.1 of the DTVCargo Conditions. If these costs are incurred for other reasons, and if the assured may have considered the costs reasonable in the circumstances, or the insurer had instructed the assured accordingly, the costs are reimbursed under clause 2.3.1.3 of the DTV-Cargo Conditions. Interestingly, for this alternative, the provisions in clause 2.3.2 of the DTVCargo Conditions (reimbursement also in case of failure) and clause 2.3.3 of the DTVCargo Conditions (reimbursement if the amount, together with other payments, exceeds the sum insured) do not apply. Contribution in general average 10.193 Clause 2.3.1.1 of the DTV-Cargo Conditions261 provides for reimbursement of general average contributions incurred to avoid an insured loss, which the assured is liable 260. BGH, VersR 1977, 709. 261. On the following in detail: Ehlers (fn. 24), GVB, cl. 2, notes 45–80; Ehlers (fn. 19), AVB Güter, cl. 2, notes 53–68.

365

10.193

GERMAN LAW AND PRACTICE

for according to a general average statement established under German law,262 the YorkAntwerp Rules,263 the IVR Rhine Rules264 or other international provisions on general average. The assured as owner of the goods is liable to the other participating parties in the event of a general average act; this is a liability of the assured that is taken over by the insurer without applying the legal provisions on liability insurance.265 A precondition for the insurer’s liability is that the loss or damage averted was covered under the insurance. For example, where the goods are damaged or suffer a total loss during the course of extinguishing a fire aboard the vessel, or where other measures to salvage vessel and cargo are undertaken, without which a total loss of the goods would have occurred. The insurer’s liability to bear the assured’s contribution in general average is reduced pro rata in cases of underinsurance unless otherwise agreed. Insurers are liable to reimburse the assured’s contribution in general average even if this, together with the claim paid to the assured, exceeds the sum insured, for example, due to a total loss of the goods (clause 2.3.3 DTV-Cargo). 10.194 The carrier has a lien over the goods for general average and it is the usual practice that the assured, as the receiver of the goods, only obtains delivery of the goods on provision of a bond agreeing to pay any general average legally due, backed by a cash deposit or, more often, a guarantee from insurers to secure the contribution due under the bond. According to clause 2.3.4 of the DTV-Cargo Conditions, the insurer has the obligation to provide a general average guarantee for the assured; to pay contributions in general average and to pay, in advance, costs incurred for averting and mitigating the loss as well as for the ascertainment of the damage. Although not set out in the wording of clause 2.3.1.1 of the DTV-Cargo Conditions, the cargo insurer has to ensure that an assured, who has a claim for contribution in general average against another party participating in the adventure, obtains the general average contribution due.266 Finally, clause 2.3.1.1, paragraph 2, of the DTV-Cargo Conditions provides that the assured is entitled to be held harmless by the insurer, should he be held liable for an indemnity claim under a contractually agreed Bothto-Blame Collision Clause.267

SUBROGATION 10.195 If the assured has a claim against a third party for compensation for the loss or damage, such a claim is transferred by force of law to the insurer at the time the insurer pays the claim to the assured and to the extent of such indemnification. This is a traditional principle in German insurance law and is laid down in section 86 of the Insurance Contracts Act and clause 23.1, sentence 1, of the DTV-Cargo Conditions.268 If the insurer indemnifies the assured for less than the full amount of the damage (e.g., less a deductible), the 262. For example, previously s.700 et seq. of the German Commercial Code. The provisions on cargo insurance in the Insurance Contracts Act deal with contributions in general average only with regard to inland waterway transportation (s. 130(3) of the Insurance Contracts Act). 263. York-Antwerp Rules, current edition 2004. 264. IVR Rhine Rules, edn 2003. 265. Ehlers (fn. 24), GVB, cl. 2, note 58; Koller (fn. 49), s. 130 of the Insurance Contracts Act, note 6. 266. BGH, VersR 1977, 709. 267. See Ehlers (fn. 24), GVB, cl. 2, note 75 et seq.; Ehlers (fn. 167), TranspR 2006, 7/12. 268. Previously s. 67 of the Insurance Contracts Act 1908; s. 45 of the ADS General Rules of Marine Insurance; s. 804 of the German Commercial Code.

366

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10.199

claim against the third party for the remaining amount rests with the assured. To facilitate the recourse against the third party, the assured and the insurer often agree that the insurer pursues the full claim against the third party and that the assured assigns the remaining part of the claim to the insurer for this purpose.269 Claims against third parties that do not relate to the insured loss or damage are excluded from the transfer to the insurers of the right to claim. Thus, if indirect or consequential loss or damage is not covered by the insurance, those claims against third parties remain with the assured.270 Claims against third parties are pursued in court in the name of the insurer once the claim has been transferred upon payment of the indemnification. 10.196 If the policyholder and the assured are not the same, the assured’s claims against third parties are transferred to the insurer. In such cases, the policyholder can be sued as a third party unless he is a co-insured under the insurance contract. Accordingly, if a forwarder (policyholder) takes out insurance cover for the goods of its client (the assured), carries these goods himself and causes loss of or damage to these goods, the assured’s damage claim against the forwarder is transferred to the insurer upon payment of indemnification.271 10.197 The assured’s claim for contribution in general average is transferred to the insurer at the point of time when this claim for contribution arises and to the extent that the insurer is liable to indemnify the assured. Actual payment by the insurer is not a condition for this transfer. If the general average contribution obtained by the insurers from other participants in the adventure exceeds the insurance indemnification paid to the assured, the difference is to be paid to the assured (clause 23.1(2) DTV-Cargo). 10.198 If the insurer cannot obtain compensation from a third party because his legal liability has been contractually limited or excluded to an extent beyond what is usual in the market, the insurer is discharged from its duty to indemnify to the extent it would otherwise have obtained compensation (clause 23.2 DTV-Cargo). The insurer cannot invoke this provision if the assured could not influence this limitation or exclusion of liability of the third party. 10.199 The duty of the assured to avert or minimise the loss or damage resulting from a loss272 continues after the transfer of the claim against the third party to the insurer. In particular, the assured must retain payments due to the third parties (e.g., freight, which can be set off) as the assured has an obligation to assist in pursuing the claim and to procure the information and documents required for the realisation of the claim (clause 23.3 DTV-Cargo).

269. The insurer is legally entitled to proceed this way if the amount or percentage of the deductible is not unreasonably high. 270. Prölss (fn. 82), s. 86 of the Insurance Contracts Act, note 9. 271. Prölss (fn. 82), s. 86 of the Insurance Contracts Act, note 17; see also Sieg, “Herbeiführung des Versicherungsfalls in der Gütertransportversicherung durch den Spediteur”, TranspR 1995, 195. 272. Details hereto see para. 10.171 above.

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DAMAGES AND LIMITATION Damages for late payment of claims 10.200 The insurer will be in default of payment if he does not pay claims on time as set out in paragraph 10.186 above, and if he has acted negligently in paying late: either on a factual basis (e.g., he did not investigate the matter thoroughly enough and based his decision on inconclusive facts) or on a legal basis (e.g., he followed a legal view that is not predominant in jurisprudence and which is rejected).273 A reminder from the assured is not necessary if the insurer has (wrongly) rejected the insurance claim, otherwise it is necessary to put the insurer in default. The legal consequence of such default is that the insurer will be liable in damages to the assured (sections 280, 286 of the German Civil Code). The minimum amount of damages without proof is interest for delay on the unpaid amount at 5% above the ECB basic rate of interest (section 288 of the German Civil Code). However, the claim for damages is not restricted to such fixed interest (or higher interest, if proved), but covers all damage suffered by the assured that is a foreseeable consequence of the delay.274 Time limitation for commencement of proceedings against insurers 10.201 The assured’s claim against the insurer for loss or damage is time barred at the end of three years, calculated from the end of the year during which the claim became due (clause 24.1 DTV-Cargo).275 The assured’s claim may only “become due” after a long time if, for example, the assured does not cooperate so as to enable the insurer to assess the claim.276 The Insurance Contracts Act does not specifically provide for a time bar for pursuing claims under the insurance contract and therefore – if the DTV-Cargo Conditions are not incorporated into the contract – the provisions on prescription of claims in general civil law are to be applied. These provide for the same time limit of three years (sections 195, 199 of the German Civil Code). A suspension of the running of the time limit – as in clause 24.2 of the DTV-Cargo Conditions – is provided for in section 15 of the Insurance Contracts Act for the period between submitting the claim to the insurer and the receipt of the insurer’s written decision on the claim.

JURISDICTION 10.202 Historically, the Insurance Contracts Act 1908 did not provide for jurisdiction for lawsuits between the assured and the insurer and this question, therefore, was to be answered by the provisions of the law on civil procedure. Section 127 of the ADS General Rules of Marine Insurance contains a jurisdiction clause for all lawsuits whether by the assured against the insurer or by the insurer against the assured: the courts at the seat of

273. Cf. Prölss (fn. 82), sec. 14 of the Insurance Contracts Act, notes 18, 19. 274. Ehlers (fn. 24), GVB, cl. 22, note 8; Grüneberg (fn. 150), sec. 286 of the German Civil Code, note 42 et seq. 275. As to the time bar, see also para. 10.41 above. 276. See para. 10.187 above.

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the insurer have exclusive jurisdiction in both cases. For non-marine risks, the Insurance Contracts Act now provides in section 215(1) that the assured, if suing the insurer, may choose between the court at his own residence and that at the seat of the insurer. For lawsuits against the assured, however, the court of the residence of the assured has exclusive jurisdiction. This provision in section 215(1) of the Insurance Contracts Act is mandatory law unless the risk is a “large risk” in which case the parties are free to agree on jurisdiction (section 187 of the Insurance Contracts Act). A “large risk” includes transit risks covered under a cargo insurance contract.277 The definition of “large risks” is wide enough to cover the insurance of goods in transit irrespective of the means of transport, which covers most if not all marine cargo transit cases. In any event, section 215(1) of the Insurance Contracts Act does not apply to the insurance of cargo carried exclusively by sea (section 186 of the Insurance Contracts Act).278 The DTV-Cargo Conditions do not contain a jurisdiction clause, and if the parties wish to agree to jurisdiction for “large risks”, or for risks relating to goods carried exclusively by sea, this has to be done individually by the parties in the insurance contract. 10.203 The above is applicable for cases where the insurer and the assured are both resident in Germany. If the insurer and the assured are domiciled in different EU Member States, Council Regulation (EC) No. 44/2001 on jurisdiction and judgments (the “Judgments Regulation”)279 has priority. This regulation is considered in Chapter 2 (Law and jurisdiction),280 though it may be noted here that as the DTV-Cargo Conditions do not include a jurisdiction clause, this means that jurisdiction would have to be agreed in individual cases where permitted by the EU regulation, which is, in most if not all cases, of marine cargo transit insurance, as considered further in Chapter 2.

277. As to the term “large risks” see Chapter 2, para. 2.8 above. 278. See also paras 10.9 and 10.10 above. 279. Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction and the recognition of judgments in civil and commercial matters (the “Judgments Regulation”), see Chapter 2 (Jurisdiction and law) at paras 2.4 to 2.12. 280. At paras 2.4 to 2.12.

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CHAPTER 11

FR E N C H L AW A N D PRACTI CE Gildas Rostain, Marie Buzulier and Maxime de La Morinerie1

INTRODUCTION History and sources Historical background 11.1 French insurance law has a long historical tradition: it emerged notably, thanks to the “Le Guidon de la Mer”,2 which was written in the late sixteenth century. This treatise had a major influence on the “Ordonnance de la Mer” dated 1681 which codified for the first time maritime law and maritime insurance law.3 The Commercial Insurance Code1807 was still in force until 1967,4 at which point marine insurance law was codified as part of the Insurance Code5 under Title VII of Book 1 (Articles L.171-1 to L.174-6).6 Where the marine provisions conflict with the common insurance provisions, the marine provisions prevail. Although French marine insurance law has been constantly modernised in order to comply with market practices, French marine insurance policies supplement the deficiencies of the Commercial Insurance Code to the extent that the code has become out of date. Sources of French insurance law and practice 11.2 Marine insurance contracts are mainly governed by two sets of rules: (1) the common contract rules in the French Civil Code (the “Civil Code”), which apply to any contracts governed by French law, including marine insurance contracts, and (2) the insurance rules in the Insurance Code.7 The French Federation of Insurance Companies (“Fédération Française des Sociétés d’Assurances”) has drawn up two main set of policies: (1) French Marine Hull Insurance Policies; and (2) French Marine Cargo Insurance Policies. 1. Gildas Rostain, Partner, Avocat à la Cour, Clyde & Co LLP, Paris, Marie Buzulier, Avocat à la Cour, Clyde & Co LLP, Paris and Maxime de La Morinerie, Avocat à la Cour, Clyde & Co LLP, Paris. 2. Referred to by Viscount Maugham in Middows, Ltd v. Robertson and Other Cases (1941) 70 Ll. L. Rep. 173 (HL) at p. 183 and cited by Lord Mansfield in Hamilton v. Mendes (1761) 2 Burr 1198. 3. Whose instigator was Colbert. 4. Law no 67-522 dated 3 July 1967 and Decree no 68-44 dated 19 January 1968. 5. Which was introduced by the statute dated 3 July 1967. 6. See Appendix 11. 7. See para. 11.1 above.

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French Marine Cargo Insurance Policies are divided into: (1) the “All Risks” cover; (2) the “F.A.P. Sauf” cover (together referred to as the “Cargo Policies”). 11.3 This chapter aims at presenting the rules applicable to marine insurance contracts and especially French Marine Cargo Insurance Rules. A particular emphasis has been put on market practices and on comparative law, especially English law. For the sake of clarity, any mention of “insurance” or “marine insurance” refers to French law. Marine insurance defined: statutory provisions8 11.4 According to Article L.171-1 of the Insurance Code: “This title (i.e. Title VII, Book 1 of the Insurance Code) shall govern all insurance contracts covering risks in respect of a marine transaction.”

In other words, the subject-matter insured, or the cargo, must be subject to the risks of a sea voyage, though where part of the insured journey takes place on land, as is commonly the case under the Cargo Clauses,9 the risk is still a marine risk subject to the rules applicable to marine insurance. In this respect, Article L.173-19 provides that “When a part of the voyage is made over land, on inland waterways or by air, the rules of marine insurance shall apply to the entire voyage.”

11.5 A marine risk includes an insurance against any perils of the sea,10 or by force majeure. However, this rule does not imply the necessity to expose the cargo to maritime perils as is required by section 3(2)(c) of the Marine Insurance Act 1906, which provides: “In particular there is a marine adventure where … [a]ny liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property, by reason of maritime perils. ‘Maritime perils’ means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war, perils, pirates, rovers, thieves, captures, seizures, restraints, and detainments of princes and peoples, jettisons, barratry, and any other perils, either of the like kind or which may be designated by the policy.”

In comparison, Article L.172-11 of the Insurance Code merely provides that: “The insurer shall be liable for material damage caused to the insured property by any perils of the sea or by force majeure.”

8. Marine insurance law does not apply to insurance contracts which cover risks relating to yachts (Art. L.171-5 of the Insurance Code). The insurance of yachts is governed by the common provisions of the insurance law. A similar rule applies in Australia, see para. 7.19 of Chapter 7 (Australian law) above. 9. See Art. 8, and see the consideration of the warehouse to warehouse cover under this article at para. 11.57 below. 10. The difficulty of defining “perils of the seas” in English law meant that this phase was omitted from the ICC in the revisions of 1982, though the phrase was still included in the Institute Hull Clauses, in the absence of an acceptable alternative, See O’May on Marine Insurance, 1993, Sweet & Maxwell, at p. 103.

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This article does not provide for a list which limits the “maritime perils”. The expression “perils of the sea” includes any losses related to the maritime voyage (shipwreck, collision, fire, general average, grounding, etc).12 A peril of the sea is a fortuitous event which is caused by the action of wind and waves (heavy weather, storms, tornado and even hurricanes).13 What constitutes a “peril of the sea” is a matter of fact and as such is decided by the Courts of First Instance.14 However, the expression “force majeure” refers to the losses which are not related to the maritime voyage itself (fire during mooring, theft, rain, mishandling of cargo, inherent vice, etc).15 Traditionally, an event of “force majeure” has to comply with two requirements: the event should be unforeseeable and irresistible.16 11.6 French marine insurance law aims at indemnifying the insured on the occurrence of a risk arising from marine activity.17 Marine insurance is an insurance of goods and includes liability insurance, such as P&I insurance, but does not include life insurance or personal injury insurance (“assurance de personnes”). Insurance of persons cover individuals against physical damages: they are governed by different principles. For instance, the beneficiary will receive a contractual lump sum which is independent from the loss suffered. Indeed, Article L.131-1 of the Insurance Code provides that “In respect of life insurance and personal injury insurance, the sums insured shall be defined by contract”.18 Whereas in cargo insurance, according to the indemnity principle,19 the beneficiary shall only receive an indemnity in the amount of the loss suffered and not more. 11.7 The main mandatory provisions of French marine insurance law are as follows: (1) necessity for an insurable interest20; (2) duty of disclosure of the risk and any increase of the risk21; (3) penalty in case of insurance value fixed fraudulently in excess of the value of the insured subject-matter; (4) rules governing double insurance22; (5) exclusion of wilful and reckless negligence of the insured23; (6) rules governing the attribution of a loss to a war peril or a peril of the seas24; (7) consequences of non-payment of premium; (8) cases of insolvency or bankruptcy of one of the parties or withdrawal of licence of the insurer; 11. Although the “curious” list in MIA 1906, s. 3(2) appears to limit the marine perils to those listed, it has been held in England that these are examples of “maritime perils”, see Mustill J in Continental Illinois National Bank & Trust Co of Chicago v. Bathurst (The Captain Panagos DP) [1985] 1 Lloyd’s Rep. 625. 12. P. Emo, “À propos de la fortune de mer”, Droit Maritime Français (DMF), 1956, p. 575. 13. M. Poupard, DMF 1984, p. 424. 14. Cour de cassation. com., 7 December 1999, no 98-10.171, Lamyline. 15. Y. Tassel, “Les systèmes français et anglais de détermination des risques couverts par l’assurance maritime”, DMF 2000, p. 195. 16. Cour de cassation assemblée plénière, 14 avr. 2006, no 04-18.902, Bull. civ. ass. plén., no 6. 17. Article L.171-1 of the Insurance Code provides: “This title shall govern all insurance contracts covering risks in respect of a marine transaction”. 18. Cour de cassation. 1re civ., 21 January 1997, no 93-20.452, Resp. civ. et assur. 1997, comm. no 138. 19. See para. 11.14 below. 20. See para. 11.14 below. 21. See para. 11.8 et seq. below. 22. See para. 11.83 below. 23. See para. 11.42 below. 24. See para. 11.53 below.

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(9) subrogation provisions ; and (10) time limit provisions.26 Except for the above mandatory provisions, the parties to an insurance contract may derogate from the Insurance Code. However, in practice many cargo insurances are agreed on the terms of the All Risks cover or the “F.A.P. Sauf” cover and most of the provisions of these covers are similar to the Insurance Code. Indeed, the Cargo Policies are expressly governed by French law and make particular reference to the provisions of Title VII, Book 1, of the Insurance Code, “whether or not reference is made [to these provisions] in the policy”.27

FORMATION OF THE CONTRACT OF MARINE CARGO INSURANCE Non-disclosure and misrepresentation Duty of disclosure and misrepresentation 11.8 Article L.172-2 of the Insurance Code, in free translation,28 provides that: “Any non-disclosure or inaccurate representation by the assured annuls the insurance, at the option of the insurer, where that non-disclosure or misrepresentation was capable of materially minimising the assessment by the insurer of the risk, whether or not that non-disclosure or misrepresentation caused damage or loss of the subject-matter insured. However, where the insured brings evidence of good faith, the risk is covered in proportion to the premium received compared to that which the insurer should have received, except in cases where the insurer proves that he would not have covered the risk had he known of the circumstances not disclosed or misrepresented and except in cases where the policy otherwise provides in favour of the assured.

The premium remains payable to the insurer in cases of fraud by the insured.” 11.9 This provision is far more favourable to the insurer than the rules applicable to non-marine insurance (except reinsurance and credit/political risks). Thus, the assured has a strict obligation, when entering into the contract, to disclose any circumstance that would have had a material effect on the insurer’s assessment and appreciation of the risk underwritten. In case of non-disclosure/misrepresentation (“inaccurate declaration”), the insurer can obtain the annulment of the policy ab initio, that is, from the beginning of the contract. However, the assured may in some circumstances escape the nullity of the contract if he proves that the failure to disclose or the misrepresentation was made in good faith. In such cases (subject to any stipulation more favourable to the assured in the policy), there are two possibilities: (1) either the insurer proves that he would not have covered the risk had he known about the undisclosed circumstance: in which case the contract is deemed null and void; or

25. See para. 11.76 below. 26. See para. 11.63 below. 27. Preamble to the Cargo Clauses, entitled “Applicable Law”. 28. The official translation of this provision will be found in Appendix 11.

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(2) the insurer does not prove it: in which case the indemnity is reduced in due proportion of the premium that should have been paid compared to the premium that was paid. In case of fraud of the assured, the premium is payable to the insurer notwithstanding the nullity of the contract. 11.10 The obligation of good faith continues during the course of the contract as provided by Article L.172-3 of the Insurance Code which, in free translation,29 provides: “Any modification of the risk during the insurance contract, either of matters that were agreed at the time it was concluded, or of the subject-matter insured, that result in a material increase in the risk, shall terminate the insurance unless the modification is declared to the insurer within three days of the insured becoming aware of it, excluding bank holidays, unless the assured proves his good faith, in which case, the provisions of article L.172-2, §2 shall apply.”

Article L.172-3 further provides that if the increase in the risk was not caused by the assured, the insurance continues, subject to an increase in the premium corresponding to the increase in the risk. However, if the increase in the risk was caused by the assured, the insurer can either terminate the contract within three days of his becoming aware of it, with the premium remaining still owed to him, or, alternatively, require an increase in premium corresponding to the increase in the risk that has occurred. 11.11 In the circumstances, any increase in the risk must be disclosed to the insurer within three days of the assured becoming aware of it. Where there is non-disclosure of the increase in risk, the contract is terminated unless the assured proves his good faith. Where the assured acted in good faith or where the increase in the risk was properly disclosed, the distinction to be made is whether the assured caused the increase in the risk: (1) if the increase was caused by the assured, the insurer may choose between, on the one hand, terminating the contract and keeping the premium or, on the other hand, asking for an increase in the premium; (2) if the increase in the risk was not caused by the assured, the insurer is only entitled to an increase in the premium (even if he proves that he would not have covered the aggravated risk). Thus, the termination of the contract is subject to three conditions: (1) a fact that has not been properly disclosed; (2) which has to materially impact the insurer’s assessment of the risk. Should the insurer have knowledge of the material fact, the insurer is not entitled to terminate the contract; (3) the assured has acted in bad faith. French law is similar to English law as they both require an act of avoidance. In particular, section 18(1) of the Marine Insurance Act 1906 provides that30:

29. The official translation of this article will be found in Appendix 11. 30. The principles applicable in England are examined in para. 3.6 et seq. above.

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“Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in 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.”

11.12 In addition to these principles of French law, there are specific provisions applicable to non-disclosure and misrepresentation in the Cargo Policies themselves. In this respect, Article 14 provides that: “1 The Assured shall disclose, on concluding the contract of insurance, all circumstances of which he is aware that would influence the insurer in assessing the risks to be covered; 2 In the same way, he must disclose to the insurer, as soon as he is himself aware of it, any circumstance affecting the risk which occurs during the time of the insurance.”

Under open policies, in addition to duties of disclosure, the assured has an obligation to declare all shipments made for its account, and to list the cargo carried. “Shipments [have to be] declared to the insurer within eight days at the latest from the time the Assured is aware of their despatch” (see, Article 1.1 of the Special Provisions for Open Policies). Formalities, insurable interest and illegality Formalities 11.13 Under French law, the contract of insurance does not have to comply with any specific form in order to be legally valid.31 As a consequence, an oral agreement may constitute a valid contract of insurance. However, in order to ensure that the rights of the parties are recognised and safeguarded, Article R.172-1 of the Insurance Code provides that in legal proceedings the terms of the agreement must be supported by evidence in written form. In practice, the insurance slip issued by the broker and executed by the underwriter is sufficient evidence (Article R.172-2 of the Insurance Code). Once the insurance policy has been executed, its terms prevail over any other documents, such as the slip.32 Contrary to the rule in non-marine insurance law, a contract of marine insurance does not have to be written in French.33 The tacit renewal of an insurance contract gives rise to a new insurance contract34: the legal effect of the initial insurance contract is superseded at the time of renewal.35

31. However, it is to be noted that Art. L.172-1 of the Insurance Code provides that “Legal consequences shall not ensue from the insurance contract when the risks have not begun within two months of the parties' agreement or the date set for attachment”. So far as open policies are concerned, “Such provision shall not apply to open policies for the first risk only”. 32. Court of Appeal of Bordeaux, 2 May 1921, Autran, t. 33, p. 779. 33. This is an important difference as the usual rule under Art. L.112-3 of the Insurance Code, which applies to non-marine insurance, provides that: “The insurance contract and the information referred to in this Insurance Code that the insurer sends to the policyholder shall be written in clear print, in French”. Exceptions apply where the parties are free to agree to the application of a foreign governing law or where the policyholder, being a foreigner, requests in writing a policy in his own language. 34. Cour de cassation, 13 March 1990, Bull. civ. IV, no 77; D. 1990, IR p. 84. 35. Cour de cassation, 6 October 1969, RGAT 1970, p. 35; JCP 1970, II, no 16205, note Besson; Cour de cassation, 17 July 1980, RGAT 1981, p. 366; 10 January 1984, Bull. civ. I, no 6; RTD civ. 1985, p. 157, obs. J. Mestre; 18 January 1983, Bull. civ. I, no 21.

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Insurable interest: the indemnity principle 11.14 The assured who claims the indemnity has to demonstrate that he suffered a loss.36 The measure of indemnity is always the loss and the policy may never result in an enrichment of the assured: this stems from the indemnity principle. Under French law, the concept of loss has evolved considerably. At first, the insurance contract did not grant a benefit to the assured beyond the physical loss of the goods as the aim of the insurance contract was only to compensate that loss. As a consequence, the assured could only be indemnified regarding the existing goods at the date of the loss. The reason for such limitation was to encourage the assured to be diligent as part of the loss would not be indemnified. The cover for sue and labour later became admitted.37 Subsequently, Article L.171-3 of the Insurance Code further broadened the French notion of insurable interest as it states that: “All legitimate interests, including anticipated profit may be covered by insurance. No-one may claim the benefit of insurance if he has not sustained a loss”. In other words, any goods may be insured provided that the assured establishes (i) a legitimate interest and (ii) that he has sustained a loss. 11.15 Article L.171-3 was inspired by section 5(1) of the Marine Insurance Act 1906, which provides38: “Subject to the provisions of this Act, every person has an insurable interest who is interested in a marine adventure. In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof.”

This evolution, which led to the inclusion of anticipated profit,39 has considerably enlarged the scope of the subject-matter of marine cargo insurance. In practice, the Cargo Policies provide, in Article 12, that the insured value, which shall be proved in case of loss or damage, shall not exceed the higher of: the cost of the cargo at destination plus expected profit40 or the value at the place of destination on the date of arrival as determined by customary commodity prices.41 This allows in both cases an element of anticipated profit in accordance with French law.42 11.16 However, according to Article L.171-3, the definition of insurable interest is still subject to the following limits: (1) the insurable interest has to be linked with the subject-matter of the insurance; and 36. Article L.171-3 of the Insurance Code provides that “no-one may claim the benefit of insurance if he has not sustained a loss”. Article 27 (last paragraph) of the Cargo Policies reaffirms this principle in terms of proof: it provides, “No one may recover under this insurance without proof of having suffered loss or damage”. 37. See para. 11.73 et seq. below, duty of assured after loss; sue and labour. 38. See para. 3.14 above and the cases cited at fn. 62 for a consideration of the insurable interest requirements under English law. 39. In 1998 the French Federation of Insurance Companies (FFSA) decided to create a “loss of profit after transportation” policy, which is an additional clause which may be subscribed by the assured, who has taken out a marine cargo policy, covering consequential and business losses. 40. Article 12.1. 41. Article 12.2. 42. Article 12 of the Cargo Policies also provides that the cargo may be valued in accordance with the contract of sale and that manufactured goods may be valued at replacement cost as long as invoices are produced as evidence of replacement, see Arts 12.3 and 12.4.

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(2) the interest must be determinable in money terms, in particular it must be possible to prove the monetary amount of the anticipated profit. 11.17 The indemnity principle requires that the assured is not allowed to benefit from the insurance over and beyond the loss he has suffered.43 Another consequence of the indemnity principle is the prohibition of punitive damages. Indeed, under French law, the claimant must prove that damages correspond with an actual loss.44 Insurable interest; cargo “lost or not lost” 11.18 Article L.172-4 of the Insurance Code provides that: “Any insurance contracted after the loss or the arrival of the insured property or the [carrying] ship shall be null and void if the news thereof was known, prior to the conclusion of the contract, at the place where it was signed or at the place of the insured’s or insurer’s place of residence.”

Similarly, Article L.172-5 of the Insurance Code provides that: “Lost or not lost insurance shall be null and void if it is proved that, prior to the conclusion of the contract, the insured had personal knowledge of the loss or the insurer had knowledge of the [safe] arrival of the insured property.”

Illegality 11.19 In French marine insurance policies, in order to be insurable, the cargo has to comply with several principles. In particular, the cargo which is the object of a clandestine or prohibited business is not insured. Article 3(c) of the Cargo Policies provides that “This insurance does not apply to: c) the illegal or clandestine trading of cargo”. In other words, the cargo must comply with the relevant legislation (especially Articles 6,45 110846 and 113347 of the Civil Code). Moreover, the cargo shall not itself be illegal.48 These provisions also apply when the intended use of the cargo is illegal, even though the cargo itself is legal.49 Assured, policyholder and insurer Assured and policyholder distinguished 11.20 In common with other civil law systems, and unlike English law, French law recognises the rights of both the assured and the policyholder. The assured is the cargo 43. However, where there is no fraud, an agreed value (which could exceed the actual loss) is valid for the entire sum insured, Art. L.172-7. 44. Cour de cassation, 7 December 1978, Bull. civ. 1978, II, no 269; Cass. 2e civ., 9 July 1981, Bull. civ. 1981, II, no 156; Cour de cassation, 4 February 1982, JCP G 1982, II, 19894 et note J.-F. Barbiéri; Gaz. Pal. 1982, pan. jurispr. p. 335, obs. F. Chabas; Adde, Cour de cassation, 13 January 1988, Gaz. Pal. 1988, somm., p. 261; RGAT 1989, p. 345. 45. Statutes relating to public policy and morals may not be derogated by private agreements. 46. Four requisites are essential for the validity of an agreement: the consent of the party who binds himself; his capacity to contract, a definite object which forms the subject-matter of the undertaking; a lawful cause in the obligation. 47. A cause is unlawful where it is prohibited by legislation, where it is contrary to public morals or to public policy. 48. For illegal trading, see R. Rodière, Traité de Droit Maritime, les Assurances Maritimes, Dalloz, Paris, 1983, p. 120. 49. R. Rodière, Traité de Droit Maritime, les Assurances Maritimes, Dalloz, Paris, 1983, p. 119.

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owner and, generally, the cargo owner is the policyholder, but different situations arise, as mentioned below. The French rules have important consequences, particularly where the policyholder is a forwarder or carrier. For example, in relation to open covers and floating policies, Article 1 of the Special Provisions50 provides that the insurer will cover: “All shipments for account of the Assured or in performance of a contract of sale or purchase where insurance must be taken out by the Assured. These shipments are covered automatically from the moment when they are first exposed to the perils insured against on condition that shipments are declared to the insurer within eight days at the latest from the time the Assured is aware of their despatch.”

Where shipments are made for the account of third parties regularly authorising the assured to take out insurance on their behalf, as, for example, where a shipper under CIF terms takes out insurance as policyholder which is passed to the CIF buyer, there is cover provided that “the Assured has [an] insurable interest as shipper, consignee or other contracting party. Those shipments are only covered on declaration to the insurer, cover attaching at departure from the warehouse in accordance with the provisions of Article 8 of the Standard French Marine Cargo Insurance Policy”.51 Article L.171-4 at line a 2 of the Insurance Code provides that: “The declaration that the insurance has been contracted on behalf of whom it may concern shall be valid as insurance in favour of the policyholder and as a provision in favour of a third party52 in favour of the beneficiary of said clause.”

Thus, if the insurance contract has been entered into on behalf of “whom it may concern”, floating policies and open covers operate not only as insurance covering loss and damage to the goods but also as liability insurance protecting the policyholder. This is because the liability of the assured, that is, carrier, forwarder, will be covered if they are the policyholder who has declared the shipment under an open cover. 11.21 The Cargo Policies do not cover the civil liability of the assured. Article 3 of the Cargo Policies provides that: “This insurance does not apply to liability for any reason which the Assured or any other beneficiary of this insurance, whether on their own account or on account of the insured cargo, could incur, in respect of third parties or joint contracting parties”. Thus, insurance contracts “on behalf of whom it may concern” provides for a dual cover: (1) the third party53 [who becomes the assured] benefits from the property insurance covering physical loss of or damage to the cargo; (2) the policyholder benefits from an insurance against liability for loss of or damage to the insured cargo. As the policyholder is not a third party to the insurance contract, the insurer is not entitled, in principle, to bring a legal action against him. 50. The Special Provisions for Open Policies and floating policies are standard clauses issued by the FFSA for these type of covers, see para. 11.30 below. 51. Op cit. Special Provisions, Art. 1(b). 52. The editor understands that the words “third party” in civil law systems are used to refer to a person who was not an original party to the contract and that the words “third party” are still used even where, in common law systems, that person has later become a party. For example a CIF buyer to whom insurance is endorsed and assigned is termed a “third party beneficiary” under civil law systems but becomes a party to the contract, by virtue of the assignment, in the eyes of a common lawyer and is therefore no longer referred to as a “third party”. 53. For the meaning of “third party” in this context, see fn. 52.

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11.22 To summarise, the assured may enter into one of the following categories: Categories

Comments

The assured is the policyholder

In practice, this is the most frequent situation, except in CIF sales.

Brokerage

The broker may act as the agent of (i) the assured or (ii) both the assured and the insurer.54 The broker is under a duty to inform and advise the principal.

Insurance on behalf whom it may concern55

of The assured is a third party who is not identified or determined when the contract is concluded but is when the loss occurs. The third party,56 as assured, benefits from a direct action against the insurer. The assured may be the final cargo owner as the person having an insurable interest when the loss occurs. The identity of the assured is determined when the loss occurs.

The insurer: co-insurance issues 11.23 In case of co-insurance, the leading insurer acts as the agent of the other insurers. It is essential to note that the leading insurer is not necessarily entitled to act before courts on behalf on the other insurers, especially when the contract does not give him authority to act on their behalf. In this respect, Article 30 of the Cargo Policies provides that: “The leader is empowered to receive on behalf of all interested insurers all documentation and evidence relating to the operation of this policy, but he does not thereby have any power to represent at law the co-insurers.”

Should the contract remain silent, it has long been argued that the contract implied a power of representation to the benefit of the leading insurer57 and the French Cour de cassation has recently held that the leading insurer is presumed to be the agent of the other insurers,58 unless the other insurers have decided otherwise. According to Article L.172-30 of the Insurance Code, co-insurers are not jointly and severally liable: “If several insurers cover a same risk, each shall be bound only in proportion to the sum that it insured, without joint and several liability with the others. Such proportion shall constitute the limit of its obligation.”

The policies also exclude any joint and several liability. In this respect, Article 29 of the Cargo Policies provides that: “If this policy is underwritten by several insurers, each shall be liable only for his own respective proportion of the sum insured.” 54. Accordingly the broker shall be held liable under the common rules of agency (Art. 1992 of the Civil Insurance Code). 55. Article L.171-4 of the Insurance Code. 56. For the meaning of “third party” in this context, see fn. 52. 57. Court of Appeal of Paris, 13 May 1959, DMF 1959, p. 665, note Corbereaud. 58. Cour de cassation, 28 May 2009, no 08-12.315, note A. Huc-Beauchamps Dalloz actualités.

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Premium Payment of premium 11. 24 According to Article 13 of both the “All Risks” cover and the “F.A.P. Sauf” cover: The whole premium is payable to the insurer as soon as cover attaches. It is payable in full to the insurer at the place of underwriting and at the time of issue of this policy. In case of loss or damage, the insurer may deduct the amount of the due premium from the indemnity paid to the beneficiaries of the insurance. 11.25 The person who has to pay the premium may continue to be the original policyholder and may not be the assured, that is, the beneficiary of the indemnity. The premium has to be paid at the time and place agreed in the insurance policy which, in the Cargo Policies, is as soon as the cover attaches.59 The parties may agree a payment in several instalments. As far as cargo insurance is concerned, cargo may be insured for a voyage or under a floating policy, or, in modern terms, an open cover (Article L.173-17 of the Insurance Code).60 In practice most cargo is insured under open covers where the rate of premium is fixed, at the time the terms of the open cover are agreed, by reference to the type and value of the cargo, and the voyage. The insurer is not entitled to modify the amount of premium once it has been fixed, even in cases where there is a deterioration in the risk. Nevertheless, this principle of fixity of the premium only applies when the aggravation of the risk does not stem from the assured, and if the assured, for example, changes the voyage, an additional premium may be payable.61 The assignment of the insurance policy does not waive the obligation of the assignor to pay the premium, so that, for example, a CIF seller will remain liable for premium under an open cover, even though he has sold the cargo and assigned the insurance policy or certificate to his buyer. In such circumstances, under the general rules of civil law62 an assignor may assign his receivable (the benefit of the policy) but he is not entitled to assign his debt (the obligation to pay the premium) without the creditor’s prior consent. 11.26 The broker, acting in his capacity as agent of the assured, is not responsible for paying the premium. Accordingly, where the premium is paid by the assured to the broker, who fails to pay the insurer, the assured remains liable to the insurer to pay the premium.63 On the contrary, under English law, the broker is in principle liable towards the insurer to pay the premium.64 In this respect, section 53(1) of the Marine Insurance Act 1906 provides:

59. Article 13. The time when cover attaches is determined by Art. 8 of the Cargo Policies. 60. As for hull voyage policies, the insurer shall be entitled to the entire premium as soon as the risks have begun to take effect (Art. L.173-9 of the Insurance Code). As for hull time policies, the premium is entirely due in case of total loss or abandonment of the vessel. But should the French marine total loss not be recoverable under the policy, the premium is only due in proportion to the time on risks until total loss (Art. L.173-10 of the Insurance Code). 61. In case of change of voyage: Cour de cassation, 9 January. 1872, DP 1872, 1, p. 199; Cour de cassation 25 August 1874, DP 1874, 1, p. 161; Commercial Court of Nantes, 12 December 1966, DMF 1967, p. 431. 62. Article 1275 of the Civil Code. 63. Commercial Court of Marseille, 20 February 1923, Dor 1923, suppl., p. 182; Court Appeal of Paris, 8 March 1965, DMF 1965, p. 499. 64. The Law Reform Commissions in England and Scotland have recommended the repeal of MIA1906 s. 53 (see Law Commissions, Joint Consultation Paper “Insurance Contract Law: Post Contractual Duties and Other Issues”, LCCP 201/SLCDP 152, 20 December 2011, at para. 19.1 et seq.) which will bring English law more into line with French law and most other systems of law examined in this book.

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“Unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly responsible to the insurer for the premium, and the insurer is directly responsible to the assured for the amount which may be payable in respect of losses, or in respect of returnable premium.”

11.27 Article L.172-20 of the Insurance Code states that: “In the event of non payment of a premium, the insurer may either suspend the insurance or demand the termination thereof. The suspension or termination shall take effect eight days only after the insured has been sent a formal demand to pay by registered letter to his last address known to the insurer.”

In the event of non-payment of the premium, the insurer may only set off such premium against the indemnity when the assured (i.e., the beneficiary of the policy) and the policyholder (who owes the premium) are the same legal person.65 11.28 According to Article L.172-21 of the Insurance Code, the suspension or the termination of the insurance policy shall not affect third party beneficiaries acting in good faith, for example, buyers of cargo under CIF contracts who have become entitled to claim for a loss as assured under the policy by reason of a transfer or assignment. The parties may not derogate from this rule.66 Article L172-21 provides: “The suspension and termination of the insurance by reason of non payment of a premium shall be without effect towards third parties in good faith, beneficiaries of the insurance by virtue of a transfer prior to notice of suspension or termination. In the event of loss, the insurer, by means of an express clause [in the policy], may demand that said beneficiaries pay the premium on the insurance whose benefit they claim, within the limit of the amount.”

Article L.172-21 in principle protects the assured but, in practice, in the case of the Cargo Policies, Article 13 makes it clear that the insurer may deduct the amount of the premium from any indemnity paid for loss of or damage to the cargo, even from an innocent assured who was originally a third party to whom a transfer of the insurance has subsequently been made. Article 13 of the Cargo Policies falls within the exception to the general rule envisaged by the last paragraph of Article L.172-21 and, it is therefore submitted that Article 13 is a valid provision under French law. In other cases, where there is no loss, only the policyholder can be held liable to pay the premium.67 POLICIES, OPEN COVERS AN D STANDARD CLAUSES 11.29 According to the French Federation of Insurance Companies,68 the French market has developed three types of insurance cover. • • •

Voyages policies, which cover the transit of cargo for a specified trip. Open policies, for specified cargo over an unspecified period of time. Floating policies, for unspecified cargo over a specified period of time.

65. Cour de cassation, 13 February 1978, Juris-Data no 1978-000059. 66. Insurance Code, Art. L171-2, which provides that the parties may not depart from certain articles, including Art. L172-21. 67. Y. Tassel, “Assurance maritime – contrat”, Lexisnexis, fascicule 611, note 23. 68. This breakdown follows the description on the FFSA website: www.ffsa.fr.

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11.30 These types of insurance are subject to the French Marine Cargo Insurance Policies which define the extent of the cover. Mr Tassel, Professor at Nantes University, describes these Marine Cargo insurance Policies (the “Cargo Policies”) as the common contractual basis.69 The Cargo Policies provide two standard types of cover, “All Risks” and “F.A.P. Sauf”. Open covers are also governed by additional special provisions: Special Provisions for Open Policies. 11.31 Contrary to English practice which provides for three types of cover,70 that is, the Institute Cargo Clauses (A), (B) and (C), French law provides only for two types of cover: (1) All Risks cover; (2) F.A.P. Sauf cover (“Franc d’Avarie Particulière, Sauf”, i.e., limited to the major casualties at sea and certain specific risks). Although the “All Risks” and “F.A.P. Sauf” policies are the two main types of insurance, there are alternatives as well. A wide variety of provisions, referred to as “additional clauses”, are also available, enabling the assured to buy specific cover adapted to particular goods. The Fédération Française des Sociétés d’Assurances (FFSA) provides many examples of these “additional clauses” on its website.71

ALL RISKS AND “F.A.P. SAUF” COVER The description of the cargo 11.32 The Cargo Policies provide that the All Risks cover only applies to new goods, unless otherwise stated.72 In practice, the particular conditions of a policy or open cover will normally describe the goods to be covered and those which are excluded, such as, for example, especially valuable items, such as bank notes jewellery and watches. These items are insured under specie policies which are outside the scope of this book.73 Otherwise, in practice, many kinds of cargo may be insured, whatever their nature. Live animals are not covered under French policies but a special clause can be subscribed: clause 49. Once this provision is subscribed, special rules apply74 concerning the transportation of live animals; the ship having satisfied health conditions must be equipped with appropriate installations. The loss of live animals is covered: (1) when resulting from death (the insurer has to prove that the death results from an exclusion in order to deny his liability); (2) when resulting from loss due to jettison, loss overboard and theft (the assured has to prove that the loss is due to one of those limited events). 69. Y. Tassel, JurisClasseur Responsabilité civile et assurances, fascicule 614. 70. H. Bennett, The Law of Marine Insurance, 2nd edn, 2006, OUP, describes the ICC(B) as “rarely, if ever used” (para. 10.82) so the position in France may not be that different from the practice in England even though three types of cover are nominally available in England. 71. www.ffsa.fr. 72. Cargo Policies, Art. 2; compare the “F.A.P. Sauf” cover Art. 2, which is not limited to new goods. 73. The French Insurance Policy for “Valuables in Transit” covers such risks. 74. Additional cl. no 49.

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The “All Risks” policy “All Risks” cover described and defined 11.33 “All Risks” insurance is the most commonly purchased policy and covers physical loss or damage to goods in transit, as well as various costs and expenses incurred to safeguard the insured property such as salvage, general average and sue and labour. Accordingly, the cover provided under this policy is very extensive. Article 5 of the “All Risks” policy provides, in terms which are in some respects similar to the Institute Cargo Clause (A),75 that the insurance covers physical loss or damage, and loss in weight or quantity of the insured cargo. Article 5 provides two limits to this extensive cover: (1) cargo loaded on deck of vessels not designed for this purpose76; (2) shortage of all or part of the contents of a package are only indemnified by the insurer if forcible opening or breaking of the package has been confirmed in the manner indicated in Article 17, that is, by a survey undertaken at discharge in accordance with the requirements of the policy. The disappearance of one or more entire packages is only covered on presentation of a certificate or other document confirming non-delivery. “Shortage” has therefore to be understood as the shortage of the contents of a package, and not the unexplained shortage of an entire package which is considered as “disappearance”. 11.34 In addition to insuring the physical loss and damage sustained by cargo, the “All Risks” policy also covers, proportionately to the insured value,77 certain costs and expenses incurred by the assured or the beneficiary of the insurance. These include: (1) expenses reasonably incurred for the purpose of protecting the insured cargo from insured physical loss or damage or of minimising such loss or damage (Article 6-1); (2) expenses reasonably incurred through interruption or termination of the voyage for unloading, warehousing, transhipment or forwarding of the insured cargo to the destination named in the policy, on condition that such expenses have not been incurred as a result of financial default of the owners, managers or charterers of the carrying vessel (Article 6-2)78; (3) surveyors’ and claims agents’ expenses and fees (Article 20); 75. Clause 1.1 of the ICC(A) 1/1/2009, provides cover against “all risks of loss of or damage to the subjectmatter insured”. The word “physical” is not used in the ICC as English law has long recognised that cargo insurance is primarily concerned with physical loss of or damage to the goods, see De Monchy v. Phoenix Insurance Co of Hartford (1929) 34 Ll. L. Rep. 201 (HL), and Coven SpA v. Hong Kong Chinese Insurance Co [1999] Lloyd’s Rep. IR 565, and Dunt Marine Cargo Insurance at para. 13.15. 76. See para. 11.49 below where cover for deck cargo is examined. 77. Under English law and practice, the costs reasonably incurred in minimising the loss, that is, sue and labour are supplemental to the insured value under the policy and, if properly incurred, are recovered in addition to a full indemnity, see para. 3.113 above. 78. This provision reflects the cover granted under the ICC by cl. 12, the Forwarding Charges Clause, which covers the cost of forwarding goods to destination where the insured transit is terminated as a result of an insured risk. There is no cover where the loss is the result of an excluded risk, in particular, insolvency which the assured knew or ought to have known about, see ICC 1/1/2009 cl. 4.6 and para. 3.106 above.

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(4) expenses incurred by the insurer in sending the insured cargo back to the place of manufacture for repair, as a result of insured physical loss or damage, are for the account of the insurers even if in the result the insurers are liable for more than the total insured value (Article 22). 11.35 The All Risks policy also covers general average and salvage charges (Article 6-3). However, the term “All Risks” does not mean that any loss or damage sustained during the voyage will be covered under the policy. Certain risks are excluded from the scope of cover by Article 7 which provides: “This insurance excludes physical loss or damage, loss in weight or quantity of the insured cargo” when caused by one of the excluded risks listed in the policy. The listed exclusions are examined below.79 All Risks and fortuity 11.36 Under French law, the risk covered by any insurance policy, including an All Risks policy, are inherently dependant on the notion of fortuity: the insurance contract must be subject to the uncertainty of the occurrence of a peril insured. Even though the concept of insured risk has considerably evolved (notably thanks to the enlargement of the insurable interest),80 fortuity cannot be excluded, otherwise the insurance policy would be void. For instance, the parties shall not enter into the insurance policy after the loss has occurred.81 Wilful misconduct is also excluded as the occurrence of the risk is almost certain.82 Thus, it is fundamental that the risk remains uncertain. All Risks; burden of proof 11.37 The French “All Risks” form is more favourable to the assured who has to prove that a loss has occurred but does not have to prove the cause and the origin of the loss. It is, on the contrary, up to the insurer to prove that the loss is not covered. The All Risks form means that the cover includes any losses except those which are expressly excluded in the policy. Accordingly, should the insurer consider that the loss falls outside the scope of the policy, he will have to bring such proof.83 The “F.A.P Sauf” cover is undeniably more stringent: the assured is required not only to prove that he suffered a loss but also that such loss is covered by one of the named perils set out in the policy. The “F.A.P. Sauf” policy “F.A.P. Sauf” cover described and defined 11.38 The “F.A.P. Sauf” policy (Article 5) provides a restricted form of insurance that covers only physical loss and damage to cargo caused by one of the named perils, described as “events”, listed in the policy. The list encompasses all major casualties likely to arise during the carriage of the insured goods by sea, land, air and inland waterways as well as 79. See the section on “exclusions” at paras 11.41 to 11.51 below. 80. See para. 11.14 et seq. above. 81. See para. 11.18 and the consideration of insurance against cargo “lost or not lost”. 82. See para. 11.42, “The covered risks include the assured’s negligence”. 83. Court of Appeal of Aix-en-Provence, 4 January 1989, Juris-Data no 1989-041592.

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certain other specified losses. The burden of proof that an insured event has occurred rests with the assured.84 11.39 Article 5-1 of the “F.A.P. Sauf” cover provides that the insurance covers physical loss or damage, and loss in weight or quantity, of the insured cargo caused by one of the events listed as follows: “(1) sinking, capsizing, stranding or grounding of the vessel or craft; (2) collision or contact of the vessel or craft with fixed, movable or floating objects including ice; (3) entry of water causing the vessel or craft to enter a port of refuge and there discharge all or part of its cargo; (4) the insured package falling or being dropped overboard during loading aboard, transhipment or unloading from vessel or craft; (5) derailment, collision, overturning, falling or breakage of the land conveyance; (6) collapse of buildings, bridges, tunnels, or other constructions, (7) breach of dikes or pipelines, (8) falling of trees, cavings-in, avalanches; (9) flooding, overflowing of rivers or streams, breaking-up of ice, tidal waves; (10) volcanic eruption, earthquake, lightning, cyclone or waterspout; (11) fire or explosion; (12) falling aircraft.”

11.40 Unlike the “All Risks” cover, theft and disappearance of the cargo is not covered, but can be subject to an extension of cover. In effect, two additional covers exist, in practice, in France: (1) Clause 26,85 which covers theft, total or partial, plunder and disappearance; (2) Clause 27,86 which only covers disappearance. The “F.A.P. Sauf” insurance also covers any expenses as provided for in the All Risks cover by Articles 6-1 and 6-2, 20 and 22 (see above)87 if the assured proves that these expenses have resulted from one of the events, or name perils, covered by the policy as listed Article 5-1. In accordance with the usual practice,88 general average and salvage charges are covered even if they are not caused by one of the events listed by Article 5-1, unless they have resulted from one of the specific exclusions set out in Article 7. Exclusions from All Risks and “F.A.P. Sauf” cover Introduction 11.41 Both the “All Risks” and the “F.A.P. Sauf” policies exclude physical loss or damage, and loss in weight or quantity, of the insured cargo resulting from: “1 2

confiscation, sequestration, requisition, blockade running, smuggling, any kind of arrest or seizure, the insurer furthermore not being liable for any security payable for release of the insured cargo in such circumstances; wilful misconduct or gross negligence of the Assured or any other beneficiary of the insurance or their servants, representatives or other authorized persons89;

84. See para. 11.37 above. 85. See Appendix 14. 86. See Appendix 14. 87. Paragraph 11.34. 88. See, e.g., the terms of cl. 2 of the ICC(B) and ICC(C). 89. See para. 11.42 below.

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inherent vice of the insured cargo; worm and vermin unless caused by contamination during the insured voyage, effect of atmospheric temperature, ordinary leakage or ordinary loss in weight or volume90; absence, inadequacy or unsuitability of: a) preparation, packing or packaging of cargo, b) securing or stowing of cargo in a shipping unit, when carried out by the Assured, his representatives or any beneficiary of the insurance, or when carried out prior to attachment of the insurance91; delay in forwarding or arrival of the insured cargo unless resulting from sinking, capsizing or stranding or grounding of the vessel or craft,92 fire or explosion, collision or contact of the vessel or craft with a fixed movable or floating object including ice; falling aircraft; entry of water causing the vessel or craft to enter a port of refuge and there discharge all or part of its cargo; any direct or indirect effects of an explosion, release of heat, irradiation or any other nuclear power supply due to the transmutation of atoms or radioactivity as well as any effects of radiation caused by the artificial acceleration of particles, whether through civil or military use or exploitation. a) war or civil war, hostilities, reprisals, torpedoes, mines and all other weapons of war, and generally all accidents and misfortunes of war, as well as acts of sabotage or terrorism of a political nature or related to war93; b) capture, takings at sea, arrest, seizure, restraint, molestation or detention by any government or authority; c) riots, civil commotions, strikes, lockouts and other similar events. d) piracy of a political nature or related to war.”94

A number of these exclusions are reflected in the provisions of Article L.174-5 of the Insurance Code. This provides that the insurer shall not be liable for loss or damage caused by “criminal or wilful negligence” of the consignor or consignee95 and that the insurer “shall not be liable for damage caused by an inherent defect in the goods, due to internal deterioration, decline, wastage, lack of packaging or defect in packaging, leakage in transit or on account of rodents”. Article L.174-5 concludes by stating that “the insurer shall cover damage caused by delay when the voyage has been abnormally delayed by an event for which it is answerable”. So far as war and related risks are concerned, Article L.172-16 of the Insurance Code indicates that these risks are not covered under the usual form of marine policy, but, as explained below,96 some or all of these risks will, in practice, be covered for an additional premium under separate war and strikes policies. This chapter now examines the more important of the above exclusions.

90. See para. 11.43 below. 91. See para. 11.47 et seq. below. 92. Article L.174-5 of the Insurance Code provides that, “…the insurer shall cover damage caused by delay when the voyage has been abnormally delayed by an event for which it is answerable”. 93. See para. 11.52 below. 94. Piracy appears to have a different meaning under French law as compared to English insurance law and it should be noted that piracy, meaning an attack on vessel and cargo for a financial motive, is covered under the All Risks policy but excluded under the “F.A.P. Sauf” policy; see para. 11.54 et seq. below. 95. Article L.172-13 provides that, “The insurer shall not be liable for the wilful or criminal negligence of the insured”. 96. See para. 11.52 below.

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Wilful misconduct, recklessness and negligence 11.42 Article 7.2 of the Cargo Policies excludes, “wilful misconduct or gross negligence97 of the Assured or any other beneficiary of the insurance or their servants, representatives or other authorized persons”. However the covered risks include, by French law, the assured’s negligence98 unless the insurer, upon whom the burden of proof lies, can positively prove that the loss was caused by the assured’s lack of reasonable care in preserving the cargo from the risk which later occurred.99 In common with the wording of Article 7.2 of the Cargo Policies, Article L.172-13 of the Insurance Code, excludes wilful or criminal negligence from the cover100: “The risks insured shall be covered even in the event of the fault of the insured or his employees on land, unless the insurer proves that the damage was caused by the insured’s lack of reasonable care in sheltering the property from the risks that have occurred. The insurer shall not be liable for the wilful or criminal negligence of the insured.”

Hence, the negligence of the assured is covered except in cases of (i) wilful misconduct or (ii) gross negligence: • •

The term “wilful misconduct” refers to the intentional fault of the assured where the assured has deliberately or intentionally exposed the cargo to risk. The term “gross negligence” means that the assured did not take reasonable care at all: the assured recklessly exposed the cargo to risk.

Similarly, Article L.172-14 of the Insurance Code provides that loss or damage to cargo caused by negligence of the master or crew is covered but wilful misconduct is not101: “The risks shall be covered on the same terms in the event of fault of the captain or crew, apart from that stated in Article L173-5.”

Article L.173-5 of the Insurance Code provides that: “The insurer shall not cover damage and loss caused by the captain’s wilful negligence.”

Inherent vice 11.43 The insurance does not cover material damage and loss caused by any inherent defect of the cargo (Articles L.121-7 and L.172-18(a)102 of the French Insurance Code). Similarly, Article 7.3 of the Cargo Policies excludes physical loss or damage to the insured goods resulting from “inherent vice of the insured cargo”.103 “Inherent vice” refers to the 97. “Gross negligence” means exposing the cargo knowingly or recklessly to risk, not caring whether or not the cargo will be damaged. 98. The notion of assured’s negligence is broad as it covers the assured’s lack of reasonable care. 99. Under Art. L.172-19, the assured must take reasonable care in all matters relating to ship or goods. 100. Cour de cassation, 5 January 1999, Ship Irrintzina, DMF 1999, p. 312, rapp. Rémery, note P.L; 6 July 1999, Chalutier Korhogo, DMF 2000, p. 515, rapp. Rémery, note Latron; Court of Appeal of Paris, 29 May 1996, DMF 1996, p. 1107, note Nicolas; DMF 1997, hors série, p. 75, no 108, obs. Bonassies. 101. The position is different in English law and indeed, traditionally where wilful action taken against the cargo by the master or crew amount to barratry and has long been a covered peril; see, e.g., the traditional form of SG policy, MIA 1906, First Schedule which covers “barratry of the master and mariners”. 102. An inherent defect under Art. L.172-18 does not include hidden defects in the ship (as defined in Art. L.173-4) or presumably damage to cargo caused by such defects. 103. Monsieur Michel de Juglar, “Le vice de la chose en droit maritime: essai de synthèse”, DMF 1982, p. 3.

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nature of goods which of itself is the cause of their deterioration or damage. Inherent vice is the result of the natural behaviour of the cargo in the ordinary course of the contemplated voyage without the intervention of any external accident or casualty. Such characteristics make the item an unacceptable risk to a carrier or insurer. If the characteristic or defect is not visible, and if the carrier or the insurer has not been warned of it before the voyage, neither of them are liable for any claim arising out of the inherent vice.104 In practice, the question of inherent vice frequently arises in connection with containerised cargo that has suffered condensation damage, such as, for example, electrical goods carried from warm damp climates in India or China to colder climates in Europe. In this respect Article 7.3 of the Cargo Clauses excludes the “effect of atmospheric temperature” which, it is submitted, would exclude condensation damage to containerised cargo. 11.44 Under French law, inherent vice is only excluded where it is the sole proximate cause of the loss or damage.105 In February 2011, the Supreme Court in England, in The Cendor MOPU,106 clarified the complex relationship between the insured risk of perils of the seas and the excluded peril of inherent vice, in the context of establishing the proximate cause of a loss.107 It is submitted that this leading decision on cargo insurance is consistent with French law which insists that inherent vice is only excluded where it is the sole proximate cause of the loss. In terms of burden of proof, the onus is on insurers and the evidence of the inherent vice must be given by a certain and material statement, and not by a hypothetical consideration.108 Worms and vermin 11.45 Article 7.3 of the Cargo Policies excludes physical loss or damage to the cargo resulting from “worms and vermin unless caused by contamination during the insured voyage”.109 Worms and vermin, which could also be considered as a form of inherent vice of the cargo, are thus specifically excluded. However, if the contamination occurs during the voyage or transit, in other words if the cargo was sound before the beginning of the voyage, then the loss is fortuitous, that is, accidental and random, as it does not depend on the nature of the goods. The loss is therefore insured. Thus the risk is covered, under the “All Risks” policy110 where the contamination occurs during the voyage but damage caused by worms and vermin are, however, still excluded from the “F.A.P. Sauf” policy even if caused by contamination during the voyage.111 104. Cour de cassation 27 March 1990, no 88-17.664; Court of Appeal of Paris, 25 April 1958, DMF 1958, p. 480; “Droit Maritime” René Rodière Dalloz 1983, no 285; “Droit Maritime” Antoine Vialard, Collection droit fondamental 1997, no 487. 105. AGF v. Pominter, Court of Appeal of Bordeaux, 2nd chamber, 16 June 1988. 106. [2011] 1 Lloyd’s Rep. 560 (SC). 107. This case is examined at paras 3.45 and 3.46 above in Chapter 3. 108. Court of Appeal of Paris, 13 July 1988, CGM c/Riff. 109. Article L.174-5 provides that the insurer shall not be liable for damage or loss caused by “rodents”. Compare the English MIA 1906, s. 55(2)(c), which excludes loss proximately caused by “rats or vermin”. Damage caused by “rats” is not expressly excluded by the Cargo Policies. 110. Hoursiangou J. et Latron P., Les polices françaises d'assurance maritime sur facultés du 30 June 1983, p. 35, Litec, 1984. 111. The difference in the exclusions in the “F.A.P. Clauses” in cl. 7.3 (which does not except “damage caused by contamination during the insured voyage” from the exclusion) is to be noted: additionally, worms and vermin are not covered under the F.A.P. Clauses. See also on this issue under English law, Dunt, Marine Cargo Insurance at para. 8.37, where it is assumed that the English position is the same as the French practice described in the text, though English law is less clear on the point which is not expressly dealt with in the ICC.

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Ordinary leakage: ordinary loss of weight or volume 11.46 Article 7.3 of the Cargo Policies excludes physical loss or damage to the cargo resulting from “ordinary leakage or ordinary loss in weight or volume”.112 This accords with the general rule that expected losses that occur in the ordinary way are not fortuitous or accidental and are not the subject of marine insurance.113 Inevitable loss of weight or quantity (including drying) is therefore not covered under the Cargo Policies. In some trades the ordinary loss is represented by a percentage loss, depending on the nature of the cargo and the route, and is known: either it is fixed by custom or it is the subject of a contractual statement. In those cases, any loss exceeding the permitted levels gives rise to compensation.114 Insufficiency of packing 11.47 According to the provisions of the Cargo Policies, the cargo must be “packed or prepared for transit”.115 The goods must be able to sustain a transit in normal conditions. Insurers do not cover losses resulting from the absence, incapacity or maladjustment of the preparation or packaging of the cargo. 11.48 In this respect, Article 7.4 of the Cargo Policies excludes physical loss or damage to the cargo resulting from the “absence, inadequacy or unsuitability of preparation, packing or packaging of cargo”. The practice is to carry many types of cargo in containers, and, in this context, Article 7.4 further excludes loss or damage resulting from the “securing or stowing of cargo in a shipping unit, when carried out by the Assured, his representatives or any beneficiary of the insurance, or when carried out prior to the attachment of the insurance”. Packaging is protection of the goods against the effect of external agents. Adequate and sufficient packing requires protective covering that can withstand transport in normal handling. As set out above, it is a requirement of the Cargo Policies for the assured to ensure that the goods are adequately and suitably packed. In marine transport, preparing and packing the goods is normally the shipper’s duty. Article L.172-13 of the Insurance Code provides that the risks covered include the fault of the assured or his employees unless the insurer can prove that the assured was negligent.116 Accordingly, damage caused by inadequate or insufficient packing remains covered, even in cases of fault of the assured unless the insurer establishes that the damage is due to a lack of reasonable care on the part of the assured. The insurer is not liable for wilful misconduct or gross negligence of the assured, so damage caused by a reckless disregard of the need for proper packing would not be covered. In the more ordinary case, preparing and packaging are attributes of the reasonable care which must be given to the goods under Article L.172-13. Accordingly, when the survey report issued by the average agent, or the surveyor at destination, proves negligence supported, as the case may be, by a written protest on the bill of lading or the 112. Article L.174-5 of the Insurance Code provides that the insurance does not cover “leakage in transit” presumably meaning ordinary leakage or loss in weight and not leakage caused by an all risks loss or a major marine casualty. 113. See para. 11.36, above, which examines all risks and fortuities. 114. See, for an English example, Dodwell & Co Ltd v. British Dominions General Insurance Co Ltd [1955] 2 Lloyd’s Rep. 391, and para. 3.39 above. 115. Cargo Policies, Art. 2. See also the Insurance Code, Art. L.174-5. 116. See the consideration of this article at para. 11.42 It is submitted that this principle is consistent with Art. L.172-19 that provides that the assured must “take reasonable care in all matters relating to the … goods” insofar as the lack of care bars a claim but only where the lack of care caused the loss and that can be proved by insurers.

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“F.A.P.

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11.51

transport documents, the insurer is able to discharge the burden of proof and may therefore properly refuse to pay for any damage arising from the faulty packaging or packing.117 Deck cargo 11.49 Cargo loaded on deck is subject to specific rules. Under the “All Risks” Cargo Policy, cargo loaded on deck is covered when the ship is equipped with appropriate installations (e.g., where the vessel is a container carrier, etc.) but Article 5.2 provides that if cargo is loaded “on deck or on the superstructure of vessels or craft not designed for this purpose”, the cargo is only covered against limited named perils, in effect only against the major casualties at sea covered under the conditions of the “F.A.P. Sauf” policy. The Commercial Court of Paris has ruled that where the carrier loads the cargo on deck, and this is unknown to the assured, the insurer is liable.118 It is submitted that this decision appears to be inconsistent with the closing words of Article 5.2 of the Cargo Clauses which provide cover for jettison or washing overboard at an additional premium if the assured declares the cargo on deck “as soon as he himself is aware of it”. This clearly implies that the limitations on the risk for deck cargo are otherwise intended to apply whether or not the assured is aware that the cargo is being carried on deck. 11.50 Where the cargo is insured under “F.A.P. Sauf” terms, it is covered against the limited perils set out in Article 5.1 of that insurance, essentially major casualties at sea in addition to certain specifically defined risks.119 With an additional premium, cargo loaded on deck can also be insured for losses due to jettison and washing overboard if the assured has declared to his insurer that the cargo was loaded on deck, as soon as he is aware of it (“F.A.P. Sauf” policy, Article 5-2). Unseaworthiness and unfitness 11.51 In order to be insured the cargo must be carried on a ship which complies with restrictive provisions. In this respect, Article 2 of the Cargo Policies provides that the marine transportation has to be made on a ship presenting three characteristics: (1) an age condition: The ship must be less than 16 years old; (2) a tonnage condition: The ship must have more than 500 GT. (3) a Class condition: The ship must be classed with a Classification Society that is a full member of the International Association of Classification Societies (I.A.C.S.). which includes Bureau Veritas, Lloyd’s Register, American Bureau of Shipping, etc.120 The Cargo Clauses also provide (Article 2) that the insurance only applies where the vessel and owning company121 have complied with the International Safety Management (ISM) 117. Court of Appeal of Versailles, 3 December 2002, “Compagnie Internationale de transport et de déménagement”. 118. Commercial Court of Paris, 21 September 1977, DMF 1978, 294. 119. See para. 11.26 where these risks are set out. 120. A current list of the Members of I.A.C.S. can be found on the IACS website: www.iacs.org.uk. 121. As defined in the third paragraph of Art. 2.

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Code. Where the vessel or owning company does not comply, the insurers cannot rely on such non-compliance if the assured proves that, in the ordinary course of business, he was not aware of the situation.123 The standard French conditions for Open Policies are more flexible than the Cargo Clauses and reflect, to some extent, the terms of the Institute Classification Clause.124 In this respect Article 4 of the Special Provisions for Open Covers provides that: “Article 2 of the Standard French Marine Cargo Insurance Policy is amended as follows: 1. Shipment by liner ships is covered without additional premium. By ‘liner ships’ are meant vessels belonging to a shipowner and sailing according to a published schedule of dates and ports of call. 2. Shipment by other vessels is held covered on payment of additional premium based on age, tonnage, classification or flag. 3. Shipment by vessels chartered wholly or in part for account of the Assured is covered only on prior agreement of the insurer.”

By “chartered wholly or in part for account of the Assured” is meant a contract concluded in pursuance of a contract of hire where freight must be arranged by the Assured. However, “when a vessel so chartered meets the requirements of Article 2 paragraph 1 of the Standard French Marine Cargo Insurance Policy, prior agreement of the insurer need not be obtained.”

WAR AND PIRACY War risks War risks in French policy 11.52 The risks of war are excluded from the standard marine coverage provided by the “All Risks” and “F.A.P. Sauf” Cargo Policies but, in practice, these risks are invariably insured under special war risk policies. The main difference with the marine policies is that the duration of the insurance under war risk policies is, in general, limited to the time that the goods remain onboard the carrying ship. It is also the practice to obtain cover against the risks of riots and civil commotions, which applies on land but not, as a general rule, if the riots or civil commotions arise out of war, civil war or hostilities. In common with international practice the cover for terrorism on land is usually limited to the time that the goods remain in transit. Burden of proof: marine risks and war 11.53 In order to minimise disputes between the “marine risk” insurer and the “war risk” insurer regarding the cause of a disaster, which would naturally prejudice the interests of the assured, Article L.172-17 of the Insurance Code, as a matter of public policy,125 establishes a presumption under which: “When it is not possible to prove whether the loss was caused by a war risk or a marine risk, it shall be deemed to have been caused by a marine 122. As required by the SOLAS Convention 1974, as amended. 123. Article 2, second paragraph. 124. See para. 3.55. 125. This article cannot be departed from, see Art. L.171-2.

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126

risk.” This is only an evidential presumption which may be rebutted by evidence to the contrary, and by whatever means.127 Piracy, kidnap and ransom Piracy 11.54 The “F.A.P. Sauf” cover excludes piracy (Article 7.7(d)), but under the “All Risks” cover, piracy is excluded only when it is “of a political nature or related to war” (Article 7.7(d)). Inspired by the English system of marine insurance, a distinction is drawn between political piracy and lucrative piracy.128 The result is that the “All Risks” Cargo Policies cover piracy as an All Risks peril, and as understood in England, which is action taken for financial gain. However, the Cargo Policies do not cover action taken for a political motive, or related to war, as these are considered, in broad terms, to be war or related risks, not covered by the marine policy. The question of whether or not there is cover under the war policy will depend in each case on whether the circumstances of the loss fall within the enumerated war perils, or possibly, the riot or strikes risks, if the action taken is, for example, part of a civil commotion. The F.A.P. Sauf Cargo Policies do not cover the risks of pirates or piracy or theft, whether forcible or otherwise.129 In what may therefore be an abundance of caution, the F.A.P. Sauf Cargo Policies nevertheless exclude “piracy” under Article 7.7d). Under French law, piracy in this context means both action taken for financial gain and action of a political nature and the effect of the exclusion may be to make it clear that action of a political nature, which causes loss or damage to the cargo, is excluded.130 11.55 Article L.172-16 of the Insurance Code provides that the insurer does not cover acts of war and piracy but this article is not mandatory131 and, as indicated above,132 policyholders invariable take out war and strikes cover with the payment of an additional premium. Such war and strikes risks cover cannot normally be purchased separately and only covers the cargo covered under the marine policy aboard the same vessel for the same voyage. Kidnap and ransom 11.56 In France, the government did not want to copy the English market by creating a “Kidnap and Ransom” policy that might be perceived as helping to encourage piracy. Article 6 of the French Civil Code provides that “Statutes relating to public policy and morals may not be derogated from by private agreements”. However, since no law forbids the underwriting of “Kidnap and Ransom” cover, the French market has gradually become 126. A free translation has been preferred to the official translation in Appendix 11. P. Chauveau, “La détermination des risques de guerre dans l’assurance maritime”, DMF 1949, 267. 127. Commercial Court of Seine, 24 June 1921, Gazette du Palais, 1921, 2, p. 254. 128. Under English law, it was held in Republic of Bolivia v. Indemnity Mutual Assurance Co Ltd [1909] 1 KB 785, that action taken for “political or public ends” was not piracy according to the popular or business meaning to be given to that word in an insurance policy, even if piracy may have had a wider meaning in international law. 129. This limitation on the “F.A.P. Sauf” cover, which does not extend to theft, is considered in para. 11.40 above. 130. See, e.g., cl. 7.4 of the ICC(C), which excludes loss damage or expense “caused by any person acting from a … political motive”. 131. See Art. L.172-2. 132. Paragraph 11.52.

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more open to the possibility of writing these risks as payment of ransom is not considered as illegal under French Law. In any event, coverage of the risk of pirates has long existed, and it is clear that the recent development and increase of piracy incidents has contributed to rising premiums.133

DURATION OF THE INSURANCE Duration of normal transit The Transit Clause 11.57 The French Cargo Policies was amended in 2009, in order to extend the duration of the insurance cover. The new “All Risks” and “F.A.P. Sauf” policies dated 1 July 2009 supersede the former ones.134 Like the English market, which extended the duration of the insurance under the Transit Clause of the Institute Cargo Clauses,135 French insurers decided to make similar alterations. The aim was to adapt the cover to the practice, under which cover is commonly extended to cover loading and unloading, and to make the clauses clearer. The principal change concerns the “warehouse to warehouse clause”.136 The former Article 8 of the 1983 policy stated that: “Unless otherwise agreed, this insurance attaches when the insured cargo … leaves the warehouse” at the place named in the policy for the commencement of transit. Under the 2009 Cargo Policy, Article 8 provides: “Unless otherwise agreed, this insurance attaches when the insured cargo … is moved in the warehouses at the placed named [in the policy] for the commencement of the insured transit for the purpose of its immediate loading onto the carrying vehicle”. The period covered in the previous text coincided with the transport operation to the extent that the insurance attached outside the warehouse, though, in some cases, the cover would include loading by the assured or their employees which would not normally be the responsibility of the carrier. The new provisions have the effect of extending the insurance coverage in time and place; the goods become insured as soon as they are moved within the warehouse for their immediate loading onto the transport vehicle. The innovation is that the goods are now covered before they are the responsibility of the carrier. In other words, the goods are insured while they are still under custody and control of the shipper, or assured, and even before they are delivered to a carrier for loading into the transport vehicle. 11.58 Article 8 of the Cargo Clauses provides that the insurance terminates “at the time of unloading … from the carrying vehicle onto the ground at the warehouse of the consignee, his representative or authorised persons at the place of destination”. The previous policy terminated the transit at delivery to the warehouse at destination and the amendments are similar. Coverage stops at the time of unloading, when the cargo is put on the ground at the place of destination, which would normally be in the consignee’s warehouse. The goods are therefore covered until their effective delivery, even during unloading. 133. Bénédicte Rajot, “L’impact de la piraterie maritime sur les polices d’assurance”, Responsabilité civile et assurances no 2, February 2011. 134. The note at the heading of the Cargo Policies makes it clear that the parties are free to agree different terms and conditions if they wish. 135. ICC 1/1/2009, cl. 8. 136. Article 8 of the “All Risks” and “F.A.P. Sauf” policies, 1 July 2009.

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11.61

11.59 In summary, under the previous clauses, in general terms, the voyage started when the insured cargo, packaged for the voyage, left the shipper’s warehouse, and ended when the cargo arrived at the consignee’s warehouse. This constituted “warehouse to warehouse” cover in line with the English warehouse to warehouse clause dated 1963.137 The new clauses adopted in France result in a significant extension of cover, both in time and place. 11.60 Under Article 10 of the Cargo Policies, the insurance will also terminate if the assured accepts delivery of the cargo prior to the normal termination of cover. Finally, the Cargo Policies retain the paramount provision under which the insurance cannot exceed 60 days after the completion of discharge of the insured cargo from the last overseas vessel.138 In common with other insurance markets, insurance is available in France for extended periods of storage both before and after the transit covered by Article 8 of the Cargo Clauses. In addition to risks at sea and during transit, other risks may be insured, such as those involved in assembling and installing equipment at destination, for instance in the case of factory equipment.139 Termination and change of transit Termination of carriage: change of voyage 11.61 Any change in the route or in the duration of the voyage decided by the assured must be disclosed to the insurer. The insurer’s approval is necessary since the risk can be increased due to this change (All Risks and “F.A.P. Sauf” policies, Article 14-2). In these circumstances, the insurer is allowed to terminate the contract, to ask for an additional premium, or to proportionally reduce the amount of indemnity in case of loss.140 Where there is a forced continuation or change of the voyage, beyond the assured’s control, the cover is maintained. Under Article 9 of the Cargo Policies, the insurance “remains in force, subject to the payment of an additional premium if required, during any change of the insured voyage or extension of its normal duration provided such change or extension of voyage is beyond the control of the Assured …”.This article accords with Article L.172-15 of the Insurance Code which provides, in free translation, that, “The insured risks shall remain covered even in cases of forced change of route, voyage or ship, or in case of change decided by the captain himself, not involving the shipowner or the insured.” The Insurance Code does not mention additional premium, but this article of the Code is not mandatory,141 and, accordingly, an additional premium may be required by the insurer as provided for in Article 10 of the Cargo Policies.

137. R. Rodière, Traité de Droit Maritime, les Assurances Maritimes, Dalloz, Paris, 1983, no 273. 138. Cargo Policies, Art. 11. 139. www.ffsa.fr. This type of specialised insurance is outside the scope of this book. 140. See para. 11.10 above, which considers and explains the duties of the assured where there is an increase in the risk during the insurance. 141. See Art. L.171-2.

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CLAIMS AND LOSSES Claims Notification and assessment of loss: fraudulent claims 11.62 The assured must give prompt notice to the insurer of any event that is likely to give rise to the insurer’s liability. Moreover, the Cargo Policies have strict requirements for the assessment of loss and damage which has to be precisely determined. As the choice of surveyors is crucial for the insurers, Article 17 of the Cargo Policies provides that: “They (i.e. the assured, his representatives and other beneficiaries of the insurance) must on arrival of cargo at the place of destination of the insured voyage and where required by the apparent condition of the cargo [or, in the case of the ‘FAP Sauf’ cover, when one of the events named in Article 5 has occurred or is deemed to have occurred], apply to the claims agent (commissaire d’avaries) of the ‘Comité d’Etudes et de Services des Assureurs Maritimes et Transports de France (CESAM)’ or in the absence of such, to any organisation nominated under the item ‘claims agent’ of the special conditions of this policy, to obtain a contradictory survey (‘expertise contradictoire’). Application for survey shall be made within three days of termination of cover, not including non-working days, as determined in chapter Ill. Any counter-survey (‘contre-expertise’) must be conducted in the presence of the insurer and of the Assured (or representatives of either party) within fifteen days of the initial survey.”

The courts interpret these requirements strictly in favour of insurers. Should the insured infringe these rules, he will not receive any indemnity.142 However, where the assessment is properly made, Article 27 of the Cargo Clauses provides that “the indemnity by the insurer is payable in full at the latest 30 days after production of all necessary documents and on surrender of the original policy document”. In common with other legal systems,143 French law provides that, “The insured who makes in bad faith a false statement in respect of the loss shall forfeit his right to benefit from the insurance”.144 Limitation of action: time bar The limitation period 11.63 A cargo insurance policy, like any other insurance policy, is subject to a mandatory two-year time bar under Article L.172-31 of the Insurance Code which provides: “Legal actions arising under the insurance contract shall be subject to a two year limitation period. The limitation period shall run in respect of minors and other incapable persons.”

Article 32 of the Cargo Policies states that: “Any action under this insurance policy shall be barred at the end of two years”. It is worth noting that the rule in Article L.172-31 of the Insurance Code is a public policy rule: the parties shall not derogate from this provision.145

142. Court of Appeal of Paris, 20 April 1974, Gaz. Pal. 1974, 2, p. 611; Court of Appeal of Paris, 19 June 1986, Juris-Data no 1986-023068; Court of Appeal of Paris 24 January 1996, Juris-Data no 1996-020847; Cour de cassation, 4 July 1989, Juris-Data no 1989-002479. 143. See, e.g., the position under English law described at para. 3.92 above. 144. Article L.172-28 of the Insurance Code. See also Art. L.172-6 of the Insurance Code which provides that the insurance shall be null and void where the insured or his representative acts fraudulently in contracting for a sum in excess of the actual value of the insured property. 145. Article L.171-2 of the Insurance Code, but see para. 11.66 below as to interruption of the time bar which can in certain circumstances be validly achieved by agreement between the parties.

396

CLAIMS AND LOSSES

11.68

Commencement of the period 11.64 According to Article R.172-6 of the Insurance Code: “The beginning of the two-year period is normally situated at the time of the occurrence giving rise to the insurance indemnity: (1) for the action concerning the payment of the premium, at the date when the relevant premium was due; (2) for any action concerning partial loss or damage, at the date of the event giving rise to the right of indemnity, for cargo at the date on which it arrived or should have arrived at destination or in case of subsequent event, the date of such event; (3) for any action concerning an occurrence giving rise to abandonment, at the date of the occurrence; (4) for third party liabilities or salvage and General Average contributions, at the date of the payment or the date of the introducing of any proceedings against the insured.”

Interruption of time bar 11.65 Article 2231 of the Civil Code provides that the interruption of time bar cancels the time elapsed. Another similar two years period starts as from the interruption. The time bar is interrupted when the claimant serves a writ or when the defendant recognises the claimant’s rights by a clear admission of liability (Articles 2240 and following of the Civil Code). 11.66 Even though the parties cannot contract out of the two-year time limit in Article L.172-31 of the Insurance Code, the parties may agree on additional causes of interruption of time bar, for example, where the policy provides that there is a valid cause of interruption of the time bar when the assured sends a document which supports his request for indemnity.146 The sending of a registered letter setting out the claim with acknowledgment of receipt interrupts the time bar as to non-marine insurance, but this rule does not apply in principle to marine insurance unless the policy otherwise provides.147 The Cargo Policies do not contain any special agreement on interruption and, accordingly, the two-year limit is most likely to apply. 11.67 Where the insurer deliberately delays agreement or payment of the claim in order to gain the advance of the two-year time bar, such delaying actions may interrupt the time bar if the insurer acted on bad faith.148 The marine cargo insurer is not bound to list in the insurance policy all the causes of interruption (this requirement only applies to non-marine insurance contracts as provided by Article R.112-1 of the Insurance Code).149 Suspension of time bar 11.68 The suspension of time bar temporarily stops the time bar from running. According to Article 2230 of the Civil Code, the time bar is suspended where a party acts in a way which prevents the other party from acting so as to protect the time bar. For instance, the suspension applies when the shipper requires documents and retains such documents, 146. Court of Appeal of Aix-en-Provence, 9 May 1985, DMF 1987, som., p. 52; Cour de cassation, 8 December 1997, no 87-17.130, Lamyline. 147. Cour de cassation, 22 April 1997, no 95-14.980, BTL 1997, p. 372. 148. Cour de cassation, 28 October 1991, no 88-14.410, Lamyline; Cour de cassation, 10 May 2000, no 97-20.844, Lamyline; Cour de cassation, 14 November 2001, no 98-21.773, Lamyline. 149. Cour de cassation, 2 July 2002, no 00-14.115, Lamyline.

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which prevent the claimant from bringing his action before the courts.150 A similar rule applies in principle to marine cargo insurance claims, though as the documents are likely to be in the hands of the assured, this reason for suspension will rarely if ever apply in practice. Loss of cargo, partial and total loss Categorisation of losses covered 11.69 Three types of losses are covered: physical loss of or damage to property; reimbursement of general average and sue and labour. In this connection, Article L.172-11 of the Insurance Code provides: “The insurer shall be liable for material damage caused to the insured property by any perils of the sea [or] by force majeure. The insurer shall also be liable: 1. for the contribution of the insured property to general average, unless it ensues from a risk excluded by the insurance; 2. for costs incurred as a result of a risk covered to protect the insured property from material damage or to limit the damage.”

The extent of the insurance cover will be different in the All Risks and the “F.A.P. Sauf” forms of cover.151 This section of this chapter considers physical loss (partial loss, total loss and abandonment) and then examines sue and labour expenses incurred to avert or minimise loss or damage to the cargo. Partial loss 11.70 The payment of the indemnity is the most important duty of the insurer but the indemnity shall not amount to more than the loss suffered.152 Regarding the settlement of claims, Article L.172-24 of the Insurance Code states that: “Damage and loss shall be settled by adjustment of average, save the insured’s right to opt for abandonment in the cases determined by law or by agreement.”

11.71 The Insurance Code does not provide detailed rules regarding the settlement of particular average.153 In practice, Article 20 of the Cargo Policies provides for the adjustment of the amount of the loss by comparing the damaged value of the cargo to the sound value and applying the percentage depreciation so determined to the insured value.154 The measure of indemnity also includes surveyors’ fees and the expenses of claims agents.155 150. Cour de cassation, 16 July 1958, BT 1958, p. 242. 151. See para. 11.39, which considers the terms of the F.A.P. cover and para. 11.33, which sets out the All Risks cover. 152. See para. 11.41, above, and the indemnity principle which is considered in the context of insurable interest. 153. However, the Insurance Code does provide that where the value has been agreed and there is underinsurance “the insured shall be his own insurer for the difference”, Art. L.172-10. 154. Presumably this refers to the values at the insured destination in which case this accords with the practice in England under the MIA 1906, s. 71(3); see para. 3.111 of Chapter 3 above. Where cargo is damaged and is sold short of destination, a different rule applies in England as the assured is entitled to recover on a salvage sale basis, op cit. para. 3.111 above. 155. Op cit. Art. 20, fees are payable in accordance with the assured’s obligation under Art. 17 to arrange a survey.

398

CLAIMS AND LOSSES

11.74

Total loss and abandonment 11.72 In certain circumstances, as described below, the assured is entitled to abandon the cargo to the insurers. In such cases, abandonment entitles the assured, who has suffered a loss as defined in Article 26 of the Cargo Policies, to claim the entire indemnity by transferring to the insurer all rights in the subject-matter insured.156 This concept has the following main advantages as it allows: (1) a settlement where there has been no news of the carrying vessel for four months, or the carrying vessel is unfit to continue the voyage; and (2) a settlement for a total loss where the loss of or damage to the cargo amounts to at least three quarters of the insured value. According to Article 26 of the Policies, the insured cargo may only be abandoned in the following cases: (1) “In the case of loss without news of the carrying vessel: after 4 months counting from the date of the last news received; (2) When the carrying vessel, as a result of an event insured against, is admitted to be clearly unfit to continue the voyage: after 4 months counting from the date of the declaration of unseaworthiness of the vessel made by the carrier if during that time it has not been possible to re-forward cargo to the place of destination; When the total of physical loss or damage to be indemnified by the insurer amounts to at least three quarters of the insured value.”

Recoverable expenses Duty of the assured after loss: sue and labour 11.73 Article 172-23 of the Insurance Code imposes a sue and labour requirement. It provides that: “The insured must help to salvage insured property and take all protective measures of his rights against third parties liable. He shall be liable to the insurer for damage caused by the non performance of said obligation, which is attributable to his fault or negligence.”

11.74 The Cargo Policies clarify this sue and labour obligation. In this respect, Article 15 provides: “The Assured, his representative and all beneficiaries of the insurance must take all reasonable care to ensure the safety of cargo. They shall also take all reasonable measures to safeguard cargo or avert or minimise loss of or damage to it. In case of failure to comply with these duties, the insurer may intervene in their place to take such measures deemed necessary without prejudice to his liability.”

As the insurer has a defence if the assured does not sue and labour, this obligation is of particular importance in the days following the loss but lasts as long as the effects of the loss can be mitigated.157 If the assured fails to sue and labour, this results in a “reduction” 156. Court of Appeal of Paris, 14 December 1999, Ship Ma Petite Sophie, DMF 2000, p. 699, note Denefle. 157. Cour de cassation, 8 March 1965, DMF 1965, p. 400; Court of Appeal of Aix-en-Provence, 20 December 1972, DMF 1973, p. 540; P. Lureau, note, DMF 1965, p. 608.

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of the amount of the indemnity which, it is submitted, must be commensurate with the prejudice suffered by insurers (e.g., the claim would be reduced but only by any additional damage such as that suffered by a cargo that is left uncovered, exposed to rain following discharge at a port of refuge). 11.75 The assured and his representatives are required, under Article 16 of the Cargo Policies, to “take all measures to preserve the possibility of recovery and other rights against carriers and any other third parties”. The assured must also allow insurers, should the need arise, to institute proceedings which the insurer may deem necessary.159 However, the assured is not required to act against third parties in order to receive compensation,160 as the insurer is subrogated to the rights of the assured161: “Article 172-29 of the Insurance Code: ‘The insurer who [has] paid the insurance compensation shall be entitled, within the limit of its payment, to all of the insured’s rights in respect of damage that gave rise to cover.’”

Prior to payment of the insurance claim, French law accords with the Cargo Clauses and provides that the assured has to “take all protective measures of his rights against third parties liable” (Article L.172-23 of the Insurance Code), in order to protect the insurer’s rights.

SUBROGATION AND DOUBLE INSURANCE Subrogation Introduction 11.76 When the insurer indemnifies the insured, he will benefit from legal subrogation as provided by Article L.172-29 of the French Insurance Code. In practice, before French courts the insurer’s title to claim is always challenged by opponents (carriers and liability insurers) and French courts are reluctant to acknowledge the subrogation of the insurer to its assured’s rights. Under French law, the insurer can rely on two types of subrogation: legal subrogation and conventional subrogation. Legal subrogation 11.77 Article L.172-29 of the French Insurance Code provides that “The insurer who [has] paid the insurance compensation shall be entitled, within the limit of its payment, to all of the insured’s rights in respect of damage that gave rise to cover”. Article 31 of the Cargo Policies provides, in similar terms, that “the insurer is vested with the rights of the 158. Cargo Policies, Art. 17. See also Art. 172-23 of the Insurance Code which states that the insured shall be liable to the insurer for damage caused by a failure to sue and labour, not that such a failure provides a complete defence. The same rule applies in English law; see Noble Resources Limited v. Greenwood (The Vasso) [1993] 2 Lloyd’s Rep. 309 and the consideration of this issue under English law at para. 3.113. 159. Op cit. Art. 16. 160. Court of Appeal of Aix-en-Provence, 11 January 1972, DMF 1972, p. 16; Court of Appeal, 27 November 1973, Bull. civ. IV, no 341; DMF 1974, p. 267, note P. Lureau; BTL 1974, p. 225; Court of Appeal Aix-enProvence, 26 June 1974, DMF 1975, p. 218; Commercial Court of Paris, 11 March 1976, DMF 1976, p. 525; 12 April 1976, Bull. civ. IV, no 114; DMF 1976, p. 683; BTL 1976, p. 268; Commercial Court of Lyon, 19 June 1969, DMF 1970, p. 478; JCP G 1970, II, 16170, note of Juglart and du Pontavice; Commercial Court of Marseille, 22 February 1974, DMF 1974, p. 678; André Chao, BTL 1974, p. 222. 161. Subrogation is considered further at para. 11.76 et seq. below.

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assured as to the amount of the indemnity he has paid [but] only on completion of such payment”. In order to be subrogated to the assured’s rights under legal subrogation, the insurers have to cumulatively prove three elements: (1) the existence of the policy prevailing on the date of the claim; (2) that payment has actually been made to the assured; (3) that the payment has been made under the policy, that is, pursuant to a duty to indemnify the damage or loss falling within the terms and conditions of the policy.162 Thus, the Court of Appeal of Versailles ruled that an insurer who paid the claim where the damage resulted from inadequacy of the packaging of the cargo, which was excluded by the policy,163 was not entitled to rely on legal subrogation.164 The policy and the proof of payment have to be disclosed during the proceedings. Concerning the proof of payment, French precedents are very detailed. As a matter of French law, the disclosure of the Subrogation Form does not, of itself, prove that payment has actually taken place. Hence, proof of payment requires a copy of the cheque or of the bank transfer. The Court of Appeal of Rouen has gone further by requiring submission of the reverse side of a cheque to be sure that it has been endorsed by the assured.165 11.78 Cargo insurers must also establish that the payment has been made under the policy. This means that the insurer must have paid the assured (who must have suffered a loss) under the policy in accordance with the positive terms of the cover, and that the loss does not fall within the scope of any of the exclusions in the policy. The payment of a claim which is not covered will be categorised as a commercial payment and the insured will not be entitled to rely on legal subrogation.166 If these three abovementioned conditions cannot be evidenced, cargo insurers have no choice other than to rely on conventional subrogation. Conventional subrogation 11.79 Article 1149 paragraph 1 of the French Civil Insurance Code provides that “subrogation to the rights of a creditor for the benefit of a third person who pays him is either conventional or statutory”. Article 1250 paragraph 1 provides that “Such subrogation is conventional where a creditor receiving his payment from a third person subrogates him to his rights, actions, prior charges or mortgages against the debtor: that subrogation must be express and made at the same time as the payment”. In other words, conventional subrogation must take the form of an express written transfer of rights which takes place simultaneously with the payment of the cargo claim. This is a strict rule and, in order to enable cargo 162. Court of Appeal of Paris, 12 November 2003, DMF 2004, p. 650. 163. For a consideration of the exclusion of insufficiency of packing, see para. 11.47 et seq. above. 164. Court of Appeal of Versailles, 8 November 2001, DMF 2002, p. 630. Under English law in King v. Victoria Insurance Co Ltd [1896] AC 250 (PC), it was decided by the Privy Council that a bona fide payment made by insurers in satisfaction of a claim under the policy was enough to give the insurers the right of subrogation, and that it was not open to a third party to object to the insurer’s right to sue on grounds that the payment was not actually due under the policy, see Arnould, The Law of Marine Insurance and Average, 17th edn, 2008, Sweet & Maxwell, at para. 31-04, fn. 13. 165. Court of Appeal of Rouen, 13 September 2001, Juris-Data no 2001-173698; Court of Appeal of Paris, 13 May 2004, Bulletin des Transports et de la Logistique 2004, p. 412. 166. Cour de cassation, 23 March 1999, no 97-11.685.

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insurers to comply with it, under Article 31 of the Cargo Policies, the assured “undertakes – if asked by the insurer – to restate the transfer of [subrogation] rights … in any receipt of settlement, or any other document”. 11.80 Thus to be subrogated by conventional subrogation, insurers will have to evidence that: (1) they paid the cargo owner; (2) the cargo owner expressly subrogated the insurer in his rights by signing a subrogation receipt; (3) the subrogation form is concomitant (simultaneous) with the payment, that is, it has the same date as the payment. French courts are very reluctant to admit conventional subrogation. The main difficulty is the condition of concomitance between the payment and the subrogation form. Insurers have to disclose a copy of the payment and a copy of the subrogation receipt which must bear the same date.167 If they are unable to disclose such evidences, they will not be subrogated to the rights of the cargo owner by conventional subrogation. Exercise of subrogation rights in practice 11.81 Once subrogation has been validly established,168 the subrogated insurer becomes entitled to sue in his own name for the amount of indemnification paid out to the assured. Prior to subrogation, legal action can be initiated by the assured and then taken over by the insurer as from subrogation. However, if the assured starts an action for the insured loss after subrogation, when his rights have already been transferred to the insurer, the claim form will be deemed null and void. This can have very drastic consequences if the time bar has elapsed before this mistake is discovered. 11.82 Where there is underinsurance, or losses that are not covered by the insurance (such as consequential losses), the Cour de cassation has taken the view that since competing claims by the assured and the insurer would defeat the purpose of the insurance contract, the assured has priority over the insurer on recoveries obtained from third parties, and the parties to the insurance cannot contract out of this principle.169 Double insurance 11.83 The French notion of insurable interest underlies the rules governing double insurance. In this respect, as the assured shall not make a profit from the insurance policy, double insurance policies concluded “with intent to defraud” are void.170 However double insurance contracted without fraud for a total sum in excess of the value of the insured property shall be valid if the assured informs the insurer from whom it requests payment

167. Court of Appeal of Rouen, 20 January 2005, DMF HS 2005, p. 64. 168. See paras 11.76 to 11.80 above. 169. Cour de cassation, 2 November 2005, no 03-10.909; Lamy Assurances 2011, no 1002. 170. Insurance code, Art. 172-8.

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of any claim. In circumstances where double insurance arises, the indemnity is divided proportionally between the underwriters.171

JURISDICTION AND CHOICE OF LAW

Jurisdiction 11.84 According Article 33 of the Cargo Policies, “the insurer may only be sued before the Tribunal de Commerce of the place of underwriting of the policy”. Where the insurer and the assured are not located in the same place, the place of the underwriting of the policy is the place where the policy was issued (this rule differs from Article R.114-1 of the Insurance Code applicable to non-marine insurance which provides that the court of the domicile of the assured is competent).172 However, in marine cargo insurance cases, as an exception to the general rule of EU law,173 the parties may vary from this provision and agree jurisdiction in accordance with EU rules.174 These rules impose formal requirements on the valid choice of a court of an EC Member State as set out in Chapter 2 of this book.175 Accordingly, the parties have to take care when drafting a jurisdiction clause which purports to confer jurisdiction on the courts of an EU Member State. In this respect, the Cour de cassation has ruled that if the policy does not expressly refer to the competency of the English courts, even though it contains English market clauses, and the policy has been drafted in English, French law and jurisdiction are applicable.176 Where English law (which has a six-year time limit177) may apply to the insurance contract, this principle may have important consequences on the two-year time bar which is considered under French law to be an issue of substance and, as such, governed by the law applicable to the contract.178 Choice of law 11.85 The mere fact that the contract is written in English, or, for example, subject to the Institute Cargo Clauses, does not of itself mean that English law applies as French law would normally be the applicable law.179

171. Insurance Code, Art. L.172-9. 172. Court of Appeal of Rennes, 9 July 1964, DMF 1966, p. 14. 173. The rules relating to the freedom, or otherwise, of the parties to agree a jurisdiction are dealt with in Chapter 2, with European law being considered at para. 2.4 et seq. above. 174. Chapter 2, para. 2.6 et seq. above. 175. See, in particular, para. 2.9, Judgments Regulation Art. 23. 176. Cour de cassation, 1ere civ, 5 February 1991 Juris-Data no 1991-000542. 177. See para. 3.89 above. 178. Bugden “Time Bar in Insurance and Reinsurance: An International Comparison”, 2011, Clyde & Co, P. Bugden, (ed.) (French section by David Meheut) at p. 65 and citations at fn. 121. 179. Cour de cassation, 11 March 1997, Bull. IV, no 66; JCP G 1997, IV, p. 147; D. 1997, inf. rap. p. 111; Juris-Data no 1997-001070. See also Chapter 2 as to the European rules as to the validity of a choice of law, in particular, para. 2.45 et seq.

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CHAPTER 12

N O RW E G I A N C A R G O I N S U R A N C E Trine-Lise Wilhelmsen and Hans Jacob Bull1

THE LEGAL SOURCES The legislation 12.1 In Norway, insurance contracts are regulated by the Act of 16 June 1989 No. 69 relating to Insurance Contracts, the Insurance Contracts Act (“ICA”). This Act is mandatory for national transport,2 but subject to several exclusions when the insurance is effected in connection with commercial activities. In particular, the ICA does not apply to the insurance of goods for international transport.3 However, the Norwegian Cargo Clauses, which in many instances apply to international transport,4 incorporate many of the rules of the ICA, in particular those dealing with the person effecting the insurance5 and the duties of the assured.6 The ICA rules are therefore relevant in many cases even though they do not apply on a mandatory level to international cargo insurance. 12.2 The ICA contains no rules with regard to the scope of the cover. This is regarded as a matter of product development where free competition is considered to be in the best interest of the buyers of insurance. Also, there are few rules concerning indemnification, and these rules may be departed from.7 Therefore, in relation to these issues, there is freedom of contract. 12.3 Norwegian legislation is normally produced with extensive preparatory documents. Such preparatory documents are relevant as a legal source for interpretation of the rules, and they are also given heavy weight compared to other sources. The preparatory documents consist of Norges Offentlige Utredninger (“NOU”),8 which are written by the committee appointed to prepare the legislation, and Proposisjon til Stortinget,9 which is written by the Ministry of Justice in preparation for the political treatment of the legislation. These sources are important in relation to some of the rules presented below. The Norwegian Cargo Clauses 12.4 The insurance conditions used in Norway for cargo insurance are the Norwegian Cargo Clauses: Conditions relating to Insurance for the Carriage of Goods of 1995, Version 1. University of Oslo, Scandinavian Institute of Maritime Law. 2. ICA s. 1-3 subpara. 1. 3. ICA s. 1-3 subpara. 2(e). 4. See para. 12 below. 5. The party that enters into the contract with the insurer, ICA s. 1 2(b). 6. The party that, according to the contract, will be entitled to indemnity or an assured amount, ICA s. 1 2(c). 7. ICA s. 6-1. 8. NOU 1987: 24 Lov om avtaler om skadeforsikring. Of relevance also is NOU 1983: 56 Lov om avtaler om personforsikring. 9. Previously named “Odelstingsproposisjon”, Ot. prp. no. 49 (1988–1989), Om lov om forsikringsavtaler m.m.

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2004, Cefor Form No. 261 (known as the CICG or the Cargo Clauses). The conditions are a so-called “agreed document”, drafted by a committee consisting of participants from interested groups.10 The chairman of the committee drafting the 1995 conditions and the 2004 version was Professor Hans Jacob Bull of the Scandinavian Institute of Maritime Law. 12.5 The use of agreed documents in marine insurance has a long tradition in Norway. The first so-called Marine Insurance Plan containing both insurance conditions for ships and cargo is from 1871. This plan was amended in 1881, 1894, 1907 and 1930. A separate Cargo Insurance Plan was prepared in 1967 when the 1930 plan was revised. A new set of cargo conditions that departed from the 1967 plan were constructed in 1995, resulting in the conditions used today. 12.6 A characteristic feature of the Cargo Clauses is that they are supplied with a Commentary11 that reflects the negotiations of the parties drafting the clauses. According to Norwegian legal method, the Commentary constitutes a preparatory document that is given significant weight in the interpretation of the clauses.12 Of particular importance in this context is the following statement made by three distinguished Norwegian professors in an arbitration case from 2000:13 “It is generally accepted that preparatory documents to standard contracts can be of significance when interpreting the contract. This is in particular true for the marine insurance plans where the method of drafting implies that the text must be read in conjunction with the Commentary.” (our translation)

12.7 The Cargo Clauses apply both to national and international transport of cargo. As a rule, the regulation in the ICA is followed, with the effect that the rules concerning the duty of the person effecting the insurance and the assured all are regulated by the ICA or by clauses that conform to the ICA. However, the Cargo Clauses contain some provisions for international transport that depart from the consumer-friendly regulation in the ICA. 12.8 As mentioned above, cargo insurance was traditionally regulated together with the shipowners insurances. Today, there are separate clauses for hull and machinery and for cargo insurance, but some of the rules remain similar. Therefore, the Commentary to the Norwegian Marine Insurance Plan 1996 version 2010 (NMIP Commentary), which covers hull and machinery, contains remarks that are also relevant for the interpretation of the similar rules in the Cargo Clauses. Additional sources 12.9 According to Norwegian legal method, the decisions and practice of the courts and of the Insurance Complaint Board are relevant legal sources in the interpretation of the contract, as is legal theory contained in handbooks and textbooks. However, there are very

10. The participants are listed in the preface to the 1995 conditions. 11. Commentary to Norwegian Cargo Clauses: Conditions relating to Insurance for the Carriage of Goods of 1995, Version 2004, Cefor Form No. 261A. www.cefor.no/insurance_cond/InsuranceCond.htm. 12. The status of preparatory documents to contractual regulation is discussed in Nordiske Domme i Sjøfartsanliggender (ND) 2000.442 Norwegian Arbitral Court (NA) Sitakathrine; ND 1998.216 Norwegian Supreme Court (NSC) Ocean Blessing; ND 1991.204 NSC Hardhaus; ND 1978.139 NA Stolt Condor; cf. also Trine-Lise Wilhelmsen and Hans Jacob Bull, Handbook in Hull Insurance, Oslo 2007, pp. 29–30, and Hans Jacob Bull, “Avtalte standardvilkår som privat lovgivning”, in Thor Falkanger (ed.), Lov, dom og bok, Festskrift til Sjur Brækhus, Oslo 1988, pp. 99–114, pp. 110–111. 13. ND 2000.442 NA Sitakathrine, pp. 449–450.

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few decisions of the courts to refer to concerning the Cargo Clauses. The ICA contains a provision for the treatment of disputes by the Insurance Complaints Board, which has been established based on an agreement between the insurance companies’ organisations and the Consumer Council, to deal with insurance disputes. This board was recently reorganised into three departments, where one of the departments deals with casualty insurance, including marine insurance. A few cargo insurance cases have been decided by this board. The last source to be mentioned here is legal theory. There is no standard book or handbook on cargo insurance in Norway. However, there is a book on Scandinavian maritime law in English that contains two chapters on marine insurance, including cargo insurance.15 Further, the Swedish professor Svante Johansson has written a comparative presentation on cargo insurance according to several legal systems, including the Norwegian and Swedish.16 In addition, handbooks on general insurance law and hull insurance provide relevant material in relation to several of the issues discussed below.17

THE SUBJECT-MATTER OF INSURANCE Goods 12.10 The insurance relates to “carriage of goods”, but the concept of goods is not defined in the Cargo Clauses. According to the introduction to the clauses, “goods” can be “virtually anything: typical goods for resale, a machine that is being moved from one production site to another for the same company, a specially designed part of a bridge span, live farmed fish or a trotting horse.”

There is, therefore, no limit to the subject-matter that may be insured, except for the fact that it must be able to be transported by sea, land or air. Further, the interest in the goods must be insurable, cf. paragraphs 12.16 and 12.17 below. Physical loss and damage 12.11 Cargo insurance is a form of casualty insurance and covers mainly loss of or damage to the goods. The losses covered by the Cargo Clauses are defined in section 6. The Norwegian system makes a distinction between “losses”, “charges” and “liability to third parties”. According to section 6 paragraph 1 of the Cargo Clauses, the insurance covers total loss, as defined in and regulated by section 35; shortage, as defined in and regulated by section 36; and damage, as defined in and regulated by section 37. The insurance under the Cargo Clauses does not cover liability to third parties incurred by the assured, cf. section 6 paragraph 3 no. 2. Insurance cover for liability to third parties may be “specially agreed”,

14. ICA s. 20-1. 15. Thor Falkanger and Hans Jacob Bull, Scandinavian Maritime Law, Oslo 2011, chapters 21 and 22. 16. Svante Johansson, Varuförsäkringsrätt, Stockholm 2004. 17. Hans Jacob Bull, Forsikringsrett, Oslo 2008; Knut Selmer, Forsikringsrett, Oslo 1982; Wilhelmsen and Bull.

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but there are no standard clauses providing such cover.18 Liability for damage caused by the goods under transport must therefore be covered by a general liability insurance effected by the cargo owner. Neither does the insurance cover “general capital loss, including loss of time, loss due to economic fluctuations, loss of market, operating loss or similar losses unless such cover is specially agreed”, cf. section 6 paragraph 3 no. 1.19 Profit on goods 12.12 Cover for profit on goods is provided through the regulation of insurable value. The starting point for the insurable value is the “market value of the goods at the place of loading at the inception of this insurance”.20 If compensation is to be paid to the seller, and he has bought the goods at a lower price than the market value, this element of profit will be included. Further, if the goods are sold, the market price is calculated on the basis of the invoice value.21 The difference between the seller’s purchase cost and sales cost is therefore included in the insurable value. If compensation is to be paid to the buyer, the cover also includes his “anticipated profit”.22 Unless otherwise agreed, the insurable value of such anticipated profit shall be 10% of the insurable value of the goods as such. This 10% profit is paid regardless of any documentation of the actual profit. Both the seller and the buyer may also buy “Additional insurance in the event of price increases etc.” according to a special clause for open insurable value. Such insurance covers the “increased value, above the ordinary insurable value, that the goods have acquired upon arrival at their destination as a result of price increases or for other reasons”.23 Coverage for freight 12.13 The position for freight costs is similar to that of profit. In relation to the seller, the freight will only be covered if the goods are sold and the freight is included in the invoice value. If the compensation is to be paid to the buyer, the insurable value shall include “freight which he has paid or will have to pay”.24 Freight is included regardless of when the freight falls due, but only if the buyer, in fact, has to pay it.25 Other pecuniary interests 12.14 According to section 6 paragraph 2, the Cargo Clauses also provide cover for several types of charges that are divided into the following five groups: salvage charges,26 general

18. Traditional marine liabilities for salvage and general average are, however, covered under the Cargo Clauses ss. 39 and 40. 19. Cf. further CICG Commentary p. 9. The expression “general capital losses” means the general losses that the assured may sustain in his business as a result of loss or damage to goods. The other exclusions refer to the charges and losses generated in connection with a delay. 20. CICG s. 29 para. 1 first sentence. 21. CICG s. 29 para. 1 second sentence. 22. CICG s. 29 para. 2(e). 23. CICG Special Clauses p. 17. 24. CICG s. 29 para. 2(d). 25. CICG Commentary p. 51. 26. Cf. CICG s. 39.

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28

29

average, charges related to provision of security, litigation charges and charges in connection with the settlement of claims.30

INSURABLE INTEREST AND THE INDEMNITY PRINCIPLE

Insurable interest defined 12.15 The Cargo Clauses contain no definition of the concept of “insurable interest”. Neither is this issue regulated in the ICA. The preparatory documents to the ICA31 refer instead to two old legal provisions, the first of which states that a contract against law or morality is void.32 This rule is closely connected to an exclusion in the Cargo Clauses section 18 no. 4 for certain types of unlawful enterprises. The second old legal provision states that gambling does not create a duty to pay.33 Today, this principle is reflected in the requirement that the interest must have an economic value. In the following paragraphs, these two principles will be explained. Insurance against the law – unlawful enterprises 12.16 An insurance contract in itself will not be against the law, but it has been argued that insurance tied to an illegal interest is against morality. Whether the interest is of such a character depends on an evaluation of the facts in each individual case.34 This type of evaluation creates uncertainty and lack of predictability. In marine insurance, one has therefore tried to avoid this kind of judgement by defining more detailed exclusions. In this respect, the Cargo Clauses section 18 no. 4 states that the insurance does not cover loss or damage caused by the “goods being intended for unlawful purposes, or manufactured through unlawful activities or by unlawful methods”. Examples of goods intended for unlawful purposes are weapons intended for criminal activity or drugs intended for sale. Examples of unlawful activity or method of production are child labour and fishing in contravention of the fisheries legislation of a coastal state.35 The exclusion only applies to damage sustained by the goods as a result of the unlawful circumstance, but it applies regardless of the knowledge of the assured. The rationale for the exclusion – except from the mere moral condemnation – is that an unlawful circumstance may increase the risk of a casualty, in that

27. Cf. CICG s. 40. 28. Cf. CICG s. 41. 29. Cf. CICG s. 42. 30. Cf. CICG s. 43. 31. NOU 1987: 24 p. 118, cf. p. 111. 32. NL 5-1-2. 33. Strl. ikrl. s. 12. 34. Norsk Retstidende (Rt.) 2006.328 NSC; Bull pp. 434–436. 35. Cf. further CICG Commentary p. 34. The illegality shall, according to s. 18 no. 4 second sentence, be determined in accordance with the rules in force at the commencement of the period covered by this insurance in the exporting country, the importing country or any other country through which the assured must have expected the goods to pass.

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the means of transport may be routed outside the ordinary transport routes, or in that the goods must be carried in a different type of packing than would otherwise have been used.36 The interest must have an economic value; gambling 12.17 It is a general principle in Norwegian insurance law that the interest must have an economic value.37 The practical implication of this rule in cargo insurance is that only the person having an economic interest in the transported goods is covered. This may be illustrated by a decision from the Insurance Complaint Board:38 The policy holder A bought a boat from a yard in Turkey for transport to Stavanger. Before delivery of the boat to A, the yard sold the boat to another buyer B, who took possession of the boat in Rotterdam. A claimed for total loss under the cargo insurance. The board found that if the boat was in fact sold to B, A did not have any economic interest in the boat that could be covered under the transport insurance.

Indemnity principle 12.18 Neither the Cargo Clauses nor the ICA contain an indemnity principle. The legal committee drafting the ICA presumed that a principle to this effect was not needed because insurers in their own interest would secure that no gain was made under the contract.39 As the insurable value constitutes the limit for the compensation in case of a total loss under the Cargo Clauses section 35, this seems to limit the potential compensation to the sustained loss. Agreed value policies 12.19 The insurable value in the Cargo Clauses is, as mentioned above, tied to market value or invoice value. The parties are, however, free to agree upon an assessed value. According to ICA section 6-2, an agreement that a loss shall be compensated with a predetermined price can be adjusted by the insurer only if the person effecting the insurance gives wrong or insufficient information of significance for the evaluation. This means that an assessment made in good faith by the person effecting the insurance is binding upon the insurer even if the agreed value is above market value, as long as the assured has provided sufficient information. On the other hand, if the information given is insufficient, the regulation concerning breach of the duty of disclosure will apply accordingly, cf. below under section 12.24 and the following. Agreed value policies are not much used in Norwegian cargo insurance, though, as noted above,40 cargo sold to a buyer is customarily insured for the invoice value plus a 10% notional profit that is paid by insurers regardless of any documentation as to the actual profit.

36. CICG Commentary p. 33. 37. Bull pp. 437–438; Strl. ikrl. s. 12; NMIP s. 2-1. 38. Case no. 6567 (2007) from the Insurance Complaint Board. 39. NOU 1987: 24 p. 118. 40. Section 12.12 above.

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DESCRIPTION OF THE RISK

12.22

DESCRIPTION OF THE RISK Pre-contractual representation of the risk 12.20 The Cargo Clauses contain rules on the duty of disclosure in sections 12, 13, 56 and 57. The rules correspond largely to the regulation in the ICA, but the ICA also includes some rules that are not found in the clauses. Here, one should distinguish between four main issues: the content of the duty of disclosure, the time of the duty of disclosure, who the duty is addressed to and the sanctioning system. The content of the duty of disclosure 12.21 The duty of disclosure is defined in the Cargo Clauses section 12, cf. ICA section 4-1. The person effecting the insurance shall give correct and complete replies to the questions asked by the insurer.41 The insurer therefore has to define what information he needs to assess the risk. The insurer’s questions must be related to the transit or transits to be covered by the insurance contract, the goods or other circumstances, which will have a bearing on the insurer’s assessment of risk.42 In principle, the policyholder does not have to disclose information concerning issues not addressed in the proposal form. However, the policyholder is required on his or her own initiative to provide information on special circumstances that he or she must understand will have a significant bearing on the insurer’s assessment of the risk.43 By “special circumstances” is meant circumstances that the policyholder could not expect a professional insurer to ask about, that is, risk factors that are of a more special character. The sensitivity of the goods to temperature changes is one example, but “special circumstances” also include information about the other contracting parties with whom the person effecting the insurance may be expected to conclude an agreement and the countries/ regions in which the goods are located, as well as such matters as unusual packing, for example, goods packed in paper where the normal practice is to pack such goods in boxes.44 To whom is the duty addressed? 12.22 According to the Cargo Clauses section 12, the duty of disclosure is addressed to the “person effecting the insurance”. This is the person that enters into the contract (or the “policyholder” in English terminology). In practice, the insurance contract is often concluded with a broker acting as intermediary. The person effecting the insurance must himself bear the risk for incorrect or incomplete information provided by a person, such as a broker, representing him (and not the insurer), pursuant to ordinary rules of identification.45 According to the Cargo Clauses section 13, the duty of disclosure is extended if the insurance comprises the interest of a third party, for instance, the buyer of the goods, and the buyer knows that the insurance contract is being or will be made on his behalf. The rule is mainly of significance in situations where the seller contracts for the cargo insurance,

41. CICG s. 12; ICA s. 4-1, both para. 1, first and second sentences. 42. CICG Commentary p. 20. 43. CICG s. 12; ICA s. 4-1 para. 1 third sentence. 44. CICG Commentary p. 20. The example mentioned in the text is provided by Johansson p. 312. 45. Cf. further CICG Commentary p. 20.

411

12.22

NORWEGIAN CARGO INSURANCE

and its main importance is where the third party (assured), such as a buyer, knows or ought to know that the insurer will not receive correct, complete information from the person effecting the insurance.46 The time of the duty of disclosure 12.23 The relevant point in time for this issue is when the contract is entered into, that is, when the person effecting the insurance accepts the insurer’s offer of insurance.47 The provision does not impose any continuous duty of disclosure on the person effecting the insurance, merely a duty at the time of conclusion or renewal. In this way, the insurer receives the information he requires to evaluate whether he wishes to underwrite the risk, and to fix the insurance premium and the scope of any special reinsurance relating to the risk.48 Factual circumstances occurring after this point in time are not a matter of duty of disclosure, but may constitute a change of risk. However, if the person effecting the insurance realises after the contract is concluded that he has given incorrect or incomplete information on the risk, he shall notify the company of this without undue delay, cf. Cargo Clauses section 12 paragraph 2. Thus, there is a continuous duty to correct wrong information throughout the insurance period. The sanctioning system 12.24 The sanctioning system for breach of the duty of disclosure is regulated by the ICA sections 4-2 and 4-3 and the Cargo Clauses sections 56 and 57. The sanction depends on the degree of fault, and is applied both to the person effecting the insurance and to an assured that has a duty of disclosure according to section 13.49 In case of fraud, the insurer will not be liable for any casualty that has occurred.50 In addition, he may cancel the insurance induced by fraud and other insurance contracts with the person effecting the insurance with immediate effect.51 If the person effecting the insurance has neglected his obligation to provide information and the fault is more than just slight, the insurer’s liability may be reduced or completely extinguished. An example of fault that is not “more than just slight” and thus excusable, is when an agent representing the insurer has given the assured the impression that a thorough consideration of the question in a proposal form is of little importance.52 Presuming the policyholder was more than a little to blame, the liability may be reduced wholly or in part having regard to the importance of the error to the company’s assessment of the risk, the degree of blame, the sequence of events and other circumstances. The importance of the error to the company’s assessment of the risk relates to the consequences that correct information would have had for the insurance contract. This must be seen in conjunction with the fault of the person effecting the insurance and 46. CICG Commentary p. 21. 47. Cf. the phrase “in connection with the conclusion or renewal of the insurance contract” in CICG s. 12. 48. CICG Commentary p. 21. 49. CICG s. 13 para. 2; cf. s. 56 para. 1 and CICG Commentary pp. 21–22. 50. ICA s. 4-2 para. 1. By fraud is here meant deliberate misinformation with the intent to obtain a better insurance contract than would have been possible if correct information had been provided, cf. Ot. prp. no. 49 pp. 63–64; Rt. 2000.59 NSC; Bull pp. 281–282. 51. CICG s. 56 para. 1; ICA s. 4-3 third sentence. 52. NOU 1987: 24 p. 94.

412

DESCRIPTION OF THE RISK

12.27

the question of causation. If there is no causal link between the circumstances not disclosed and the casualty, one should be careful with the reduction in liability.53 12.25 In addition to the right to be partly or fully freed from liability, the insurer may cancel the insurance by giving 14 days’ notice of cancellation to the assured.54 If the person effecting the insurance, or the third party as the case may be, is less than a little to blame, the insurer will be fully liable for any casualty that may occur. However, under the Cargo Clauses section 57, the insurer will have a right to cancel the contract with 14 days’ notice in cases where the information was of material significance for his assessment of the risk.55 Alteration of risk 12.26 Delay during the transit will often represent an alteration of risk. Political conditions may change, and there could be the risk of having to carry out the transit at another time of year than anticipated. Delays may also entail a greater danger of theft, handling damage, etc.56 The Cargo Clauses section 16 contains rules whereby the insurance may be suspended in certain cases of delay. First, the insurance will be suspended if the goods are delayed en route in one place for more than 15 days due to circumstances within the control of the assured, cf. section 16 paragraph 1 first sentence. The delay may be imputed to the assured when he has neglected to arrange for on-carriage or where he leaves the goods in a transit warehouse. The insurance cover becomes operative again from the moment physical measures are implemented to resume the transit, cf. section 16 paragraph 1 second sentence. Such measures, which may include transferring the goods from warehouse to quay and loading them into a new means of transport, will be covered by the insurance.57 12.27 Second, the insurance will be suspended when goods are delayed in transit for more than three months in one place, whether or not the delay may be imputed to the assured, cf. the Cargo Clauses section 16 paragraph 2. However, this does not apply if the delay is due to certain causes specified in section 16 paragraph 2 nos 1–4. Under these provisions, there is no suspension of the insurance if the delay is caused by damage or loss recoverable under the insurance or by theft or piracy, cf. no. 1, or if other goods carried by the means of transport have been damaged, cf. no. 2. Nor will the insurance be suspended if the delay is due to the means of transport in which the goods are loaded having suffered a casualty, disappeared or been abandoned, cf. no. 3, or if harbours or transit routes have been destroyed or blocked, cf. no. 4. The term “harbours and transit routes” also encompasses railway lines and stations, airports and freight forwarding terminals. The word “blocked” primarily covers physical blocks, barriers or other physical obstacles that prevent the shipment from passing through, including obstacles due to weather conditions, snow or ice.58

53. NOU 1983: 56 p. 88. 54. CICG s. 57; ICA s. 4-3 para. 1. 55. CICG s. 57. 56. CICG Commentary p. 27. 57. CICG Commentary p. 28. 58. CICG Commentary p. 29.

413

12.28

NORWEGIAN CARGO INSURANCE

THE CONTRACT OF INSURANCE Formation of the contract: general 12.28 There are no particular rules on formation of insurance contracts. The formation is therefore regulated by the ordinary rules on formation of contracts in the Contract Act 1918.59 According to Norwegian contract law, there are no formal requirements for an agreement to constitute a binding contract. This is also true for insurance contracts, although an insurance certificate is here required to document the contract, cf. paragraphs 12.35 and 12.36 below. The parties to the insurance contract 12.29 In Norway, insurance is a three party relationship between the insurer, the person effecting the insurance and the assured. The insurer is the party offering the insurance cover.60 The person effecting the insurance is the party negotiating and concluding the contract with the insurer, and paying the premium. The assured is the party entitled to be indemnified for damage. The distinction is important because the parties have different duties and rights. The person effecting the insurance and the assured may be the same person. This will be the case in cargo insurance if the transport is not part of a sales contract, and in a sales situation when insurance is effected by the seller to cover his interest only. Often, however, insurance is effected by the seller to include both the seller’s and buyer’s interest, cf. below. Insurance of third-party interests 12.30 The number of parties covered by the insurance may be extended through coinsurance of third parties with an interest in the goods. The persons covered may be stated directly in the insurance documents. If the documents do not define the covered interests, this issue is regulated by the Cargo Clauses section 9. According to section 9 paragraph 1, the insurance is effected for the benefit of the person effecting the insurance and persons to whom he has transferred title or a security, such as a lien, in the goods. These persons are automatically co-assured under the Cargo Clauses61 unless otherwise agreed. Interests of other persons are only covered by the insurance if explicitly agreed. 12.31 The person effecting the insurance is insured under the contract as long as he retains full interest in the capital value of the goods. According to section 9, however, the person effecting the insurance also remains co-assured with a person to whom the goods have been transferred. If, therefore, a cost, insurance and freight (“CIF”) seller has granted the buyer respite for payment of all or part of the purchase price, and the goods are lost before the insured transit is completed, the seller will be entitled to claim a proportionate

59. Act 31 May 1918 no. 4 relating to Conclusion of Agreements etc. Cf. further on these principles applied to insurance, Selmer pp. 52–53. 60. ICA s. 1-2(a) uses the term “company”. 61. Norwegian insurance law makes a distinction between automatic co-insurance, and co-insurance where individual agreement is necessary, cf. Bull p. 507 and the following.

414

TYPES OF POLICIES IN USE

12.35

share of the compensation, provided that he would have been able to secure his claim by preventing the goods from being delivered to the buyer.62 12.32 If the insurance is effected by the buyer to cover his interest, which is typical in the case of free on board (“FOB”) sales, the seller’s interest in the goods is not covered by section 9. The same is true if the seller effects the insurance as agent for the buyer. If the insurance contract has been made by the seller, the buyer’s interest in the goods will not be co-assured until “title to the goods has been transferred” to him.63 12.33 A person having a lien or other security in the goods may benefit from the insurance “provided that such security has been established through assignment of a transport document for the goods”.64 Thus, cargo insurance applies for the benefit of a bank that has redeemed the documents on behalf of the buyer in connection with a documentary credit, where the bank has a lien as security for its claim in relation to the said credit.65 12.34 The insurance does not cover any third-party interest in the goods if the insurance has been effected by the seller, and the sales contract and terms of delivery, or a special agreement, do not state that the buyer’s or other subsequent owners’ interest in the goods is to be covered by the insurance, cf. Cargo Clauses section 9 paragraph 1 second sentence. In such cases, the buyer does not expect the insurance to cover his interest in the goods. If the person effecting the insurance neither has nor will have any interest in the capital value of the goods, the insurance shall be deemed to be effected for the benefit of the seller, cf. section 9 paragraph 2.

TYPES OF POLICIES IN USE Terms used locally 12.35 In the ICA, the insurance policy is named the “insurance certificate” and regulated by ICA section 2-2. According to this provision, the insurer shall give the policyholder an insurance certificate as soon as the contract has been concluded. The insurance certificate is not necessary for the contract to be valid, but it functions as documentation evidencing the agreement. The ICA lays down no requirements as to either the form or the content of an insurance certificate in regard to the specific risk; however, in domestic insurance, the certificate shall emphasise certain important clauses so as to bring them to the attention of the assured. These rules are not mandatory in international transport insurance. In cargo insurance, the concept of insurance certificate is not used. Instead, one uses a combination of insurance “policy” and “insurance document”, which is now considered.

62. Act 13 May 1988 no. 27 relating to the Sale of Goods, ss. 61 and 62, and Act 8 June 1984 no. 59 relating to Creditors Rights to Satisfaction of Claims, s. 7-2; CICG Commentary pp. 11–12. 63. Cf. CICG s. 9 first sentence and further CICG Commentary p. 12. 64. Cf. CICG s. 9 para. 1 first sentence. A “transport document” means a bill of lading or other document giving title to the goods in transit, cf. CICG s. 1 no. 3. 65. Cf. further CICG Commentary pp. 12–13.

415

12.36

NORWEGIAN CARGO INSURANCE

Type of contract: policies/open covers 12.36 The “insurance document” is the document providing prima facie proof of title to claim under the insurance that is issued in connection with an individual shipment, cf. the Cargo Clauses section 1 no. 4. If an insurance contract is entered into for a single shipment, the document providing such proof of ownership is the insurance policy issued by the insurer. This insurance policy will then also represent the insurance certificate as required by the ICA section 2-2.66 12.37 In cases of open covers, one-year policies or floating policies, which cover shipments within the scope of the business activities of the person effecting the insurance, an insurance policy for the whole period will be issued, which conforms to the requirements in ICA section 2-2.67 In addition, an insurance document will be issued in connection with each of the individual consignments to provide proof of ownership. Depending on the insurance contract, this document may be issued either by the insurer or by the person effecting the insurance himself if so authorised by the insurer. In the case of insurance for a certain period of time, the insurance policy will not have any effect as proof of title to claim under the insurance: it merely serves as evidence of the terms of the insurance contract itself.68

PERIOD OF INSURANCE Introduction 12.38 The period of insurance is regulated in Chapter 5 of the Cargo Clauses. If the insurance is for an open cover or a floating policy (standing insurance), the rules in the Cargo Clauses will regulate a single shipment under the standing insurance, but will have to be supplemented by the regulation in the open cover or floating policy regarding the commencement and termination of the standing insurance as such. 12.39 Under Norwegian law, the commencement of the period of insurance depends on who has effected the insurance – the seller or the buyer. On the other hand, the termination of the period is not influenced by who has taken out the insurance. As will be seen, the “warehouse-to-warehouse” clause, which is commonly used in international cargo insurance, resembles the solution that one would have where the insurance is effected by the seller. The commencement of the period of insurance 12.40 The Cargo Clauses section 14 paragraph 1 regulates the commencement of the period of insurance where the insurance has been effected by the seller. The provision states that “the Insurer’s liability shall attach from the time the goods are moved for direct loading into the means of transport which shall convey them from the warehouse or place at

66. Cf. Specimen attached to CICG p. 21 Policy for single shipments. 67. Cf. Specimen attached to CICG p. 23 Policy for a standing insurance contract. 68. CICG Commentary p. 2.

416

PERIOD OF INSURANCE

12.45

which the insured transit shall begin”. The goods do not have to be loaded into the means of transport, it suffices that they have been set in movement for direct loading into the vehicle, ship, etc. As long as the intention is to carry out a continuous loading operation, it is not necessary for the loading to take place in one continuous movement.69 12.41 A container will not in itself constitute a means of transport in terms of the Cargo Clauses section 14 paragraph 1. If the goods are loaded into a container for immediate placing on board the means of transport in question, the insurer’s liability attaches from the moment the goods are moved for loading into the container, even if an unintended delay should later occur. 12.42 If the buyer has arranged for insurance in accordance with the terms of sale, cf. the Cargo Clauses section 14 paragraph 2, the insurer’s liability will attach when the risk passes to the buyer in accordance with the sales contract. Unless the sales contract has specifically regulated the question, the passing of risk will be decided according to the national law that applies to the contract; in Norway, the Sale of Goods Act section 13, cf. section 7(2). If the goods have suffered damage prior to that time, the buyer will not be covered by the insurance, but then he will not have to pay (fully) for the goods either. The termination of the period of insurance 12.43 The Cargo Clauses section 15 contains provisions regarding the termination of the period of insurance. Five different points of time are identified, and the insurance period will terminate when the first of them occurs. The main rule is found in no. 1 and covers the situation where the intention of the consignee is to take the goods into his warehouse at the named place of destination. The insurance will terminate when the goods have been “safely unloaded from the means of transport which carried them to the consignee’s warehouse at the named place of destination”. Since the goods have to be “safely unloaded” for the insurance to lapse, the insurance will still be operative if the goods are damaged during the unloading operation itself. But the text indicates that one has to go one step further; the goods are not “safely unloaded” if the unloading entails an obvious risk of subsequent damage and the period of the insurance continues.70 12.44 If the consignment of goods consists of several separable and detectable parts, damage to one such part after it has been safely unloaded will not be covered, even if other parts are still to be unloaded. By contrast, in situations where bulk cargoes are discharged in a continuous operation, the insurance cover will remain operative until everything has been discharged.71 12.45 The concept “the consignee’s warehouse” creates no problems as long as the warehouse is owned or rented by the consignee. If the goods are placed in a transit or customs warehouse owned by a third party, the insurance will still be in force, unless it is established that the consignee uses the warehouse as his own permanent warehouse, from which goods are regularly fetched for direct shipment to customers.

69. CICG Commentary pp. 22–23. 70. See CICG Commentary p. 25, where it is indicated that a helpful parallel may be drawn from Art. 1(e) of the Hague and the Hague-Visby Rules, with reference to ND 1950.527 Swedish Supreme Court Selma Thordén and ND 1961.255 NCA Ragnhild K. 71. CICG Commentary p. 25.

417

12.46

NORWEGIAN CARGO INSURANCE

12.46 The Cargo Clauses section 15 no. 2 regulates the situation where the goods are not to be delivered to the consignee’s warehouse at the place of destination, typically when the insurance only covers part of the total transit. The insurer’s liability terminates “when the goods are delivered to the consignee or otherwise placed at his disposal”. The alternative in section 15 no. 3 relates to the situation where the carrier, in accordance with the terms of the contract of affreightment, has sold the goods for the account of the assured. In such instances, the cut-off of the insurance will be when “the risk has passed to the buyer”. Finally, the insurance cover will terminate at 24 hours local time when 30, respectively 60, days have passed since the goods were discharged at the named place of destination (section 15 no. 4) or at the agreed port of discharge (section 15 no. 5, which is a special rule for transport by ship). Abandonment or completion of the transit on the insurer’s demand 12.47 Under certain specific conditions, the insurer is entitled to demand that the remaining transit be abandoned, cf. the Cargo Clauses section 27 nos 1–3. The relevant conditions are that further transit either “Cannot take place without extraordinary risk of loss of the goods or considerable damage to them, such loss or damage being recoverable under the insurance” (no. 1); “Will entail unreasonable additional charges for the Insurer” (no. 2); or “Cannot be expected to be completed after having been delayed for at least 30 days” (no. 3). Should the insurer demand that the remaining transport be abandoned, he incurs liability towards the assured for a total loss.72 On the other hand, the insurer may demand that the transit shall be completed despite an obstacle thereto, cf. the Cargo Clauses section 28. Such a right protects him from having to pay compensation for total loss because the goods did not reach the destination. At the same time, there are significant limitations on the insurer’s rights: he cannot insist on the continuation of the transit if the assured waives his right to compensation for total loss and agrees to take over the goods on the spot. Also, the insurer’s right is not unconditional. If it is deemed unsafe to forward the goods to the destination, the insurer may not demand that they be forwarded.73

SCOPE OF COVER Introduction 12.48 In Norwegian insurance law, the term “scope of cover” refers to the perils insured against, losses insured against and causation. Further, a distinction is made between the scope of cover, which means objective rules defining the cover provided, and the rules concerning duties of disclosure and due care addressed to the person effecting the insurance and the assured. In order to comply with this distinction, we have chosen to address the questions pertaining to perils covered, the objective exclusions and the question of

72. As pointed out in the CICG Commentary pp. 47–48, the insurer’s right might be limited by the contract entered into with the carrier, since the latter will often have the right to oppose the transit being discontinued and the goods discharged elsewhere than agreed. 73. CICG Commentary pp. 48–49.

418

SCOPE OF COVER

12.51

causation in this section. The losses covered are, in accordance with the outline of this book, included in paragraphs 12.86 to 12.101 below. The rules concerning duty of care are addressed in paragraphs 12.74 to 12.84 below, whereas duty of disclosure is discussed in paragraph 12.21 above and the following. The risks covered 12.49 The perils insured against in cargo insurance are normally divided into three categories with different degrees of protection: A, B and C clauses. This approach is also used in the Cargo Clauses, where insurance on A clauses is defined in section 3, B clauses in section 4 and C clauses in section 5. The broadest protection is found in the A clauses, which provide for all risks cover. The B and C clauses provide more limited cover. The most limited cover is provided in the C clauses for “transport accidents”, whereas the B clauses provide cover for “extended transport accidents”. Coverage on A clauses 12.50 Coverage on A clauses is defined in section 3 of the Cargo Clauses, which states that “A clauses insurance covers all risks of loss or damage to which the insured goods are exposed”. Since the cover is negatively delimited, the type of risks covered by the insurance will primarily be defined by the exclusions contained in the conditions, cf. the Cargo Clauses sections 17 to 19. If none of the exclusions apply, the starting point is that damage and loss are covered. This is also true if the damage or loss develops over some time, for instance, damage resulting from condensation over a certain period of time, or damage caused by prolonged shaking due to the movements of the means of transport. On the other hand, damage resulting from ordinary handling of the goods will not normally be covered, for instance, normal clamp damage when bales of paper are loaded and discharged.74 Transport accidents – C clauses 12.51 The most limited coverage is defined in the Cargo Clauses section 5 for “transport accidents” (C clauses). This provision lists five named perils that are insured. Perils not listed are not covered, and thus the risk of the cargo owner. The five named perils fall into three main categories. Perils of the first category include accidents to the mode of transport, which are covered according to the Cargo Clauses section 5 nos 1–3.75 The provision in no. 1 applies to carriage by vessel and covers situations where the “carrying vessel” has “collided, struck any object, sunk, capsized or suffered a similar serious accident”. The term “vessel” comprises vessels of every type, including barges, lighters, movable offshore platforms, etc. While the term “collided” covers collisions with another vessel, the words “struck any object” covers all other forms of contact with fixed or floating objects, such as quays, bridges, dock-gates, platforms, ice, the seabed, etc.76 A vessel has “sunk” when it no longer floats due to its own buoyancy, but is resting on the bottom. The term “capsized”

74. Cf. CICG Commentary pp. 3–4. 75. Cf. CICG Commentary pp. 4–6, where the concepts are further defined. 76. Cf. CICG Commentary p. 4.

419

12.51

NORWEGIAN CARGO INSURANCE

refers to the situation where it is lying in the water with its masts underwater or with its bottom up. The term “similar serious accident” is an ejusdem generis clause that allows for cover in the event of damage that is caused by serious accidents other than those set out in the provision, but of the same class or type as those set out. An example is when a ship has broken apart, that is, when the hull has split into two or more separate parts.77 12.52 Accidents to “land conveyance”, that is road and railway vehicles, are regulated in the Cargo Clauses section 5 no. 2. Similar to no. 1, the provision covers collision and striking of any object. The word “object” implies that the striking must be with a structure, and that damage caused by the jolting of a vehicle due to a bumpy road is not covered. This provision further covers the situation where the conveyance has “overturned”, which means that the land conveyance has fallen completely over on its side or its roof so that it cannot right itself on its own. The last accident occurs where a train is “derailed” or a road conveyance has “driven off the road”. “Derailing” also applies when only one or some of the cars derail. A conveyance is considered to have “driven off the road” when it has left the roadway and has no possibility of returning to it on its own.78 12.53 The accidents covered for aircraft are defined in the Cargo Clauses section 5 no. 3. The term “aircraft” encompasses any conveyance designed to fly through the air, irrespective of whether it may also be used on land or on water. Accidents similar to those mentioned above are covered, for instance, collision and striking of any object. The same is true for crashing. There is no requirement that the accidents must occur whilst the aircraft is in the air; thus, they may also happen on land or in water. The last accident occurs, with regard to aircraft, where the aircraft, has “been driven off the runway”.79 12.54 The second category of named perils is provided for in the Cargo Clauses section 5 no. 4, which covers loss due to “fire”, “explosion” or “lightning”.80 It is immaterial where the fire or explosion started. The term “explosion” must be distinguished from a blow-out of a tyre of a conveyance. However, a blow-out may cause the conveyance to drive off the road, an occurrence that is covered under no. 2. 12.55 The third category of named perils comprises damage caused by the various natural disasters mentioned in the Cargo Clauses section 5 no. 5 (B clauses). This cover includes earthquake, volcanic eruption, landslide and snow slide. In addition, “similar natural disasters” are covered. Examples of such disasters are storms and floods, including floods caused by high winds or the like.81 Extended transport accidents – B clauses 12.56 The “extended transport accident” cover is defined in the Cargo Clauses section 4 (B clauses). This provision first lists the same five named perils as are defined in and covered by section 5 (C clauses), but adds four other named perils. The first added peril is jettison, cf. section 4 no. 6, which provides that the insurance covers the “goods being jettisoned or washed overboard”. This is only relevant for carriage by vessel. Loss resulting 77. Cf. CICG Commentary p. 5. 78. Cf. CICG Commentary pp. 5–6. 79. Cf. CICG Commentary p. 6. 80. Cf. further CICG Commentary p. 6. 81. Cf. Act 25 March 1994 no. 7 relating to Damage Caused by Natural Disasters, s. 4, Act 16 June 1989 no. 70 relating to Insurance for Damage Caused by Natural Disasters, s. 1, and CICG Commentary p. 7.

420

SCOPE OF COVER

12.58

from goods being washed overboard (i.e., where they are struck by a wave breaking over the ship and swept away) is covered regardless of whether or not this was due to the goods being inadequately secured. The second additional named peril covers sea, lake or river water entering into the warehouse or place of storage, cf. section 4 no. 7. The provision does not include precipitation. Neither is there any coverage for rainwater or for water leaking from pipelines, or water damage that occurs while the goods are being transported.82 Thirdly, section 4 no. 8 covers total loss of entire packages caused by and during loading or unloading of the insured goods. It does not matter how the goods are damaged, but it must be a result of the loading or unloading operation. Loss caused by precipitation or theft in connection with loading or unloading is therefore not covered by the insurance.83 Lastly, section 4 no. 9 covers loss or damage during “loading, unloading or shifting of the insured goods in a port of distress, and theft or precipitation while the goods are stored” in such port. The fact that “shifting” is also included means that damage and loss that occur in connection with re-stowage of cargo on board the ship will be covered.84 Exclusions, general 12.57 The exclusions are defined in the Cargo Clauses sections 17, 18 and 19, and apply to insurance on the A, B and C clauses. The provision in section 17 regulates the insurer’s liability for deck cargo. In section 18, several excluded risks are listed, whereas section 19 regulates changes in temperature. In accordance with the Norwegian distinction as described above, all these exclusions, which are now considered, are objective in the sense that they are not connected with the acts or omissions of the assured. Exclusion for deck cargo, Cargo Clauses section 17 12.58 Deck cargo is regulated by the Cargo Clauses section 17. The basis for this provision is that, unless specially agreed, the insurer is not liable for the special risks attendant upon the carriage of goods on deck. This provision distinguishes between goods that are insured as deck cargo, and goods insured as under deck cargo.85 If goods are insured as deck cargo and are carried on deck, section 17 paragraph 1 contains four exclusions. The first is an exclusion for loss caused by “precipitation or seawater”. The reason for this exclusion is that deck cargo is particularly exposed to water damage owing to the location of the cargo on board the ship. The second exclusion is damage caused by “dirt or sparks which do not cause a fire”. Damage to deck cargo that is caused by “dirt” is generally excluded because of the special risk of contamination to which deck cargo is exposed. The term “fire” means that the cargo has burned with naked flames. The third exclusion is loss arising from the “shifting of cargo in transit except when the insured goods fall overboard”. The reason for this exclusion is that deck cargo is often more exposed to damage than cargo stored in the hold, since it cannot be stowed or secured in the same manner. The fourth exclusion is loss 82. Cf. further CICG Commentary p. 7 and Hanne Merete Halvorsen, “Vareeiers forsikringsdekning i havn”, MarIus no. 264, Oslo 2000, p. 53. 83. Cf. further CICG Commentary p. 7. The cover is also limited to total loss of entire packages. A “package” is equivalent to the insured unit as specified in the insurance document. 84. Cf. further CICG Commentary p. 8. 85. Cf. to the following CICG Commentary pp. 29–30.

421

12.58

NORWEGIAN CARGO INSURANCE

caused by “confusion with or leakage from other cargo”. The reason for this exclusion is that the risk of holes being made in barrels, casks and the like, or of sacks tearing is greater for deck cargo than for hold cargo. However, these exclusions do not apply if a loss as specified has been caused by a fire or an explosion or by the vessel striking a fixed or floating object, cf. section 17 paragraph 2. 12.59 If the cargo is insured as under deck cargo, but carried on deck, the exclusions in paragraph 1 do not apply, cf. the Cargo Clauses section 17 paragraph 3. The principle here is that the person effecting the insurance neither knew nor ought to have known that the cargo was to be carried on deck. Further, it follows from section 17 paragraph 4 that if goods are transported in a sealed container, they shall be regarded as under deck cargo regardless of whether or not the container in question is carried on deck. Risks excluded, Cargo Clauses section 18 Overview 12.60 The Cargo Clauses section 18 contains a long list of excluded risks. The exclusions have somewhat different character. Section 18 nos 1 and 2 relate to the nature of the goods and exclude inherent vice and ordinary loss in weight or volume, which is common in most cargo conditions. This is addressed in paragraph 12.61 below. Section 18 nos 6–11 relate to war, measures taken by state authorities, capture, release of nuclear energy and chemical weapons. These types of perils are normally treated as war perils in the marine insurance system in Norway. The same holds for section 18 no. 3, which excludes protest actions, terrorism etc. These risks are therefore treated together under the heading war risks, cf. paragraphs 12.62 to 12.66 below. Section 18 no. 4 concerns goods being intended for unlawful purposes and is discussed in paragraph 12.16 above. The last exclusion is found in section 18 no. 5, which concerns delay and is treated in paragraph 12.67 below. Inherent vice and similar risks 12.61 Pursuant to section 18 no. 1, the insurance does not cover loss caused by “the inherent nature of the goods” or “their condition”. The term “inherent nature of the goods” refers to the features characteristic of all goods of the same type – that they are susceptible to spontaneous combustion, decay, mould, etc. The term “condition of the goods” means special circumstances relating to these goods, for example, arising from a production error or stresses to which the goods have been subjected prior to the commencement of the period of insurance.86 Section 18 no. 2 excludes ordinary loss in weight or volume. The term “loss in weight or volume” covers all the ways in which normal shortage can occur during a transit. A specific cause is not required. Examples of causes that may result in such loss are evaporation, leakage and weight loss. What is to be regarded as normal loss in weight or volume must be evaluated in each individual case, taking into account the type of goods and mode of transport.87 86. Cf. further CICG Commentary p. 31. Case no. 7533 (2008) from the Insurance Complaint Board, which concerns damage to the electric device of a wire saw under transport, and where the insurer inter alia claimed that the damage was caused by the nature of the object, demonstrates some of the problems involved in this issue. The case was dismissed because the issue was outside the competence of the board. 87. CICG Commentary p. 32.

422

SCOPE OF COVER

12.65

War and similar risks 12.62 Different kinds of war risks are excluded in section 18 nos 3–11. According to section 18 no. 3, loss and damage caused by “protest actions, riots, strikes, lockout, sabotage, acts of terrorism or similar occurrences” are not covered by the insurance. However, loss or damage to the goods caused by these risks (but not delay in transit) is commonly covered by the standard Special Clause no. 6 for strikes, sabotage, acts of terrorism, etc, included in the Special Clauses section of the Cargo Clauses, cf. section 18 no. 3 last part and the Special Clauses. The exclusion of “protest action” applies regardless of the motive of the action and how it is expressed, but it must prevent the transit from being carried out.88 The term “riots” encompasses unrest or violence in the streets that is directed against the country’s official authorities.89 The term “sabotage” overlaps to a large extent the concept of “terrorism”. An act of terrorism covers primarily the wilful destruction of objects, perpetrated for a political, social or similar purpose.90 12.63 Section 18 no. 6 excludes loss or damage caused by “war or warlike conditions”.91 The term “war” means first and foremost organised use of armed force between states, or between states and groups claiming to have or wishing to assume power, but includes also civil war if there is armed conflict between factions within one and the same nation. The phrase “warlike conditions” is included to avoid the difficulties that may be involved in deciding whether a conflict has developed into actual war. The crucial question is not whether or not war has broken out, but whether warlike measures have been implemented by a state.92 The Cargo Clauses contain no special clause that covers war risks, but Insurance of War Risks may be effected on clauses made by the Central Union of Marine Underwriters. The version used today is dated 2006, and is subject to the Cargo Clauses to the extent these are not departed from. According to the War Risks Conditions no. 1.2, the insurance covers “war or war-like conditions”, and applies regardless of the means of transport. 12.64 Section 18 no. 7 excludes loss or damage caused by “measures taken against the goods by State authorities”. The term “measures” includes, typically, requisition or confiscation, but also temporary retention of the goods for inspection or the like.93 However, the Insurance of War Risks covers, according to no. 1.2, “intervention by foreign State authorities when the intervention or interventions are associated with war or warlike conditions”. The wording is general and includes intervention against the goods if associated with war, and presumes the intervention is made by foreign state authorities. Intervention by own state authorities is not covered by these conditions. 12.65 Section 18 no. 8 excludes loss or damage caused by “Capture at sea, confiscation, requisition and other similar measures [taken] against the means of transport, implemented by State authorities”. A “capture at sea” will occur when the means of transport, for example, a ship, is stopped by the order of a warship or another representative of the state authority 88. CICG Commentary pp. 32–33. Where positive cover is taken out under the Special Clauses, which is commonly the case, delay due to “protest action” is still not covered, see para. 12.67 below. 89. CICG Commentary p. 33. 90. CICG Commentary p 33. The concepts of sabotage and terrorism are further elaborated in the NMIP Commentary s. 2-9(c). 91. CICG Commentary p. 35. 92. CICG Commentary p. 35. 93. CICG Commentary p. 36.

423

12.65

NORWEGIAN CARGO INSURANCE

concerned, and possibly detained for a shorter or longer period of time. “Confiscation” implies that the means of transport has been appropriated without compensation. “Requisition” implies that government authorities have appropriated the means of transport, subject to compensating the owner for the loss he incurs in this connection.94 Similarly, section 18 no. 9 excludes loss or damage caused by “measures hindering the transport operations, implemented by State authorities”. The closing of the Suez or the Panama Canal are examples of situations that would be covered by this provision.95 However, if such interventions are made by foreign state authorities in association with war, they may be covered by the Insurance of War Risks as defined above. 12.66 Section 18 no. 10 excludes loss or damage caused by the “release of nuclear energy”. It does not matter how the release of nuclear energy took place, and it is also immaterial whether the release occurred as a result of civilian or military activity. Finally, section 18 no. 11 excludes loss caused by “Chemical, biological, biochemical or electromagnetic weapons”. The reason for this exclusion is that it is not possible to obtain reinsurance for this type of risk due to the fear of terrorist use of such weapons.96 Loss caused by delay 12.67 According to the Cargo Clauses section 18 no. 5, loss or damage caused by delay is excluded, “unless such delay causes a further deterioration of damage otherwise covered under this insurance during the further transit, or unless a special agreement has been concluded regarding cover pursuant to Special Clause No. 2”. The exclusion for loss caused by delay is general and without regard to the cause of the delay. An example would, if the transit is delayed because the assured or the carrier has chosen a different transport route than usual, or if the delay is related to an underlying sales contract.97 However, only loss “caused by” delay is excluded. If the goods are already damaged before the delay occurs, and the delay causes further deterioration, this will be covered, provided the initial damage is covered by the insurance. The assured may also avoid the exclusion by special agreement, cf. section 18 no. 5 last part and Special Clause no. 2, which covers total loss caused by delay that has not resulted in physical damage to or loss of the goods.98 According to this clause letter (b), delay of the cargo is transformed to total loss if an international transit has been delayed for at least 30 days.99 However, the cover is limited to delay caused by “theft, piracy, damage to other goods carried by the means of transport, or the means of transport onto which the goods are loaded having suffered a casualty, disappeared or been abandoned, or harbours or transit routes having been destroyed or blocked, but not as a result of protest actions, riots, strikes, or similar occurrences, cf. § 18, no. 3 of the Cargo Clauses.”

94. Cf. CICG Commentary p. 36. 95. Cf. CICG Commentary p. 37. 96. Cf. further CICG Commentary p. 37. 97. CICG Commentary p. 34. 98. CICG p. 16. 99. CICG p. 16, Special Clause no. 2 for delay, para. 1.

424

SCOPE OF COVER

12.71

Condensation, Cargo Clauses section 19 12.68 The Cargo Clauses section 19 contains a special exclusion for “Condensation and other effects of changes in temperature”. According to section 19 paragraph 1, the starting point is that the insurer is not liable for loss or damage “caused by condensation or the effects of changes in temperature”. The exclusion applies to changes both in warmer and colder temperatures. According to section 19 paragraph 1 no. 1, such damage is covered, however, if it is caused by “the means of transport or the cargo having suffered a casualty after the goods were loaded into the means of transport”. “Casualty to the means of transport” typically means a collision, as where a vessel runs aground or the like. The expression “cargo having suffered a casualty” refers to any casualty covered by the conditions, which may result in a change of temperature.100 12.69 Pursuant to section 19 paragraph 1 no. 2, the insurer will be liable if the goods are sent by a means of transport or in a container that is unfit for the transit. However, this is subject to the assured’s duty to ensure that the goods are carried by a means of transport or in a container that is suitable for the transit, according to the provisions of section 22, see further paragraph 12.76 below. Pursuant to section 19 paragraph 1 no. 3, the insurer will also be liable if the loss is due to the fact that the carrier has not taken adequate or appropriate measures to ensure that the goods are not exposed to damage in transit. The failure to use sufficient insulating material between the goods and the side of the cargo hold or to ensure adequate ventilation of the cargo holds are examples of inadequate protective measures.101 Finally, under section 19 paragraph 1 no. 4, the insurer is also liable for loss caused by condensation or the effects of changes in temperature, provided the loss is due to fire, lightning or an explosion. 12.70 Section 19 paragraph 2 regulates the position where the goods were carried or should have been carried in a thermo-regulated means of transport or container. In such circumstances, the insurer is only liable for loss caused by condensation, or changes in temperature, if the means of transport has suffered a casualty covered by the major casualties mentioned in the Cargo Clauses section 4 (B clauses) nos 1–3 after the goods were loaded into the means of transport. So far as fire, lightning or explosion is concerned, section 19 paragraph 2 no. 2 provides cover whether or not the goods have been loaded into the means of transport. Pursuant to section 19 paragraph 2 no. 3, the insurer will also cover damage caused by condensation or changes in temperature if the machinery regulating the temperature has suffered a casualty and has been inoperative for a continuous period of at least six hours. Causation 12.71 The basic principle in Norwegian insurance law is that there must be causation between the exposure and the damage.102 As long as either a covered risk or an excluded 100. CICG Commentary p. 38. 101. CICG Commentary p. 38. 102. This is not expressed directly in the A, B and C clauses, which rather define the risks the cargo must be “exposed to”, but corresponds to the expressions used in the exclusions in ss. 17, 18 and 19, which exclude damage “caused by” certain defined perils. The expression “caused by” would, from a linguistic point of view, mean that the covered or excluded peril must be a necessary condition for the damage to or loss of the cargo. This conforms to the condition sine qua non test, which is normally expressed as a starting point for causation in Norwegian insurance law, cf. Bull p. 244.

425

12.71

NORWEGIAN CARGO INSURANCE

risk is the necessary cause of the damage, the issue of causation normally causes no particular problems. However, if the casualty is caused by a combination of a covered and an uncovered peril, the question is to what extent the insurer will be liable even if an uncovered peril has interacted in the chain of events. When coverage is effected on A clauses, this problem arises if an excluded peril interacts with any other peril, as the A clauses provide for all risks cover. If, on the other hand, coverage is effected on B or C clauses, this problem will arise both when a peril named in the B or C clauses interacts with an excluded peril as defined in sections 17 to 19, and when such covered peril interacts with a risk that is neither defined as a covered peril nor as an exclusion.103 12.72 The starting point for causation in Norwegian insurance law when there is a combination of causes, is the dominant cause rule, which conforms in principle to the approach of the proximate cause rule, even if the result will not necessarily be the same. This approach means that one chooses the most dominant among the causes and attributes the whole loss to this cause. In marine insurance, on the other hand, the Marine Insurance Plan104 has, since 1930, chosen an attribution principle instead. This is regulated in the Cargo Clauses section 20 paragraph 1: “If the loss has been caused by a combination of several different risks, and one or more of these risks are not covered by this insurance, the loss shall be apportioned proportionally among the various risks according to the influence which each of them must be assumed to have had on the occurrence and extent of the loss, and the Insurer shall only be liable for that part of the loss which is attributable to the risks covered by this insurance.”

This provision applies to “loss” that is caused by a combination of several different risks. It therefore applies both when two causes in combination result in the casualty, one covered and the other excluded, and when the casualty results from a covered risk that interacts with an uncovered peril and results in a higher loss.105 An example of the first situation is where a loss is caused partly by penetrating seawater due to collision, which is covered by the A, B and C clauses, and partly by the condition of the goods, which is excluded by section 18 no. 1. An example of the latter situation is where goods covered under the B clauses are damaged in a land conveyance collision, and thereafter further destroyed due to rain before they can be salvaged. Rain damage is not covered under the B clauses (unless the goods are stored in a port of distress), and is therefore treated as an excluded risk even though it is not expressly excluded.106 However, the difference between a cause that is neither covered nor expressly excluded and a cause that is expressly excluded in sections 17–19 may be of relevance when applying the attribution principle, cf. below. 12.73 The above rule presumes that the loss is caused by a combination of risks. Even if a risk has been a necessary cause, it may be so insignificant that it is not natural to treat it as a cause in regard to insurance cover. In such cases, the whole loss, that is, 100%, should be attributed to the significant cause and 0% of the loss to the insignificant cause.107 An important factor in this evaluation arises where the excluded peril increases the risk for the casualty of the loss.108 If two perils entail an increased risk for a casualty, the loss should 103. CICG Commentary p. 40. 104. See para. 6.5 above. 105. CICG Commentary p. 40. 106. CICG Commentary p. 40. 107. Wilhelmsen and Bull p. 112. 108. Wilhelmsen and Bull p. 113.

426

DUTY OF CARE

12.75

be attributed to both causes. One may here distinguish between three different situations of combination of causes. The first situation is where two objective concurrent causes occur on the way to the time of the casualty. The second situation is where the loss is a result of a combination of two objective causes in a causal chain in the sense that a new cause interferes in the course of events after a casualty has occurred and results in a further loss. The third situation is where the loss has occurred by a combination of objective perils covered by the insurance and subjective negligence.109 Neither the Cargo Clauses nor the Commentary provides guidelines for the attribution in such cases. However, the Norwegian Marine Insurance Plan section 2-13 contains an identical rule to the Cargo Clauses section 20,110 and several court and arbitration cases based on this provision may provide further guidance on the application of the causation rule in the Cargo Clauses.111

DUTY OF CARE Safety regulations: what constitutes a safety regulation in the Cargo Clauses? 12.74 A safety regulation in Norwegian insurance is defined as a measure for prevention of loss. The concept of a “safety regulation” is defined in the Cargo Clauses section 21 paragraph 1 and sections 22 to 24. The concept may be divided into three parts: safety regulations issued by public authorities, safety regulations according to the Cargo Clauses and regulations otherwise laid down by the insurer. Issued by public authorities 12.75 It follows from the Cargo Clauses section 21 second sentence that for international transport “all regulations and injunctions concerning measures for the prevention of loss, issued by public authorities, shall be regarded as safety regulations”. Thus, the purpose of the regulation or mandatory requirement is determinative. It must have been issued with a view to preventing loss or damage for which the insurer is liable. If the regulation or requirement has other purposes, it does not constitute a safety regulation. Statutory legislation contains, for instance, a number of mandatory rules regarding the packing, marking and securing of (hazardous) goods in transit. These rules, laid down by government authorities, will constitute safety regulations, but only insofar as they are intended to prevent damage to the goods themselves. Official rules laid down to safeguard the environment, on the other hand, will not qualify as a safety regulation in this context.112 The term “government authority” is not tied to any particular country. Thus, it covers not only the authorities of the country from which the goods were sent and the country in which they were received, but also authorities of the countries through which the transit passes.113

109. CICG Commentary p. 40; Wilhelmsen and Bull pp. 114–115. 110. The Norwegian text is identical, but the English text is slightly different. The content is, however, meant to be identical. 111. Wilhelmsen and Bull pp. 114–115. 112. CICG Commentary pp. 44–45. 113. CICG Commentary p. 42.

427

12.76

NORWEGIAN CARGO INSURANCE

Special rules in the Cargo Clauses 12.76 The Cargo Clauses contain special safety regulation provisions in sections 22 to 24. According to section 22, the assured shall ensure that “the goods are carried by a means of transport or in a container that is suitable for the transit”. The reason for the clause is that the insurer must be able to proceed on the assumption that the transit will be effected using suitable means of transport. Thus, the provision has an important preventive function.114 Section 23 contains a detailed regulation on marking and packing of the goods. The reason for this clause is to ensure that the goods reach their destination, that they are properly handled on the basis of the requirements that must be set for the handling of this type of goods in the transit in question, and that they will be able to withstand normal, foreseeable stresses of transport.115 Section 23 paragraph 1 requires that certain information “shall be clearly indicated on each package”. Such information includes “The name and address of the shipper and the consignee” (no. 1), “Which side of the package is ‘up’ or ‘down’” (no. 2), “The degree of danger of hazardous goods, indicated by international symbols” (no. 3), “The centre of gravity of the package” (no. 4) and “Lifting instructions” (no. 5). Paragraphs 2 and 3 relate to the marking of the goods, while the provision of paragraph 4 requires them to be “packed, packaged and protected to enable them to withstand ordinary, foreseeable stresses during transport”. 12.77 Section 24 provides additional requirements for thermo-regulated means of transport, relating to temperature and the securing of the transport. According to section 24 no. 1, thermo-regulated means of transport shall have attained the temperature required for the transit before the goods are loaded into it, and the shipper shall, as far as possible, order the carrier to monitor the temperature every third hour during the transit. Section 24 no. 2 requires that the temperature of the goods at the time of loading shall be the same as the transit temperature, and the loading and transit temperature shall be stated in the waybill. According to section 24 no. 3, the shipper shall, prior to commencement of the transit, if possible, “ensure that the cargo hold or container has no holes and does not leak, that the cargo hold or container has been cleaned and is odourless, and that doors and packing are sealed”. Section 24 no. 4 states that “goods shall be stowed so compactly that they are prevented from slipping, but not such as to block the circulation of air, especially under the ceiling, down along the doors and back along the floor”.116 “Laid down by the insurer” 12.78 According to section 21 paragraph 1, the insurer may lay down other safety regulations than those mentioned in the Cargo Clauses sections 22 to 24. Such regulations will then be included in the individual policy. In particular, it may be mentioned that the Cargo Clauses do not stipulate any special requirements regarding quality assurance systems. As the lack or incomplete quality of assurance systems may sometimes be the reason for mistakes on behalf of those in charge of making the actual and practical arrangements for the transport, the insurer may be advised to include this as a safety regulation.117 114. CICG Commentary p. 43. 115. CICG Commentary p. 44. 116. Cf. further CICG Commentary p. 46. 117. See as an example of a safety regulation laid down by the insurer the case reported in Rt. 2004.1545, cf. para. 12.79 below.

428

DUTY OF CARE

12.81

Safety regulations: breach 12.79 The situation where the assured has breached a safety regulation is regulated by the Cargo Clauses section 21 paragraph 2. In such cases, the “Insurer shall only be liable to the extent that it is proved that the loss is not a consequence of the infringement or that the infringement cannot be imputed to the Assured”. The expression “imputed to” does not define how the assured’s actions or omissions shall be described, but according to the Commentary, the assured “must be to blame for the infringement”.118 Simple negligence will suffice. An example of breach of a safety regulation is found in Rt. 2004.1545, where a car containing about NOK 3.5 million was robbed. The transport insurance contained a safety regulation requiring such a transport to be performed by two persons. At the time of the robbery, only one person was in the car. The parties agreed that the breach was grossly negligent. Further, there must be a causal connection between the infringement and the damage sustained. The way this condition is worded, the assured has the burden of proving that there is no causal connection between the loss and the breach. This means that once a breach is established, causation is presumed.119 The assured causes the casualty 12.80 The situation where the assured causes the casualty himself is regulated partly by the Cargo Clauses and partly by the ICA. The Cargo Clauses only regulate the insurer’s right to cancel the insurance. The right to be freed from liability for casualties caused by the assured is regulated by the ICA section 4-9. This regulation makes a distinction between deliberate actions, gross negligence and ordinary negligence. The concept of wilful misconduct is not used in the Norwegian system. In case of ordinary negligence, the insurer is fully liable, and he may not cancel the contract.120 If the assured has acted with intent or gross negligence, on the other hand, the regulation is stricter. According to the ICA section 4-9 paragraph 1, the insurer is not liable if the assured deliberately brings about the casualty. The insurer may also cancel the insurance with one week’s notice, cf. the Cargo Clauses section 58, which provides for cancellation by one week’s notice in international transits where the assured has wilfully brought about a casualty or caused a casualty through gross negligence.Under the ICA, if the assured has caused the casualty through gross negligence, the insurer’s liability can be reduced or cease. The court’s decision will give weight to the degree of blame, the sequence of events leading to the damage, whether the insured party was in a self-inflicted intoxicated condition, and other circumstances. Identification of the “assured” The problem 12.81 The rules with regard to safety regulation and gross negligence are addressed to the “assured”. According to these rules, acts or omissions by a person other than the assured are not relevant. The question is, therefore, to what extent the insurer may invoke failures to comply with these rules made by other parties. In Norwegian insurance law, this issue is 118. CICG Commentary p. 42. 119. Cf. further CICG Commentary p. 45. 120. ICA s. 4-9 para. 3; CICG s. 58.

429

12.81

NORWEGIAN CARGO INSURANCE

solved through rules on identification,121 which are found in the Cargo Clauses section 10. This provision makes a distinction between the identification between the assured and his helpers, cf. paragraph 12.82 below, and identification between the assured and the person effecting the insurance or a former owner of the goods, cf. paragraph 12.83. Lastly, the provision provides for an extended identification in regard to certain safety regulations, cf. paragraph 12.84 below. Identification between the assured and his helpers 12.82 The provision in the Cargo Clauses section 10 paragraph 1(a) regulates identification between the assured and his helpers, and defines two criteria to be decisive for the right to identification. The first criterion is that the person responsible for the infringement must have management functions. Responsibility for management functions will normally differ depending on the size of the company in question. The other criterion is that the person concerned must be responsible for the transport of the goods. While the first criterion refers to the position of the individual within the organisation, the second entails an objective specification of the person’s tasks. This criterion could fit several persons – particularly in large companies – depending on the way the company is organised. In the department of the company responsible for arranging the transport, this will include everyone with authority to determine the transport (e.g., decide the means of transport, route, guidelines for packing, marking, etc), while persons responsible only for the practical implementation of such decisions will not be included.122 It follows from this that the insurer may not invoke acts or omissions made by personnel other than those with authority to determine the transport. Thus, if faults are made by employees at a lower level, the insurer will be fully liable. The assured and the person effecting the insurance/former owner 12.83 The Cargo Clauses section 10 paragraph 1 letter (b) determines what significance the acts or omissions of the person effecting the insurance, and the former owner of the goods, have for the assured’s right to compensation. If the management personnel mentioned in letter (a) effects the insurance, the two provisions will overlap. Under paragraph (b), the insurer may, in respect of the assured, plead that the right to compensation has been forfeited wholly or partly as a result of an act or omission by the “person effecting the insurance or former owner”. A former owner will often be identical to the person effecting the insurance, for instance when the seller arranges for insurance under a CIF agreement. However, the two persons may also be different, such as when a forwarder arranges for insurance and thus is the person effecting the insurance. The term “former owner” is general and covers any former owner. If the goods are sold several times during transport, the intermediate owners will also be covered by this provision. According to section 10 paragraph 1 letter (b) second sentence, it is not conclusive whether the former owner was

121. According to the ICA s. 4-11 para. 3, the insurer may insert clauses on identification in the insurance conditions, but the Act itself contains no general rules on this issue. The insurer’s right to invoke failures by other persons than the assured must, therefore, be expressly defined in the CICG. 122. CICG Commentary p. 16.

430

PREMIUM

12.85

the formal owner of the goods at the time the act was undertaken or the omission occurred, as long as the consignment of goods was actually at his disposal at the time in question. Extended identification in case of certain safety regulations 12.84 The Cargo Clauses section 10 paragraph 2 contains a special rule of identification in cases where there has been a breach of one of the safety regulations found in sections 22, 23 and 24, or of a safety regulation laid down especially by the insurer pursuant to section 21 and incorporated in the insurance policy. In this case, the scope of identification is extended to cover acts or omissions by persons other than those specified in section 10 paragraph 1, that is, those who have been engaged to organise the transport. Thus, this provision primarily concerns forwarders, agents and the like, who enter into contracts of carriage with carriers, etc on behalf of the assured. However, as only the persons engaged in the organisation of carriage are covered, the carrier himself and persons employed by him do not fall within the scope of the provision. If the forwarder has a dual function – both organising and effecting the transport – identification of the forwarder as the “assured” can only be made in respect of acts or omissions related to the organisation stage. Responsibility for organising the transport usually rests with management personnel employed by the forwarder, etc. The arbitration award recorded in ND 1999.352 NA illustrates this problem. In this case, the freight forwarder had subcontracted the carriage to another company with which it collaborated, and whose export supervisor was in charge of organising the transport. He chose a packing method that was not adequate and that was contrary to the safety regulation in the Cargo Clauses section 23 paragraph 4. When the sculpture was damaged during transport due to the inadequate packing, the assured was identified with the export supervisor concerned pursuant to section 10 paragraph 2 and the claim failed.

PREMIUM 12.85 The Norwegian Cargo Clauses, as such, do not contain provisions for payment of premium, but some rules of relevance are found in policies for single shipments and standing insurance contracts123 and in the contractual terms relating to open cover and floating policies for the carriage of goods, which are appended to the Cargo Clauses. If the insurer has made payment of premium a condition for the attachment of his liability, the premium has to be paid by the date specified in the notice of payment due.124 If such a condition has not been made, the premium falls due when demanded in accordance with the insurance contract, but the time limit for payment shall be not less than one month after the notice was sent to the person effecting the insurance, cf. the ICA section 5-1. If the premium is not paid by the given time limit, the insurer, in order to avoid liability, must send another notice of payment due with a payment period of at least 14 days, stating clearly that the insurance will terminate unless the premium is paid within the stipulated time limit, cf. the ICA section 5-2 paragraph 1. As for floating policies, detailed rules on the calculation of premium

123. Specimen policies are found as an attachment to the Cargo Clauses themselves. 124. Policy for single shipments, s. 12.2, and ICA, s. 5-1 ab initio.

431

12.85

NORWEGIAN CARGO INSURANCE

are set out in the contractual terms appended to the Cargo Clauses section 5. Rules on the payment of premium where a standing insurance contract125 is terminated during the period of insurance are to be found in the policy for such contract section 11.

CLAIMS AND SETTLEMENT Total loss 12.86 The Cargo Clauses section 35 contains rules regarding total loss. Paragraph 1 defines when a total loss can be regarded as having occurred, and paragraph 2 regulates the insurer’s liability for compensation in case of a total loss. Section 35 spells out in some detail when a total loss can be seen to have occurred. The provision operates with four different situations: pursuant to section 35 paragraph 1 no. 1, a total loss occurs when the “entire”126 consignment has been “destroyed”. The expression “destroyed” covers situations where the consignment has been totally burned out, dissolved, evaporated or leaked out, or has been completely destroyed in some other way.127 12.87 Under section 35 paragraph 1 no. 2, there is also a total loss where “the Assured is deprived of the entire consignment of goods with no possibility of retrieving it”. The expression “deprived of” covers situations when the assured cannot dispose of the goods physically, because the vessel in which they were carried has sunk or because they have been stolen or confiscated, delivered to a wrong recipient at the final destination or sold by the carrier en route.128 According to this clause, there shall be “no possibility” for the assured to retrieve the goods, but the Commentary makes it clear that no such certainty is required: “If the assured has been deprived of the consignment for a certain period of time and there are no definite indications that he will retrieve it, it must … be regarded as totally lost”. The relevant time span will have to be decided on an individual basis.129 12.88 Under section 35 paragraph 1 no. 3, there is a total loss if the transport to the contractual place of delivery has been cancelled according to the Cargo Clauses sections 27 or 28. Respectively, these provisions give the insurer and the assured the opportunity to demand that the transport be abandoned under certain circumstances. 12.89 Finally, section 35 paragraph 1 no. 4 contains a provision on constructive total loss, whereby the assured may claim for total loss if “the entire consignment of goods has been so severely damaged that at least 90 per cent of the value must be deemed to be lost”. For special types of goods, which may be identified under the label “brand name” products, the relationship between the damage percentage in the Cargo Clauses section 37 paragraph 2, the condemnation rule in section 35 paragraph 1 no. 4 and the insurer’s right to dispose of the goods under section 52 (subrogation) paragraph 2 may create difficulties. 125. Comprising open cover, floating policies and time policies. 126. CICG s. 36 contains a separate provision on shortage, which makes s. 35 applicable where only a part of the consignment has been totally lost. 127. The CICG Commentary p. 55 seems to presuppose that the consignment has to be physically destroyed. In case no. 6705 (2007), the Insurance Complaint Board found that the expression would also cover loss of goods in a commercial sense, where the goods can no longer be used for their original purpose. 128. CICG Commentary p. 55. 129. CICG Commentary p. 55. In case no. 6567 (2007) from the Insurance Complaint Board (see para. 12.17 above, for a presentation of the facts), the board found that since the assured as owner would be able to claim the insured object from the third party, the conditions for claiming for a total loss against the insurer were not met.

432

CLAIMS AND SETTLEMENT

12.92

Even with only minor damages, the assured may argue that the goods are impossible to sell in the ordinary market and claim a high damage percentage, see paragraph 12.93 below. The conflict of interest between the assured and the insurer may be further accelerated if the assured instead asks for total loss compensation, based on the rules on condemnation. Moreover, the situation may become extremely difficult if the insurer at a later stage finds himself in a position where the assured takes a negative attitude to the insurer’s right to dispose of the condemned goods, arguing that such a right will pose a problem for him in the market, see paragraph 12.105 below. Neither the Cargo Clauses nor the Commentary offer any definitive answers to this complex problem. Instead, the Commentary contains mild advices that the parties – when deciding the question of condemnation – should simultaneously decide upon the question of the insurer’s right to dispose of the goods.130 12.90 If the assured has a right to claim a total loss of the goods, the insurer “shall be liable for the sum insured of the insured goods, but not in excess of their insurable value”, cf. section 35 paragraph 2 first sentence. No deduction shall be made in the compensation for any damage sustained during the period of insurance. This applies whether or not the damage is covered by the insurance.131 On payment of a claim for total loss, the insurer will have a right, but not a duty, to take over the (remains of) the goods. When a part of the insured consignment has been totally lost, section 36 paragraph 2 first sentence provides that the insurer will be liable for that proportion of the sum insured of the entire consignment that corresponds to the proportion of the goods that have been lost. The expression “part” will cover a deficiency in numbers, in weight and in volume. 12.91 So-called “paper shortages” raise particular problems. The assured is clearly not entitled to claim for a paper shortage, which comes to light when the transport document, typically the bill of lading, shows a higher number of goods than the number recorded on unloading, without there being any indications that an insured event has occurred during transit. However, the insurer might find himself in a position where he is unable to establish that the goods did not disappear during the transport and be forced to cover the paper shortage.132 Damage 12.92 When insured goods have suffered damage during the period of insurance, the starting point in the Cargo Clauses section 37 is the right of the insurer to request that the damage is repaired. In return, the costs of repair are reimbursed as they are incurred, see paragraph 1 first sentence. The assured may not claim a cash payment if the insurer insists on repair. On the other hand, the right to request repair is an exclusive right of the insurer, and not a right the assured may invoke. The concept of “repair” implies that the goods are brought back to the state and standard they had before the damage occurred.133 The insurer’s right to demand repair is not unconditional. Repairs may not be requested if this

130. See CICG Commentary p. 56. 131. This rule differs from the solution for pre-transport damage, which reduces the insurable value of the goods and, consequently, the amount of damages payable to the assured. 132. See CICG Commentary p. 4. 133. See CICG Commentary p. 58. However, no details are given as to how the repair costs are to be calculated and what costs are included in the concept. See case no. 7533 (2008) from the Insurance Complaint Board for some guidance on the last point.

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alternative “results in unreasonable loss or inconvenience” for the assured, see section 37 paragraph 2. In establishing whether repairs would have such unreasonable effects, due consideration should be made to the length of time such repairs will take and whether it will unreasonably interfere with the assured’s production or storage facilities.134 12.93 Two specific problems should be highlighted. First, for “brand name” products, any uncertainty relating to the quality of the goods may have a negative impact on the reputation of the product in the market. Secondly, for packaged goods, the problem may be that the goods themselves are unharmed, but the packaging is damaged or destroyed. For mass-produced goods in standard packages, the insurance will normally include damage to the packaging, but repairs to the packaging will often not be a viable solution. In both the situations mentioned, the parties may find that the only practical solution to the problem is to give the assured cash compensation in accordance with the rules in section 37 paragraph 2.135 12.94 If damaged goods are not repaired, either because the insurer is not entitled to demand such repairs, or chooses not to exercise his right, the assured may claim for a payment in cash, see section 37 paragraph 2. The same applies where complete repairs cannot be carried out. Such cash payment will be based on the damage percentage of the goods, which is set at “a percentage of the insurable value of the damaged goods which corresponds to the final depreciation in their value”. In contrast to cargo insurance conditions in some other countries, the provision does not contain any detailed rules as to how the damage percentage should be calculated.136 When the damage percentage has been decided, the liability of the insurer will be the product of the damage percentage and the insurable value.137 12.95 Although it would have been possible to let a single damage percentage apply to all the insured goods for a specific transport, this is not the solution under the Norwegian cargo conditions. The Cargo Clauses section 47 paragraph 2 provides for a grouping of the damaged goods prior to the survey of the damage, based on the nature and extent of damage. Such a grouping opens the way for a separate damage percentage to apply in each group, with the consequence that the damage percentage may be higher in some groups than in others, and that it will be possible to claim for a total loss according to section 35 paragraph 1 no. 4 (constructive total loss) in one or several of the groups. 12.96 The provision in section 37 paragraph 2 provides the assured with a claim for cash compensation for the damage incurred, and the right to retain ownership of the damaged goods, and thereby the possibility to decide their future. However, the assured loses his right to direct how the damaged goods should be treated if the damage percentage for goods intended for resale is assessed at 50% or more in the survey of damage. In such a case, the insurer may demand that the goods are sold and decide the sale procedure.138 If the damaged goods are perishable, the insurer is given an even more far-reaching right: he 134. See CICG Commentary p. 58. 135. See CICG Commentary pp. 58–59. 136. The solution has been criticised, see Johansson pp. 442–443. The CICG Commentary p. 59 indicates that depending on the circumstances, the percentage may sometimes be determined on the basis of a “fairly free assessment”, while at other times assistance may be found in “various types of indicators, such as stock exchange listings or price regulations” for the value of the goods in an undamaged condition, and sales prices for the damaged goods. 137. In case of underinsurance, the provision in CICG s. 30 will have to be applied. 138. See s. 37 para. 3 first sentence.

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12.101

may then request sale without the final survey report being available, and without regard to the damage percentage being less than 50%.139 However, the insurer’s option to demand sale of the damaged goods is subject to an important limitation – he is obliged to take due account of the interests of the assured.140 12.97 Where damaged goods subsequently suffer a total loss, the assured will not be entitled to claim compensation for the damage incurred if an insurer pays him compensation for the total loss without deducting the partial damage.141 12.98 In the event of damage to or loss of a part of a complete unit (object), the insurer will only be liable for the repair or the replacement of that part, even if it is essential that the unit/object is complete, cf. section 38. Until 2004, section 38 only applied to loss of or damage to a part of a machine, or other similar object, consisting of several parts. This was revised because it gave rise to problematic borderline cases. Notice of claim: duty to minimise loss 12.99 If an insured event has occurred, the assured has a duty to inform the insurer without undue delay, cf. the ICA section 4-10 paragraph 3. If there is an imminent danger that an insured event will occur, or when an insured event has occurred, the assured shall also take any action that may reasonably be expected of him to avert or minimise the loss, cf. the ICA section 4-10 paragraph 1. The assured must also secure claims against third parties in circumstances where the assured must appreciate that the insurer may have a claim for recourse against such third parties without being in a position to protect his own interests, cf. paragraph 2. If the assured through intent or gross negligence fails in his duties, and this results in loss or damage to the insurer, the liability of the insurer for the loss or damage suffered by the assured may be reduced or extinguished, cf. the ICA section 4-10 paragraph 4. Salvage charges and general average 12.100 If the assured, or someone on his behalf, has taken action to avert or minimise loss or damage to the insured goods and, as a consequence, incurred expenses or losses, such costs may be recovered from the insurer under the provisions on salvage charges, cf. the Cargo Clauses section 39, or general average, cf. section 40. The provision on salvage charges is based on the general principle laid down in the ICA section 6-4, which is applicable to all types of insurance. The provision on general average is particular to marine insurances of vessel and goods, and requires that the actions taken were for the common safety or, in distinct situations, for the common benefit of these two interests. 12.101 Salvage charges and general average contributions are covered in addition to the compensation provided under the ordinary scope of cover of the cargo insurance, cf. the 139. See s. 37 para. 3 fourth sentence. In both instances, the compensation shall be fixed at the difference between the insurable value – or the sum insured, if that is lower – and the price obtained from the sale of the goods, see s. 37 para. 3 second sentence. 140. See s. 37 para. 3 fifth sentence, with reference to s. 52 para. 2 and the insurer’s obligation to take due account of the interests of the assured when disposing of goods he has been subrogated to on payment of a claim for total loss or shortage. 141. See s. 37 para. 4 no. 1. Number 2 prescribes the same solution where the total loss is not recoverable under any insurance.

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Cargo Clauses section 6 paragraph 2.142 Such charges/contributions are also covered in excess of the sum insured, cf. section 33 no. 1. No deduction for any agreed deductible shall be made in the compensation provided for these charges/contributions.143

SETTLEMENT PROCEDURES Investigating the claim 12.102 During settlement of the claim, the assured has a duty to provide the insurer with documents and information that are available to him and necessary for the insurer to assess his liability and pay compensation, cf. the Cargo Clauses section 45 paragraph 1. The assured cannot restrict himself to answering inquiries from the insurer correctly, but must provide, on his own initiative, all relevant material. If the assured has not provided the insurer with the relevant and correct information, the settlement will be delayed and the assured will lose his right to claim interest for the time lost, cf. the Cargo Clauses section 49 paragraph 2. If the information given is not complete or correct, the assured may be liable in tort for any loss the insurer may have suffered as a result.144 12.103 If the assured in the claims settlement intentionally provides incomplete or incorrect information that he knows or must understand may result in his receiving compensation to which he is not entitled, he shall forfeit any and all claims under this or any other insurance contract with the insurer, provided the claim arises from the same event, cf. the Cargo Clauses section 46. The provision will apply even if the assured did not have the intention to gain from his act, but such intent will normally be the case. Evidence of claim 12.104 Where the assured and the insurer are in disagreement as to whether an insured event has occurred or not, the assessment under Norwegian law – be it by a surveyor, a judge or an arbitrator – is based on a free evaluation of all relevant facts, where the most probable alternative is to be elected.145 Only where none of the alternatives are seen as more probable and convincing than the other, the rules on burden of proof will come into play, cf. the Cargo Clauses section 8. According to paragraph 1, the burden of proving that he has suffered a loss that is covered by the insurance falls upon the assured, as does the extent of the loss. On the other hand, the burden of proving that a loss has been caused by a risk that is excluded by the insurance conditions falls upon the insurer, cf. section 8 paragraph 2.

142. There is one exception to this rule with regard to salvage charges: if the insurance covers an international transit, the insurer shall not be liable for the assured’s liability for loss caused to a third party, cf. CICG s. 39 second sentence. 143. CICG Commentary pp. 64–65 and p. 67. 144. CICG Commentary p. 69. 145. CICG Commentary p. 10.

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12.107

Abandonment of goods 12.105 On payment of a claim for total loss or shortage, the insurer will be subrogated to the assured’s right to the goods for which the claim has been paid, cf. the Cargo Clauses section 52 paragraph 1 first half of first sentence.146 However, the insurer may choose to waive his right to the goods and thus abandon them to the assured, but such waiver must take place not later than at the time when payment is made, cf. section 52 paragraph 1 second half of first sentence. Having been subrogated to (the remains of) the goods, the insurer is, in principle, free to dispose of them in the manner he sees fit in order to obtain the best possible economic result for himself. However, section 52 paragraph 2 introduces restrictions on the insurer: he is obliged to take due account of the interests of the assured. This will be a particular problem when the goods are “brand name” products, and where the assured, eager to protect his reputation, may argue that the goods should not be resold. Sometimes, a ban on sale by the authorities may assist him – broken packaging for goods like pharmaceuticals and medical equipment are illustrative examples. At other times, the interests of the assured may be protected by rendering the goods anonymous or by selling them in another market or segment of the market. If resale is at all possible, it is hard to see that the assured will have a right to oppose it.147

SUBROGATION Subrogated recoveries 12.106 If the assured has a claim against a third party, the insurer is, on payment of the claim, subrogated to the assured’s right against the third party, cf. the Cargo Clauses section 53 paragraph 1 first sentence.148 The second sentence of section 53 paragraph 1 explicitly states that this shall apply also where freight forwarders, carriers, etc are the persons effecting the insurance.149 If the insurer’s claim against the third person produces a net amount in excess of what the insurer has paid the assured, the assured shall be entitled to the excess, cf. section 53 paragraph 3. Insurer’s right to assistance and cooperation from the assured 12.107 The Cargo Clauses section 54 paragraph 1 first sentence requires the assured to “take any steps necessary to maintain and secure the claim until the Insurer himself can attend to his interests”. First and foremost, this duty relates to reporting claims and securing evidence, but the assured may also have to avail himself of expert technical and legal assistance, see second sentence. Since the insurer is entitled to acquaint himself with all

146. In case of underinsurance, the insurer will only be subrogated to an ideal part of the goods corresponding to the part that has been indemnified, cf. CICG s. 52 para. 1 second sentence, which refers to CICG s. 30. 147. CICG Commentary p. 76, where it is pointed out that a protest from the assured based on the argument that such a sale would compete in the market with his own products can hardly be of relevance. 148. In case of underinsurance or deductibles, the claim shall be divided between the assured and the insurer, cf. CICG s. 53 para. 2 first sentence. 149. Under the Cargo Insurance Plan 1967, cf. para. 6.5 above, this was solved differently, see ND 1966.56 NA.

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documents and other evidence even before he takes over the claim,150 the assured has a duty to assist him with the necessary information. In whose name are recovery proceedings taken? 12.108 As a general rule under Norwegian law, insurers are not entitled to pursue the claim against a third party in the name of the assured.151 The question is not regulated by the ICA or the Cargo Clauses.

DAMAGES AND LIMITATION Damages for delay in payment by insurers 12.109 Under Norwegian law, the assured is entitled to interest on his outstanding claim against the insurer, cf. the ICA section 8-4. The Cargo Clauses section 49 have adopted the same principle for insurance of goods in international transit. As to the period from when interest begins to run, the assured is entitled to interest on his claim as from the expiry of two months from the day that notification of the casualty was sent to the insurer, cf. section 49 paragraph 1 first sentence. This rule will apply where the assured has a claim for cash compensation, as in the case of a total loss. If the insurer is liable for expenses incurred by the assured, interest on reimbursement of expenses shall accrue as from two months “at the earliest” after the day the expenses were incurred, cf. section 49 paragraph 1 second sentence. As for the rate of interest, section 49 paragraph 3 contains a reference to the Act on Interest on Delayed Payment152 section 3, where paragraph 1 sets out that the rate will be decided by the Ministry of Finance on a semi-annual basis. As per August 2012, the rate has been stipulated to 8,50% pro anno.153 If the assured has suffered loss of interest or other financial losses, which are not covered by the interest due under section 49, such losses may be covered under special circumstances.154 Time limitation for commencement of proceedings against insurers 12.110 The Cargo Clauses do not contain provisions on time limitation. The relevant rules are found in the special rules in the ICA sections 8-5 and 8-6, and in the general Norwegian Act on Limitation Periods for Claims.155 In practice, most questions related to limitation period for claims in insurance matters are solved through the provision in the ICA section 8-5. The assured will forfeit his right to compensation if his claim has not been submitted to the insurer within one year after the assured became aware of circumstances on which it is founded, cf. paragraph 1. If the claim has been presented to the insurer – but 150. See CICG s. 55 first sentence and CICG Commentary p. 81. 151. See first and foremost on this point Rt. 1969.1032 Appeal Committee NSC. In practice, parties seem to accept that recovery proceedings are taken in the name of the assured. 152. Act 17 December 1976 no. 100 relating to Interest on Delayed Payment, etc. 153. See Regulation 21 June 2012 no. 565 relating to Interest on Delayed Payment, in force as from 1 July 2012. 154. See CICG s. 49 para. 3 with reference to the Act relating to Interest on Delayed Payment s. 3 para. 3. 155. Act 18 May 1979 no. 18 relating to Limitation Periods for Claims.

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12.111

rejected – the assured will forfeit his right to compensation unless legal action is brought within six months after the assured received notification in writing of the rejection, cf. the ICA section 8-5 paragraph 2 first sentence.156 12.111 If the rules in the ICA section 8-5 do not apply, first and foremost because the assured is not aware of circumstances on which the claim is founded, the limitation rules in the ICA section 8-6 will come into play. These are, to a large extent, based on the general principles laid down in the Act relating to limitation periods for claims. A claim for compensation shall be statute barred after three years, commencing at the end of the calendar year in which the assured acquired necessary knowledge of the circumstances upon which the claim is founded, cf. the ICA section 8-6 paragraph 1 first and second sentences. However, regardless of the assured’s knowledge, the claim will always be time barred 10 years after the end of the calendar year when the insurance event occurred, cf. paragraph 1 third sentence.

156. The time limit for taking legal action will apply even where the assured and the insurer start discussions on the merit of the claim, unless the insurer has positively indicated that the six months’ limit is not to be applied, see as examples from cargo insurance case nos 6921 (2007), 6369 (2006) and 3929 (2001) from the Insurance Complaint Board.

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CHAPTER 13

T H E P E O P L E ’ S R E P U B L I C O F C H I N A L AW A N D P R AC T I C E Liu Guiming, Liang Jian and Cai Dongdong1

INTRODUCTION: LEGAL SOURCES Sources of Chinese law Statutory law 13.1 As China is a typical civil law country, statutory law is the main legal source for cargo insurance. The Insurance Law,2 which was legislated in 1995 and amended twice in 2002 and 2009, is a comprehensive law in the field of insurance that covers every aspect of insurance, ranging from life and property insurance contracts to regulations or rules in respect of insurance business applying to insurers, agents, brokers as well as regulatory bodies. Having realised the important and unique characteristics of marine insurance, the Chinese legislator enacted the Maritime Code, effective 1 July 1993, having an insertion, Chapter 12 “Contract of Marine Insurance”, even before the Insurance Law 1995. This chapter applies to contracts of marine insurance whereby “maritime perils”, including “perils occurring on inland rivers or on land which are related to a maritime adventure”, are covered.3 As legislators of the same level produce both the Insurance Law and the Maritime Code, the latter would take precedence over the former when it comes to marine insurance, and the former only steps in if no specific rule under the latter can be referred to.4 Due to the split between the Insurance Law and the Maritime Code, some of the legal rules for marine and non-marine insurance are different to some extent, and these will be pointed out as appropriate in this chapter. It should also be mentioned that there are two more general statutory laws, the Contract Law and the General Principles of the Civil Law, applicable to cargo insurance, although they do not operate very often. Judicial interpretations 13.2 Formal “judicial interpretations” are issued by the judicial authorities, especially the Supreme People’s Court, from time to time to address uncertain legal issues existing in judicial practice. Whether judicial interpretations can be regarded as a legal source is debatable academically, but this rarely becomes a real issue in judicial practice. The Chinese court system has a strict hierarchical structure and, in such a system, a lower court would be likely to follow legal opinions, orders or guidelines from the higher court; therefore, 1. Liu Guiming, founder and Managing Partner of GL & Co, Law Firm, Shanghai; Liang Jian, Senior Associate, GL & Co and Cai Dongdong, Associate with GL & Co. 2. References in this chapter to the “Insurance Law” are to the Insurance Law amended in 2009 unless the Insurance Law 1995 or the Insurance Law 2002 are specifically referred to. 3. The Maritime Code, Art. 216, para. 2. This echoes the similar provisions of English law in the MIA 1906 s. 2(1); see para. 3.4 above. 4. The Insurance Law, Art. 184.

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judicial interpretations are valued as an important as well as a practical legal source by the courts. To date, there have been two important sets of judicial interpretations in relation to insurance issued by the Supreme People’s Court. The first is Provisions of the Supreme People’s Court on Several Issues about the Trial of Cases concerning Marine Insurance Disputes (the “Marine Insurance Provisions”), published at the end of 2006 and taking effect on 1 January 2007. The Marine Insurance Provisions has 17 articles and addresses disputes arising out of marine insurance. The second judicial interpretation is Interpretation I of the Supreme People’s Court on Several Issues concerning the Application of the Insurance Law of the People’s Republic of China (the “Interpretation I”), published and taking effect not long after the amendment to the Insurance Law in 2009. The Interpretation I consists of six articles and deals with insurance contracts made before the Insurance Law took effect but performed after that time. Less formal judicial interpretation may also take the form of a “replying letter” or “approval letter” issued by the Supreme People’s Court upon a request from the lower court for clarifying a particular issue being considered difficult to determine. In addition, the regional High People’s Court in China may publish its own “guiding opinions” consisting of a series of detailed rules with regard to one particular area of law for its lower courts’ reference. As the latter two types of judicial interpretation are less formal and limited to a particular issue or region, the binding effect is sometimes open to question. Judgments and arbitral awards 13.3 Court judgments and arbitral awards are not considered as legal sources as China adheres to the civil law system.5 However, in practice, practitioners frequently make reference to judgments or awards as precedents, either in part or in whole, in order to support their arguments or deny their opponents’ allegations. Judgments or awards can never function as true binding precedents, but may be quite persuasive in the decision making of judges or arbitrators when no specific rule in relation to the disputable issue of concern can be referred to. Therefore, the relevant court judgments and arbitral awards will be cited throughout this chapter in order to demonstrate how the Chinese courts interpret the law. Administrative regulations, rules and orders 13.4 The China Insurance Regulatory Commission, subordinate to the State Council, is the governing body of the insurance industry. This body is not a legislator, but under delegated authority issues administrative regulations, rules and orders from time to time to ensure that the Chinese insurance market functions soundly and steadily. These regulations, rules and orders rarely deal with any specific issues arising between the insurer and the assured; nonetheless, the insurer must comply with them so that their business is conducted legally and properly.

5. At the end of 2010, the Supreme People’s Court instituted a new reform in order to establish a guiding cases system, similar to case law. According to such system, guiding cases published by the Supreme People’s Court can be binding and referred to in court judgments. However, so far, no guiding case is related to insurance.

442

FORMATION OF A CONTRACT OF CARGO INSURANCE

13.7

FORMATION OF A CONTRACT OF CARGO INSURANCE Utmost good faith: non-disclosure and misrepresentation Pre-contractual disclosure 13.5 As the China Insurance Clauses6 are contractual terms, they make no mention of any pre-contractual matters. Chinese laws have dealt with this matter specifically. Paragraph 1 of Article 222 of the Maritime Code reads: “Before the contract is concluded, the assured shall truthfully inform the insurer of the material circumstances which the assured has knowledge of or ought to have knowledge of in its ordinary business practice and which may have a bearing on the insurer in deciding the premium or whether he agrees to insure or not.”7

Whether a fact amounts to a material circumstance is judged by either of the following two criteria, which are whether such fact makes an impact on the insurer’s willingness to insure and if to insure, at what premium rate. To prove that the “materiality” requirement has been met is certainly not easy for the insurer as the Chinese courts usually have sympathy for the assured. The court cases have held that the sailing date8 and the age of the carrying vessel9 are not deemed material circumstances. 13.6 A defence under paragraph 1 of Article 222 may be defeated not only by the harsh requirement of “materiality”, but also the assured’s non-disclosure right, under paragraph 2 of Article 222, which reads: “The assured need not inform the insurer of the facts which the insurer has known of or the insurer ought to have knowledge of in its ordinary business practice and about which the insurer made no inquiry.”

In Guilin University of Electronic Technology v. PICC Guilin,10 the policy on a warehouseto-warehouse basis specified that the means of conveyance was a seagoing ship and that the voyage was from Yokohama to Guilin. Seagoing ships cannot reach Guilin, and so the cargo was transhipped onto a truck and was damaged during transhipment. The insurer argued that the assured had breached its duty to inform the insurer of the other means of conveyance that the cargo might use, and thus it should not be responsible for the damage occurring after transhipment. Beihai Maritime Court ruled in favour of the assured, saying that “a prudent insurer, by relying on its experience in such business, ought to know that seagoing ships cannot reach Guilin and that cargoes must be transhipped; even an ordinary resident knows such facts. Therefore, the assured did not breach the duty of disclosure according to Paragraph 2 of Article 222 of the Maritime Code”.11 13.7 The remedies available to the insurer for the assured’s breach of the duty of disclosure are termination of the contract without refunding the premium, if such breach 6. For the China Insurance Clauses, see para. 13.23 below. 7. The position on this issue is quite different under the Insurance Law whereby the assured has no obligation to make any representation to the insurer about the subject-matter insured or the relevant information about the assured itself unless the insurer requires it. 8. See Nanjing Resources Group v. Tian An Insurance Co Ltd, Wuhan Maritime Court case no. (2000) Wu Hai Fa Shang Zi Di 91. 9. See Ningbo Liangyou v. PICC P&C Shanghai, Shanghai Maritime Court case no. (1998) Hu Hai Fa Shang Chu Zi 539. This case was upheld by the higher court with case no. (1999) Hu Gao Jing Zhong Zi 612. 10. See Beihai Maritime Court case no. (2002) Hai Shang Chu Zi 98. 11. The case was upheld by the higher court with case no. (2003) Gui Min Si Zhong Zi 7.

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is intentional, or termination of the contract or increase in the premium, if such breach is not intentional.12 Under the Maritime Code, the insurer has two ways to achieve exemption from liability. First, the insurer can argue that the assured’s failure to truthfully inform the insurer of material circumstances was due to the assured’s “intentional act”.13 The standard of proof for this is very high such that the insurer has rarely ever met it. Secondly, the insurer can argue that the facts not disclosed or misrepresented have an impact on the occurrence of perils insured.14 In this connection, the insurer assumed no liability in Nishitani & Co Ltd v. PICC Qingdao15 by successfully convincing the court that non-disclosure of the fact that the cargo was carried on deck of a barge being towed by a tugboat had an impact on the occurrence of perils insured because the loss was caused by on deck carriage. Increase in risk during the contract 13.8 Under Article 52 of the Insurance Law, “During the performance of contract, the assured shall, according to the contract, timely inform the insurer of any remarkable increase in risk to the subject-matter insured and the insurer, according to the contract, is entitled to an increase in the premium or termination of contract”. Furthermore, “the insurer is not liable for the indemnity provided that the assured fails to do so and the loss of or damage to the subject-matter is caused by the increased risk”. The meaning of “remarkable increase” is unclear, but it is suggested that any fact that affects the insurer’s decision as to the underwriting or premium rate would amount to a “remarkable increase”.16 It should be noted that the wording “according to the contract” has created an ambiguity as to whether the assured’s duty to disclose a remarkable increase in risk only arises when the contract so specifies. For the insurer who wishes to rely on this article, it is therefore suggested that any factor that may increase the risk should be explicitly specified in the contract. Clause 3 of section IV of the Ocean Marine Cargo Clauses (the “Clauses”)17 provides that: “In case of a change of voyage or any omission or error in the description of the interest, the name of the vessel or voyage, this insurance shall remain in force only upon prompt notice to this Company when the Insured becomes aware of the same and payment of an additional premium if required.”

This clause sets out factors such as “change of voyage” and “omission or error in the description of the interest, the name of the vessel or voyage” that the assured is obliged to disclose. Clause 2 of section III of the Ocean Marine Cargo Clauses18 also stipulates that change of destination port or place is a factor that needs to be disclosed.

12. The Maritime Code, Art. 223. 13. Ibid. 14. Ibid. 15. See Shandong High People’s Court case no. (2002) Lu Min Si Zhong Zi 45. 16. This meaning is almost the same as the “materiality” requirement for pre-contractual disclosure. 17. References in this chapter to the “Clauses” are to the Ocean Marine Cargo Clauses 2009 unless the 1981 Clauses are specifically referred to. Note: The English versions of the Ocean Marine Cargo Clauses used by different Chinese insurance companies may be varied slightly. In this chapter, the wordings of the Ocean Marine Cargo Clauses are cited from the policy form used by PICC P&C Co Ltd. 18. The wording of this clause will be introduced in the section “Duration” at para. 13.39 below.

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FORMATION OF A CONTRACT OF CARGO INSURANCE

13.11

Formalities and insurable interest Formation and effectiveness 13.9 The formation of an insurance contract, like any other type of contract, needs to go through two stages, which are offer and acceptance. Paragraph 1 of Article 13 of the Insurance Law provides as follows: “A contract of insurance comes into being after the applicant puts forth an offer for insurance and the insurer agrees to accept the offer.”

The Insurance Law 2002 and the Maritime Code impose an extra requirement, which is that the parties to a contract of insurance must have agreed on the terms of the insurance. In the context of a marine insurance contract, this extra requirement should therefore be met for the purpose of formation of contract. However, it is submitted that the Chinese courts would not take a strict approach to the terms the parties must agree on for the contract to be formed. In Ningbo Liangyou v. PICC P&C Shanghai, Shanghai Maritime Court held that the contract of insurance was concluded even though a premium rate had not been agreed. The court stated that: “A contract of marine cargo insurance is a ‘consensual contract’[19] in nature, which means the contract is concluded when the applicant puts forth an offer for insurance, the insurer agrees to accept the offer and both parties have agreed on the major terms.”

The court did not elaborate on what the “major terms” should be, but went on to say that: “The premium rate is an important clause for a contract of insurance, but the absence of such a specific clause will not prevent the formation of the contract.”

Another point in relation to the time of formation was raised by the insurer in this case. The insurer argued that the contract had not been formed by reason of no insurance policy being issued. The court made it clear that an insurance policy was a written document to evidence the contract, but not the contract itself, and thus no issuance of the policy would not affect the formation of the contract.20 13.10 In the Chinese legal system, the formation of a contract does not necessarily mean that the contract becomes effective or legally binding. Formation and effectiveness have different legal significance, although under most circumstances the difference can simply be ignored because they take place simultaneously. A contract of insurance becomes effective at the same time as it is formed, according to Article 13 of the Insurance Law. Payment of premium 13.11 Where the applicant and the insurer enter into a contract of insurance, and the applicant fails to pay the agreed premium, and a covered event occurs, is the assured entitled to the insurance compensation? This issue is easily resolved where the contract has set

19. This concept, as opposed to “real contract”, derives from the Roman law and is adopted by the Chinese legal system. 20. For the similar position under English law, see para. 3.13 above.

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out a specific clause dealing with the legal consequence for failure to pay the premium.22 What if the contract says nothing of the legal consequence? Chinese law has not set out specific rules to answer this question, which results in two contradictory arguments. On the one hand, it is argued that a contract of insurance does not become effective23 until the premium has been paid and thus the insurer is under no obligation to pay compensation when no premium payment has been made by the applicant. It is said that failure to pay the premium undermines the fundamental principle – risk distribution – upon which the whole insurance industry is built. In judicial practice, the Chinese courts, however, lean towards the opposite argument, which is that payment of the premium will not affect the formation or effectiveness of the contract and the insurer is obliged to pay compensation even if the premium payment has not been made by the applicant. The main reason the courts adopt this view is to protect the assured who is regarded as the weaker party. Parties to the insurance 13.12 The applicant,24 the assured and the insurer are all regarded as parties under the Insurance Law and each plays an important and unique role. When the applicant and the assured are the same person, it is not necessary to distinguish which of them is a party to the contract of insurance. When they are not, the Insurance Law recognises the applicant as the party who enters into the contract with the insurer25; however, under such circumstances, the assured, although not a contracting party, is still entitled to claim compensation against the insurer either by law26 or contract, whereby such entitlement has been conferred on the assured. Termination of the contract 13.13 The rights of the parties in relation to the termination of cargo insurance depend on whether or not the risk has commenced. Prior to the commencement of the insured risk, the assured is entitled to terminate the contract27 while the insurer is not allowed to do so, unless otherwise stipulated by law28 or contract. Subsequent to the commencement of the insured risk, the implied position under the law is that both the assured and the insurer are not allowed to terminate the contract.29 The assured’s obligation to not terminate the contract 21. Such a clause is normally worded as “liability does not attach to the insurer until premium has been paid” or “the contract will not become effective until premium has been paid”. These two wordings look similar; however, they may result in two different legal effects when it comes to recovery of the premium by the insurer. According to the latter wording, the insurer may not recover its premium from the applicant on the grounds that the contract has not taken effect. 22. Paragraph 3 of Art. 13 of the Insurance Law allows the parties to a contract of insurance to set out conditions upon which the contract becomes effective. 23. Some even argue that a contract of insurance is not formed. 24. Sometimes called the “proposer”, who is the person taking out the insurance and is recognised as a party to the contract of insurance under Chinese law. The concept of “applicant” does not exist in Chapter 12 of the Maritime Code, which may give rise to disputes when the applicant and the assured are different persons. 25. The Insurance Law, Art. 10. 26. The Insurance Law, Art. 12, para. 5. 27. The Maritime Code, Art. 226. 28. For example, Art. 5 of the Marine Insurance Provisions empowers the insurer to terminate the contract if the assured fails to pay the premium; Art. 16 of the Insurance Law vests the insurer with the right of termination arising out of the applicant’s failure to comply with the duty to disclose. 29. The Insurance Law, Art. 50.

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at this stage is a prohibitive provision and thus cannot be stricken out by the contract.30 In marine cargo insurance, however, the Maritime Code allows the insurer to terminate the contract if so specified by the contract.31 Insurable interest Definition of insurable interest 13.14 Insurable interest is defined as “the legally recognised interest that the applicant or the assured has in the subject-matter insured” under the Insurance Law.32 A further question would be what the legally recognised interest is, to which no law has so far provided a clear answer. It is generally believed that the subject-matter insured must be legal first and foremost: for example, Guangdong High People’s Court in Metrich International Trading Ltd & Chaoan Wenci v. PICC P&C Guangzhou33 ruled that the assured who did not obtain a license for importing and exporting steel products as required under the law, had no insurable interest in its imported steel as the subject-matter insured. In the context of cargo insurance, what does “interest” really mean for a cargo owner? Ownership in cargo is widely recognised as a type of interest, and therefore the cargo owner certainly has an insurable interest in its cargo. This is also true even if the risk in goods under cost, insurance and freight (“CIF”) terms has passed to the buyer but the ownership remains with the seller.34 Disputes may arise when the risk of loss of or damage to cargo has passed to the free on board (“FOB”) buyer after shipment while the ownership still rests with the seller. Does the FOB buyer have an insurable interest in the cargo because of the risk being borne? This question was answered positively in the Metrich case.35 13.15 In addition to the cargo owner, is it possible for another party to have an insurable interest in cargo? In the Chinese insurance market, it is often the case that the carrier, especially a non-vessel operating common carrier (“NVOCC”), purchases cargo insurance for cargo that it is carrying, which is not owned by itself, but nevertheless the NVOCC, or carrier, is identified as the assured under such a cargo insurance. Does the carrier have an insurable interest in the cargo because the cargo is under its bailment? In CPIC Shanghai v. Hanwen,36 the court held that a storage company as the assured had an insurable interest in the cargo under the storage contract concluded between itself and the cargo owner by reason of bailment.37 It should be noted, however, that the cargo in that case was covered under a general property insurance rather than a cargo insurance. It is submitted that a carrier has no insurable interest in its carrying cargo under cargo insurance on the grounds that the purpose of cargo insurance is to protect cargo interests rather than the carrier’s 30. The Maritime Code, Art. 228. The Insurance Law, Art. 50. 31. The Maritime Code, Art. 227, para. 1. 32. The Insurance Law, Art. 12, para. 6. 33. Guangdong High People’s Court case no. (1999) Yue Fa Jing Er Zhong Zi 274. 34. See Minsheng v. PICC Fujian, Fujian High People’s Court case no. (2003) Min Jing Zhong Zi 232. 35. Guangdong High People’s Court case no. (1999) Yue Fa Jing Er Zhong Zi 274. See a similar ruling in She Lu Yi Co v. Huatai Insurance & Huatai Insurance Shanghai, Shanghai Maritime Court case no. (2005) Hu Hai Fa Shang Chu Zi 632. 36. Shanghai No. 1 Intermediate People’s Court case no. (2007) Hu Yi Zhong Min San Shang (Zhong) Zi 290. 37. Under English law, a bailee may insure a cargo in store or in transit for its full value, Waters v. Monarch Fire & Life Assurance Co (1856) 5 E&B 870; Tomlinson (Hauliers) Ltd v. Hepburn [1966] 1 Lloyd’s Rep. 309, and see para. 3.14 above.

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liability. If the carrier is recognised as having an insurable interest, the purpose of cargo insurance would be distorted as the insurer’s right to pursue its claim against the carrier would be harmed; furthermore, the carrier may choose to insure its liability under liability insurance.38 Recent developments: timing of the interest 13.16 The principle of insurable interest has recently gone through a fundamental development due to the amendment to the Insurance Law in 2009. Previously, Article 12 of the Insurance Law 2002, under which “the applicant must have an insurable interest in the subject-matter insured; otherwise, the contract of insurance is null and void”, had drawn much criticism over the years due to its impracticality. The particular problem with the old Article 12 was that it did not distinguish between life insurance and property insurance in terms of who must have an insurable interest and when an insurable interest must exist. In property insurance, particularly in cargo insurance, the applicant and the assured are very often different persons where international sales are involved. It is neither commercial nor necessary for the law to require the applicant for insurance to have an insurable interest in the cargo at the time the insurance contract is made. The new Article 12 has corrected this and stipulates that “the assured” shall, “at the time of occurrence of perils covered”, have an insurable interest in the subject-matter insured.39 The “lost or not lost” clause: retrospective insurance 13.17 As mentioned above, the assured must have an insurable interest in the subjectmatter insured at the time of occurrence of perils covered. However, the “lost or not lost” clause, under which the assured is entitled to the insurance compensation even when the assured does not have an insurable interest in the cargo insured at the time of loss, because the loss has already occurred, is an exception to the principle of insurable interest. Such a clause is not written into the China Insurance Clauses,40 but has, nevertheless, been recognised by Chinese law. Article 10 of the Marine Insurance Provisions41 reads: “Where both the insurer and the assured, at the time of conclusion of contract, are not aware that the subject matter insured has suffered or will never suffer damage or loss due to the occurrence of a peril insured against, the contract of insurance shall remain effective.”42

However, it should be noted that this article requires “both the insurer and the assured” to be unaware of the loss at the time of conclusion of the contract, which means that a valid 38. For the subrogation position, and the important cases decided on this issue in that context, see para. 13.51 below. 39. This now accords with the Marine Insurance Act 1906 s. 6(2) and the ICC, cl. 11.1. 40. The China Insurance Clauses are introduced at para. 13.23 below. 41. The Marine Insurance Provisions are one of the judicial interpretations issued by the Supreme People’s Court, see para. 13.2 above. 42. Article 224 of the Maritime Code has a related provision that is not considered to affirm the effect of the “lost or not lost” clause, but deals with insurers’ liability and liability for premium. It reads: “Where the assured is aware or ought to be aware that the subject matter insured has suffered damage or loss due to the occurrence of a peril insured against when the contract is concluded, the insurer shall not be liable for indemnity but shall have the right to the premium. Where the insurer is aware or ought to be aware that damage to or loss of the subject matter insured will never occur due to a peril insured against, the assured shall have the right to recover the premium paid”.

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contract of insurance can be made even after loss as long as neither party is aware that the loss has taken place.

OPEN COVERS, POLICIES, CERTIFICATES AND CLAUSES Open covers and certificates The certificate holder as assured: assignment of marine cargo contracts 13.18 Under Chinese law, with a view to facilitating international sales, a contract of marine cargo insurance may be assigned by the assured by way of endorsement or in another customary manner without the prior consent of the insurer or the need to inform the insurer.43 As a result of such assignment, the rights and obligations under the contract will be transferred to a third party. This position is very different from the traditional method of assignment adopted in other types of contract in respect of assignment of contractual rights and obligations, which require a prior consent from the insurer, or the need to inform the insurer.44 It is concluded that assignment of a contract of non-maritime cargo insurance45 should utilise the traditional method, in that Article 229 of the Maritime Code only applies to marine cargo insurance and the Insurance Law says nothing of this particular issue. 13.19 Sale or assignment of the subject-matter insured and assignment of the contract of insurance are to be distinguished. The former involves the passing of ownership in property, which does not necessarily enable the buyer or assignee to replace the original assured so as to enjoy the rights under the insurance contract. Except as otherwise stated in the insurance contract, the original assured or the assignee has the obligation to inform the insurer of a sale or an assignment of the subject-matter and failure to give notice of assignment before loss will exempt the insurer from paying the compensation, provided that the occurrence of the perils covered is caused by the increased risk resulting from such assignment.46 With respect to cargo insurance, either marine or non-marine, the Insurance Law requires no notification in relation to assignment of the subject-matter.47 It is therefore concluded that sale or assignment of the subject-matter insured under cargo insurance will automatically give rise to an assignment of the contract of insurance. Do the terms of an open cover bind the certificate holder? 13.20 There are three types of insurance contract often used in the Chinese insurance market, namely, open covers, policies and certificates. This section of the chapter deals with the relationship between open covers and certificates of insurance. A dispute may arise when an open cover and a certificate of insurance coexist for a particular shipment and, furthermore, they are contradictory. Paragraph 2 of Article 232 of the Maritime Code has 43. The Maritime Code, Art. 229. 44. Article 79 of the Contract Law states “When the creditor assigns its contractual rights to a third party, it shall inform the debtor of such assignment. Without such a notification, such assignment will not become effective on the debtor”. Article 84 of the Contract Law states “When the debtor assigns its contractual obligation, in whole or in part, to a third party, it shall obtain the consent of the creditor”. 45. The Maritime Code only applies to marine cargo insurance as defined therein, see para. 13.1 above. 46. The Insurance Law, Art. 49. 47. Ibid.

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given an answer to such dispute by stating that when the terms of a certificate of insurance issued by the insurer under an open cover contradict those in the open cover, the certificate shall prevail. 13.21 However, regard must be had to the fact that the Chinese maritime courts48 and the local people’s courts treat this rule differently. In Guangyang v. Tianan Kunshan,49 a marine cargo insurance case,50 the period set out in the open cover was on a warehouse-towarehouse basis, which was longer than the port-to-port cover provided in the certificate. The assured brought an action against the insurer after its claim was rejected on the grounds that the time when the cargo was stolen en route to the loading port was not within the period of the insurer’s liability according to the certificate. The local people’s court held in favour of the assured by rejecting the application of paragraph 2 of Article 232 of the Maritime Code in that the certificate was issued only to reconfirm the sea part of carriage within which the insurer undertook to cover and the period of the insurer’s liability should be on a warehouse-to-warehouse basis according to the open cover. 13.22 The reasons that were put forward by the court in the Guangyang case were not convincing in terms of opting out of paragraph 2 of Article 232 of the Maritime Code because the assured specifically declared its shipment on a port-to-port basis before the cargo left the warehouse and the insurer accepted that declaration by issuing the certificate from the port. The process of such a declaration and acceptance can only be construed as a modification to the contract evidenced by the open cover and thus the certificate, as a modification, prevailed over the open cover. This view is supported by the decision of the Ningbo Maritime Court in Haiwai Jinshu v. Ping An Hangzhou,51 which held that the certificate prevailed over the open cover after the assured failed to prove that the certificate did not result from the agreement of both parties to vary the open cover. Clauses in use in the Chinese insurance market Types of clauses used in practice 13.23 In the Chinese cargo insurance market, two types of standard clauses are mainly used, namely, the Institute Cargo Clauses and the China Insurance Clauses. The China Insurance Clauses, based on the Institute Cargo Clauses 1963, were drafted by the People’s Insurance Company of China to be used in the increasingly expanding Chinese cargo insurance market. The current version is the China Insurance Clauses 2009, which was revised at that time to reflect the recent changes in the Insurance Law, although the revision is not so drastic. The 2009 China Insurance Clauses have become increasingly popular in the current Chinese market and will probably soon take over from the previous version,

48. China’s maritime court system, set up in 1984, has developed over the years to have a total of 10 regional maritime courts, currently mainly located along the Chinese costal line, and is separate from the local (including both the district and the intermediate levels) people’s court system. The Chinese maritime courts have jurisdiction over maritime disputes including, amongst others, marine insurance. 49. Kunshan People’s Court case no. (2009) Kun Min Er Chu Zi 2348. 50. This case was supposed to be submitted to a maritime court, but somehow the local people’s court held the jurisdiction. 51. Ningbo Maritime Court case no. (2004) Yong Hai Fa Shang Chu Zi 350.

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that is, the 1981 China Insurance Clauses. The China Insurance Clauses are categorised into four groups based upon the nature of carriage, and the principal clauses in each group are named, respectively, as Ocean Marine Cargo Clauses, Air Transportation Cargo Insurance Clauses, Overland Transportation Insurance Clauses (train, truck) and Parcel Post Insurance Clauses.52 Each group also has its own additional clauses including, amongst others, war risk clauses and strike risk clauses, which are designed for a specific need. Ocean Marine Cargo Clauses 13.24 Because each group mentioned above has very similar clauses and the Ocean Marine Cargo Clauses are used in international shipping practice, the following sections of this chapter will concentrate on the examination of these clauses. The Ocean Marine Cargo Clauses have six sections in total entitled “Scope of Cover”, “Exclusions”, “Commencement and Termination of Cover”, “Duty of the Insured”, “Claims Handling” and “The Time of Validity of a Claim”. In section I, the scope of cover is “classified into the following three Conditions – Free From Particular Average (F.P.A.), With Average (W.A.) and All Risks”, and the insurer underwrites “according to the Insured Condition specified in the Policy”.

WARRANTIES AND EXCLUSIONS Warranties 13.25 The Chinese courts have considered the questions of how to construe a term as a warranty, and the effect of breach of a warranty, in the context of clause 2 of section III and clause 3 of section IV of the Ocean Marine Cargo Clauses, because insurers sometimes argue that these two clauses, dealing with change of voyage and destination,53 should be regarded as warranties. The traditional civil law in China has no provision equivalent to warranties under the Marine Insurance Act 1906. Therefore, the Maritime Code adopted warranties entirely from English law. Article 235 of the Maritime Code stipulates that: “The assured shall notify the insurer in writing immediately where the assured has not complied with the warranties under the contract. The insurer may, upon receipt of the notice, terminate the contract or demand an alteration to the conditions insured or an increase in the premium.”

The adoption of warranties by the Maritime Code was not well carried out in that even the definition of warranty is nowhere to be found. No authority has so far been clear about whether the above two clauses constitute warranties; however, in a recent case, SPMP v. China Continent P&C Co Ltd,54 Shanghai Maritime Court stated that a warranty must be explicitly specified by the contract by using words such as “warrant” or “promise”, and the legal consequence for breach of warranty must also be explicitly specified. From

52. The Chinese insurance market has a separate regime for domestic cargo and, accordingly, the different clauses, e.g., Domestic Waterway and Land Cargo Transportation Insurance Clauses, will be used. As this book is intended to be international, the domestic clauses will not be dealt with here. 53. See para. 13.8 above where these clauses are considered. 54. Shanghai Maritime Court case no. (2008) Hu Hai Fa Shang Chu Zi 558.

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this court’s point of view, no implied warranty is allowed and the above two clauses are definitely not to be construed as warranties. Exclusions Insurer must bring exclusions to the attention of the assured 13.26 Articles 242 and 243 of the Maritime Code set out four types of exclusion, including “intentional act of the assured”, “delay in the voyage or in the delivery of cargo or change of market price”, “fair wear and tear, inherent vice or nature” and “improper packing”. Section II of the Ocean Marine Cargo Clauses contains all these exclusions and adds extra exclusions, such as “fault” of the assured, “liability of the consignor”,55 “inferior quality or shortage of the insured goods prior to the attachment”, and war risks and strikes, riots and civil commotion risks. It is worth noting that the insurer has the obligation, at the time of conclusion of contract, to warn the applicant in a sufficient way to take notice of the exclusion clauses and to make precise and clear explanations of these clauses in writing or orally, failing which the exclusions shall have no effect under Article 17 of the Insurance Law. This article has been a useful defence for the assured to strike out the exclusions, as the Chinese courts have long been hostile to the insurer when it comes to the application of this article. Therefore, in practice, as a precaution, an insurer may request the applicant to issue a statement to acknowledge that the insurer has duly performed such duty before the contract is concluded.56

ALL RISKS, FREE OF PARTICULAR AVERAGE AND WITH AVERAGE All risks cover All risks defined: external causes 13.27 All risks are the most commonly used terms in the Chinese insurance market. All risks includes the risks covered under the free of particular average (“FPA”) and with average (“WA”) conditions plus all other risks arising from “external clauses”. Clause 3 of section I of the Ocean Marine Cargo Clauses provides: “Aside from the risks covered under the F.P.A. and W.A. conditions as above, this insurance also covers all risks of loss of or damage to the insured goods whether partial or total, arising from external causes in the course of transit.”

13.28 All risks sounds very broad, but has limitations. How the phrase “external causes” is construed is the key to where these limitations lie. The earliest and authoritative interpretation came from the central bank of China, the People’s Bank of China,57 in its reply to the request for an interpretation of “all risks” in the Ocean Marine Cargo Clauses made 55. The liability of the consignor exclusion appears to be similar to the improper packing exclusion, which will be analysed below. 56. The exclusions that are often relied upon by insurers in practice are analysed at paras 13.34 to 13.36 below in the context of the limitations and exclusions to the standard cover provided by the Ocean Marine Cargo Clauses. 57. The People’s Bank of China was the governing body of the insurance industry in China at the time. At the end of 1998, the China Insurance Regulatory Commission was established to take over such authority from the central bank.

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by the People’s Insurance Company of China in 1997. The People’s Bank of China replied that “external causes” should include the following risks only: (1) theft, pilferage and nondelivery58; (2) fresh water and rain damage; (3) shortage; (4) intermixture and contamination; (5) leakage; (6) clash and breakage; (7) taint of odour; (8) sweating and heating; (9) hook damage; (10) breakage of packing; and (11) rust. In fact, each of these 11 types of risk has its own clauses that may be purchased as an additional clause normally when the cargo is insured on FPA or WA terms. In the following year, the People’s Bank of China reiterated this interpretation when replying to the same request made by another insurance company. Such an interpretation made by the People’s Bank of China is not treated as law; nevertheless, these 11 types of risk are generally recognised by Chinese courts.59 13.29 Furthermore, the courts take a broader interpretation of “external causes” than just recognising the above 11 types of risk. In Fenghai v. PICC Hainan,60 where goods covered on all risks terms were lost in transit due to the illegality of the shipowner, namely, stealing and smuggling, Haikou Maritime Court held that the shipowner’s illegality, despite not falling within these 11 types of risk, constituted an external cause “that could not be foreseeable or controlled” by the assured. Such a decision was later acknowledged by the Supreme People’s Court.61 Robbery under arms was deemed by the China Maritime Arbitration Commission as a risk that should be covered in a dispute where the owner of goods covered on all risks terms was robbed under arms.62 In Zheshen v. Dazhong Insurance & Dazhong Insurance Suzhou,63 Wuhan Maritime Court ruled that goods carried on deck that fell overboard were covered on all risks terms. This decision was reached on the grounds that the contract of insurance did not specifically exclude a deck risk, even though the insurer maintained that such a risk was covered only when the additional On Deck Clause64 was purchased by the assured.65 Burden of proof in all risks insurance 13.30 In the Zheshen case, the Supreme People’s Court also ruled in respect of the burden of proof.66 The court said: “The all risks clause under the Ocean Marine Cargo Clauses is an unnamed perils clause; therefore, loss of or damage to the subject-matter insured in transit due to external causes shall be covered unless it can be proved that such loss or damage falls within the exclusions set out thereunder.” 58. Whether the release of cargo by the carrier without presentation of an original bill of lading constitutes non-delivery under the Ocean Marine Cargo Clauses was much debated before 2007. This issue has been resolved with the introduction of Art. 11 of the Marine Insurance Provisions in 2007, which stipulates that “loss or damage caused by the carrier who releases the cargo without presentation of an original bill of lading will not be indemnified by the insurer unless the parties agree to the contrary”. 59. See Orient Building Materials Supply America v. PICC Yichang, Wuhan Maritime Court case no. (2001) Wu Hai Fa Shang Zi 8. 60. Haikou Maritime Court case no. (1996) Hai Shang Chu Zi 096. 61. The Supreme People’s Court case no. (2003) Min Si Ti Zi 5. 62. China Maritime Arbitration Commission, CMAC Selection of Awards, 2007, Dalian Maritime University Press, pp. 465–468. 63. Wuhan Maritime Court case no. (2005) Wu Hai Fa Shang Zi 229. 64. The On Deck Clause is an additional clause, which states that “In case the insured goods are shipped on deck, this insurance shall extend to cover the risks of jettison and/or washing overboard”. 65. The decision was upheld by Hubei High People’s Court and was also approved by the Supreme People’s Court through an internal consultation. 66. The reply letter to the request of the lower court, numbered as (2007) Min Si Ta Zi 8.

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It seems clear that the Supreme People’s Court now treats the all risks clause as an unnamed perils clause, as opposed to a named perils clause, such as WA and FPA, despite some of earlier cases of lower courts that had expressed contrary opinions. Under an unnamed perils clause, the assured is not obliged to prove that the loss or damage that it suffers results from the occurrence of a particular risk. The burden of proof shifts to the insurer once the assured shows that the loss or damage occurs during the period of liability set out in the contract of insurance, and the insurer will be liable for the loss or damage unless it can be proved that such loss or damage falls within the exclusions. Named perils cover: free of particular average and with average Free of particular average 13.31 FPA traditionally meant that the insurance did not cover partial losses.67 However, the cover is extended to partial losses in the case of major marine casualties, such as grounding, stranding, sinking and collision.68 FPA has the narrowest coverage amongst the three conditions in the Ocean Marine Cargo Clauses, and thus all the coverage set out below will also be provided by WA and all risks. According to clause 1 of section I of the Ocean Marine Cargo Clauses, the insurance on FPA terms covers: “(A) ‘Total or Constructive Total Loss of the whole consignment hereby insured caused in the course of transit by natural calamities – heavy weather, lightning, tsunami, earthquake and flood. In case a constructive total loss is claimed for, the Insured shall abandon to the Company the damaged goods and all his rights and title pertaining thereto. The goods on each lighter to or from the seagoing vessel shall be deemed a separate risk.’ ‘“Constructive Total Loss” refers to the loss where an actual total loss appears to be unavoidable or the cost to be incurred in recovering or reconditioning the goods together with the forwarding cost to the destination named in the Policy would exceed their value on arrival.’ (B) ‘Total or Partial Loss caused by accidents – the carrying conveyance being grounded, stranded, sunk or in collision with floating ice or other objects as [or] fire or explosion.’[69] (C) ‘Partial loss of the insured goods attributable to heavy weather, lightning and/or tsunami, where the conveyance has been grounded, stranded, sunk or burnt, irrespective of whether the event or events took place before or after such accidents.’[70] (D) ‘Partial or total loss consequent on falling of entire package or packages into the sea during loading, transhipment or discharge.’ (E) ‘Reasonable costs incurred by the Insured in salvaging the goods or averting or minimizing a loss recoverable under the Policy, provided that such cost shall not exceed the sum insured of the consignment so saved.’ (F) ‘Losses attributable to discharge of the insured goods at a port of distress following a sea peril as well as special charges arising from loading, warehousing and forwarding of the goods at an intermediate port of call or refuge.’ (G) ‘Sacrifice in and Contribution to General Average and Salvage Charges.’ (H) ‘Such proportion of losses sustained by the ship-owners as is to be reimbursed by the Cargo Owner under the Contract of Affreightment “Both to Blame Collision” Clause.’”

67. Except, general average, see MIA 1906 s. 64(1). 68. See cl. (B) referred to in the text. 69. The wording “as” in this coverage seems to be mistranslated and should be “or” according to the Chinese version. 70. The Chinese version of this coverage indicates that the natural calamities described are not intended to be limited to “heavy weather, lightning and/or tsunami”.

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As we can see, coverage (A), (B) and (C) mainly deal with natural calamities and accidents. The natural calamities and accidents covered on FPA terms are limited to those explicitly listed except the natural calamities described in coverage (C). As indicated above, a partial loss caused by natural calamities is not covered unless the conveyance has been grounded, stranded, sunk or burnt. It is worth noting that the requirement for abandonment in respect of constructive total loss is mentioned in coverage (A). This abandonment provision reflects Article 249 of the Maritime Code, although the law is more specific. The definition of constructive total loss in the Ocean Marine Cargo Clauses has slightly altered the position under paragraph 2 of Article 246 of the Maritime Code and substitutes “value on arrival” for “insured value”, which appears in the code. Coverage (D) operates when the goods fall into the sea during loading, transhipment or discharge normally due to broken slings, and is similar to, but not entirely the same as clause 1.3 of the Institute Cargo Clauses (B). Sue and labour charges, forwarding charges, and general average and salvage charges are insured in clauses (E), (F) and (G), respectively. The proportion of losses reimbursed by the assured under the contract of affreightment “Both to Blame Collision” clause is insured in coverage (H). However, the assured must give “immediate notice” to the insurer as soon as it knows its “actual responsibility” under such a clause; otherwise, the insurer will “not be liable to indemnify the loss or damage attributable to such failure”.71 With average 13.32 WA traditionally meant that the insurance included partial losses and according to clause 2 of section I of the Ocean Marine Cargo Clauses, the insurance on WA terms covers: “Aside from the risks covered under F.P.A. conditions as above, this insurance also covers partial losses of the insured goods caused by heavy weather, lightning, tsunami, earthquake and/or flood.”

As we can see from the above, this coverage is almost identical to that in FPA except for “partial losses of the insured goods” caused by these specified natural calamities. Burden of proof in FPA and WA insurances 13.33 As mentioned earlier,72 cover on all risks terms has been acknowledged by the court as applying on an unnamed perils basis. To the contrary, it had been held by Ningbo Maritime Court in Sancheng v. Dubon Insurance Taizhou,73 in which the cargo was insured on WA terms, that the burden of proof relating to the occurrence of risks insured should be placed upon the assured, by reason of WA terms being a named perils clause. It is submitted that this rule would also apply to FPA cover for the same reason.

71. Clause 5 of s. IV of the Ocean Marine Cargo Clauses. 72. At para. 13.30 above. 73. Ningbo Maritime Court case no. (2009) Yong Hai Fa Tai Shang Chu Zi 137.

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Limitations and exclusions on cover Intentional act or fault and negligence 13.34 The Ocean Marine Cargo Clauses do not cover “loss or damage caused by the intentional act or fault of the Insured”. The intentional act exclusion is also recognised under Article 242 of the Maritime Code and cannot be stricken out by contract. Furthermore, the intentional act of the assured is deemed to be a type of insurance fraud,74 under Article 27 of the Insurance Law, which entitles the insurer not only to refuse the assured’s claim but also to terminate the contract of insurance without refunding the premium. An insurance fraud on a certain level may also incriminate the assured under Chinese criminal law.75 The fault exclusion is not often seen among other insurance clauses except the China Insurance Clauses. The wording “fault” here is equivalent to negligence, proving which is less demanding than intentional act or gross negligence. This is a major difference with, for example, the Institute Cargo Clauses that cover negligence of the assured.76 Liability of the shipper and improper packing 13.35 The Ocean Marine Cargo Clauses exclude “loss or damage falling under the liability of the consignor”, whilst Article 243 of the Maritime Code stipulates “improper packing” as an exclusion. The two wordings are clearly different, but overlap in some cases because in shipping practice the shipper is frequently responsible for packing. However, it is also possible that the carrier might be responsible for packing of goods. In this situation, can the insurer be exempted by arguing the improper packing exclusion set out by the law? It is submitted that the insurer is entitled to rely on the improper packing exclusion in that the law does not specify that the improper packing must be attributable to the shipper. As to the definition of packing, whether a container should be considered as a packing was considered in Xie Kent Cheng Yi v. UMS Generali Marine SpA,77 where the goods were destroyed by the Chinese authorities because the marks on the container violated the Chinese regulations. The court stated that, “Whether a container constitutes packing shall depend upon the specific circumstances. In the event that the container is provided or owned by the carrier, it shall be considered as space in the ship rather than packing of goods; In the event that the container is rented by the shipper from others or owned by the shipper, it shall be deemed as packing.”

From this court’s perspective, the fact as to who owns or provides the container will determine whether or not the container constitutes “packing”.

74. There are two other types of insurance fraud, i.e., fraudulent claims and document forgery, set out by Art. 27 of the Insurance Law. Paragraph 1 of Art. 27 provides that “The insurer is entitled to terminate the insurance contract and not to refund the premiums, if the assured or the beneficiary lies that an event insured has occurred and submits a claim for indemnity or payment of insurance benefits, while such event has actually not occurred”. Para. 3 of Art. 27 provides that, “If the applicant, the insured or the beneficiary, following the occurrence of an event insured, fabricates the cause of the occurrence of the event insured or exaggerates the extent of the loss with forged or altered relevant evidence, information or other proofs, then the insurer shall bear no obligation for indemnity or payment of insurance benefits for the portion which is fabricated or exaggerated”. 75. The Criminal Law, Art. 198. 76. See para. 3.37 above. 77. Shanghai Maritime Court case no. (2001) Hu Hai Fa Shang Chu Zi 445.

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Delay in transit 13.36 The delay exclusion is rarely relied upon by the insurer in China because, first, the definition of delay is very narrow and, second, causation must be proved. Article 50 of the Maritime Code stipulates that: “Delay in delivery occurs when the goods have not been delivered at the designated port of discharge within the time expressly agreed upon.”

This article indicates that no implied delay is allowed under Chinese law and that delay only occurs when a date of discharge has been expressly agreed. The delay exclusion is worded as “delay in transit” under the Ocean Marine Cargo Clauses. Literally speaking, “delay in delivery” is not exactly the same as “delay in transit”, which may cause an issue of application of Article 50.This narrowness was recognised by Guangdong High People’s Court in Fuhong v. Ping An Insurance Shenzhen,78 in which the insurer was not allowed to rely on the delay exclusion on the grounds that the bill of lading did not specify the time of arrival and delivery, although the ship actually arrived at the designated port much later than it would normally arrive. In addition, the causation issue was also raised in the Fuhong case, where it was held that the insurer who wished to enjoy the delay exclusion must prove that the loss or damage was “caused by delay” rather than “caused by a peril covered during the delaying time”.

DURATION OF THE INSURANCE 13.37 Chinese law does not set out any specific rule to regulate the duration of the insurance and Article 14 of the Insurance Law allows the parties to the contract to negotiate freely in this respect. Section III “Commencement and Termination of Cover” of the Ocean Marine Cargo Clauses consists of two clauses dealing with different situations. The first clause deals with goods that are in the “ordinary course of transit” and the second with goods that are not in the “ordinary course of transit”. These standard clauses will now be considered and analysed. “Ordinary course of transit” Meaning of “ordinary course of transit” 13.38 Clause 1 of section III is known as the “Warehouse-to-Warehouse Clause”. The wording of this clause is based on the Transit Clause under the Institute Cargo Clauses 1963, though it is not exactly the same. Clause 1 reads as follows: “This insurance attaches from the time the goods hereby insured leave the warehouse or place of storage named in the Policy for the commencement of the transit and continues in force in the ordinary course of transit including sea, land and inland waterway transits and transit in lighter until the insured goods are delivered to the consignee’s final warehouse or place of storage at the destination named in the Policy or to any other place used by the Insured for allocation or distribution of the goods or for storage other than in the ordinary course of transit. This insurance shall, however,

78. Guangdong High People’s Court case no. (2005) Yue Gao Fa Min Si Zhong Zi 304.

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be limited to sixty (60) days after completion of discharge of the insured goods from the seagoing vessel at the final port of discharge before they reach the above mentioned warehouse or place of storage. If prior to the expiry of the above mentioned sixty (60) days, the insured goods are to be forwarded to a destination other than that named in the Policy, this insurance shall terminate at the commencement of such transit.”

As the structure of this clause is not well designed, it is necessary to break it down. The insurance attaches only when the goods leave the specified place for “the commencement of the transit”. It is thus considered that any movement that is not intended for this purpose would not commence the insurance. The insurance terminates either (a) on delivery to “the consignee’s final warehouse or place of storage at the destination named in the Policy”, (b) on delivery to “any other place used by the Insured for allocation or distribution of the goods or for storage other than in the ordinary course of transit” or (c) on the expiry of “sixty (60) days after completion of discharge of the insured goods from the seagoing vessel at the final port of discharge before they reach the above mentioned warehouse or place of storage”. The last sentence of this clause will operate when the goods are resold and forwarded to another destination within 60 days after completion of discharge. Cover where cargo is not in the “ordinary course of transit” 13.39 Clause 2 of section III of the Ocean Marine Cargo Clauses is supposed to integrate both clause 8.3 and clause 9 (“Termination of Contract of Carriage Clause”) of the Institute Cargo Clauses into one. It reads as follows: “If, owing to delay, deviation, forced discharge, reshipment or transhipment beyond the control of the Insured or any change or termination of the voyage arising from the exercise of a liberty granted to the shipowners under the contract of affreightment, the insured goods arrive at a port or place other than that named in the Policy, subject to immediate notice being given to the Company by the Insured and an additional premium being paid, if required, this insurance shall remain in force and shall terminate as hereunder: (1) If the insured goods are sold at port or place not named in the Policy, this insurance shall terminate on delivery of the goods sold, but in no event shall this insurance extend beyond sixty (60) days after completion of discharge of the insured goods from the carrying vessel at such port or place. (2) If the insured goods are to be forwarded to the final destination named in the Policy or any other destination, this insurance shall terminate in accordance with Section [Clause] 1 above.”

It is submitted that, due to the bad drafting, this clause would hardly be considered the same as clauses 8.3 and 9 of the Institute Cargo Clauses. The strict meaning of this clause would be that the assured shall notify the insurer of change of destination only “owing to delay, deviation, forced discharge, reshipment or transhipment beyond the control of the Insured or any change or termination of the voyage arising from the exercise of a liberty granted to the shipowners under the contract of affreightment”; however, some of the listed causes, such as “delay”, “deviation” and “forced discharge”, would never be related to change of destination. Therefore, the logic and real meaning of this clause are deeply in doubt. In particular, it is unclear whether goods remain on risk during delay, deviation and the exercise of liberties, which do not result in the goods arriving at a port or place other than that named in the policy as, for example, when the voyage is delayed or the ship proceeds to its intended destination by a different, much longer and more hazardous route.

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CLAIMS AND LOSSES Claims Notice of claim 13.40 The front page of most policies used in China sets out a notice requirement whereby the assured shall give immediate notice to the insurer in the event of loss or damage.79 The legal consequence for the assured’s breach of such duty is not dealt with under either the Ocean Marine Cargo Clauses or the Maritime Code. However, Article 21 of the Insurance Law confirms such a notice requirement and also vests the insurer with the right to refuse to compensate any loss or damage that could not be ascertained due to the assured’s intentional act or gross negligence in performing such duty, unless the insurer knew, or should have known of the loss or damage, by any other means.80 Proof of loss: documentation of claims 13.41 In accordance with paragraph 1 of clause 4 of section IV of the Ocean Marine Cargo Clauses, for the assured to justify its insurance claim, it shall render to the insurer the “Original Policy, Bill of Lading, Invoice, Packing List, Tally Sheet, Weight Memo, Certificate of Loss or Damage and/or Shortlanded Memo, Survey Report, Statement of Claim” and, “If any third party is involved”, the documents “relative to pursuing of recovery from such party”. If the assured fails to do so, paragraph 2 in the same clause entitles the insurer to reject the assured’s claim in respect of the portion of loss or damage that cannot be verified due to such failure. The current position in respect of the insurer’s entitlement to reject is different from that under the 1981 Ocean Marine Cargo Clauses whereby such failure probably allowed the insurer to reject the assured’s entire claim for any loss or damage provided that the rights of the insurer were at all prejudiced.81 Proof of loss: verification of claims 13.42 Section V “Claims Handling” was newly added to the Ocean Marine Cargo Clauses 2009 to reflect the amendment to the Insurance Law in 2009. This section reads as follows: “The Insurer shall, upon receipt of a claim from the Insured, check and ascertain without delay whether this insurance covers the loss or damage, then notify the Insured of the result. Where in the circumstances of complicated claim the Insurer fails to ascertain the facts within thirty days after receiving the claim and the relevant documents from the Insured, the Insurer shall discuss and agree on a reasonable claim handling period with the Insured according to the actual situation. Then the Insurer shall ascertain the facts and notify the Insured of the result within this period. Where the loss or damage is covered by the insurance, the Insurer shall fulfil the obligation of indemnity to settle the claim within ten days from reaching an agreement on the amount of indemnity with the Insured.”

79. A typical clause is worded as follows, “In the event of loss or damage which may result in a claim under this policy, immediate notice must be given to the Company [insurer] or agent as mentioned”. 80. This legal consequence provision was added into the Insurance Law in 2009. 81. The Chinese wording in respect of such rejection in the 1981 clauses is ambiguous.

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Both the “thirty days” deadline for verification in the event of a complicated claim, and the “ten days” deadline for effecting the indemnity, reflect Article 23 of the Insurance Law, although this article allows the insurer to vary these deadlines upon agreement. This deadline provision was added to the Insurance Law in order to tackle the insurer’s unreasonable delay in the verification of claims. For this same purpose, the Insurance Law also added detailed rules in respect of the verification. First, when the documents are incomplete, the insurer is required to notify “in time” and “only at one time” the assured of all the supplementary documents that need to be submitted for verification.82 Second, if the insurer decides to reject a claim, it shall issue to the assured “within three days starting from the completion of verification” a rejection letter to specify its reasons for the rejection.83 Time limitation for actions 13.43 The time limitation for commencement of legal proceedings is two years “from the day on which the peril insured against occurred” in accordance with the Maritime Code.84 The wording is composed differently under the Insurance Law, which states that the two years is “from the time the assured knows or should have known of the occurrence of the peril insured against”,85 but this has no bearing on marine cargo insurance claims except to emphasise that knowledge of the loss is irrelevant in marine cases. However, Chinese courts normally take a lax approach to the time limit issue. For example, in a recent marine cargo insurance case, Zhejiang Sinochem v. Huatai Insurance Ningbo,86 Ningbo Maritime Court stated that the wording “from the day on which the peril insured against occurred” under the Maritime Code was ambiguous and, in consideration of the legislative purpose of the law, the two-year time limit had to start from the time the assured knew of the loss. The time limit applies when the law of the contract is Chinese law, but probably not when another law applies, such as English law under the Institute Cargo Clauses, clause 19.87 The two-year time bar is compulsory under Chinese law and thus cannot be extended, shortened or disclaimed by contract or by mutual agreement between the parties after the loss. Therefore, the two-year time bar set out in section VI of the Ocean Marine Cargo Clauses88 only confirms the law and “an extension of the time limit” in clause 1 of section IV of the Ocean Marine Cargo Clauses will not be valid under Chinese law. 13.44 The time limitation under the Maritime Code can be interrupted or protected by commencement of court or arbitration proceedings. An “admission to fulfill obligations by the person against whom the claim is brought”89 theoretically creates a new agreement from which the time bar is re-counted. However, in practice, this is a far more rigorous 82. The Insurance Law, Art. 22, para. 2. 83. The Insurance Law, Art. 24. 84. The Maritime Code, Art. 264. 85. The Insurance Law, Art. 26, para. 1. 86. Ningbo Maritime Court case no. (2011) Yong Hai Fa Shang Chu Zi 47. It is not clear whether this case has been appealed or not. 87. See P. Bugden (ed.), Time Bar in Insurance and Reinsurance: An International Comparison, 2011, Clyde & Co, p. 33 (Chinese Law by Ik Wei Chong and Carrie Yang). 88. Section VI provides that, “The time of validity of a claim under this insurance shall not exceed a period of two years counting from the day on which the peril insured against occurred”. However, the two years under the 1981 clauses is “counting from the time of completion of discharge of the insured goods from the seagoing vessel at the final port discharge”. 89. The Maritime Code, Art. 267.

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requirement than the usual “demand for compensation” requirement under the General Principles of the Civil Law whereby the time bar is suspended simply when the claimant presents a demand (either verbally or in writing) for compensation. In judicial practice, Beston Chemical Corp v. PICC P&C Beijing91 has held that the “admission to fulfil obligations” requirement appears virtually impossible to be met by the assured. In that case, Tianjin High People’s Court deemed that “admission to fulfil obligations” shall mean that “two parties to the contract of insurance have reached a settlement agreement under which the amount of compensation has been clearly specified”. Accordingly, the assured’s claim was time barred, although both parties had been negotiating on the amount of compensation all along and the insurer had already agreed to pay part of the compensation conditionally. Losses: recoverable expenses Duty to minimise losses: sue and labour 13.45 Clause 2 of section IV of the Ocean Marine Cargo Clauses92 imposes a duty on the assured to salvage the goods, or prevent or minimise the loss recoverable under the insurance contract by taking reasonable measures. If the assured fails to perform such duty, the insurer is entitled to reject the claim in respect of the increased loss caused by such failure.93 The Maritime Code sets out more detailed rules in this matter. Under Article 236 of the Maritime Code, the assured is further obliged to act according to any “special instructions” that are received from the insurer in relation to the adoption of reasonable measures. With such a special instruction, the insurer is able to control the process of minimising the loss. Under Article 240 of the Maritime Code, the assured is entitled, in addition to the indemnity for the cargo loss, to “the necessary and reasonable expenses” incurred for minimising the loss even if the measures taken by the assured have achieved nothing.94 The assured may also recover “the reasonable expenses for survey and assessment of the value for the purpose of ascertaining the nature and extent of the peril insured against”, and “the expenses incurred for acting on the special instructions”, not exceeding the amount insured.95 In Nonggongshang Trading Co v. Ping An Shanghai,96 Guangxi Zhuang Autonomous Region High People’s Court denied the lawyer’s fees as a “reasonable” and “necessary” expense by reason of their “being not essential” and also denied the loading and discharging fees, the storage fees, the customs duty and the packing fees by reason of these being the ordinary and indispensable costs that would have been incurred, in any event, by the assured in its daily business. 90. Such requirement applies to non-marine insurance. 91. Tianjin High People’s Court case no. (2005) Jin Gao Min Si Zhong Zi 160. 92. Clause 2 of s. IV of the Ocean Marine Cargo Clauses reads, “The Insured shall, and the Insurer may also, take reasonable measures immediately in salvaging the goods or preventing or minimizing a loss or damage thereto. The measures so taken by the Insured or by the Insurer shall not be considered respectively, as a waiver of abandonment hereunder, or as an acceptance thereof. The Insurer shall not be liable for the indemnity to the increased loss or damage attributable to the Insured’s failure to fulfill the aforesaid obligations”. 93. In the 1981 clauses, the insurer is allowed to reject the assured’s claim for any loss provided that the rights of the insurer are prejudiced. 94. The Marine Insurance Provisions, Art. 12. 95. The Maritime Code, Art. 240, para. 2. 96. Guangxi Zhuang Autonomous Region High People’s Court case no. (2000) Gui Jing Zhong Zi 207.

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SUBROGATION Subrogation in practice Nature of the right: statutory assignment 13.46 The right of subrogation is regarded in the Chinese legal system as a statutory assignment.97 This is to say that the insurer is automatically subrogated to all the rights of the assured in respect of the subject-matter insured immediately upon payment of the indemnity without the need for the signing of a subrogation form by the parties to the insurance, although in practice such a subrogation form will normally be issued by the assured as required by the insurer. The nature of the subrogation right is embodied not only in the Maritime Code98 but also in the Insurance Law.99 Due to its statutory nature, it is opined that the rights of the assured are not assigned to the insurer by way of the signing of a subrogation form if the indemnity is not actually paid.100 Therefore, as a precondition for the insurer to exercise such right by way of litigation, the insurer must prove that the payment of indemnity has been effected by showing evidence, such as a bank slip, to the court so as to establish a cause of action.101 What rights are assigned? 13.47 It is widely recognised that the insurer is subrogated not only to the rights of the assured but also to the obligations, exclusions and limitations that may bind the assured under the contract or the law. In respect of an arbitration clause in the contract of carriage, different Chinese courts are split in their opinions on whether such a clause, being procedural rather than substantive, is binding on the insurer who never engages in the negotiation of the carriage contract. Guangzhou Maritime Court in PICC Xiamen v. Chipolbrok102 opined that the arbitration clause was a procedural matter, and the insurer was only subrogated to the substantive rights and obligations of the assured; therefore, the arbitration clause in the contract of carriage was not binding on the insurer unless it was expressly accepted by the insurer.103 However, Shanghai No. 2 Intermediate People’s Court in Ping An Shanghai v. Shenzhen TGL Logistics104 went in the opposite direction, ruling that the insurer was bound by the arbitration clause clearly set out in the contract of carriage based upon which the action had been brought. Although the Supreme People’s Court has already 97. This concept is opposed to “contractual assignment” or “assignment by consent”, to which the Contract Law would apply. 98. Paragraph 1 of Art. 252 of the Maritime Code provides that, “Where the loss of or damage to the subjectmatter insured within the insurance coverage is caused by a third person, the insurer shall be subrogated to right of the assured to demand compensation from the third person from the time the indemnity is paid”. 99. See para. 1 of Art. 60 of the Insurance Law, which has a similar wording to para. 1 of Art. 252 of the Maritime Code. 100. See PICC P&C Shanghai v. Stute Verhehrs-Gmbh & COSFRE Shanghai, Shanghai Maritime Court case no. (2003) Hu Hai Fa Shang Chu Zi 484. 101. Article 96 of the Special Maritime Procedure Law. 102. Guangzhou Maritime Court case no. (2002) Guang Hai Fa Chu Zi 240. See a similar ruling whereby an arbitration clause under time charter was deemed not to be binding on the insurer in PICC P&C Shanghai v. COSCO Shipping Co Ltd, the Supreme People’s Court case no. (2010) Min Shen Zi 768. 103. Such opinion was actually approved by the Supreme People’s Court through the court’s internal consultation. 104. Shanghai No. 2 Intermediate People’s Court case no. (2009) Hu Er Zhong Min San (Shang) Zhong Zi 219.

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recognised the former opinions, this issue will not be finally settled until a judicial interpretation can be issued in the future to clarify it.105 In whose name is the right exercised? 13.48 After the rights of the assured are assigned to the insurer, the assured will be deprived of its right to sue the third party who is responsible for the loss of or damage to the cargo. Accordingly, under Article 94 of the Special Maritime Procedure Law, the insurer is bestowed with the right to bring an action in its own name against the third party who caused the accident. Where an action has been brought by the assured against that third party, under paragraph 1 of Article 95 of the Special Maritime Procedure Law, the insurer has the right to replace the assured through an application for alteration of the party to the lawsuit.106 Unusually, under Chinese law, the insurer and the assured may even act as coclaimants in exercising rights against a third party when the assured has not fully recovered its losses by way of indemnity under the contract of insurance.107 Based upon what cause of action? 13.49 Under Chinese law, the insurer normally has at least two potential causes of action against a third party, namely, contract and tort. The insurer may choose either of the two causes of action that it might believe is favourable,108 although, theoretically, it is not allowed to bring an action based upon multiple causes of action. However, in practice, insurers sometimes try to argue a case based upon both contract and tort, particularly when multiple defendants are involved.109 The assured’s duty of assistance 13.50 With a view to reserving the insurer’s right of subrogation, the assured has the obligation to file a claim in writing against the third party who may be responsible for the loss of or damage to the cargo and, if necessary, to obtain an extension of the time limit, failing which the insurer is entitled to reject the claim in respect of the loss or damage attributable to such failure.110 The assured’s duty of assistance is further extended to include “furnishing the insurer with necessary documents and information that should come to its knowledge” under paragraph 2 of Article 252 of the Maritime Code.111 However, the condition precedent to the insurer’s entitlement to reject the claim, or reduce the amount of indemnity, is the “negligence” of the assured under Article 253 of the Maritime Code.112 It was ruled by Shanghai High People’s Court without hesitation in Continental Grain Wuhan 105. For the significance and use of judicial interpretations, see para. 13.2 above. 106. See PICC Hebei v. Vysanthi Shipping Co Ltd, Ningbo Maritime Court case no. (1996) Yong Hai Shang Chu Zi 207. 107. Paragraph 2 of Art. 95 of the Special Maritime Procedure Law. 108. In practice, most actions brought by insurers are based upon a contract of carriage. 109. See Ping An Jinshan v. Hengtong & Jingcheng & Wu Pingjun, Shanghai No. 1 Intermediate People’s Court case no. (2009) Hu Yi Zhong Min San (Shang) Zhong Zi 647. 110. Clause 1 of s. IV of the Ocean Marine Cargo Clauses. 111. See a similar provision under Art. 63 of the Insurance Law. 112. The condition precedent under the Insurance Law is “wilful act or gross negligence”, which seems a very difficult test to satisfy.

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v. PICC P&C Jiangxi that the fact that the assured failed to bring an action against the carrier within the time limitation constituted a negligent act under the Maritime Code. Can the insurer subrogate against the assured? 13.51 The insurer is not allowed to bring a subrogated claim against “any family member or staff member of the assured” unless the loss covered is caused by the wilful conduct of such a member, pursuant to Article 62 of the Insurance Law. However, the law does not go any further than that. In cargo insurance, it is often the case in practice that the carrier, as an applicant to a contract of insurance, purchases cargo insurance for the benefit of the cargo owner. The controversy as to whether such a carrier is immune from the insurer’s recovery claim when the cargo sustains loss or damage in transit during the carrier’s period of liability has been raised frequently over the years. The main arguments from the carrier are twofold: first, the carrier is the party to the contract of insurance and pays the premium, and it is consequently unfair for the carrier to be claimed against by the insurer; second, the carrier has an insurable interest in its carrying cargo and thus should be covered. These arguments were more or less supported by the court in Ping An Jinshan v. Hengtong & Jingcheng & Wu Pingjun.114 However, the courts now tend towards supporting the insurer. A recent landmark case, Ping An Shanghai v. Pengyuan,115 went through three trials116 in different tiers of court, due to the importance of this issue. The Shanghai High People’s Court finally decided that the carrier was a party to the contract of insurance on the grounds that it paid the premium and signed the contract. However, it was still not covered under cargo insurance, which was designed to protect the cargo owner rather than the carrier; moreover, the law does not forbid the insurer from pursuing a subrogated claim against the applicant who is not also the assured. Notwithstanding the trend mentioned above, it is expected that the controversy in this issue will still go on in different regional courts other than Shanghai until the law sets out the relevant specific rules.

113. Shanghai High People’s Court case no. (2004) Hu Gao Min Si (Hai) Zhong Zi 151. Also see a similar ruling in Guangtong v. PICC Qinzhou, Guangxi Zhuang Autonomous Region High People’s Court case no. (2000) Gui Jing Zhong Zi 259. 114. See Shanghai No. 1 Intermediate People’s Court case no. (2009) Hu Yi Zhong Min San (Shang) Zhong Zi 647. 115. Shanghai High People’s Court case no. (2010) Hu Gao Min Wu (Shang) Shen Zi 1. Also see a similar decision in Chartis v. Mingyang Logistics, Shanghai No. 2 Intermediate People’s Court case no. (2010) Hu Er Zhong Min Liu (Shang) Zhong Zi 174. 116. The Chinese legal system allows a case to be tried twice only in different tiers of courts unless the higher court deems it necessary to retry the case.

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CHAPTER 14

S O U T H A F R I C A N L AW OF CARGO INSURANCE Andrew Robinson1

INTRODUCTION Scope and structure of the chapter 14.1 This chapter focuses on those areas where South African law has developed differently from English law,2 and avoids dealing with general insurance principles that are not relevant to marine cargo3 insurance. The chapter relies heavily on four main fairly readily available sources, namely, the current marine insurance section in the insurance chapter in volume 12 of The Law of South Africa4; the textbook developed from the LAWSA chapter entitled General Principles of Insurance Law5; the marine insurance chapter in Gordon & Getz6; and the marine insurance chapters in Professor John Hare’s book, Shipping Law and Admiralty Jurisdiction in South Africa.7 14.2 Few scholarly works ever achieve the accolade that they are “bedtime” reading, but a two-volume work8 by Professor Van Niekerk falls squarely into that category. The Development and Principles of Insurance Law in the Netherlands from 1500 to 1800 takes the reader on a serious adventure through the legal writings and legislation of the Netherlands during the golden era of the development of Roman-Dutch law. If anything, it reveals the fragmented and often haphazard way in which insurance law developed, bedevilled by issues of geographic and economic self-interest or the predominantly strong views of influential writers of the day. 14.3 The LAWSA chapter is currently being updated by the learned authors and their labours will hopefully result in a new edition of LAWSA and a further textbook on insurance principles in the very near future. This will fill a gap of almost 10 years when the only 1. Director and Head of Transport, Norton Rose, South Africa. 2. As discussed in Chapter 2 at para. 2.41, following the introduction of in 1983 of the Admiralty Jurisdiction Regulation Act 105 of 1983, marine insurance was regarded as one of the “new” admiralty jurisdictions and, as such, in terms of s. 6(1) of that Act, Roman-Dutch law would apply to marine insurance claims. 3. In terms of Roman-Dutch law, cargo of almost any description could be insured, although certain cargoes had to be specified, such as weapons of war, gold and silver, precious stones and jewels. Initially, perishable goods had to be specified; however, as the law developed, the general reference to “goods and merchandise” would cover perishable goods. See Reinecke et al., General Principles of Insurance Law at para. 540. 4. W. A. Joubert (ed.), The Law of South Africa, 2002, LexisNexis Butterworths, Durban, First Reissue. 5. M. F. B. Reinecke, Schalk van der Merwe, J. P. van Niekerk and Peter Havenga, General Principles of Insurance Law, 2002, LexisNexis Butterworths, Durban. 6. D. M. Davis (ed.), Gordon & Getz: The South African Law of Insurance, 4th edn, 1993, Juta Law, Cape Town. This work is not very current and is in desperate need of an update. Apart from the LAWSA volume and Reinecke et al.’s textbook, this is probably the most referred to textbook on insurance law generally. 7. J. Hare, Shipping Law and Admiralty Jurisdiction in South Africa, 2nd edn, 2009, Juta Law, Cape Town, Chapters 18 and 19. 8. J. P. Van Niekerk, The Development and Principles of Insurance Law in the Netherlands from 1500 to 1800, 1999, Hart, Oxford.

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other generally available commentary is that contained in the two very useful chapters of Professor John Hare’s work referred to above. 14.4 Over the years, there have been constant calls for the development of South African legislation to deal with insurance contracts generally.9 This is because there is ongoing legislative and judicial confusion regarding the principles to be applied to issues of marine insurance. Writing before the publication of the LAWSA volume, and the work of Reinecke et al. and John Hare, Douglas Shaw QC, commenting on the effect of section 6(1)(b) of the Admiralty Jurisdiction Regulation Act,10 stated: “Unfortunately, therefore, the South African law of marine insurance is ‘the Roman-Dutch law applicable to the Republic’11 … There is no satisfactory work on the law of marine insurance in South Africa and the sources are not such as are normally available to the practitioner, but it is to be hoped that the courts will recognize that marine insurance always has been a topic on which there has been a substantial degree of uniformity.”12

Sources of South African law Roman-Dutch law 14.5 Lord Diplock has stated that: “The contract of marine insurance is highly idiosyncratic; it involves concepts that are peculiar to itself such as sue and labour, subrogation, abandonment and constructive total loss, to give but a few examples. The general law of contract is able to throw but little light upon the rights and obligations under a policy of marine insurance in the multifarious contingencies that may occur while the contract is in force.”13

Mr Justice Viljoen commented on this statement, saying: “Subrogation is a well-known concept in South African insurance law but the others referred to are completely foreign to our law and peculiar to English marine insurance law.”14

The South African law15 of marine insurance has its roots in the Roman-Dutch law,16 which forms part of the common law of South Africa. Until 1910, there was no unified 9. See further, J. P. van Niekerk, “The reform of South African insurance law: A preliminary enquiry” (an inaugural address published in MBL, 1983, 88); C. Marnewick “The codification of marine insurance in South Africa” (an unpublished LLM thesis). See further J. P. Van Niekerk, “Choice of English law and practice in a ‘South African short-term policy’ of marine insurance: Jurisdiction and applicable law”, TSAR, 2010, 590. He comments in his critique of the a quo decision in Classic Sailing Adventures (Pty) Ltd v. Representative of Lloyd’s, 2010 (5) SA 90 (SCA), hereinafter referred to as The Mieke, that where the common law is to be developed, “a broad comparative approach should be followed rather than a[n] exclusive reliance on an English insurance law itself in the process of radical reform”. The South African Maritime Law Association in conjunction with the Association of Marine Underwriters of South Africa has recently taken up the issue again. 10. Act 105 of 1983, as amended. Douglas Shaw QC is regarded as the “Father of the Admiralty Act”. 11. That is, the Republic of South Africa. 12. D. J. Shaw QC, Admiralty Jurisdiction and Practice in South Africa, 1987, Juta, Cape Town. 13. Per Lord Diplock in Amin Rasheed Corp v. Kuwait Insurance [1984] AC 50 at 63C–D. 14. Per Viljoen JA in Incorporated General Insurances Ltd v. Shooter t/a Shooter’s Fisheries, 1987 (1) SA 842 (A). 15. South African law has many sources: the Constitution (from which all law derives its force), legislation, customary law and the common law. The common law is often referred to as the “non-enacted law” made up of Roman-Dutch, English and South African precedents. 16. By Roman-Dutch law is meant the laws of the Province of Holland in the seventeenth and eighteenth centuries. Professor Hare, probably echoing the views of most practitioners, states that “The South African law

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South Africa. From 1652 to 1806, the Dutch colonised the Cape, whereafter the English took over governance, but did not displace Roman-Dutch law. Only in 1879, by the General Law Amendment Act, was the English law of marine insurance imported into the then named Cape Colony. However, the Act also stated that for any future English statute to apply in the Colony, it would have to be re-enacted in the Cape. An example of a statute that was not re-enacted is the 1906 Marine Insurance Act. Many Dutch settlers left the Cape Colony from the 1830s and established the two land-locked republics of the Orange Free State in 1854 and the Transvaal in 1852. On the east coast, the colony of Natal was settled from 1839 largely by the English and annexed to the Cape in 1844. In Natal and the Transvaal, the pre-1879 Roman-Dutch sources were applied. In 1902, the General Law Amendment of the Orange Free State made the law of the Cape Colony applicable there. This ordinance was only repealed in 1977, and this had the effect of unifying the law of the post-1910 provinces; however, as Professor Hare has noted: “… it could surely not have had the effect of deleting from South Africa’s judicial precedent all marine insurance case authority decided in England, the Cape Colony and the Orange Free State in the 98 years they were subject to English law? At the very least, such authority must still be persuasive to a South African court.”17

It follows that unless specifically included in a policy, English law will not govern a policy of marine insurance. Furthermore, marine insurance was not a subject-matter over which the English High Court of Admiralty had any jurisdiction and, accordingly, section 6(1) of the Admiralty Jurisdiction Regulation Act will not apply English law to questions of marine insurance, though English case law, in practice, will have a persuasive influence on many marine cargo insurance issues.18 The South African courts, accordingly, will apply the Roman-Dutch law unless the parties have contractually selected some other regime in terms of section 6(5) of the Admiralty Jurisdiction Regulation Act. It is very common for South African policies to contain a term stating that the policy and any dispute arising in respect of that policy are to be governed by English law but with the dispute to be heard in South Africa. This reflects the very close connection that has existed between South African underwriters and brokers and the Lloyd’s market, a relationship enshrined in legislation.19 This does not mean that South African legislation can be ignored, however, particularly with regard to domestic consumer protection legislation.20 14.6 As for the Roman-Dutch law of marine insurance, the view of many practitioners is that the sources and principles of the Roman-Dutch law of marine insurance are difficult to determine, are rooted too firmly in the past and are untested by our courts. This makes it difficult for practitioners to properly and accurately advise clients on the effect of the terms and conditions of marine insurance agreements. Whilst the history and development of marine insurance today … should be tied neither to the purist Roman-Dutch ordinances and writings, nor to the English law. As a truly ‘South African common law’ it should be broad enough to draw upon the general principles of marine insurance, including but not limiting to those crystallized in the 1906 Marine Insurance Act, which was largely a restatement of the then common law of marine insurance in England and (although to a lesser extent) on the continent”. Hare, op. cit. p. 829 17. J. Hare, Shipping Law and Admiralty Jurisdiction in South Africa, at p. 827. 18. Gordon & Getz at p. 393 fn. 140. 19. The Insurance Act No. 27 of 1943 makes specific provision allowing Lloyd’s to operate in the South African market. Although repealed with effect from 1 January 1999, ss. 56 and 63 of the Short-term Insurance Act 53 of 1998 continues to recognise the importance of this market to South African insurance, with many marine underwriting agencies specifically writing risks in the Lloyd’s market. 20. This was the view of the Supreme Court of Appeal in The Mieke, 2010 (5) SA 90 (SCA).

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of the Roman-Dutch law of marine insurance is not without considerable interest and fascination,21 it has had little real impact on the practice of marine insurance in South Africa. For all practical purposes, underwriters and brokers will usually refer to either the Marine Insurance Act of 1906 or the decisions of various courts (not restricted to English courts) on the interpretation of any provision of the Institute Clauses. Judicial precedent 14.7 It has been written that the doctrine of precedent “is probably the most significant connection between South African law and Anglo-American law and the most important divergence from the Roman-Dutch law as well as the other legal systems that grew out of the ius commune”.22 The doctrine of precedent has been endorsed by the Constitutional Court, which has stated that it is a fundamental principle of justice that like cases should be determined alike to create legal certainty.23 In terms of this doctrine, the ratio decidendi (being a ruling made by a court on a question of law that is then applied to the accepted facts in order to decide a case) may, depending on the particular court’s status, have either no authority, persuasive authority or binding authority on other courts, depending upon the status of those other courts. Of course, even binding precedents can be ignored in certain circumstances where, for example, the need to develop the law justifies this. This is especially so now that the South African Constitution has empowered the courts to develop the common law. Precedents can only be established from judgments that are published and are, as such, accessible to the public. It follows that some lower courts’ decisions do not create any precedents at all. There are three main courts that will be affected by the principle of judicial precedent. These are, first, the Constitutional Court, which has a purely constitutional jurisdiction, and is bound by its own decisions, which will bind all other courts when considering constitutional issues. This court is unlikely to hear marine cargo insurance cases. Secondly, the Supreme Court of Appeal, which is absolutely bound by the decisions of the Constitutional Court, and is bound by its own decisions and those of the former Appellate Division. Decisions that predate the Constitution may not be binding where they do not reflect the values of the Constitution. Thirdly, the High Court, which has various divisions, some of which have appeal jurisdiction, from a single judge to a panel (usually three) of judges. These courts are absolutely bound by the decisions of the Constitutional Court and the Supreme Court of Appeal. However, they are not bound by decisions of high courts outside their division. Statutory sources of law 14.8 There are two South African statutes that are immediately relevant to marine insurance: the Short-term Insurance Act24 and the Admiralty Jurisdiction Regulation Act.25 The Short-term Insurance Act deals mostly with the administration and regulation of the

21. See further, J. P. Van Niekerk, The Development of the Principles of Insurance Law in the Netherlands from 1500 to 1800, op. cit. 22. F. Du Bois (ed.), Wille’s Principles of South African Law, 9th edn, 2007, Juta Law, Cape Town, at p. 76 and authorities quoted at fn. 66. 23. Wille, op. cit. at p. 78 and authorities quoted at fns 74 to 77. 24. No. 53 of 1998, as amended. 25. No. 105 of 1983, as amended.

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short-term insurance industry, and no mention is specifically made to marine insurance, although it clearly relates to such insurance by reference to a “transport policy”. However, it does contain two provisions that deal with the effect of any non-disclosure or misrepresentation, which differ considerably from similar provisions in the 1906 Marine Insurance Act. The Admiralty Jurisdiction Regulation Act specifically refers to marine insurance, and provides that any claim for, or arising out of, or relating to a contract of marine insurance is to be regarded as a maritime claim and any such claim must be brought before the relevant South African court exercising its admiralty jurisdiction. The application of English law The practice: incorporation of English law 14.9 Most cargo policies issued by South African underwriters, or through South African brokers, will incorporate one or other of the Institute Cargo Clauses, including the clause that the insurance is subject to English law and practice.26 However, even where a policy and the Institute Clauses refer to English law and practice, this will not necessarily trump South African statutory provisions, especially where the provisions have been drafted so as to protect the assured.27 That said, there is a great deal that is common between English law and South African law and most South African marine insurance specialists are quite comfortable in applying English law when construing policies. 14.10 The respect for English law in marine insurance matters is such that for many years the Association of Marine Underwriters of South Africa and the Marine Law Association of South Africa have debated the provisions of new legislation based on a draft Marine Insurance Act. This draft28 in its current form is based very much on the 1906 Marine Insurance Act. Following the current work of the English Scottish Law Commission into issues of insurance law generally, interest in reviving this project has grown in recent times, and more work on a draft marine insurance contract bill (which may simply amend the Short-term Insurance Act) is expected, but there is no immediate prospect of an Act, or an amending Act being promulgated. Will the South African courts uphold a choice of English law? 14.11 Somewhat controversially, the Admiralty Jurisdiction Regulation Act provides a “formula”29 to determine what law should be applied to any particular maritime claim. In essence, the relevant provision tries to draw a distinction between those claims that would have been dealt with by the English High Courts of Admiralty, and those claims that fell outside the embrace of those courts. Marine insurance fell outside the jurisdiction of the High Court of Admiralty and it therefore came as no surprise that the then Appellate Division in Incorporated General Insurances Ltd v. Shooter t/a Shooter’s Fisheries30 held that the law 26. ICC, cl. 19 reads, “This insurance is subject to English law and practice”. 27. The Supreme Court of Appeal in The Mieke, 2010 (5) SA 90 (SCA) when considering a hull policy that incorporated an English law term, applied provisions of the South African Short-term Insurance Act relating to issues of non-disclosure and misrepresentation rather than relying upon the 1906 Marine Insurance Act. 28. The draft is available at www.web.uct.ac.za/depts/shiplaw/marins.htm. 29. Sections 6(1)–(5). 30. 1987 (1) SA 842 (A).

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applicable to marine insurance was Roman-Dutch law. It was, to some extent, a result of this decision that led most South African underwriters and brokers, many of whom were steeped in the traditions of English law and practice, to amend their policies by making it clear that the entire policy was subject to English law (whilst reserving the right to litigate through the South African courts). 14.12 However, as the recent judgment of the Supreme Court of Appeal in The Mieke case31 has shown, even where a dispute under a policy (which in this case was a hull policy) which clearly stated that it is subject to English law, is litigated before a South African court, that court will be entitled to have reference to South African consumer protection legislation, such as that found in the Short-term Insurance Act. In this Act, for example, the question of material non-disclosure is dealt with in a way quite different from how it is being dealt with under English law, particularly in the Marine Insurance Act of 1906. Whilst this judgment is not without its difficulties, it is probably safe to say that, where the parties agree that the policy will be subjected to English law, the South African courts will apply English law as it would be applied had the matter been adjudicated upon in England, save for any “consumer protection” legislation. Consumer protection 14.13 The incorporation of a foreign law clause will not exempt the parties from certain domestic laws in the event that the policy is regarded as a short-term policy in terms of the Short-term Insurance Act.32 If the policy is regarded as a domestic policy, then the provisions of that Act will apply. Of particular importance will be the provisions within that Act relating, specifically, to the terms, or conditions, of short-term policies and to policyholder protection.33 14.14 The Short-term Insurance Act does not refer to “marine insurance” policies as such. However, the Act does refer to the broader notion of “transportation” insurance. The definition of “transportation policy”34 in the Act describes such a policy as involving risks relating to the conveyance of goods by air, space, land and water, or to the storage, treatment or handling of such goods. As most marine insurance policies cover goods on a warehouseto-warehouse basis, this definition is certainly wide enough to cover all goods-in-transit insurance on the usual terms, such as the Institute Cargo Clauses. The definition in the Act also appears to be wide enough to cover the storage of goods for extended periods prior to or following transit as are commonly insured as extensions to marine cargo policies. This creates the interesting conundrum that whilst the Institute Cargo Clauses incorporate English law, the 1906 Marine Insurance Act would probably not regard land carriage or storage cover as marine insurance.35 It is certainly the practice in South Africa for brokers and underwriters to regard all transportation insurance, whether or not it has a marine element, as falling under “marine” and that transport insurance is brokered and underwritten as such.

31. 2010 (5) SA 90 (SCA). 32. No. 58 of 1998. The Act defines a “short-term policy” as including a transport policy. 33. Section 51 refers to the voidness of certain provisions relating to short-term policies; s. 53 relates to misrepresentation and the failure to disclose material information; s. 54 relates to the validity of certain contracts; and s. 55 relates to the protection of individual policyholders. 34. Section 1(1) “transport policy”. 35. See Dunt, Marine Cargo Insurance, at paras 1.30 to 1.32.

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INTRODUCTION 36

14.15 In terms of the recently promulgated Consumer Protection Act, there is an obligation on the insurance industry to ensure that the Short-term Insurance Act is aligned to the consumer protection measures provided for in the Consumer Protection Act by October 2012. In light of this, it has been suggested that the only sensible way of doing this would be to amend the current edition of the Policyholder Protection Rules.37 These rules are issued in terms of section 55 of the Short-Term Insurance Act and have the purpose of providing protection to a “policyholder”, who is defined as a natural person acting otherwise than solely for the purposes of the person’s own business.38 The rules do not affect companies or similar legal entities. 14.16 The Consumer Protection Act has created a legal framework governing the relationship between the suppliers of goods and services and the protected consumers, namely, small businesses with assets or an annual turnover of less than R2 million and all individuals. In the circumstances, and when it comes to the insurance of goods, the Consumer Protection Act is unlikely to have any significant impact on the vast number of marine insurance cargo policies issued in South Africa, but there will remain some policies that will be affected. 14.17 Bracher elegantly states the difficulty that insurers will face, as follows: “The Consumer Protection Act requires every limitation on risk and liability, any assumption of risk by the consumer, any indemnity imposed on the consumer and any acknowledgment of a fact by the consumer to be drawn to the consumer’s attention clearly and in plain language with an explanation as to the nature and effect of the provisions. Seeing that insurance policies essentially deal with risks, liabilities and indemnities, the task of expanding the [Policyholder Protection Rules] is a challenging one.”

For example, rule 6.1 states that “the wording of every provision of the policy [must have] a reasonably precise ascertainable meaning”, whereas the plain language test in the Consumer Protection Act is quite different and has subjective elements. The rules also deal with various administrative issues regarding the relationship between brokers and underwriters, the termination of the policy, provisions that are void and the handling of and the time limits relevant to the handling of claims. In The Mieke decision,39 the Supreme Court of Appeal made it clear that it would apply a “consumer protection” approach when considering issues of marine insurance (and, no doubt, all other types of insurance too). The Policyholder Protection Rules may be varied when the insurance is subject to the Consumer Protection Act,40 which will apply to claims involving protected consumers or any consumers with limited bargaining power. The position of Lloyd’s underwriters 14.18 Lloyd’s underwriters are authorised to carry on business in South Africa.41 This authority has been established by legislation, currently the Short-term Insurance Act. 36. No. 68 of 2008. 37. P. Bracher, “Insurance and the Consumer Protection Act”, an article that appeared in Cover magazine, June 2011 at p. 35. 38. A “policyholder” is defined in rule 1 of the rules. The object of the rules is “to ensure that policies [where the policyholder is a natural person] are entered into and enforced in accordance with sound insurance principles and practice in the interests of the parties and the public interest”. The effective date of the current rules is 1 January 2011. 39. Representative of Lloyd’s and Others v. Classic Sailing Adventures (Pty) Ltd (The Mieke) 2010 (5) SA 90 (SCA). 40. Section 55(1) of the Short-Term Insurance Act No. 53 of 1998. 41. Section 56(1) of the Short-Term Insurance Act. For the position under the Insurance Act 27 of 1943 (now repealed), see J. P. van Niekerk, “Marine insurance: All risks policies on goods”, MBL, 1982, 78 at p.79 fn. 11.

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Lloyd’s is obliged to appoint a South African representative who is permanently resident in South Africa.42 This representative is charged with ensuring that Lloyd’s complies with the relevant provisions of the Short-term Insurance Act.43 The representative is required to have its principal place of business in South Africa.44 A claim against a Lloyd’s underwriter can be brought out of any competent South African court.45 A marine insurance claim, “being any claim for arising out of or relating to marine insurance or any policy relating to marine insurance”,46 may be brought out of such a court in the exercise of its admiralty jurisdiction. A “transportation policy”, as referred to in the Short-term Insurance Act, includes a contract providing insurance benefits for goods conveyed by water.47 14.19 In proceeding against Lloyd’s, the claimant may cite the Lloyd’s representative as the nominal defendant or respondent and any summons or application papers may be served on that representative.48 The Lloyd’s representative may similarly conduct proceedings as a nominal plaintiff or applicant on behalf of the particular underwriter. In either case, the Lloyd’s representative may be substituted by the true party at any time before judgment.49 14.20 Lloyd’s is obliged to provide security in a Lloyd’s South African Trust for the discharge of the Short-term Insurance Act obligations of Lloyd’s underwriters in South Africa. This means that in the unlikely event of a Lloyd’s underwriter not making payment of a judgment debt, the claimant can have recourse to the trust for satisfaction.50

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE 14.21 In general terms, South African law and the Constitution recognise as a fundamental principle that parties are free to contract on such lawful terms as they agree upon. A contract of insurance is therefore concluded when the parties thereto are in actual or constructive agreement with its terms. There are no formal requirements at common law, nor are there any legislative requirements relevant to marine insurance. Nor is there any requirement that a formal, written policy document be provided or that the policy be notarised or registered – although many cargo policies will require that a transferrable certificate be issued reflecting that insurance cover is in place. This is particularly so in the commodity trades. Slips (being a temporary embodiment of the contractual terms pending the issue of a superseding policy) are rarely used in South Africa. A marine insurance policy need not be signed by the underwriter. 14.22 There is no legislative definition of a contract of insurance. LAWSA quotes the following definition from the judgment in Lake v. Reinsurance Corporation Ltd51:

42. Section 57(2) of the Short-term Insurance Act. 43. Section 57(5) and (6). 44. Section 57(7)(a). 45. Section 59(1). 46. Section 1(1)(u) of the Admiralty Jurisdiction Regulation Act No. 105 of 1983. 47. Section 1(1) of the Short-term Insurance Act. 48. Section 59(2) of the Short-term Insurance Act, see para. 2.40 et seq. above. 49. Section 59(4). 50. Section 61(a) of the Short-term Insurance Act. For more on the role of Lloyd’s in South Africa, see Reinecke et al., op. cit. at paras 322, 512 to 515 and 654 to 658. 51. 1967 (3) SA 124 (W), LAWSA at para. 99 fn. 1.

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“[A contract of insurance is a] contract between an insurer (or assurer) and an insured (or assured), whereby the insurer undertakes in return for payment of a price or premium to render to the insured a sum of money, or its equivalent, on the happening of a specified uncertain event in which the insured has some interest.”

14.23 In order to give effect to its purpose, a typical contract of marine insurance will contain the following express or tacit terms: first, that the insurer will indemnify the assured for its loss; secondly, that the assured will pay a premium; and thirdly, that the insurer’s obligation to indemnify is dependent on the occurrence of an uncertain or unplanned event. Furthermore, the cargo assured must also have an insurable interest in the cargo at the time of its loss – but this does not mean that the question of insurable interest is a term of the contract, even though the obligation of the insurer to indemnify the assured is often dependent on the assured having an insurable interest at the time of the loss. 14.24 Having an insurable interest is what separates insurance contracts from wagering contracts52 – although in South Africa at least, brokers and insurers issue policies with clauses that will allow a named assured to be indemnified even though at the time of the loss the insurable interest is clearly vested in some other party. These clauses are called various things from “ex-works clauses” to “honour clauses”, but the policy’s intention is clearly to provide cover where there is loss prior to the named assured having any interest in the goods in terms of a contract of sale. The cover is usually offered subject to the requirement that the “assured” first exhausts its legal remedies against the seller before claiming under the policy. Due to the “honourable” nature of the relevant term, insurers do not challenge any demand for indemnity, and such cases have not, and have little prospect of being, the subject of any judicial inspection. The general view is that they would, in any event, be unenforceable. 14.25 Apart from the above issues, for a contract of insurance to be concluded, there must, in general terms, be an offer made by the potential assured to the insurer (usually in the form of a proposal) that may lead to some negotiation and modification regarding the risks and exceptions and the period of insurance. Acceptance53 of the proposal by the insurer concludes the agreement. It is, of course, open to the parties to impose formalities that may determine the validity of the contract, for example, that the insurance agreement be reduced to writing. Utmost good faith and good faith The good faith requirement 14.26 In considering the cornerstones of contract, Wille states54: “At every stage of the contracting process, from the negotiations through to the performance of the obligations undertaken in the contract, the parties are required to behave in a manner consistent with good faith. As an ethical value or controlling principle founded upon community standards of fairness and decency, good faith underlies and informs the entire law of contract, shaping its content and finding concrete expression in its technical rules and doctrines.” 52. In the absence of a requirement that the assured have insurable interest, the contract will be regarded as a wager, and considered void. 53. Acceptance may be express or tacit. Usually, acceptance is confirmed in writing and the insurer will provide the assured with a policy. 54. Wille’s Principles of South African Law at p. 737 and authorities in fns 10 and 11.

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Its influence is indirect – good faith does not provide, by itself, a basis for striking down or refusing to enforce an agreement, or any of its provisions. Nor is it a term of every contract that the parties must perform their obligations in accordance with the dictates of fairness and good faith. 14.27 Prior to the decision in Bank of Lisbon and South Africa v. De Ornelas,55 RomanDutch law provided a remedy of the exception doli generalis, which allowed a prejudiced party relief where the other party to a contract had acted with dolus to the prejudice of the first party. The Bank of Lisbon case removed this remedy, but the obligation to exercise good faith remained. Quite what is meant by “good faith” in marine insurance contracts remains unclear. This is evidenced by some alarming developments in non-marine insurance, where claims supported by fabricated documents56 that were inflated by 10%57 have been allowed. However, in marine insurance, the concept of “good faith” remains a prerequisite.58 As for the requirement of “utmost good faith”, whilst there exists case law and literature that classifies insurance contracts as contracts of utmost good faith, this notion was finally rejected in Mutual and Federal Insurance Co Ltd v. Municipality of Oudtshoorn.59 The then Appeal Court referred to the expression “utmost good faith” as “alien, vague [and] useless … [and] without any particular meaning in law”. 14.28 Hare60 suggests that it may be arguable that the Municipality of Oudtshoorn case can be distinguished in that it deals with non-marine insurance issues and that a court: “…should be able to find, on balance, that the utmost good faith became part of South African law through the conduit of English law – but only in relation to the duty to disclose and misrepresentation. And because the bulk of South African marine insurance is underwritten on the London market, or is re-insured there, it would be preferable for South African law not to seek to diverge from English law, and the English standard of utmost good faith in relation to marine insurance.”

However, currently, the approach taken is that contracts of insurance, like all other types of contract, are simply contracts of good faith. The parties must therefore display good faith towards each other during the course of their negotiations prior to concluding the contract. Put simply, insurers make undertakings on the basis of the information provided by the assured, accepting, in good faith, that all pertinent information has been given, and that the information is true. 14.29 A party to an insurance contract who wishes to proceed on the basis of breach by the other party of the pre-contractual duty of good faith must satisfy all the requirements for misrepresentation. 14.30 In the insurance context, the need for the assured to disclose information has both historical and practical elements and may have much to do with past unequal bargaining positions. It has been suggested61 that the obligations on the assured have been extended well beyond what was originally required – but in the cargo insurance context, this cannot

55. 1988 (3) SA 580 (A). 56. Videtsky v. Liberty Life Insurance Association 1990 (1) SA 386 (W). 57. Schoeman v. Constantia Insurance Co Ltd, SCA Case 01/2002, unreported. 58. J. Hare at p. 870. 59. 1985 (1) SA 419 (A). 60. J. Hare, “Good faith, disclosure, misrepresentation and the omnipotent warranty: South African perspective” – a paper presented to the British Maritime Law Association, 2000 at www.web.uct.ac.za/depts/shiplaw/ tulantxt.htm. 61. LAWSA at para. 175.

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be the case where so much of the business is underwritten either on a declaration basis or at short notice. 14.31 As for the post-contractual or continuing duty of good faith, there is little clarity; in practice, the issue often arises where the assured brings a fraudulent claim. In South African Eagle Insurance Co Ltd v. KRS Investments CC,62 Nugent JA stated, obiter, as follows: “Perhaps an insured does have a duty – whether tacit or implied – to act in good faith towards the insurer for the duration of the contract. And perhaps the deliberate submission of a false claim is a breach of that duty entitling the insurer to terminate the policy. But if that is so then on ordinary principles of our law the insurer would be relieved of liability only from the time of termination, and the rights and obligations that had accrued before then would remain extant.”

The Short-term Insurance Act63 confuses the status of “good faith” further by including a section64 that states: “A short–term policy, whether entered into before or after the commencement of this Act, shall not be void merely because a provision of a law, including a provision of this Act, has been contravened or not complied with in connection with it.”

It is not yet clear how the courts will interpret this section, as it seems to have been drafted extremely widely. However, it seems unlikely that the courts will ignore the principles of good faith and will not allow contracts concluded with the intent to commit fraud or allow a party to benefit from his or her own wrongdoing. Non-disclosure and section 53 of the Short-term Insurance Act 1998 14.32 The duty to disclose information appears to rest on the shoulders of an assured at various times: when providing information requested in a proposal form produced by an insurer or its agent or broker; producing information that might fall outside of the questions posed outside of the proposal form but which may affect the risk; during the course of cover and the period of the running of the contract of insurance; at the time of renewing of the insurance. Additionally, the contract itself may require disclosure at various stages – including during the course of the cover and at the time when claims are submitted to the insurer, when duty does not operate retrospectively. 14.33 An assured bears a duty of disclosing to the insurer relevant information prior to the conclusion of any contract of insurance, as well as at the time of the renewal of the contract. It has been said that the pre-contractual duty to disclose is delictual and not contractual – in certain circumstances a breach of the duty to disclose being a commission of the delict of misrepresentation.65 Van Niekerk argues that the obligation does not arise ex lege as held in the Oudtshoorn Municipality case,66 but that it derives from an underlying and generally applicable duty of good faith.67

62. 2005 (2) SA 502 (SCA) at para. 8. 63. Act 53 of 1998. 64. Section 54. 65. J. P. van Niekerk, “The insured’s duties of disclosure: Delictual and contractual”; before the conclusion and during the currency of the insurance contract: Bruwer v. Nova Risk Partners Ltd [2011] SA Merc LJ 135 at 135. 66. 1985 (1) SA 419 (A). 67. J. P. van Niekerk, op. cit. at 135.

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14.34 In Bruwer v. Nova Risk Partners Ltd,68 all three types of disclosure clauses were relevant – a pre-contractual disclosure, a term in the contract requiring disclosure and a term requiring an “on-going” disclosure. The latter required the assured to disclose to the insurer “all facts that are material to the acceptance of the insurance or the premium that is charged”, failing which the insurer may, at its option, declare the policy void. The clause went on to say that the duty “applies also during the currency of the policy, any changes must be reported immediately”. The clause exhorted the assured to “disclose all material facts that may be of relevance to the [insurer]”. The insurer chose to focus on the breach of the contractual terms imposing a duty of disclosure on the assured and ignored the possible argument that the assured breached its delictual duty of disclosure. The court accordingly interpreted the terms of the contract regarding disclosure and applied the provisions of section 53(1)(a) and (b) of the Short-term Insurance Act, and the court was not obliged to consider the question of any delictual duty of disclosure. 14.35 Section 53(1) of the Short-term Insurance Act69 states as follows: “53(1) Notwithstanding anything to the contrary in a short-term policy contained, whether entered into before or after the commencement of this Act,…(a) the policy shall not be invalidated; (b) the obligation of the short-term insurer thereunder shall not be excluded or limited; and (c) the obligations of the policy holder shall not be increased, on account of any representation made to the insurer which is not true, whether or not the representation has been warranted to be true, unless that representation is such as to be likely to have materially affected the assessment of the risk under the policy concerned at the time of its issue or at the time of any renewal or variation thereof.”

The words “at the time of its issue” make it clear that the provisions of section 53(1)(a) apply to the pre-contractual (and hence delictual)70 duty of disclosure. It simply is not clear whether the section can be extended to relate to contractual or delictual disclosure stante contractu. 14.36 In all probability, the question of materiality of any term seeking to apply a post-contractual duty will depend upon the wording of the particular term. With regard to materiality, section 53(1)(b) of the Short-term Insurance Act states: “(b) The representation or non-disclosure shall be regarded as material if a reasonable, prudent person would consider that the particular information constituting the representation or which was not disclosed, as the case may be, should have been correctly disclosed to the short-term insurer so that the insurer could form its own view as to the effect of such information on the assessment of the relevant risk.”

14.37 In The Mieke decision,71 the court confirmed that there is a difference between the test for materiality as applied by the Short-term Insurance Act72 and that applied by section 18 of the Marine Insurance Act 1906. The central difference between the two tests is that, in terms of the Short-term Insurance Act, the test of materiality is based on what a reasonable prudent person would decide is relevant information to be disclosed, whereas 68. 2011 (1) SA 234 (GSJ). 69. For the circumstances in which this Act applies to marine cargo insurance, see para. 14.14 above. 70. J. P. Van Niekerk, op. cit. at 143. 71. Representative of Lloyd’s and Others v. Classic Sailing Adventure (Pty) Ltd (The Mieke) 2010 (5) SA 90 (SCA). 72. For the circumstances in which this Act applies to marine cargo insurance, see para. 14.14 above.

476

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE

14.42

the test under the Marine Insurance Act 1906 is what a “prudent insurer” would determine as material when fixing a premium or taking the risk. 14.38 As the Supreme Court of Appeal has made abundantly clear, the purpose of section 53 of the Short-Term Insurance Act was to favour the assured.73 Its main purpose was to reduce the effect that a breach of a warranty, by the misstatement of an immaterial or noncausative fact, has on the contract of insurance, or any claim relating thereto. The harshness of the effect of the warranty has been summed up in the obiter remarks of Schutz J, who said of this section (as it appeared in the 1943 Insurance Act) that its purpose was to “detoxify the warranty by removing its potential for abuse, without outlawing its legitimate use”.74 The remedy of avoidance 14.39 The insurer may declare a policy to be void from its inception if a material misrepresentation (i.e., giving of false information) or material non-disclosure (i.e., withholding of information) induced the insurer to enter into or renew the contract. Until the policy is declared void, it remains valid and enforceable. 14.40 The insurer bears the onus of proving that: (a) the assured himself or someone for whose act the assured is responsible (e.g., a broker) made the misrepresentation/non-disclosure; (b) the misrepresentation/non-disclosure related to a material fact of which the assured had or could reasonably have acquired knowledge; (c) the misrepresentation/non-disclosure actually induced the insurer to enter into the contract or induced it to do so on terms or for a premium it would not otherwise have agreed to. 14.41 The test for materiality of the misrepresentation or the non-disclosure is set out in section 53 of the Short-term Insurance Act.75 Formalities, insurable interest and illegality Formalities 14.42 In South Africa, it is not essential that a contract of marine cargo insurance be in writing or contained in a written policy; although, in practice, a policy will normally be issued, it is not necessary for the policy to be notarised or registered. Where necessary, a certificate of insurance will be issued that is transferrable. The validity and legality of insurance contracts is dealt with by section 54 of the Short-term Insurance Act.76 The Act states: 73. In Bruwer v. Nova Risk Partners Ltd [2010] ZAGPJHC 96, the court confirmed that the aim behind s. 53 is to protect policyholders against claims rejection by insurers based on negligible or trivial non-disclosure. It confirmed that the test for materiality is of “a reasonable, prudent person”, i.e., would such a person consider that the information constituting the non-disclosure should have been disclosed so as to enable the insurer to form its own view concerning the effect of the information on the assessment of the risk or the premium charged. 74. Clifford v. Commercial Union Insurance Co of South Africa Ltd, 1998 (4) SA 150 (SCA). 75. For the circumstances in which this Act applies to marine insurance, see paras 14.14, 14.35 and 14.36 above. 76. See para. 14.14 above, for the circumstances in which this Act applies to marine cargo insurance.

477

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“54. Validity of contracts 1) A short-term policy, whether entered into before or after the commencement of this Act, shall not be void merely because a provision of a law, including a provision of this Act, has been contravened or not complied with in connection with it. 2) If a person has entered into a short-term policy with a short-term insurer who was, in terms of this Act, prohibited from entering or not authorised to enter into the short-term policy, or with another person who is not a short-term insurer but who has in terms of a short-term policy undertaken an obligation as insurer, that person, by notice in writing to such short-term insurer or other person, or the Registrar by notice to such short-term insurer or other person and in the Gazette, may cancel the short-term policy, whereupon that person shall be deemed to be in the same legal position in respect of such short-term insurer or other person as if the policy had been cancelled by that person on account of a breach of contract by such short-term insurer or other person. 3) Any contract entered into before the commencement of this Act the entering into of which is contrary to this Act or which contains terms prohibited by this Act, shall not be void nor shall the performance of its terms be unlawful merely because of any such fact. 4) For the purposes of the validity of a short-term policy the payment of a premium under a short-term policy to a person authorised as contemplated in section 45, shall be deemed to be payment to the short-term insurer under that short-term policy.”

Insurable interest 14.43 Roman-Dutch law regarded the principles of insurance from the perspective of the obligation of an insurer to indemnify an assured for its patrimonial loss.77 There was no doctrine of insurable interest. It appears that English law developed such a doctrine in order to distinguish wagering contracts from contracts of insurance.78 Notwithstanding this, it is generally the view that an insurable interest in the goods is a requirement in South Africa,79 although it has been said that the South African courts simply ask the question: was the contract a wager or not?80 If it was, then it is clear that Roman-Dutch law regarded wagers as being unenforceable on grounds of public policy.81 In practice, most South African insurers will have to be persuaded that the assured had an insurable interest before they will consider indemnifying the person claiming under the policy. 14.44 The origin of the “requirement” of insurable interest differs in the different provinces. In the Cape Province, which took over the relevant provisions of the English Gaming Act 1845, the requirement for an insurable interest lies in these statutory origins. In the provinces, where the law is based on Roman-Dutch law, the courts have accepted the view of the Roman-Dutch writers that all gaming or wagering contracts are unenforceable. In this way, an insurable interest is required throughout South Africa. 14.45 The significance of the object of insurance is that there can be no claim for compensation or satisfaction under a contract of insurance without there being an object insured. In Mostert v. Cape Town City Council,82 the court stated that a person cannot

77. Reinecke et al., op. cit. at para. 103. 78. Gordon & Getz, op. cit. at p. 92. 79. Gordon & Getz, op. cit. at p. 94. 80. Hare, op. cit. at p. 862. 81. Hare op. cit. at p. 861. Hare is of the view that the entire concept of insurable interest may well have outlived its usefulness – see his comments at p. 864. 82. 2000 4 All SA 379 (SCA).

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FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE

14.48

insure unless he has some insurable interest. In Pienaar v. Guardian National Insurance Co Ltd,83 the court held that an insurable interest must be shown to have existed at the time of the loss. If there was no such interest, no loss would have been suffered by the assured, and the assured would not be entitled to indemnification. This confirmed, in the context of indemnity insurance, the position taken by the court and Castellain v. Preston,84 where the court stated that an assured’s insurance interest is the object of the insurance and that only those who have an insurable interest can recover. 14.46 In marine cargo insurance, issues of insurable interest do arise from time to time, but these matters normally arise out of confusion regarding the terms of the contract of sale where the place of delivery, and the transfer of the risk of loss or damage in and to the goods, has either not been adequately determined, or the circumstances of the loss make it difficult to establish who had insurable interest at the time of the loss. All too often, parties to a contract of sale are ill-disciplined in the use of standard trade terms, such as the Incoterms of 1990, 2000 and 2010, with the terms of the sale contradicting the terms or conditions contained in the standard trade terms. 14.47 The leading case under South African law that attempts to provide a definition of an insurable interest is Littlejohn v. Norwich Union Fire Insurance Society,85 in which Wessels J held, with a brevity that the House of Lords might have emulated in the leading case of Lucena v. Craufurd,86 that: “[t]he principle to be deduced from these cases appears to be this: If the insured can show that he stands to lose something of an appreciable commercial value by the destruction of the thing insured, then even though he has neither a jus in re nor a jus ad rem to the thing insured, his interest will be an insurable one.”

As in the Lucena decision, Wessels did not emphasise the fact that the interest must have a legal basis. 14.48 In Macaura v. Northern Assurance Co Ltd,87 the assured sold all of the timber on his estate to a company in which all of the shares were held by him. Prior to the company paying for the timber, the timber was destroyed by fire. The timber had been insured by Macaura himself rather than by the company which owned the timber at the time of the loss. The House of Lords held that the assured had no insurable interest in the timber despite the fact that he was the only person who was interested in the preservation of the timber and was the person who would receive the benefit of any profit and would carry the burden of any loss. In reaching its decision, the House of Lords reasoned that the destruction of the timber by fire was not the cause of the assured’s loss but the fact that the company had no other assets against which the assured could claim his purchase price. This rather technical approach was questioned in the South African context by De Villiers J in Phillips v. General Accident Insurance Co SA Ltd88 and Steyn v. AA Onderlinge Assuransie Associasie Beperk.89 There is no judicial authority on the issue of insurable interest in a marine cargo insurance context in South Africa and, accordingly, we have to rely on the Phillips, Steyn and more recent decisions for general guidance as to the approach a South African court would take. 83. [2002] 3 All SA 27 (C). 84. [1883] 11 QBD 380 (CA). 85. [1905] TH 374. 86. [1808] 1 Taunt 325 (HL). 87. [1925] AC 619. 88. [1983] (4) SA 625 (W). 89. 1985 (4) SA 7 (T).

479

14.49

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14.49 In the Phillips case, the facts trump fiction in almost every detail. The assured and his wife fell under the influence of a palm reader who persuaded Mrs Phillips to part with some jewellery so that it could be blessed at church to remove bad vibrations. Not surprisingly, the palm reader (and the jewellery) never returned and underwriters subsequently rejected Mr Phillips claim for an indemnity on the basis that he had no insurable interest in jewellery owned by his wife. The court held that the real test was not whether Mr Phillips had an insurable interest but: “whether the contract, having regard to all the surrounding circumstances and especially the intention of the parties, amounts to a betting or wagering agreement. If there is any doubt, the benefit should, in my view, be given to the insured, having regard to the fact that normally the company has throughout the period of insurance accepted the insurance premiums and that such a defence is really a technical one.”

The court referred to Mr Phillips experiencing “a certain satisfaction” in seeing his wife wearing the jewellery and that he “felt under an obligation” to replace the jewellery. He accordingly had an insurable interest. 14.50 The court followed the same approach in the Steyn case,90 where the assured claimed an indemnity under a household policy in respect of a house which he occupied for free in terms of a settlement agreement with the provincial administration that owned the house. The underwriters rejected a claim on the basis that the assured’s right to stay in the house free of charge did not constitute an insurable interest as the provincial administration could evict him or demolish the house at any time. 14.51 The court held that the requirement of insurable interest is an English law requirement that did not apply in South Africa. This ignored prior authority that showed that an insurable interest was a requirement of Roman and Roman-Dutch law. 14.52 The Durban & Coast Local Division of the High Court took a conservative approach in Manderson v. Standard General Insurance Co Ltd91 and held that the requirement of an insurable interest is based on considerations of public policy, which is evidenced by the law’s distaste for and refusal to recognise gambling contracts. In holding that an employer did not have an insurable interest in a car owned and driven by an employee during the course of the employer’s work, the court emphasised the fact that for somebody to have an insurable interest, they must stand to suffer a real loss as a result of the damage to the vehicle. It was not sufficient that they would lose business because the employee was unable to carry out his functions. For the employer to recover under the motor policy, the employer would have to suffer a monetary loss as a result of the diminution in value of the vehicle itself. 14.53 In Refrigerated Trucking v. Zive,92 the court took a much broader view. In finding that an employer had an insurable interest in an employee’s right to indemnity under a liability policy, the court held that: “It seems then that … an insurable interest is an economic interest which relates to the risk which a person runs in respect of a thing which, if damaged or destroyed, will cause him to suffer an economic loss or, in respect of an event, which if it happens will likewise cause him to suffer an economic loss. It does not matter whether he personally has rights in respect of that article, or whether the event happens to him personally, or whether the rights of those of someone to whom he stands in such a relationship that … he will nevertheless be worse off if the object is damaged or destroyed, or the event happens.” 90. Supra. 91. 1996 (3) SA 434 (D). 92. 1996 (2) SA 361 (T).

480

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FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE 93

14.54 In Lynco Plant Hire and Sales v. Univem Versekerings Maakelaars, the court held that a member of a close corporation (a close corporation is a legal entity where the owner of the entity owns a “member interest”) was entitled to insure motor vehicles in his own name even though the motor vehicles were obtained by the corporate entity in terms of the lease agreements concluded with that entity. The court held that it was sufficient to show that the assured stood to lose something of appreciable commercial value and as the member was under a contractual duty to repay to the close corporation any insurance paid out in terms of the contract of insurance, the member had an insurable interest. 14.55 In Brightside Enterprises v. Zimnat Insurance Co,94 a van was owned by a director of the company but the company insured it. The court, in upholding Brightside’s claim for indemnification following a hijacking, held that if the assured derived a benefit or advantage from the existence of a thing, that constituted sufficient insurable interest since prejudice or loss of the benefit or advantage were occasioned to the assured if the thing was lost, damaged or destroyed. The court went on to hold that, provided the contract was not a gambling agreement, prejudice to the assured alone was sufficient to found insurable interest. The judge made the comment that the notion of insurable interest is just one of the considerations in assessing whether or not the agreement was a wager. 14.56 In summary, the South African courts appear to be inclined to take an extremely broad approach as to whether or not someone has an insurable interest. Following the Littlejohn case,95 it is clear that if an assured stands to suffer a commercial loss, we assured has an insurable interest. Usually, someone will suffer a commercial loss only if there is a legal basis for him or her suffering a loss. The Phillips case ignored this requirement by holding that the husband’s moral or social obligation to replace his wife’s jewellery gave him an insurable interest. Problem issues of insurable interest 14.57 Practically, in the marine insurance context, insurable interest problems present themselves in two fairly common circumstances. 14.58 The first and most often encountered is the regular problem of trying to identify who is on risk where goods are lost or damaged during transit. Obviously, this is determined by reference to the sales contract or chain of sales contracts, which do not always produce the result that the broker and assured expect it to. Clearly, the assured and its broker must ensure that they properly understand the terms of sale up and down the chain of contracts so that where there is a risk, that risk has been properly insured in the name of the correct party. Where the named assured is not on risk at the time of the loss, but underwriters nonetheless agree to pay out to that assured, then this cannot be regarded as an indemnification under the terms of the policy. As a result, the underwriters will not be subrogated to that assured’s rights of recourse as these rights are non-existent given that the assured had not suffered a loss. 14.59 The second issue is the so-called gentleman’s agreement clauses found in many policies. A clause of this nature provides that even if the assured is not on risk at the time of the loss, underwriters undertake to indemnify the assured. For example, a South 93. 2002 (5) SA 85 (T). 94. 2003 (1) SA 318 (ZHC). 95. [1905] TH 374.

481

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African assured may hold an open marine policy for all its imports. An overseas supplier is constructing a power plant for that assured on the basis that risk in and to the components of the plant only pass to the South African assured once the plant is operational. A component of the power plant is damaged prior to installation and the South African assured lodges a claim for indemnity under this clause. 14.60 This clause is designed to cover the situation where the assured had no risk in and to the goods at the time of the loss but nonetheless requires the insurer to indemnify the assured for a loss as if the insurer was on risk. Although there is no South African judicial precedent directly in point, simply put, if the assured stands to lose nothing by the loss or destruction of the property, then the assured simply has no insurable interest and that interest cannot be created, in law, by a clause of this nature. Roman-Dutch law has no difficulty with the concept of one party being able to contract for the benefit of a third party – the stipulatio alteri – and there should be no difficulty in recognising that a warehouseman should be in a position to contract for insurance not only for his own liability but also for the interests of the owners of the cargo. In practice, cargo logistics companies (such as freight forwarders, warehousemen and transport brokers) who are suitably licensed to do so, offer insurance cover to cargo interests on a fairly broad basis.96 14.61 Given the courts’ rather broad and haphazard approach to insurable interest, it is submitted that South Africa should follow the example of Australia97 and New Zealand and adopt suitable legislation to resolve the matter. Even if a definition of insurable interest receives some sort of legislative attention, it is extremely unlikely that the definition will be drafted so widely that it will deal with the practical issues of “ex-works clauses”, “gentlemen’s agreements” or “seller’s interest clauses”. Insurance “lost or not lost” 14.62 This phrase is recognised as providing cover for goods that, unbeknown to the assured or the insurer, have already suffered loss or damage when the contract of insurance is concluded. The South African courts have approached the question of insurable interest where the insurance covers the cargo “lost or not lost”98 in much the same way as the English99 and the Australian courts.100 In the case of London & Lancashire Insurance Co Ltd v. Puzyna,101 an etching was insured for carriage and the assured only acquired an insurable interest during the course of transit. The position is analogous to that of a free on board (“FOB”) buyer, who has no insurable interest until the time when the goods are loaded aboard the vessel, and can only recover for loss of or damage to the goods prior to loading if the insurance is on a “lost or not lost” basis, and not under the current Institute Cargo Clauses. In the Puzyna matter, it was held that in South Africa, the words “lost or not lost” are effective, first, to cover a loss that has taken place (unknown to both parties) before the insurance has been arranged, and secondly, to cover the case where the insurable interest was only obtained by the assured after the loss had already occurred. In that case, Herbstein J said102: 96. See, generally, Reinecke et al., at para. 37. 97. For the position in Australia under the Insurance Contracts Act 1984, see para. 7.35 above. 98. Roman-Dutch insurance referred to “on good or bad tidings” – Reinecke et al., op. cit. at para. 126 fn. 156. 99. See para. 3.15 above. 100. See para. 7.31 above. 101. 1955 (3) SA 240. 102. At p. 247.

482

OPEN COVERS, POLICIES AND CERTIFICATES

14.64

“If the etching had been destroyed prior to the commencement of the transit such loss would not have been recoverable under this policy for it would not have occurred within the limits of the policy.”

This approach is also consistent with the approach to transit adopted in the English authorities,103 that is to say, that an extended warehouse-to-warehouse clause does not entitle the assured to recover for a loss during a period within which he had no insurable interest unless the cargo is insured “lost or not lost”. Illegality and public policy 14.63 It is a general requirement of contract law that contracts be lawful. A contract is unlawful or illegal when it is prohibited by the common law or legislation.104 The common law considers that all contracts that are contrary to public policy or good morals are illegal. The lawfulness or otherwise of a contract may relate to the conclusion of a contract, the performances in terms of the contract, the purpose of the contract and the execution of the contract.105 The unreasonableness of the contract, or the hardship that it may produce, is not relevant unless that consequence was to be regarded as against public policy. Generally, the power of a court to declare a contract contrary to public policy is exercised sparingly.106 There are, as yet, no South African decisions on the topical question of whether or not the payment of a ransom in piracy matters is unlawful. South African insurers are faced with this issue from time to time, mostly where cargo on board ships hijacked by pirates is released on the payment by owners (or their insurers) of a ransom with owners then declaring general average and, in due course, claiming a contribution from the cargo interests. The generally held view, based on the old authorities, current legislation and the public need for kidnap and ransom policies, is that the securing (and ultimately paying) of general average contributions (which include ransoms that are paid to pirates) following the release of cargo is not to be regarded as unlawful. Given that most cargoes are insured on the basis of the Institute Cargo Clauses, South African insurers and practitioners follow the judicial developments in England very closely.107

OPEN COVERS, POLICIES AND CERTIFICATES Open covers, policies and certificates of insurance Policies and clauses in use 14.64 In almost every instance, marine cargo insurance is underwritten on the terms contained in one or other of the well-known Institute Clauses. The most common clauses are the Institute Cargo Clauses (A), depending always upon the products in question or the type of cover required. The edition most commonly utilised is that issued in 1982. The 2009 edition 103. See para. 3.15 above. 104. LAWSA, op. cit. at para. 149. 105. LAWSA, op. cit. at para. 149; Nuclear Fuels Corporation of SA (Pty) Ltd v. Orda AG [1997] (1) All SA 11 (A). 106. LAWSA op. cit. at para. 149; Sasfin (Pty) Ltd v. Beukus, 1989 (1) SA 1 (A). 107. See, in particular, Masefield AG v. Amlin Corporate Member Ltd [2010] 1 Lloyd’s Rep. 509, [2011] 1 Lloyd’s Rep. 630 (CA) considered at paras. 3.94 and 3.98 above.

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of the Institute Cargo Clauses, whilst common, has not been universally accepted. Despite the standard form clauses stating that they are to be used only with “the new Marine Policy Form”, the Institute Clauses will usually be found in a bespoke policy where an express reference to the relevant Institute Clauses, and their incorporation into the policy, will be made. 14.65 Open marine covers are a common feature of the logistics market, (so long as the agents are licenced intermediaries) where cargo interests “tick the box” indicating that they require the forwarder or transporter to arrange “all risks” insurance on the cargo interest’s behalf. The cargo and its value are then declared to the insurer on a monthly basis. 14.66 Where required, insurance certificates are issued in a form that enables them to be negotiated, which is important for cost, insurance and freight (“CIF”) sales. Many policies will make it a requirement that the original insurance certificate will be surrendered, along with other claim documents, before the insurer is obliged to indemnify the assured. It is a feature of the South African insurance market that underwriters will allow insurance agencies, and even brokers, to issue policies of insurance on behalf of the insurer. Interpretation and construction of policies generally 14.67 In Van Zyl NO v. Kiln,108 Shutz JA commented on the interpretation of insurance policies as follows: “The main principles of interpretation of the policy applicable in this case are to be found in Fedgen Insurance Ltd v Leyds 1995 (3) SA 33 (A) at 38B - E: The ordinary rules relating to the interpretation of contracts must be applied in construing a policy of insurance. A court must therefore endeavour to ascertain the intention of the parties. Such intention is, in the first instance, to be gathered from the language used which, if clear, must be given effect to. This involves giving the words used their plain, ordinary and popular meaning unless the context indicates otherwise (Scottish Union & National Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD 458 at 464 - 5). Any provision which purports to place a limitation upon a clearly expressed obligation to indemnify must be restrictively interpreted (Auto Protection Insurance Co Ltd v Hanmer-Strudwick 1964 (1) SA 349 (A) A at 354C - D); for it is the insurer’s duty to make clear what particular risks it wishes to exclude (French Hairdressing Saloons Ltd v National Employers Mutual General Insurance Association Ltd 1931 AD 60 at 65; Auto Protection Insurance Co Ltd v Hanmer-Strudwick (supra at 354D - E)). A policy normally evidences the contract and an insured’s obligation, and the extent to which an insurer’s liability is limited, must be plainly spelt out. In the event of a real ambiguity the contra proferentem rule, which requires a written document to be construed against the person who drew it up, would operate against Fedgen as drafter of the policy (Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd 1961 (1) SA 103 (A) at 108C).”

See also the dictum quoted by King J in Barnard v. Protea Assurance Co Ltd t/a Protea Assurance109: “Now it is an accepted principle in interpreting insurance contracts that it is the duty of the insurer to make it clear what particular risks he wishes to exclude. The principle is stated by May in the following terms: ‘No rule in the interpretation of a policy is more fully established, or more imperative or controlling, than that which declares that, in all cases, it must be liberally construed in favour of the insured so as not to defeat without a plain necessity his claim to an indemnity which in making the insurance it was his object to secure’.”

108. 2003 (2) SA 440 (SCA). 109. 1998 (3) SA 1063 (C) C at p. 1068 B–C.

484

WARRANTIES, EXCLUSIONS CONDITIONS AND OTHER TERMS

14.70

110

King J proceeded : “From this it would follow that if a term in a policy (‘term’ in the sense of designation) is capable of both a broader and narrower meaning it is that which is favourable to the insured, in other words to the upholding of the policy, which must be employed.”

WARRANTIES, EXCLUSIONS CONDITIONS AND OTHER TERMS Warranties Warranties defined 14.68 In Roman-Dutch law, a distinction is drawn between the essential (or material or vital) terms (or stipulations) of a contract, on the one hand, and the non-essential (or nonmaterial or subsidiary) terms (or stipulations) on the other.111 A breach of an essential term gives the innocent party the option of treating the whole contract as discharged, while the breach of a non-material or subsidiary term only entitles the innocent party to claim damages. The position compares with that under English law where, for example, in sale of goods cases, a condition is a fundamental term of the contract and a warranty a subsidiary term, whilst in insurance law a warranty is a fundamental term, and a condition may be a lesser term, or may be elevated to the status of a warranty if it takes the form of a condition precedent. In view of the confusing nature of the English terminology, the South African courts are encouraged to use the Roman-Dutch distinctions rather than those used in English law. Nevertheless, in marine insurance, with regard, for example, to the implied warranties as to seaworthiness, it is common practice to use the English term “warranty” because the law is based on the cases that preceded the English Marine Insurance Act 1906 where the term “warranty” was used. In those circumstances, a “warranty” will be treated, as it was in the English common law, and is under the Marine Insurance Act 1906, as a provision that must be strictly complied with. In Lewis Ltd v. Norwich Union Fire Insurance,112 the Chief Justice, Innes CJ stated that a warranty was a statement “upon the exact truth of which, or the exact performance of which, the validity of the contract depends”. 14.69 Hare suggests113 that in the marine insurance context, the meaning to be ascribed to a warranty under English and South African law is the same. Hare also cites two South African cases that held that English law applies to warranties in general insurance law.114 14.70 Hare115 points out that there are two types of warranty in marine insurance: the affirmative warranty and the promissory warranty. An affirmative warranty states clearly that a certain state of affairs exists at the time when the warranty is made. As the name suggests, a promissory warranty obliges the maker of the promise to fulfil the promise to do, or not do, something during the currency of the policy, or that a certain state of affairs will exist during the period of the policy. 110. At p. 1068 D. 111. Gordon & Getz, at p. 202. 112. [1916] AD 509. 113. Hare, op. cit. at p. 888 fn. 202. 114. Ibid. The cases are Colonial Mutual Life Assurance Society Ltd v. de Bruyn [1911] CPD 103 at p. 126 and Morris v. Northern Assurance Co Ltd [1911] CPD 293 at 304. 115. Hare, op. cit. at p. 889.

485

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14.71 As Hare comments, the distinction is important given the wording of section 53 of the Short-term Insurance Act. As we have seen,117 a policy will not be invalidated, nor will an insurer’s obligation be excluded or limited, on account of any representation made by the assured to the insurer which is not true, or where information is not disclosed, whether or not the representation or non-disclosure has been warranted to be true and correct, unless that representation or non-disclosure is likely to have materially affected the assessment of the relevant risk under the policy concerned at the time of its issue or at the time of any renewal or variation of that policy. 14.72 The representation or disclosure will be regarded as material if a reasonable, prudent person would consider that the information disclosed or not disclosed, should have been correctly disclosed to the insurer so that the insurer could form its own view as to the effect of such information on the assessment of the relevant risk. Hare118 refers to this as the “contextual objective test”. 14.73 There is some debate as to whether section 53 is referring to an affirmative warranty or to a promissory warranty, that is, are they both to be regarded as representations or do they only apply to affirmative warranties?119 The position remains unclear and Hare has suggested that a revision of section 53 is necessary. In his view, there is no rational reason for distinguishing in that section between promissory and affirmative warranties. The influence of English law remains.120 14.74 An insurer is entitled to waive any breach of a warranty. However, where there has been a breach of an affirmative warranty as provided for in section 53, then the insurer can repudiate the contract. As most affirmative warranties will be breached before cover incepts, the policy would, in fact, be void ab initio and the insurer is obliged to return any premium earned. Where there is the breach of a promissory warranty, the insurer is liable for any losses up to the date of the breach, and is entitled to retain any premium earned up until that date. By contrast, where there has been a misrepresentation, the insurer is entitled to cancel the contract, which is void ab initio by reason of the misrepresentation. Exclusions The nature of exclusions 14.75 Reinecke121 notes that the old Roman-Dutch law policies did not refer to the nature of the perils insured against, but to the time and place when the peril occurred. The risks covered were very wide, and it was necessary to specifically exclude any perils not covered. Reinecke122 notes that certain perils or losses were ipso jure excluded. These included wear and tear123 and inherent vice. Defective or inadequate packing of cargo amounted to 116. Hare, op. cit. at p. 890. 117. See para. 14.35 above. 118. Hare, op. cit. at p. 890. 119. For a summary of this debate, see Hare, op. cit. at p. 890 and the relevant footnotes; Gordon & Getz, op. cit. at p. 230 and p. 231, and the authorities referred to in the relevant footnotes; and Reinecke et al., op. cit. at para. 359. 120. Hare, op. cit. at p. 891. 121. Reinecke et al., op. cit. at para. 548. 122. Reinecke et al., op. cit. at para. 551. 123. The Wave Dancer, 1996 (4) SA 1167 (A).

486

WARRANTIES, EXCLUSIONS CONDITIONS AND OTHER TERMS

14.80

124

inherent vice. Heat, sweat and spontaneous combustion (or similar) cover is often specifically sought, and provided, for dry goods shipped in bulk. 14.76 The insurer will bear the onus of establishing that a particular loss or peril specifically excludes the insurer’s liability. Clauses that are inserted into insurance contracts for the purpose of exempting an insurer from liability for a loss, which, but for the exclusion provision, would have been covered, “are construed against the insurer with the utmost strictness because of the duty on the part of the insurer, in framing the policy, to exempt its liability in clear and unambiguous language”.125 14.77 The ordinary rule is that an assured must prove that his claim falls within the primary risk insured against, whilst the onus is on the insurer seeking to avoid liability to prove the exception.126 Causation 14.78 Few topics better illustrate the confusion that can arise out of the reception into South African law of English principles than causation. As Hare127 has put it: “More perhaps than any other area of marine insurance law, the English law concept of causation which has been largely adopted into South African law of marine insurance is [an] anathema to civilian lawyers.”

A claim under a contract of insurance requires the assured to prove a causal link between the peril and the loss or occurrence as set out in the contract. 14.79 In South African law, two causal issues need to be investigated128: the factual cause and the legal cause. In order to establish a claim, the assured must first establish a factual causal link, and if there is no factual causal link between the peril insured against and the actual loss or occurrence, then the event insured against has not occurred and the assured will have no claim.129 The test for determining factual causation is the “but for” or causa sine qua non test, which entails a process of elimination of causes, usually proceeding from the result backwards. If the assured establishes factual causation, it is then necessary to determine the insurer’s liability for the factual consequences, sometimes referred to as legal causation. For the insurer to be liable, there must be a sufficiently close link between the peril and the loss or occurrence for the peril to be the legal cause of the loss or occurrence.130 14.80 The test for establishing the extent of the insurer’s legal liability is the “proximate cause” test. The insurer will not be liable for any loss not proximately caused by a peril insured against. A proximate cause is a cause proximate in efficiency, not in time, and should be determined by applying common sense standards131 and seek to give effect to and not defeat the intentions of the parties.132 124. Blackshaws (Pty) Ltd v. Constantia Insurance Co Ltd, 1983 (1) SA 120 (A) at 128 to 129. 125. Per Chetty J, Mutual and Federal Insurance Co Ltd v. Ingram and Others, 2009 (6) SA 53 (E). 126. Walker v. Santam Ltd and Others, 2009 (6) SA 224 (SCA) at para. 16. 127. Hare, op. cit. at p. 897. 128. Hare, op. cit. at p. 898. 129. Reinecke et al., op. cit. at para. 277; Hare, op. cit. at p. 898 to p. 899. 130. Reinecke et al., op. cit. at para. 277. 131. Gordon & Getz, op. cit. at 400. Hare, op. cit. at 899 quotes the case of Sikweyiya v. Aegis Insurance, 1995 (4) SA 143 (E) as being a case where the court applied a common sense approach to causation. 132. Hare, op. cit. at p. 898.

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14.81 In the Incorporated General Insurers v Shooter t/a Shooter’s Fisheries133, the then Appellate Division was faced with a number of marine insurance issues, two of which were: which law should be applied to the contract of insurance and what was the proximate cause of the loss. Whilst this is a hull insurance matter, the approach of the court would probably have been the same had this been a case of goods lost. The fishing trawler Morning Star was insured in terms of two policies (hull and war risks, incorporating the Institute War and Strikes Clauses) on the then standard wording of the Lloyd’s SG policy. The trawler was detained in Mozambique by the authorities. The skipper and engineer were arrested and convicted by a lawfully constituted Mozambican tribunal, for unlawful fishing. They were fined R167,000, which had to be paid within 15 days. The fine was not paid and the Mozambican authorities sold the trawler. The arrest and impounding of the vessel was a peril insured against. The loss from the failure to pay a fine was not. 14.82 In a somewhat terse judgment, the majority of the Appeal Court followed the Blackshaw case,134 which had held that the interpretation of insurance clauses in a policy is, generally speaking, a question of law.135 That law was Roman-Dutch law applicable in South Africa by dint of the policies being domestic policies as defined in the then applicable section 63(1) of the Insurance Act136 and the operation of section 6(1)(b) of the Admiralty Jurisdiction Regulation Act.137 14.83 The court of first instance held that the interception and arrest of the trawler and its continued detention by the Mozambican Government until its confiscation and sale by that Government was a single continuous process.138 In assessing the position, Galgut AJA held: “No difficulty arises when one cause only has to be considered. The difficulty arises when there are two or more possible causes. In such a case the proximate or actual or effective cause (it matters not which term is used) must be ascertained, and that is a factual issue.”139

The judge then went on to hold: “In my view the confiscation did not result from the arrest of the trawler, it resulted from the failure to pay the fine. That failure was therefore the proximate cause of the confiscation of the trawler. The fact that the [assured] was unable to pay the fine is irrelevant. The issue is not his ability to pay the fine. The issue is what caused the confiscation. That, as we have seen, was the fact that the fine was not paid. That was not a peril covered by the risk clause.”140

Given the decision in this case, Hare141 questions whether the first stage test of factual causation would be applied in marine insurance matters in South Africa. The Roman-Dutch law test was not argued fully in the Shooters Fisheries case as it appears that both counsel 133. 1987 (1) SA 842 (SCA). 134. 1983 (1) SA 120 (A) at 126F. 135. Per Galgut AJA at p. 857. 136. No. 27 of 1943. This Act has been repealed. The Short-Term Insurance Act provides that any claim against a Lloyd’s underwriter under a South African short-term insurance policy will be recognised by a South African court. 137. No. 105 of 1983. 138. The court a quo had also found that there was no obligation upon the assured to sue and labour (i.e., pay the fine) and this obligation could not be reimposed indirectly in the guise of a contention that the failure to pay the fine was the proximate cause of the loss. 139. Galgut AJA at 863. The judge referred, with approval, to the comments made by Ivamy at 255 (Marine Insurance 3rd edn); Arnould’s Law of Marine Insurance and Average, 16th edn, volume 2, at 773; and Gordon & Getz, op. cit. at 383. 140. Galgut AJA at p. 862 to p. 863. 141. Hare, op. cit. at p. 899.

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had conceded that in order to succeed, the assured “must show that the loss was proximately caused by the peril insured against”.142 14.84 Where a loss is caused by two perils operating simultaneously at the time of the loss, the one being wholly excluded and the other falling within the risk as described, the insurer is held not to be liable.143 Conditions144 14.85 In South African law, conditions determine obligations. They qualify the operation and consequences of the whole contract. They operate quite differently from the English law notion of “conditions precedent”. Indeed, it is the use in contracts subject to South African law of English contract terms, where “condition” and “warranty” have meanings different from those given them by South African law that has created considerable confusion of interpretation. In Resisto Dairy (Pty) Ltd v. Auto Protection Insurance Co Ltd,145 the then Appeal Court made the point that the conditions in the contract in question were simply undertakings by the assured and, as such, were to be regarded as the terms of the contract. The words “condition precedent to any liability” indicated that the so-called conditions were material to the contract.146 Unfortunately, underwriters and brokers continue to use the phrase “condition precedent” (usually without providing for any clear consequence in the event of a breach of the condition precedent) no doubt under the influence of policies drafted by London brokers and insurers.

ALL RISKS All risks defined 14.86 Most marine cargo policies issued in South Africa will incorporate the “A” version of the relevant Institute Cargo Clauses, which provide cover for all risks (not certainties147) subject to the exceptions contained in those clauses. These exceptions are quite often amended in the main policy, either through the introduction of further exceptions or by removing or ameliorating the exceptions. 14.87 In the absence of the Institute Clauses, and depending on the wording used, Roman-Dutch law would regard certain perils or losses as always being excluded, such as wear and tear and inherent vice.148 The fact remains that there are very few South African

142. Galgut AJA at p. 862. 143. Mutual and Federal Insurance Co Ltd v. Ingram and Others, 2009 (6) SA 53 (E) at para. 13. In this nonmarine case, heard on appeal, the court preferred to rely on English precedent (Wayne Tank and Pump Co Ltd v. The Employers’ Liability Assurance Corporation Ltd [1974] QB 57 (CA)) rather than Roman-Dutch law. See also Walker v. Santam Ltd and Others, 2009 (6) SA 224 (SCA) at para. 16. 144. See generally, Reinecke et al., op. cit. at paras 254 to 260: Gordon & Getz at p. 202 to p. 204. 145. 1963 (1) SA 632 (A). 146. See also the authorities referred to by Gordon & Getz, p. 203 fn. 5 and the authorities referred to by Reinecke et al., op. cit. at para. 256, fns 84 and 85. 147. British and Foreign Marine Insurance Co v. Gaunt [1921] 2 AC 41 (HL) and Soya GmbH Kommanditgesellschaft v. White [1982] 1 Lloyd’s Rep. 136 (CA). 148. Reinecke et al., op. cit. at para. 551.

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cases that deal with the concept of “all risks” and given the local reliance on the Institute Cargo Clauses and policy forms based on English precedent, English marine insurance law and precedent on this topic, although no longer binding, will remain of great persuasive force.149 By way of just one of many possible examples, it is likely that the judgment of Lord Sumner in British and Foreign Marine Insurance v. Gaunt,150 where he defined all risks, will be followed.151 Burden of proof 14.88 In the case of Bethlehem Export Co (Pty) Ltd v. Incorporated General Insurance,152 the South African courts considered the inter-relationship between the burden of proof under all risks cover and the exceptions, in particular, the exclusion of loss or damage caused by inherent vice. In this case, three consignments of allegedly fresh asparagus were shipped by air from Johannesburg to Frankfurt where they arrived in a discoloured and apparently deteriorated condition. The consignment was insured on all risks terms with an extension of the cover to include “all risks including deterioration in terms of the Institute Frozen Food Clauses”. As the consignment consisted of fresh asparagus, the assured relied on the basic all risks terms rather than deterioration under the Institute Frozen Food Clauses. It was contended that a fortuitous casualty, which could not, however, be identified, occurred during the flight. The assured advanced certain possible explanations as to how the deterioration could have been caused, for example, by a drastic change in temperature in the hold, or stowage next to a piece of machinery that had been exposed to the sun during the day, or by extended stops of the aircraft or a fault in the air conditioning system. However, Phillips AJ found that the assured had not discharged the onus of proof, and one of the main reasons for his decision was the strong evidence that the asparagus may not have been in good condition at the outset of the journey. In terms of the onus of proof, Phillips AJ held that:153 “The insured may discharge the onus of showing on the probabilities that the loss was caused by a casualty, i.e. an external and fortuitous event, by showing that (a) the goods were shipped sound (b) that they arrived damaged, and (c) that the damage is of such a kind as to raise a presumption of some external cause. Then the burden is on the underwriter to prove that the loss in fact occurred in some way for which he is not liable. As to (c), it is essential for an insured who relies on a change in the condition of the goods to show that the change was not due to the natural behaviour of the subject matter.”

As there was a doubt about the condition of the asparagus at the commencement of transit and further doubt as to whether it arrived “damaged” or merely deteriorated in the natural way, and as, finally, the damage was not of such a kind as to raise a presumption of some fortuitous cause, the assured failed, in particular on grounds (b) and (c). In effect, the assured was obliged to prove a negative, namely, that the deterioration was not caused by inherent vice.154

149. See J. P. van Niekerk, “Marine insurance: All risks policies on goods”, MBL, 1982, 78. 150. [1921] 2 AC 41 (HL) at p. 57. 151. See para. 3.35 above. 152. 1984 (3) SA 449 (W). 153. At p. 453. 154. Reinecke et al., op. cit. at para. 289.

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Limitations and exclusions on all risks Wilful misconduct 14.89 Generally, losses insured against include the negligent and, arguably,155 grossly negligent actions of the assured or those for whom they are vicariously or otherwise liable. Intentional acts are excluded as they cannot be considered as risks, that is, such acts exclude the necessary accidental or fortuitous elements of risk. In practice, the concept of wilful misconduct will be introduced into most South African policies via one or other of the Institute Clauses (where loss or damage caused by wilful misconduct is excluded).156 In any event, a loss directly caused by misconduct of the assured would not be an indemnifiable loss as it would not be fortuitous and it would amount to a fraud on the insurers. 14.90 In Rouwkoop Caterers (Pty) Ltd v. Incorporated General Insurance Co Ltd,157 the court, whilst considering whether negligence on the part of an assured prevented the assured from recovering under a policy, held that it was a well-accepted principle of insurance that, depending upon the type of policy, negligence on the part of the assured is no bar to a recovery under the policy and that an assured’s duties extended no further “than to refrain from intentionally causing the happening of the risk”.158 14.91 There is an implied term in every policy precluding the liability of the insurer if the event insured against is deliberately caused by the assured or a third party acting within his privity and consent.159 If a policy contains a term that includes intentional conduct, then that term will be unenforceable as being contrary to public policy.160 14.92 What of illegal (which may or may not be deliberate) acts? In the Shooter’s Fisheries161 case, the assured’s vessel was arrested and detained in Mozambique on the grounds that it had been fishing illegally. Friedman J, in the court a quo considered the case law on “public policy” and stated: “Bearing in mind that public policy is a rather fluid concept which may vary according to time, to place and to facts and circumstances, it seems to me that the only principle to be deduced from the aforegoing is that, depending upon the nature of the crime and upon all other relevant facts and circumstances, it may be against public policy to permit a claim under a policy of insurance where the accused has been guilty of either illegal or unlawful activities.”162

Having found the fact that the assured had been fishing illegally, the judge went on to note that: “… the claim was not brought about by a deliberate act on the part of the plaintiff or by his wilful or even intentional misconduct. In addition, I am satisfied that even if assuming that the activities of the plaintiff … were illegal and that such illegality brought about the [loss], it would not be contrary to public policy to allow him to recover in this case.”163 155. J. P. Van Niekerk, “Marine insurance: All risks policies on goods”, MBL 1982, 78 at p. 85, states that “wilful misconduct” includes both intentional and reckless conduct. 156. ICC, cl. 4.1. 157. 1977 (3) SA 941 (C). 158. At p. 946 to p. 947. 159. Gordon & Getz, op. cit. at 197. 160. Reinecke et al., op. cit. at para. 284. 161. 1984 (4) SA 269 (D). The matter went on appeal - 1987 (1) SA 842 (SCA) and the decision of the court a quo was overturned, but the comments made by Friedman J remain relevant. 162. At p. 284. 163. At p. 284.

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As for intentional acts, it seems clear that, in the absence of an agreement to the contrary, a contract of insurance excludes from the risk the consequences of the assured’s own deliberate or intentional acts or omissions. Ordinary wear and tear 14.93 Certain losses were ipso jure excluded under Roman-Dutch law, and wear and tear was such a loss,164 not being a fortuity but something that in the ordinary course of events must happen. In The Wave Dancer,165 Scott JA in the minority judgment had occasion to consider the meaning of “wear and tear”, stating that: “A loss caused by wear and tear … is one which is inevitable in the ordinary course of events. It arises in consequence of a part simply wearing out or by general debility brought about by use. Both in English law and Roman-Dutch law the insurer of a ship166would not be liable for loss caused by ordinary wear and tear, unless the policy provided otherwise.”167

It is not unusual for second hand machinery to be imported into South Africa. The machinery must be declared as such, must undergo a pre-shipment inspection and the practice is to insure the cargo under the (slightly amended) Institute Cargo Clauses (B).168 Inherent vice: insufficiency of packing 14.94 In Blackshaws (Pty) Ltd v. British Engine Insurance Co of SA Ltd & Another,169 a decision of the Cape Supreme Court, the exclusion of inherent vice was held to extend to insufficiency of packing, notwithstanding the doubts of Arnould on this issue.170 In this case, a printing machine was insured (on a warehouse-to-warehouse basis) in terms of a policy that indemnified the assured against “all risks of loss or damage to the subjectmatter insured excluding loss damage or expense proximately caused by … inherent vice or nature of the subject matter insured”. The policy also included the 1963 edition of the Institute Cargo Clauses (All Risks) that specifically excluded inherent vice. The machine had been packed into containers and was insured for a voyage from Norway to Cape Town. On assembly, the machine had clearly been severely damaged in transit. The assured maintained that the machine was damaged by movement of various parts of the machine in the containers occasioned by reason of defective packing. No peril was specifically identified as being the cause of the damage. The insurers took an exception to the claim as pleaded on the basis that the damage was caused by inherent vice, namely, the defective packing.171 In holding that the exception applied, Voss J said172:

164. Reinecke et al., op. cit. at para. 551 and the references referred to in fn. 242. 165. 1996 (4) SA 1167 (A). 166. Or marine cargo, for that matter. 167. At p. 1179. 168. Not that this would affect the “ordinary wear and tear” exception as it appears in all three of the Institute Cargo Clauses. 169. 1981 (4) SA 659 (C). 170. Arnould’s Law of Marine Insurance and Average, 16th edn at para. 782, the current edition at that time, see now first supplement to the 17th edn at p. 141, where the editors consider this an “open question”. 171. No explanation was offered, or evidence lead, as to the possible cause of the damage, i.e., heavy weather, as this was a hearing on the papers rather than a trial where evidence would be lead. 172. At p. 661H.

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“In my opinion damage caused by defective packing does not arise due to an external cause but rather due to the nature of the insured object itself. Hence the basic principle remains, viz, that damage caused by defective packing is not recoverable.”

On appeal to the Court of Appeal173 (as it was then known), Trengrove JA adopted Scrutton’s definition of inherent vice174 where that author said “by ‘inherent vice’ is meant the unfitness of the goods to withstand the ordinary incidents of the voyage, given the degree of care which the shipowner is by contract to exercise in relation to the goods”. The learned judge also quoted numerous English writers and judicial precedents where defective packing was regarded as inherent vice. He concluded that he was satisfied that in this instance the defective packing of the machine constituted inherent vice in the subject-matter insured. As a result of this defect, the subject-matter was rendered “peculiarly susceptible to damage arising from internal causes”.175 14.95 As to inherent vice generally, the South African courts will consider as persuasive the decision of the English Supreme Court in Global Process Systems Inc v. Syarikat Takaful Malaysia Berhad (The Cendor MOPU),176 where it was held that the exclusion of inherent vice would only apply where inherent vice was the sole cause of the loss.177 Delay and insolvency 14.96 Under Roman-Dutch law, the contract of marine insurance covered perils of or incidental to the navigation of the sea, but the risks were described not so much by reference to the nature of the perils insured against, as with reference to the time and place of their occurrence. Cover was provided against any peril or fortuity occurring in connection with or during a sea voyage.178 As a result, Dutch policies specifically excluded certain perils. However, it does not seem as though loss caused by delay or insolvency would be ipso jure excluded under Roman-Dutch law. The fact remains that most modern policies specifically exclude loss, damage or expense caused by insolvency or delay, even where the delay is caused (or proximately caused under the 1982 edition of the Institute Cargo Clauses) by a risk insured against. Unseaworthiness and unfitness 14.97 The concept of seaworthiness and any general doctrine of a warranty of seaworthiness were unknown to Roman-Dutch law.179 There is an implied warranty of cargo worthiness in cargo policies (i.e., that the ship is reasonably fit to carry the goods to the destination contemplated in the policy).180 There is no implied warranty in a policy on goods that they, themselves, are seaworthy, but the insurer is not liable for loss caused by 173. Blackshaws (Pty) Ltd v Constantia Insurance Company Ltd 1983 (1) SA 120 (A). 174. Scrutton on Charterparties and Bills of Lading, 18th edn, 1974, Sweet & Maxwell, London, at p. 224. 175. 1983 (1) SA 120 (A) at p. 129 to p. 130. 176. [2011] 1 Lloyd’s Rep. 560. 177. For a full discussion of the implications of the decision in this important English case, see para. 3.45 et seq. above. 178. Reinecke et al., op. cit. at para. 548. 179. Reinecke et al., op. cit. at para. 560. 180. Gordon & Getz, at p. 391.

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inherent vice. As most cargo policies include the terms contained in the Institute Clauses, the express terms of exclusion clauses 5.1 and 5.2 will more likely, than not, apply.182

WAR, STRIKES AND TERRORISM The limitations on cover for war and strikes risks War, civil war, revolution, rebellion, insurrection and civil commotion 14.98 It would appear that where insurance contracts exclude risks such as war, disturbance, riot and civil commotion, the approach in South African law is similar to that taken in English law.183 14.99 In Lindsay and Pirie v. General Accident Fire & Life Assurance Corporation Ltd,184 Soloman AJA made the following instructive comments when considering whether a state of affairs amounted to a civil commotion: “…what is meant by a state of civil commotion: The term is used in association with the words riot, rebellion, insurrection, etc., and we must assume that each of these expressions was intended to apply to a different state of things, even though they may to some extent overlap and though it may not be possible accurately to define the limits of each. Now the collocation of ‘civil commotion’ with ‘riot’ and ‘rebellion’ would seem to indicate --- if indeed any inference can be drawn from that fact --- that there are certain features common to them all, and, however that may be, I do not think that we can go wrong if we say that ‘civil commotion’ was intended to mean something between ‘riot’ and ‘insurrection,’ something more than a mere riot but less than an actual insurrection. A riot, as understood by English law may be committed by as few as three persons, but it would, I think, be an abuse of language to apply the term civil commotion to such a disturbance. The word commotion, as was said by Lord Justice Buckley in the case of London and Manchester Plate Glass Company v Heath,185 ‘connects turbulence or tumult and, I think, violence and intention to commit violence.’ But the expression civil commotion in my opinion means something more than that, for it implies not only that there is a disturbance on a somewhat extensive scale amongst the citizens of the state but also that it is directed to a common purpose. It would be out of the question, for example, to describe a brawl or riot of a few persons, even though it might occasion tumult, as a civil commotion. The distinctions appears to me to be very much one of degree, and it is quite impossible to lay down any hard and fast rule on the subject, or to say when a disturbance has become sufficiently serious to be described as a ‘civil commotion.’ Each case must be judged on its merits, and it is for a Court of Justice to determine upon the facts of each case whether or not the condition of things established at the trial amounts to proof of civil commotion or not.”

Terrorism The cover for terrorism 14.100 The South African Special Risk Insurance Association Limited (“SASRIA”) was created in 1979 out of the threat of politically motivated violence following the riots and civil commotions during 1976. SASRIA is now a limited company with the South African 181. Ibid. 182. See para. 3.55 et seq. above. 183. See the references cited by Reinecke et al., op. cit. at para. 273. 184. [1914] AD 574 at p. 591. 185. [1913] 3 KB 411 (CA).

494

DURATION OF THE INSURANCE

14.101

186

Government as the sole shareholder. In essence, this is a government reinsurance of risks that were being excluded in most policies by insurers. The scheme covers loss of or damage to property within the Republic of South Africa. The risks included, inter alia, loss or damage to property related to or caused by any act calculated or directed to overthrow the government or any authority by force, fear, terrorism and violence; any act calculated to cause loss or damage in order to further any political gain; any riot, strike or political disorder, including civil commotion, labour disturbances or lock out; and any act of an authority in controlling, preventing or suppressing any of the aforementioned acts.187 Given the application of the Institute Strikes Clauses (Cargo), policies that have SASRIA cover would usually also include the relevant Institute Clauses, though terrorism cover is limited to goods in transit188 and the SASRIA cover would extend to goods in store where provided for.

DURATION OF THE INSURANCE The Transit Clause Attachment of risk: “ordinary course of transit” 14.101 In Fedsure General Insurance Ltd v. Carefree Investments (Pty) Ltd,189 a clothing manufacturer in Ladysmith insured a containerised consignment of fabric, whilst in transit from Korea to Durban. The goods were insured under the Institute Cargo Clauses 1/1/82, which provide that the cover continues “during the ordinary course of transit”. The cargo of fabric was left stored in a port warehouse prior to customs clearance and was stolen from this warehouse before being forwarded on to the assured’s warehouse in the city of Durban. It appeared from the evidence that the assured left the goods in the port warehouse for his own commercial convenience as he did not then have to pay duty and tax, it being “his wont to wait for a favourable cash flow position before proceeding to clear imported goods”.190 It was held that the goods were not in the ordinary course of transit at the time of the loss, Howie JA saying191: “... a delay or interruption which, objectively viewed, is not part of the usual and ordinary means of effecting transit, and which is occasioned by some collateral purpose, will disturb the ordinary course of transit. Accordingly, loss occurring within the period of such delay or interruption will not be covered by the policy ... the reason is not that the insurance has come to an end (for it remains in existence), nor that the transit has come to an end (for the journey is not yet finally over) but simply that the insurance pertains to the ordinary course of transit and what is outside the ambit of that course cannot, logically, be within the cover.”

In formulating the test, which we may call the “collateral purpose test”, the South African court cited both the English case of Pearson v. The Directors of the Commercial Union Assurance Co Ltd192 and the South African case of Tension Overhead Electrical (Pty) Ltd

186. The Conversion of Sasria Act 134 of 1998. More information can be found at www.sasria.co.za. 187. Section 1. 188. See JCC 56, discussed at para. 3.68 above. 189. [2001] 2 ZASCA 88. 190. At para. 7. 191. At para. 12. 192. [1876] 1 AC 498 (HL).

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v. National Employers General Insurance Co Ltd.193 More recently, a similar approach was applied in England in Eurodale Manufacturing Ltd v. Ecclesiastical Insurance Office Plc,194 where goods were delivered to a warehouse for their onward transportation and it was held that their storage could not properly be said to be for some “collateral object or purpose”,195 and, in the circumstances, the storage fell within the specially agreed cover of the transit insurance applicable in that case. Termination of risk; election to store 14.102 Clause 8.1.2 of the Institute Cargo Clauses 1/1/2009, so far as material, provides that the transit terminates: “On completion of unloading from the carrying vehicle or other conveyance in or at any other warehouse or place of storage, whether prior to or at the destination named in the contract of insurance, which the Assured or their employees elect to use either for storage other than in the ordinary course of transit or for allocation or distribution, ... .”

The question of whether a warehouse is used for storage, other than in the ordinary course of transit, was considered by the South African courts in the Fedsure General Insurance case,196 the facts of which are given above.197 14.103 The goods were insured under the 1982 clauses, which included the election under clause 8.1.2 that terminates the insurance on delivery to any warehouse “which the Assured elects to use ... for storage other than in the ordinary course of transit”. The goods were stolen from a bonded warehouse in the port at Durban where the assured chose to leave the goods rather than clearing them to his own warehouse in the city. It was “his wont” to wait for a favourable cash flow position because clearance required payment of customs duty and VAT. At first instance, it was held that the assured did not have the necessary control over the goods to make a free election under clause 8.1.2. On appeal, this was doubted. Howie JA, with whom the other members of the South African Court of Appeal concurred, indicated that the election could be made before the assured had full control over the goods, saying198: “... it seems very much open to question whether, before the election referred to in [paragraph 8.1.2 of the Transit Clause] can be made, the insured must, as the learned Judge held, have paid the clearance dues and so have obtained control of the goods. There would appear to be no logical reason, when all one is doing in order to store goods is to leave them where they are, for the law to require that one first has to have control before one can use such venue for storage. There would also seem to be scant reason why the necessary election cannot precede the end of such storage and indeed precede the delivery into such storage. On the facts of this case there may well have been termination of the insurance under paragraph 8.1.2 but I express no final opinion on that issue.”

This analysis, though obiter, as the decision on the case turned on the “ordinary course of transit” under clause 8.1 as discussed above, is illuminating and helpful: it is not necessary, on this view, for the assured to have control199 of the goods, as the essence of the election is 193. 1990 (4) SA 190 (W) at p. 196A–B. 194. [2003] Lloyd’s Rep. IR 444. 195. At para. 27 also citing Pearson v. The Directors of the Commercial Union Assurance Co Ltd, above. 196. [2001] 2 ZASCA 88. 197. See para. 14.101 above. 198. At para. 11. 199. Compare the view of Ormiston J in Verna Trading Pty Ltd v. New India Assurance Co Ltd [1991] 1 VR 129 at p. 162 discussed in the Comparative Law chapter at paras 15.45 to 15.50 below.

496

DURATION OF THE INSURANCE

14.109

the decision to leave the goods in store rather than to take control and bring them forward in the ordinary course of transit. The election can take place at any time; however, if the election precedes the storage, it will only terminate the insurance under clause 8.1.2 of the Institute Cargo Clauses 1/1/2009 when unloading is completed. Held covered, termination of carriage and change of voyage Held covered and analogous provisions 14.104 Once the contract of insurance has been concluded, Roman-Dutch law did not recognise any implied term requiring the assured to disclose any circumstances that might affect the risk or the premium, even where the likelihood of loss occurring by a peril insured against is caused by the assured’s own conduct.200 It follows that there was no right of an insurer to terminate the agreement or suspend the cover.201 14.105 The insurer will not be liable, however, where the circumstances alter the risk so that the risk no longer complies with its description in the contract of insurance. Similarly, where the circumstances change the identity of the subject-matter of the insurance, then the insurer will not be liable in a case of loss.202 14.106 Changes of voyage and course are examples where Roman-Dutch law developed detailed principles in order to deal with circumstances that increased the risk beyond that contemplated in the insurance contract.203 Termination of Contract of Carriage Clause 14.107 In terms of Roman-Dutch law,204 policies, as a rule, provided cover “from shore to shore” – although exceptions were made for shipments from port to port. The goods were covered from the moment they were brought alongside the ship, or onto the quay, for the purposes of loading onto either the carrying vessel or lighters. 14.108 Cover would terminate when all the goods had been discharged safely and brought ashore at their destination. Unless there was a justifiable reason for delay, discharge must take place within a reasonable time after arrival. Cover would terminate if the goods were not discharged on arrival and the ship was sent to another destination. Change of Voyage Clause 14.109 In general terms, an insurer will insure goods for a particular voyage. In the event that a ship prosecutes a different voyage, or does not follow the agreed or customary voyage, the insurer is normally no longer liable.205 Roman-Dutch law drew no distinction between a change of voyage and a change of course.206 If an assured owner of goods, or its agents, instructed the master of the carrying ship to change an agreed voyage, or consented

200. Gordon & Getz, op. cit. at p. 178. 201. Reinecke et al., op. cit. at para. 556. 202. Gordon & Getz, op. cit. at 178 and Reineke et al., at para. 276. 203. See para. 14.109 below, Change of Voyage Clause. 204. See Reinecke et al., op. cit. at para. 554. 205. Reinecke et al., op. cit. at para. 557. 206. Ibid.

497

14.109

SOUTH AFRICAN LAW OF CARGO INSURANCE

to such a change, the insurance contract would be regarded as void and the insurer would have no liability under the contract from the time of the change of the voyage or the actual deviation from a specific or customary route.207 The intention to change the voyage is not sufficient – the insurer will be liable for all losses prior to the actual change in voyage.208 The insurer will therefore escape liability if it shows either that there was a change of voyage, or that the change was due to the assured’s instructions or with his informed consent.209 A justifiable or insignificant change of voyage will not affect the validity of the insurance contract and the liability of the underwriter.210 14.110 Where there is a change of voyage or route not instructed by or consented to by the assured, then the validity of the contract of insurance and the liability of the insurer will remain unaffected.211 Under Roman-Dutch law, the cargo owner would have a right to claim against the owner under the contract of affreightment and this right could be ceded to the underwriter who could seek to recover its loss against the owner212 under rights of subrogation. 14.111 The Roman-Dutch position does not seem to be dissimilar to that contained in section 44 of the Marine Insurance Act 1906 and the case law that followed.213

CLAIMS AND LOSSES Claims Limitation of action 14.112 The basic time limit under South African law is three years from the date of the loss, in accordance with the Prescription Act.214 Where the contract is governed by a foreign law, such as, for example, where the Institute Cargo Clauses are incorporated and provide that English law and practice applies,215 the three-year time limit nevertheless applies to claims litigated or arbitrated in the South African courts, unless there is a specific, contrary limitation provision in the contract. As a general principle, the limitation period begins to run under the Act when the debt is due, which in insurance cases in respect of property, is taken to be the date of the loss event.216 Most policies contain time limits shorter than the threeyear limit. The period may be interrupted by an express or tacit acknowledgment of liability by the insurer and, in that case, the three-year period runs afresh from that date. The parties are free under South African law to extend the period by agreement and the court will not, of its own accord, raise the statutory defence that must be relied upon by the party wishing to take the time bar point, normally the insurer. The time bar position is protected by service on the insurer of the relevant process commencing court or arbitration proceedings. 207. Ibid. 208. Ibid. 209. Ibid. 210. Ibid. 211. Ibid. 212. Ibid. 213. Dunt, Marine Cargo Insurance, at para. 12.12 et seq. 214. No. 68 of 1969. See P. Bugden (ed.), Time Bar in Insurance and Reinsurance: An International Comparison, 2011, Clyde & Co, London (South African section by Patrick Bracher). 215. ICC, cl. 19. 216. This accords with English law, see para. 3.89 above.

498

CLAIMS AND LOSSES

14.117

Proof of loss 14.113 The assured claiming under a contract of insurance must prove that the risk insured against has occurred.217 The “rules” regarding the onus of proof were set down some time ago in Eagle Star Insurance Co Ltd v. Willey218 and hold good today. These rules can be summarised as follows: (1) The assured must prove such facts as bring him prima facie within the terms of the promise. (2) If the promise is qualified by exceptions, then it is necessary to first establish whether the exception qualifies the insurer’s liability (in which case the assured bears the onus of proving, on a balance of probabilities, that the qualification did not apply, that is, that its claim fell within the limited description) or whether it was an exception to the insurer’s liability (in which case, and in the event that the assured establishes a prima facie case, the onus would be on the insurer to prove, on a balance of probabilities, that the exception applied).219 (3) In determining the nature of the exception or qualification, reference should be had to the contract as a whole. Under South African law, to prove a case on the balance of probabilities requires the party to produce proof such as carries conviction to the reasonable mind.220 14.114 It is not contrary to public policy for the parties to choose to reverse the onus of proof in the contract of insurance.221 14.115 On occasions, it may be necessary for the assured to prove a negative. In this regard, see the discussion on the Bethlehem Export222 case above,223 where the assured was obliged to prove that the goods, being fresh asparagus, and insured on “all risks” terms, had not deteriorated due to inherent vice. Interest and costs 14.116 This is an interesting and as yet unsettled aspect of South African admiralty law. Two issues are relevant: the first is the rate of interest and the date from which interest will run, and the second is the currency in which a plaintiff can claim. 14.117 In terms of section 5(2)(f) of the Admiralty Jurisdiction Regulation Act,224 which applies to maritime claims, including claims for, arising out of or relating to marine insurance or any policy of marine insurance,225 a court may in the exercise of its admiralty jurisdiction “make such order as to interest, the rate of interest in respect of any sum awarded by it and the date from which interest is to accrue, whether before or after the commencement of the action, as to it appears just”. 217. Griesel NO v. SA Myn en Algemene Assuransie Edms Bpk, 1952 (4) SA 473 (T). 218. [1956] (1) SA 330 (A) following Munro, Brice & Co v. War Risks Association [1918] 2 KB 78. 219. Gordon & Getz, at p. 178. 220. Reinecke et al., op. cit. at para. 289 fn. 292. 221. Reinecke et al., op. cit. at para. 289. 222. 1984 (3) SA 449 (W). 223. See para. 14.88 above. 224. No. 105 of 1983 as amended. 225. Section 1(1)(u).

499

14.118

SOUTH AFRICAN LAW OF CARGO INSURANCE 226

14.118 As Hofmeyer comments, there is an apparent conflict between the provisions of the Admiralty Jurisdiction Regulation Act and another South African statute, the Prescribed Rate of Interest Act.227 The Prescribed Rate of Interest Act allows interest on unliquidated damages (this was not the case prior in terms of the common law or the Act prior to its amendment in 1997) at a current rate of 15.5% per annum running from a date to be determined in accordance with the provisions of that Act. This apparent conflict arises out of the judgment of The Sea Joy,228 where the court felt that it was obliged to apply the interest rate determined by the Prescribed Rate of Interest Act rather than rely on the wideranging discretion provided in section 5(2)(f) of the Admiralty Jurisdiction Regulation Act. 14.119 It is respectfully submitted that Hofmeyer is correct to state that the court erred – the discretion granted to the court exercising its admiralty jurisdiction is sufficient both to determine the rate of interest and the date from which interest is to run. In exercising its discretion, the court may wish to have reference to the provisions of the Prescribed Rate of Interest Act. 14.120 The current rate of interest is particularly high in a global sense – 15.5% represents a rate of interest almost three times (or more) that available elsewhere. In all probability, the South African courts will apply interest rates that are appropriate to the currency of the claims. 14.121 As for the date from which interest will run, the general principle in admiralty is that the innocent party should receive as complete an indemnification as possible and that interest should run from the date upon which the loss is suffered.229 14.122 In practice, most policies of marine cargo insurance do not have a term dealing with the question of interest. Interest is usually regarded as commencing from the date of demand for payment, or the date of summons and, in practice, insurers do not offer to pay interest from the date of the loss when indemnifying the assured. 14.123 Section 5(2)(g) of the Admiralty Jurisdiction Regulation Act provides that, subject to any law relating to exchange control, a court, exercising its admiralty jurisdiction, may order that payment be made in a foreign currency (i.e., other than South African Rands) “as in the circumstances of the case appears appropriate”. The court can also determine the date upon which any conversion of currency is to take place. 14.124 The general rule seems to be that where the claim is contractual, the creditor should be paid in the currency of the contract, whilst for claims based on negligence, the plaintiff should be paid in the currency that the loss was “felt”.230 Given the sometimes alarming fluctuation of exchange rates, it is not uncommon to find policies that specifically provide for the indemnification to be in a particular currency. The practice insofar as goods carried by sea are concerned is to convert at the rate applicable on the date of the bill of lading, being the date when, it is assumed, the goods were loaded on board the ship and the insurer went on risk.

226. Hofmeyer, Admiralty Jurisdiction Law and Practice in South Africa 1st ed, at p. 135 and p. 136 and the various authorities cited. 227. Act 55 of 1975, as amended. 228. 1998 (1) SA 487 (C). 229. Hofmeyer, op. cit. at 137. 230. Hofmeyer, Admiralty Jurisdiction Law and Practice in South Africa at 135 and the authorities cited in fns 95 and 96.

500

CLAIMS AND LOSSES

14.127

14.125 It is the practice of the South African courts to order that the unsuccessful party pay the legal fees and expenses of the successful party in accordance with a tariff, unless the award is to pay “attorney and own client” costs, which is only done in exceptional circumstances and as an expression of the court’s displeasure at the conduct of a party or its legal representatives. Good faith and fraudulent claims 14.126 In most instances, the policy itself will deal with the consequences of the assured making a fraudulent claim. 14.127 Van Niekerk notes231 that in Roman-Dutch law the position seems to have been that an assured could derive no benefit from his fraudulent claim. Consequently, the insurer is not liable for an unfounded claim or for the exaggerated part of a fraudulently inflated claim, but will, despite the fraud, remain liable for the genuine part of an exaggerated claim, as well as fully liable for a valid claim merely accompanied by fraudulent means. It follows that, absent a term of the contract to the contrary, an insurance fraud does not entitle the insurer either to avoid the contract as a whole or to avoid all liability for the claim in question, thus penalising the assured for his fraud. In the KRS Investments CC case,232 the Supreme Court of Appeal appeared to accept the notion that an assured may have a duty to act in good faith towards the insurer for the duration of the contract, and that the submission of a fraudulent claim may be in breach of that duty, entitling the insurer to terminate the contract. In terms of South African law, the insurer would be relieved of liability only from the time of termination, and the rights and obligations that had accrued before then would remain extant. In the KRS Investments case, the assured had lodged a fraudulent claim for the loss of a motor vehicle. Before that claim was paid, the assured submitted a claim for the loss and damage by fire to its restaurant. This claim was otherwise valid. The insurer contended that one of the naturalia of the insurance contract – a term that is implied ex lege – is that an insurer against whom a fraudulent claim is made has an election to terminate the contract, and moreover, to do so with effect from the date that the fraudulent claim was made. In effect, the insurer argued that its right to terminate with retrospective effect from the date of the attempted fraud should be recognised. In the absence of any Roman-Dutch law on the point, the insurer argued the English law principles that recognised forfeiture remedies in the event of fraud. The court was not persuaded to import such a punitive rule given the “anti-penal” approach of Roman-Dutch law, the judge stating233: “…[the rule] purports to dispossess the insured of a perfectly valid claim, untainted by the fraud, that accrued contractually before the policy was terminated.”

231. LAWSA, at para. 176. 232. [2007] (1) All SA 566 (SCA). 233. At para. 11. See also Springold Investments (Pty) Ltd v. Guardian National Insurance Co Ltd, 2009 (3) SA 235 (D), where the court considered whether palm oil had become contaminated by sabotage and whether there had been fraud on the part of the assured. Patel J reviewed the law relevant to fraud in para. 20 of the judgment. The decision was taken on appeal. In an as yet unreported decision, the court only considered the question of sabotage and the Supreme Court of Appeal found that the assured had not satisfied the court that there was any evidence of sabotage. No other issues were considered.

501

14.127

SOUTH AFRICAN LAW OF CARGO INSURANCE

In the event that the insurer wishes to avoid liability under the policy where fraud is alleged, the insurer must first prove that the misrepresentations alleged were made and thereafter that the misrepresentations were fraudulent in the sense of having been made knowingly and with the intention of obtaining a benefit under the policy.234 Total loss of cargo and abandonment The categorisation of losses: real and presumed loss 14.128 Roman-Dutch law recognised the following types of total loss: where the subjectmatter of the insurance is completely destroyed, where the subject-matter is destroyed but the remains thereof retain a value and where the subject-matter insured exists, possibly undamaged, but the assured has been permanently deprived of it. Essentially, RomanDutch law recognised two types of loss (sometimes known as a “real” total loss): total loss and a presumed total loss.235 This is a distinction of convenience and relates not to the type of loss so much as when the assured is entitled to abandon the subject-matter by giving notice to the insurer.236 14.129 Examples of real total loss provided by the Roman-Dutch authorities include what is described in the Marine Insurance Act 1906 as actual total losses, such as: the total destruction of the goods; irreparable damage to the goods rendering them undeliverable in their damaged condition; where the assured is certainly and irretrievably deprived of possession of the goods and no reasonable hope exists of their recovery (such as where the goods themselves have been captured by Barbary pirates237); and where perishable goods have been detained or their carriage delayed due to loss of or damage to the carrying vessel.238 14.130 In the case of a real total loss, the assured can give notice of abandonment and notice of loss simultaneously. The assured need not wait until the goods have been ransomed (if captured) or recovered by legal process.239 14.131 Examples of a presumed total loss include: where goods have been damaged rendering them undeliverable in their damaged condition and the costs of restoring them and forwarding them to their destination would exceed their value on arrival; where the assured is deprived of possession of the goods but some hope remains of their recovery; where the cost or expense of recovering the goods will exceed their value when recovered.240 Where the loss is a presumed total loss, the rule was that the assured could not abandon the goods to the insurer immediately and claim indemnification, but had to wait for the expiry of a specified period of time after news of the loss had been received and the insurer had been notified. The specified time was dependent upon the length of the voyage, but these periods (6 months within Europe, 1 year beyond the western part of North Africa – Barbary and its notorious pirates) would probably no longer apply, and notice of abandonment could 234. Springold Investments (Pty) Ltd v. Guardian National Insurance Co Ltd, 2009 (3) SA 235 (D) at p. 26. 235. Reinecke et al., op. cit. at para. 566. 236. Ibid. 237. Contrast the position regarding Somali pirates, see Masefield AG v. Amlin Corporate Member Ltd [2010] 1 Lloyd’s Rep. 509, [2011] 1 Lloyd’s Rep. 630 (CA). 238. Ibid. and especially the authorities referred to in fns 424 to 431. 239. Reinecke et al., op. cit. at para. 566 and fns 432 to 434. 240. Reinecke et al., op. cit. at para. 566 and fns 435 to 439.

502

14.133

CLAIMS AND LOSSES 241

be given after the expiry of a reasonable period of time. In recent times, the hijacking of ships and cargo has become fairly common, and the approach taken by underwriters is that the cargo is not treated as a loss of any sort given the probability that the ship and cargo will be released in due course following ransom negotiations. The position would be different if the cargo was of a perishable or time-sensitive nature. There is, therefore, no separate concept of constructive total loss as understood in English law.242 Abandonment 14.132 Where the assured has suffered a total loss and has been appropriately indemnified by the insurer, the assured, following the principle of indemnity, cannot retain its ownership of the subject-matter insured.243 The assured is entitled, in certain circumstances, to elect, on notice, to abandon whatever is left of the subject-matter of the insurance to the insurer and to claim for a total loss. The insurer is then entitled to this remnant as abandonment – sometimes referred to as salvage – and becomes the owner thereof.244 It has been said that the Roman-Dutch authorities drew no distinction as such between an actual and a constructive total loss.245 The assured, before it can claim payment of a total loss under Roman-Dutch law, must, within the proper time, abandon the subject-matter of the insurance to the insurer; however, there is only one kind of total loss, and it is always necessary for the assured to give notice of abandonment, whether the loss be actual or appear to be “constructive”. The purpose of the notice of abandonment is to enable transfer of ownership from the assured to the insurer and it must therefore be unconditional and can only be made by or on behalf of the owner of the goods. To be effective, the notice must be accepted by the insurer. Once accepted, the insurer is bound to pay the full indemnity under the policy.246 The insurer may waive the obligation to give express notice of abandonment. Notice of abandonment should be given within a reasonable time, and, if an unreasonable time has elapsed, the assured may be liable to the insurer for any damages incurred as a consequence.247 14.133 The question as to whether English or Roman-Dutch principles should apply to the question of abandonment is, according to Hare, unsettled. He is of the view that the South African courts are at liberty to look at abandonment afresh. He states248: “For it to return to the ‘undeveloped and uncertain’ Roman-Dutch law of abandonment and notice of abandonment would however only serve to fuel the fires of existing law confusion in the law of abandonment in insurance. The court would take a bold and positive step if it were to conclude that the Roman-Dutch principles of abandonment and total loss have been superseded in South African law by the reception of the English law and its distinction between actual total loss and constructive total loss.”

241. Reinecke op. cit. at para. 566 and fns 441 and 442. 242. Reinecke et al., op. cit. at para. 564. 243. Reinecke et al., op. cit. at para. 563. 244. See J. P. van Niekerk, The insurer’s right to salvage, related issues of ownership, and unrelated issues of salvage liens: Hollard Insurance Co Ltd v Wagenaar t/a Race Designs”, SA Merc LJ, 2011, 300 at p. 311. 245. Gordon & Getz, at p. 406. 246. Hare, op. cit. at para. 19-10.2. 247. Reinecke et al., op. cit. at para. 565. 248. Hare, op. cit. at para. 19-10.2.

503

14.134

SOUTH AFRICAN LAW OF CARGO INSURANCE

Loss of the adventure 14.134 The long-established principle in English law that, in the case of cargo insurance, the thing that is insured is not merely the cargo but also the arrival of the goods at the destination specified in the contract of carriage, has not received any comment from the principal South African commentators on marine insurance. In effect, the loss of the adventure entitles the assured to claim a constructive total loss where the cargo is undamaged and in the assured’s possession, but the voyage has been frustrated and the cargo has not reached its destination. It is not an issue that appears to have come before the South African courts, but the probability is that our courts would apply the principles relevant to a presumed total loss to the facts and the contractual terms. It would appear that there is no South African law dealing specifically with forwarding charges incurred to save the adventure. It may be noted that where such charges take the form of sue and labour, the concept of sue and labour was described in one case as “completely foreign to [South African] law and peculiar to English marine insurance law”.249 Partial loss: measure of indemnity Valued and unvalued policies 14.135 Like the majority of Roman-Dutch policies,250 most South African policies are valued policies in that either they specify the value of the goods expressly, or the policy contains a Basis of Valuation Clause that provides a formula for calculating the agreed value, such as CIF plus a percentage to be agreed by the parties. 14.136 Roman-Dutch authors, applying the principle of indemnity, generally accepted that, despite a valuation in the policy, the insurer was not liable for more than an indemnity calculated with reference to the true value of the subject-matter insured. The true value was to be stated in the policy and the insurer was not liable in excess of that value. The insurer had the right to challenge any over-valuation and would be obliged to prove the true value.251 Cargo delivered damaged at destination: salvage losses 14.137 Roman-Dutch law and English law appear to be ad idem on the question of measuring the indemnity in the case of a partial loss, save that the Roman-Dutch authorities252 state that the net sound and damaged values (i.e., the price without the addition of freight and other expenses incurred and charges payable at the destination) are relevant in this regard, while under English law, subject to the policy conditions, the gross and damaged values are used as the basis for adjusting the loss. The same principle applies where only part of the goods are damaged and where only part of the goods are totally lost and such loss is a partial loss.

249. Viljoen JA in his dissenting judgment in Incorporated General Insurances Ltd v. Shooter t/a Shooter’s Fisheries, 1987 (1) SA 842 (SCA) at p. 864. 250. Reinecke, op. cit. at para. 570. 251. Reinecke, op. cit. at para. 571. 252. See the discussion on this topic in Reinecke et al., op. cit. at para. 572 and the various Roman-Dutch and English authorities cited in the relevant footnotes.

504

CLAIMS AND LOSSES

14.140

Underinsurance 14.138 At one stage, Roman-Dutch law applied compulsory underinsurance in order to compel the assured to take care of the object at risk. These requirements were mostly ignored, and the current view is that, under Roman-Dutch law, the parties are free to underinsure.253 In such a case, the insurer is only liable for a rateable proportion of its loss.254 Recoverable expenses Sue and labour 14.139 The concept of sue and labour was “completely foreign to [South African] law and peculiar to English marine insurance law”.255 However, it has been said256 that under Roman-Dutch law the assured has a duty to take reasonable measures to avert or minimise a loss to the subject-matter insured and the insurer has an obligation to compensate the assured accordingly. The insurer’s liability arises ex lege,257 but may be extended by express agreement. Salvage 14.139.1 It would appear258 that salvage charges incurred by an insured would be recoverable from an insurer under Roman-Dutch law. Such charges must arise independent of any contract. It is not clear whether it made any difference whether the salvage charges were incurred in avoiding a peril or simply from “any cause except those excluded” in the contract of insurance.259 Contractually incurred salvage costs, for example, under Lloyd’s Open Form (“LOF”), would be recoverable if they were incurred as sue and labour in the assured’s discharge of his customary duty to avert or minimise any loss or damage.260 General average 14.140 Professor Van Niekerk provides a succinct definition of the Roman-Dutch concept of general average, stating that it was261: “… an extraordinary loss, damage or expense deliberately caused or incurred for the common safety and to save the interests involved in a common maritime adventure. A general average loss did not lie

253. Reinecke et al., op. cit. at para. 574. 254. Ibid. 255. Viljoen JA in his dissenting judgment in Incorporated General Insurances Ltd v. Shooter t/a Shooter’s Fisheries, 1987 (1) SA 842 (SCA) at p. 864. 256. See the discussion in Reinecke et al., op. cit. at para. 575 and the various authorities referred to in the footnotes. 257. Reinecke et al., op. cit. at para. 575 states that under English law the insurer’s liability only arises ex contractu. 258. There is no easily accessible reference material on the issue of an insurer’s obligation to indemnify an assured for any amounts paid to salvors following the salvage of the insurer’s goods. 259. See J. Dunt, op. cit. at para. 14.28. 260. Reinecke et al., op. cit. at para. 575; J. P. van Niekerk, The Development of the Principles of Insurance Law in the Netherlands from 1500 to 1800, volume 2, 1997 p. 1055–1077. 261. J. P. van Niekerk, The Development of the Principles of Insurance Law in the Netherlands from 1500 to 1800, volume 1, p. 63. See J. P. Van Niekerk, op. cit. at p. 67.

505

14.141

SOUTH AFRICAN LAW OF CARGO INSURANCE

where it fell but was borne and contributed to by the owners of all the interests involved in proportion to the value of their interests; a general average loss was shared.”

14.141 It is beyond the scope of this chapter to discuss the development of general average in Roman-Dutch law – save to note, given the attention currently being given to piracy, that the deliberate sacrifice of cargo as a ransom to pirates, or the payment of a ransom, for the release of the ship or her cargo was recognised as a general average expenditure or loss. The obligation to contribute to the general average loss, damage or expense could be insured, even though, on the face of it, such loss etc arose from a deliberate act and not a fortuity. But the Roman-Dutch law was clear that an insurer was liable if the general average act was necessitated by, and the adventure saved from, loss or damage by such a peril.262 It was clear that the insurer of an interest was liable to reimburse the assured owner for any contribution that the assured had to pay for a general average loss.263 The insurer’s liability was reduced by the contributions that the assured received from other interests.264 14.142 As regards both the general average loss and the obligation to contribute, the insurer’s obligations flowed from the operation of general principles of causation.265 The insurer’s liability was assumed without being expressly prescribed by Roman-Dutch law or provided for in Dutch policies.266

SUBROGATION, DOUBLE INSURANCE AND RIGHTS OF CONTRIBUTION Subrogation Reception of doctrine into South African law 14.143 In general terms, once an assured has been indemnified in full in accordance with the terms of the policy, the insurer is entitled to proceed, under rights of subrogation, to recover the loss against liable third parties in the name of the assured. The doctrine of subrogation has been defined as follows: “Subrogation as a doctrine of the insurance law embraces a set of rules providing for the reimbursement of an insurer which has indemnified its insured under a contract of indemnity insurance. The gist of the doctrine is that insurer’s personal right of recourse against its insured, in terms of which it is entitled to reimburse itself out of the proceeds of any claims that the insured may have against third parties in respect of the loss.”267

262. J. P. van Niekerk, op. cit. at p. 78. Van Niekerk notes, at fn. 314, that the position was analogous to the principle that loss or damage caused, or expenses incurred, in averting or minimising loss or damage to the subject-matter insured was recoverable from the insurer as a loss or damage caused by that peril. 263. J. P. Van Niekerk, op. cit. at p. 79. 264. J. P. Van Niekerk, op. cit. at p. 78. 265. J. P. Van Niekerk, op. cit. at p. 79. 266. Ibid. 267. 12 LAWSA (first reissue) para. 373 as referred to with approval by Patel JPD in Smith v. Banjo, 2011 (2) SA 518 (KZP) at 521 para. 11. LAWSA refer to Castellain v. Preston [1883] 11 QBD 380 (CA).

506

SUBROGATION, DOUBLE INSURANCE AND RIGHTS OF CONTRIBUTION

14.145

268

In Rand Mutual Assurance Co Ltd v RAF, the court reviewed the history of insurance law in South Africa. English insurance law had been introduced in the Cape Colony by the General Law Amendment Act 8 of 1879 and in the Orange Free State by Amendment Ordinance 5 of 1902.269 The Transvaal and Natal followed Roman-Dutch law, although the doctrine had been adopted by Transvaal courts.270 Subsequently, the Cape and Orange Free State laws were repealed by the Pre-Union Statute Revision Act 43 of 1977. The effect of this repeal was that, subject to statutory law, the court is not bound to follow English law and precedent.271 14.144 The general view is that the doctrine of subrogation was received into South African law from English law through the judgment in Ackerman v. Loubser.272 Despite this development, the Appeal Court had, in the earlier decision of Commercial Union Insurance Co of SA Ltd v. Lotter,273 held that: “an insurer under a contract of indemnity insurance who has satisfied the claim of the insured is entitled to be placed in the insured’s position in respect of all rights and remedies against other parties which are vested in the insured in relation to the subject matter of the insurance. This is by virtue of the doctrine of subrogation which is part of our common law.”

Harms ADP in the Rand Mutual case, explained that the court was giving effect to the three rules of the lex mercatoria, which are not limited to the English law of insurance. The rules are: that the wrongdoer is not entitled to benefit from the fact that a person wronged was insured; that the assured may not be enriched at the expense of the insurer by receiving both the insurance indemnity and damages from the wrongdoer; and that the insurer replaces the assured, for example, the assured is subrogated by the insurer, which entitles the insurer to claim the loss from the wrongdoer.274 14.145 In insurance matters, subrogation follows on indemnification without any further formal requirements. In marine insurance, notwithstanding the subrogation of rights by operation of law following indemnification, most underwriters will require the assured to complete a subrogation form that not only confirms the subrogation, but will also evidence an undertaking by the assured to provide every assistance to the underwriter both by way of providing whatever documents are needed, as well as by providing witnesses,

268. For an overview of the subject of subrogation, see the judgment of Harms ADP in Rand Mutual Assurance Co Ltd v. Road Accident Fund [2008] ZASCA 114. Not only does this judgment succinctly trace the history of the reception (or otherwise) of the importation of the principles of subrogation into South African law, it also deals with the practical issue of whether the underwriter may proceed to recover any amount by which it has indemnified an assured in its own name, or not. 269. The court in Ackerman v. Loubser [1918] OPD 31 undertook, unnecessarily in view of the presiding legislation at the time, to import the doctrine as part of insurance law into South Africa. 270. Schoonwinkel v. Galatides, 1974 (4) SA 388 (T). 271. Rand Mutual Assurance Co Ltd v. Road Accident Fund, 2008 (6) SA 511 (SCA) at p. 518 paras 12 to 17. 272. [1918] OPD 31. 273. 1999 (2) SA 147 (SCA) and with reference to Ackerman v. Loubser [1918] OPD 31. 274. Rand Mutual, op. cit. at p. 519 at para. 17 with reference to and approval of the Supreme Court of Canada decision in Somersall v. Friedman [2002] (3) SCR 109, where the Court at para. 50 stated: “First, it is important to keep in mind the underlying objectives of the doctrine of subrogation, which are to ensure (i) that the assured receives no more and no less than a full indemnity, and (ii) that the loss falls on the person who is legally responsible for causing it. The doctrine of subrogation operates to ensure that the assured receives only a just indemnity and does not profit from the insurance. Consequently, if there is no danger of the assured being overcompensated and the tortfeasor has exhausted his or her capacity to compensate the assured, there is no reason to invoke subrogation. Similarly, if the assured enters into a limits agreement or otherwise abandons his or her claim against an impecunious tortfeasor, the assured has lost nothing by the inability to be subrogated.”

507

14.145

SOUTH AFRICAN LAW OF CARGO INSURANCE

in order to pursue any recovery against the third party. There is no standard subrogation form in circulation in the South African marine insurance market and some documents that purport to be “subrogation forms” either do not accurately reflect a subrogation (indeed they may reflect a cession or assignment of rights to the underwriter) alternatively they do not accurately reflect a proper indemnification in that they are no more than agreements of loss, or record an ex gratia settlement and, as such, do not evidence a subrogation. Furthermore, the requirements set out in some subrogation forms relevant to the ongoing obligations of the assured, often contain obligations that are nowhere to be found in the actual agreement of insurance or in common law. Generally speaking, a subrogation form should do no more than: (a) identify the underwriter; (b) identify the assured; (c) identify the policy and possibly claim number; (d) identify the goods insured; (e) identify, with a reasonable degree of accuracy, the date of the loss; (f) identify the amount in terms of which the assured has been indemnified; (g) accurately identify with sufficient detail the assured; and (h) confirm the subrogation of rights. Given the detail often found in these subrogation forms, it can be argued that they form a separate undertaking that stands apart from the insurance policy, unless, of course, the insurance policy requires that the assured, on indemnification, signs a subrogation form either in the underwriter’s “usual form” or in the form that may be attached to the policy. 14.146 Care must be taken to ensure that the subrogation form is completed by the correct party. In the event that the assured had an insurable interest in the goods, but held no “rights of recovery”, then any subrogation of rights and indemnification to the insurer would be meaningless. In certain circumstances, therefore, the rights that the underwriter requires to effect any recovery from a liable third party may need to be sourced from the party who has those rights. In those circumstances, the rights can either be transferred to the underwriter by way of a cession, or the underwriter can obtain an appropriate authority (against an indemnification for costs incurred) from the party who does possess the necessary rights for the underwriter to affect a recovery. In each instance, the underwriter will have to consider whether or not the party in whose name the underwriter wishes to proceed in order to effect a recovery has the necessary title to sue. 14.147 For some time in Natal it was thought that it would be necessary for an assured to specifically plead the point that the assured had been indemnified by the underwriter. A full bench of the Natal court has recently held that this would not be necessary.275 Exercise of subrogation rights in practice 14.148 Under English common law, the insurer is required to sue in the name of the assured. In deciding upon the issue, Harms ADP in the Rand Mutual case held that there had been no previous instance in which the court had required the insurer to sue in the name of the assured. He concurred with leading authors who viewed the doctrine as a procedural device in the service of the indemnity principle. In finding that the rule is not

275. Smith v. Banjo, 2011 (2) SA 518 (KZP).

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SUBROGATION, DOUBLE INSURANCE AND RIGHTS OF CONTRIBUTION

14.150

consistent with South Africa’s constitutional values or law of procedure, he commented as follows276: “To require a party to litigate in the name of another appears to me to fly in the face of the requirement of transparency that underlines all litigation. The rule serves no public interest in modern times… It is formalistic and creates anomalies. It enables the insurer to litigate in the name of the insured without taking any risk as far as litigation costs are concerned. The supposed advantages, namely the insurance company may be able to retain its anonymity, is clearly not to the advantage of the wrongdoer and also probably not to that of the insured.”

Despite having adopted this view point, Harms ADP acknowledged that there was a prevailing practice amongst insurance companies to act on the basis that they have to litigate in the name of the assured and the court was reluctant to interfere with settled legal principles – communis error facit ius. Consequently, the court did not hold that the insurer must litigate in its own name and may not litigate in the name of the assured. What it ruled was that it was in order if the insurer elected to litigate in its own name in terms of the subrogation doctrine.277 14.149 Following this Supreme Court of Appeal judgment, the lower courts have been surprisingly distracted by a misunderstanding of the doctrine. The first of these decisions was the judgment of the Kwazulu-Natal High Court in Nkosi v. Mbatha,278 which held that a subrogated claim must be proven and specifically pleaded. This contradicted an earlier decision of the same court, Ntlhabyane v. Black Panther Trucking (Pty) Ltd and Another,279 which held that there was neither a duty on the plaintiff to prove subrogation, nor to produce the policy of insurance. 14.150 In a separate matter and in an unreported case in a magistrate’s court, it was held that the assured must plead the involvement of the insurer in a lawsuit and dismissed the plaintiff’s action with costs for failing to do so. The facts of that matter were novel in that the plaintiff was the owner of the car but not the assured, which was a family trust. Usually, the plaintiff is both the owner of the insured car and the assured. On appeal, while acknowledging that the matter before him did not expressly concern the doctrine, Patel DJP in Smith v. Banjo280 commented as follows: “[s]ubrogation is at best a collateral fact which is not capable of affording any reasonable presumption or inference as to the principal matter in dispute. The question of subrogation is res inter alios acta.”281

In following the judgment of the Ntlhabyane case,282 he found that the involvement of the assured was irrelevant and not necessary to be pleaded.

276. Harms DJP in Rand Mutual Assurance Co Ltd v. Road Accident Fund op. cit. at p. 521 para. 23. With respect, the comment regarding costs is not correct as, in practice, the insurer undertakes to indemnify the assured plaintiff against all costs incurred. 277. Rand Mutual Insurance, op. cit. at p. 521 at para. 24. 278. [2010] ZAKZPHC 197. 279. [2009] ZAGPJHC 46. 280. 2011 (2) SA 518 (KZP). 281. At p. 521 para. 11. 282. [2009] ZAGPJHC 46.

509

14.151

SOUTH AFRICAN LAW OF CARGO INSURANCE

Excess or first loss clauses 14.151 The right of an assured to recover against a third party can be complex, and it is often the case that the assured incurs losses that are not indemnified by the insurer. Substantial excess terms may have been imposed under the contract, and the assured may have incurred damages (such as the loss of profit or other consequential damages) that the underwriter is not obliged to indemnify. On subrogation, however, the underwriter retains the contractual obligation283 to enforce the assured’s rights of recovery in full, subject to any agreement as to the costs of recovering the unindemnified portion. 14.152 In general terms, the underwriter is not entitled to recover more than it paid to the assured, including the costs of effecting any recovery.284 The position under South African law regarding indemnification and the application of any proceeds of recovery are complicated, but the principle to be applied is that the insurer should only be able to lay claim to any amount recovered from a third party once the assured has been indemnified in full.285 14.153 At all times, the rights of recovery remain completely vested in the assured; the right of subrogation gives the insurer a contractual right to enforce the assured’s rights on behalf of the insurer. Any settlement or judgment debt must be paid to the assured, who must then account to the insurer. This position can be, and almost always is, amended by agreement so that payment is made to the insurer, less any amounts due to the assured for claims – such as loss of profit – not covered by the terms of the insurance. 14.154 Only upon the cession, that is assignment, of the assured’s rights to the insurer, by agreement, can the insurer claim for its own benefit.286 Double insurance and contribution Double insurance: when does it occur? 14.155 Double insurance exists where “the same interest is insured by or on behalf of the same insured against the same risk with two or more independent insurers”.287 Double insurance may result in over-insurance if the sums insured exceed what is required to secure a full indemnity.288 There is nothing to prevent an assured from insuring an interest more than once, unless this is prohibited by a term of the contract of insurance.289 14.156 In practice, most proposal forms will require the prospective assured to disclose whether or not other insurances exist. In the absence of such a request, the existence of any other insurance is not a material fact that the assured needs to disclose in the proposal.290

283. See Reinecke et al., op. cit. para. 389. 284. Yorkshire Insurance Co Ltd v. Nisbet Shipping Co Ltd [1961] 2 All ER 487. 285. See, generally, Reinecke et al., op. cit. at paras 387 and 389. 286. Reinecke et al., at para. 390. 287. Reinecke et al., op. cit. at para. 516. 288. Gordon & Getz, op. cit. at p. 287. 289. Gordon & Getz, ibid.; Reinecke et al., op. cit. at para. 516. 290. Gordon & Getz, op. cit. at p. 287.

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14.160

Insurers include such a clause in order to enable them to recover, in certain circumstances, a contribution from other insurers, and to prevent fraud.291 14.157 The assured may insure its risk with as many insurers as it chooses, but the assured may only recover from the insurers to the extent of its loss. Once the assured has been compensated in full, it has no further claim on the insurers. The assured may elect to recover from any one or more of the insurers up to the full amount of its loss, or it may claim a proportionate amount from each insurer – and if it does not succeed in full against any one insurer, it may recover the shortfall from the others.292 14.158 Insurance policies may well contain a term that, in the event of double insurance, the insurer will only be liable for its proportionate share of the loss or the insurer will not be liable at all.293 These clauses are regarded as valid, but if liability is excluded on account of double insurance and it appears that the other policy contains a similar clause, then the two clauses are considered to cancel each other.294 In each case, the wording of the particular clause will need to be considered in order to determine what effect it has. 14.159 As these clauses benefit the insurer, they will be construed contra proferentum and may, if unintelligible, be discarded.295 Contribution between insurers 14.160 In the event that an insurer has paid more than its rateable proportion of the loss, it is entitled to claim in its own name from the other insurers that they each contribute proportionally.296

291. Gordon & Getz, op. cit. at p. 288; Reinecke et al., op. cit. at para. 516. 292. Reinecke et al., op. cit. at para. 516; Gordon & Getz, op. cit. at p. 289. 293. Examples of such can be found in Reinecke et al., op. cit. at para. 516, fns 16 and 17. 294. Reinecke et al., op. cit. at para. 519 and authorities cited in fn. 18 and Refrigerated Trucking v. Zive, 1996 (2) SA 361 (T) at 367. 295. Reinecke et al., op. cit. at para. 519 and the authorities quoted at fn. 21. 296. Reinecke et al., op. cit. at para. 519 and the authorities quoted at fn. 21. It is to be noted that these authorities come from English law. For South African authority, see Refrigerated Trucking v. Zive, 1996 (2) SA 361 (T). The judge in this case stated: “… the authorities referred to are persuasive and the result to which they come is fair”.

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CHAPTER 15

C O M PA R AT I V E A N A LY S I S John Dunt1

INTRODUCTION Scope and structure of the chapter 15.1 This chapter carries out a comparative analysis of the law and practice of international cargo insurance. As this book is structured with each chapter in a similar order, and with largely the same headings, so as to enable the reader to compare the law in each of the different jurisdictions dealt with in this book, the purpose of this chapter is not to compare in detail each of the issues discussed in the earlier part of the book. The various issues will be examined, but the analysis will concentrate on those issues that are important in practice and give rise to difficulty and dispute. These include: problems of insurable interest, particularly where goods purchased FOB are pilfered before loading2; the exclusions of inherent vice and insufficiency of packing3; the duration of transit4 and the carriage of cargo on deck where under deck bills have been issued.5 In terms of claims, there is a consideration of the different approaches to constructive total loss6 and subrogation.7 The chapter starts with a brief consideration of the problem of distinguishing between marine and non-marine risks. Marine and non-marine risks distinguished Marine insurance defined 15.2 Marine insurance is defined in England, and in other common law jurisdictions subject to legislation based on the 1906 Act,8 as insurance against “marine losses”. Such losses require that the goods be exposure to “maritime perils”.9 Although the 1906 Act recognises

1. John Dunt, Consultant, Clyde & Co LLP and Senior Research Fellow at the Institute of Maritime Law, University of Southampton. 2. See para. 15.15 below. 3. See para. 15.33 below. 4. See paras. 15.36 to 15.50 below. 5. See para. 15.51 et seq. below. 6. See para. 15.59 below. 7. See para. 15.61 below. 8. These include: New Zealand (Marine Insurance Act (MIA) 1908); Australia (MIA 1909, see para. 7.4 above); Malaysia (the MIA 1906 (UK) has force and effect under the Civil Law Act 1956); India (MIA 1963); Hong Kong (Marine Insurance Ordinance of 1961, see para. 4.12 above); Canada (MIA 1993); and Singapore (the MIA 1906 (UK) has force and effect under the Application of English law Act 1993, see para. 5.4 above). 9. See para. 3.4 above and Continental Illinois National Bank and Trust Company of Chicago (The Captain Panagos DP) [1985] 1 Lloyd’s Rep. 625 at p. 631, for the English position; the Australian law and cases on this issue are considered at para. 7.12 et seq. above.

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15.2

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that a contract of marine insurance may extend to land risks incidental to sea voyages,10 such as inland transits under the warehouse to warehouse clause, in many cases cargo is insured for storage both before and after international carriage. On occasions, cargo is increasingly carried by air. Carriage by air does not expose cargo to marine perils and is not, in terms of English law, or the countries where their statutes follow the Marine Insurance Act 1906, considered marine insurance. The importance of the distinction between marine and non-marine 15.3 There are two main reasons why it may be important to determine whether the risk is or is not a marine risk. First, it may be necessary to determine if marine or non-marine rules apply; for example, the right to remuneration for sue and labour is exclusive to marine insurance as is the right to claim for a constructive total loss. In the United States a particular problem arises as, in the absence of a well-established rule of federal admiralty law, or the need for such a uniform rule, state law applies.11 Secondly, there may be rules protecting the consumer12 in respect of non-marine risks, as there are in Australia13 and South Africa14 and under European law.15 Where there are no mandatory rules protecting the consumer, it is generally possible for the parties to agree that marine insurance principles should apply. For example, air carriage may be insured on terms such as the Institute Cargo Clauses, which use the terminology and principles of marine insurance (e.g., the duty to sue and labour) and, to that extent, it may be that the parties have agreed, by implication, that their contract should be construed as if it were one of marine insurance.16 Storage risks 15.4 In practice the critical practical problem is likely to be the long-term storage of goods either before or after sea transit. In England the issue can be resolved by an express agreement between the parties, as it is in the Institute Metals Storage Clauses.17 In the common law jurisdictions subject to legislation based on the Marine Insurance 10. MIA 1906 s. 2(1) “Mixed sea and land risks”. Section 6(1) of the MIA 1993 of Canada extends to losses by air perils which are incidental to a marine adventure, no doubt to take into account carriage by air to remote locations, following on a sea voyage, which may be a significant risk in that vast country. A similar extension to the MIA 1909 in Australia was suggested to the Australian Law Reform Commission and they recommended that the MIA 1909 be amended to include air risks incidental to a sea voyage (see ALRC Report at para. 8.55). 11. See para. 8.1 and Wilburn Boat Co v. Fireman’s Fund Insurance Co, 348 U.S. 310 (1955). As well-established rules of maritime law apply more commonly to ocean marine transits, this issue parallels, in some respects, the distinction between marine and non-marine insurance. Where state law applies, there is a tendency for nonmarine rules that favour the protection of the assured, as consumer, to prevail. 12. See, in England, the Consumer Insurance (Disclosure and Representations) Act 2012 where a consumer means an individual who enters into an insurance contract “wholly or mainly for purposes unrelated to [that] individual’s trade, business or profession”, s. 1(a), which is in force. The remainder of the Act (except s. 1) is not yet in force. 13. See para. 7.10 et seq. above. 14. See para. 14.13 above. 15. In respect of jurisdiction (see para. 2.4 et seq. above) and choice of law (see para. 2.47 et seq. above). 16. See Dunt Marine Cargo Insurance, Informa, 2009 (Dunt) at para. 1.31. 17. The Institute Metals Storage Clauses (A) and (B) provide by cl. 13 entitled “Law and Practice” that “this insurance is subject to English law and practice and the Marine Insurance Act 1906 which is incorporated herein. This insurance protects the Assured against land risks which are expressly to be considered as incidental to a marine voyage or adventure for the purposes of that Act”.

514

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE

15.6

Act 1906, the position is likely to be the same as it is in England, that is to say, a storage risk is not governed by the Marine Insurance Act 1906 unless expressly so provided or unless the incorporation of clauses, such as the Institute Cargo Clauses, indicates that the parties intended their relationship to be governed by the 1906 Act.18 In the United States, where cargo is stored in a warehouse pending transit and is insured pursuant to a warehouse endorsement in an open cargo policy, the contract will be considered a marine insurance contract.19 However, separate storage, even of cargo destined for international destinations, is likely to be treated as non-marine and the insurance subject to state law rules rather than federal admiralty rules. So far as the European position is concerned, storage risks may constitute “large risks” for the purposes of European Regulations which deal with the freedom to choose law and jurisdiction, taking marine cargo insurance out of the protections normally afforded to consumers to have disputes resolved on their home ground according to local law.20

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE Non-disclosure and misrepresentation The issues 15.5 In practice the issue that arises is whether a cargo assured has a duty to disclose (or not to misrepresent) such matters as the fact that the cargo is particularly vulnerable to risk, because of its inherent characteristics, or some special aspect of the voyage relating, for example, to the means or method of transport. Two questions arise in practice: does the duty of disclosure cease when the contract is concluded and how is the materiality of facts or circumstances to be tested? In particular, is materiality to be tested by reference to the views of the actual underwriter who wrote the risk, a notional prudent underwriter or, is it to be applied in terms of what a reasonable assured would have thought material to the underwriter?21 The timing of the duty 15.6 Under common law systems which adopt legislation equivalent to the English Marine Insurance Act 1906, the obligations of the assured are regulated by the Act22 and non-disclosure is treated as a breach of the duty of utmost good faith. The usual rule in these systems is that the obligation to disclose material facts or circumstances (or not to 18. See Dunt at para. 1.32 and Tradigrain SA v. S.I.A.T. SpA [2002] 2 Lloyd’s Rep. 553, where a claim for sue and labour for cargo stored under the ICC(A) was treated as if the risk was a marine risk. 19. See para. 8.4 above, Chapter 8. 20. As to jurisdiction see Chapter 2 at para. 2.4 et seq. above and, as to the applicable law, see para. 2.47 et seq. above. 21. Similar issues arise as to the obligation not to misrepresent the risk during the negotiation of the contract and what is said here about non-disclosure in general applies equally to misrepresentation. 22. The duty of disclosure is dealt with by MIA 1906 s. 18 and representations are governed by MIA 1906 s. 20. It may be noted that the continuing duty of good faith under s. 17 of the MIA 1906 has little or no independent impact on the rights of the parties which are in effect governed by the other terms of the insurance contract; see K/S Merc-Scandia XXXXII v. Lloyd’s Underwriters (The Mercandian Continent) [2000] 2 Lloyd’s Rep. 357, [2001] 2 Lloyd’s Rep. 563 (CA).

515

15.6

COMPARATIVE ANALYSIS

misrepresent the risk) ceases when the contract is concluded.23 In general, civil systems of law do not treat the duty of disclosure as part of the duty of good faith,24 but the civil law systems nevertheless recognise a duty to disclose and, separately, have rules which govern a change in the risk during the currency of the policy.25 Materiality and inducement 15.7 The English test of materiality requires that both the actual underwriter and a notional prudent underwriter would have considered the circumstances that were not disclosed material because they would not have accepted the risk at all or because a higher premium would have been charged.26 The research conducted by the Comité Maritime International (“CMI”) indicates that most civil law systems impose a test of materiality in terms of what a reasonable underwriter would have considered material.27 For example, the test of materiality under Italian law requires that for avoidance the insurer must prove that the non-disclosure or misrepresentation was intentional or, at least, resulted from gross negligence. This implies that the assured was aware, or should have been aware, not only of the non-disclosed or misrepresented circumstances but also that they would lead the insurer not to agree the contract.28 The test of materiality under German law is to be judged from the point of view of a reasonable insurer29 but, insofar as the right to cancel the insurance requires that the non-disclosure is intentional or grossly negligent, the assured must have been aware that the circumstances not disclosed would affect the insurer’s assessment of the risk and that the information was withheld intentionally or with gross negligence.30 The test in France relates to “the assessment by the insurer of the risk”31 and although the assured may be entitled to insurance cover at an extra premium, where the insurer would have accepted the risk at a higher rate, the risk is not covered where the insurer proves that he would not have covered the risk at all if he had known the circumstances not disclosed.32 Under Norwegian law, the initial onus is on the insurer to ask questions but the policyholder is required on his own initiative to provide information on special circumstances which he or she understands will have a significant

23. See MIA 1906 s. 18(1) which provides that the assured must disclose “before the contract is concluded” every material circumstance. The same limitation applies to representations pending a negotiation of the contract, see MIA 1906 s. 20(1). 24. Trine-Lise Wilhelmsen, Duty of Disclosure, Duty of Good Faith, Alteration of Risk and Warranties. An Analysis of Replies to the CMI Questionnaire, CMI Yearbook 2000 (Wilhelmsen, CMI Analysis) 332 at p. 347. 25. See para. 15.8 below for a consideration of the civil law position. Under the common law there is no common law or statutory duty to disclose a change in the risk that arises during the risk, see Niger Co Ltd v. Guardian Ass Co Ltd (1921) 6 Ll. L. Rep. 239 (CA), (1922) 13 Ll. L. Rep. 75 (HL), and F. Rose, Marine Insurance Law and Practice, 2nd edn, Informa, 2012, at para. 5.93. In non-marine policies in England, it is common to see a requirement that a change in the risk must be disclosed but there is no such requirement in the Institute Cargo Clauses (“ICC”). 26. MIA 1906 ss. 18(2), 20(2) and see Pan Atlantic Insurance Co Ltd v. Pine Top Insurance Co Ltd [1993] 1 Lloyd’s Rep. 496 (CA), aff’d [1994] 2 Lloyd’s Rep. 427 (HL). 27. See Wilhelmsen, CMI Analysis at p. 350 and Chapter 9 (Italian law) at para. 9.29 above, Chapter 10 (German law) at para. 10.44 above and Chapter 11 (French law) at para. 11.8 above. 28. Cass. 20.11.1990 n. 11206, and see para. 9.29 above. 29. Koller (fn. 4A), DTV-GĦter, cl. 4 n. 1, see para. 10.44 above. 30. See para. 10.47 above. 31. Article L.172-2 of the French Insurance Code, see para. 11.8 above and Appendix 11. 32. Op. cit.

516

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15.8

33

bearing on the insurer’s assessment of the risk. In the People’s Republic of China, the Maritime Code34 requires the assured to inform the insurer of material circumstances which may have a bearing on the insurer in deciding whether to insure the risk or not, and this test applies both to willingness to insure and the rate of premium, though in practice Chinese courts tend to favour the assured on these issues.35 The Chinese courts, like the English courts,36 do not require disclosure of any circumstance which is presumed to be known by the insurer or ought to be known by him in the ordinary course of his business. Accordingly, in Guilin University of Electronic Technology v. PICC Guilin,37 the Chinese court held that insurers should have known that seagoing ships cannot reach Guilin and that cargoes must be transhipped, so there was no need for the assured to disclose that the cargo in question was to be transhipped to a truck in the course of which transhipment it was damaged. The Australian law applicable to marine risks follows the English position but for non-marine risks, which may include storage risks,38 it imposes a test based upon what the reasonable assured would consider material39 as does the Short-term Insurance Act of South Africa, again potentially applicable to non-marine risks, which imposes a “reasonable, prudent person” test.40 In the United States the courts impose a duty of disclosure based on “whether a reasonable person in the assured’s position would know that the particular fact is material”.41 Variation of the risk during the insurance period 15.8 Many civil law systems take a different approach to the common law systems and proceed on the basis that alteration of risk and, in particular, any increase in the risk, creates a new situation that must be notified to the insurer.42 For example, under Italian law, the non-marine rule is that if there is an increase in the risk during the insurance period, the assured must give immediate notice to the insurer who is entitled to terminate the contract by giving notice to the assured within a month of the increase. This notice takes effect immediately if the insurer would not have entered into the contract at all had he known of the increase, and takes effect within 14 days if the insurer would merely have charged a higher premium.43 In marine insurance, however, the rules in Italy are more favourable to the insurers and an increase in the risk is not considered material unless it is due to an act 33. CICG para. 12 and ICA para. 4-1 first paragraph third sentence, see para. 12.21 above. 34. Article 222. 35. See para. 13.5 above and the examples given, sailing date, age of vessel, where the Chinese courts have held in favour of the assured. 36. MIA 1906 s. 18 (3)(b), and, for an example of a case involving cargo, see Glencore International A.G. v. Alpina Insurance Co Ltd [2004] 1 Lloyd’s Rep. 111. 37. See Behai Maritime Court’s case number (2002) Hai Shang Chu Zi 98. 38. See para. 7.10 et seq. of the Australian chapter which examine whether storage risks expose the cargo to maritime perils. 39. Insurance Contract Act 1984 (of Australia) s. 21and see para. 7.27 of Chapter 7. 40. Short-term Insurance Act (of South Africa) s. 53(10(b) and see para. 14.32 et seq. of Chapter 14. 41. Knight v. US Fire Insurances Ins Co, 804 F.2d 9, 13 (2d cir 1986), cert. denied, 480 U.S. 932, 107 S. Ct. 1570, 94 L. E. 2d 762 (1987) and see Chapter 8 at paras 8.7 to 8.9. See also Andrew Tullock, “Utmost Good Faith”, CMI Yearbook 2003, who suggests that it is “extremely rare” for the doctrine to be applied against underwriters at the free-contractual stage in the United States, though, it may be suggested, that this will depend on whether the jurisdiction be, e.g., New York or California or Texas. 42. M. Clarke, “An Interim Discussion Paper on Alteration of Risk” CMI Yearbook 2003, 500, at p. 504. 43. Article 1898 of the Italian Civil Code, see para. 9.33 above.

517

15.8

COMPARATIVE ANALYSIS

or omission of the assured and the assured is not, in any event, bound to give notice of the change in the risk.44 That said, the Italian Code of Navigation45 specifies certain changes in the risk that must be notified, for example, transhipment. The standard terms of the Italian Cargo Policy require that loading on deck must be notified.46 15.9 Under German law, where the assured becomes aware of a change in the risk he must inform the insurer immediately,47 whether or not the change increases the risk, though a failure to notify will only have legal consequences where there is an increase in the risk. In the case of a failure to notify an increase, the insurer is discharged from liability unless the failure to notify was neither wilful nor the result of gross negligence of the assured, or the increase had no impact on the occurrence of the loss or the amount of that loss.48 15.10 Under French law any increase in the risk must be disclosed to the insurer within three days of the assured becoming aware of it and if the assured fails to notify the increase the contract is terminated unless the assured proves good faith.49 Similar rules apply under the law of the PRC under which any “remarkable” increase in the risk must be notified failing which the insurer is entitled, according to contract, to an increase in the premium or to terminate the risk.50 15.11 Norwegian law adopts a position similar to the common law insofar as the duty of disclosure ceases at the time of the conclusion of the contract, though there is a continuing duty throughout the insurance period to correct any material mistakes or omissions in the information given at the time the contract was concluded.51 Alteration of the risk after conclusion of the insurance contract is not, therefore, of itself, a matter of disclosure, though delay (which, by its nature, may increase the risk) is the subject of specific provisions in the Norwegian Cargo Clauses which may lead to suspension of the risk.52 15.12 While English law does not impose any general duty to notify an alteration in the risk after the contract has been concluded,53 the Institute Cargo Clauses only cover the goods whilst they remain in “the ordinary course of transit”.54 While some variations of the risk, generally beyond the control of the assured, are covered under clause 8.3 of the Institute Cargo Clauses,55 such matters as termination of the contract of carriage56 or a change of voyage57 will need to be notified promptly to insurers and, if necessary, an extra premium paid or the insurance will automatically terminate. In the result, the position 44. Articles 522 and 523 of the Italian Code of Navigation and see para. 9.34 above. These provisions can be varied by agreement but only in favour of the assured, op. cit. 45. Article 523. 46. Cargo Policy Art. 26, para. 9.36 above. 47. Clause 5.2, DTV-Cargo, para. 10.56 above. 48. Clause 5.4 DTV-Cargo, para. 10.58 above. 49. Article L.172-3 of the French Insurance Code, paras 11.10 and 11.11 above. 50. Article 52 of the Chinese Insurance Law, see para. 13.8 above. 51. CICG Commentary on the Norwegian Cargo Clauses at p. 21, and see para. 12.23 above. 52. See further paras 12.26 and 12.27 above. 53. See para. 15.6 above. 54. ICC, cl. 8.1. See further, as to the importance of this overriding/overarching limitation on the cover, para. 15.37 below. 55. Under cl. 8.3, the cover remains in force during delay beyond the control of the assured, any deviation, forced discharge, reshipment or transhipment or any variation of the adventure within the liberties in the contract of carriage. 56. ICC, cl. 9. 57. ICC, cl. 10.

518

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE

15.13

in practice under English law and the civil systems of law considered in this book is not materially different so far as alterations in the voyage are concerned though the methods by which this result is achieved varies significantly. Remedies for non-disclosure and misrepresentation 15.13 Under English law a failure to disclose material facts or circumstances (or a misrepresentation of the risk) is a breach of the duty of good faith58 and the sole remedy is avoidance59 at the election of the insurer.60 This “draconian”61 remedy is consistent with the duty of utmost good faith and the principle that, lacking full disclosure, no true bargain was ever reached between the parties. However, in practice, the consequences for the assured who has suffered loss of or damage to his cargo may be out of proportion to the prejudice suffered by the insurers, particularly where insurers would have accepted the risk at a higher premium, or where avoidance means the avoidance of an entire open cover with a multitude of shipments where other valid claims may have occurred.62 Under Italian law there are limited rights of avoidance where the assured has acted intentionally or with gross negligence.63 Where a different premium would have been charged, the amount of the indemnity due to the assured is reduced in the same proportion as the premium that was charged, bears to the premium that would have been quoted had the material circumstances been made known to the insurer.64 Similarly under German law there is no right to avoid unless the failure of the assured to disclose was intentional or the result of gross negligence.65 Where the insurer is still required to pay a claim, because the non-disclosure was without fault, the insurer may claim an extra premium to reflect the higher risk.66 French law recognises the right of avoidance in marine insurance cases but, where the assured brings evidence of good faith, the risk is covered in proportion to the premium received compared to that which the insurer should have received.67 Under Norwegian law, the sanction depends on the degree of fault by the assured and the insurer’s liability is only extinguished where the fault is “more than just slight”.68 In the PRC the insurer may seek exemption from liability by showing that the assured’s failure to disclose was intentional,69 a standard rarely met, or that the matter not disclosed had an “impact on the occurrence of perils insured”.70 In Nichitani & Co Ltd v. PICC Qingdao,71 the insurers successfully convinced the court that non-disclosure 58. MIA 1906 s. 17. 59. MIA 1906 s. 18(1), non disclosure; MIA s. 20(1), misrepresentation. 60. Damages are not available for non-disclosure, see Banque Keyser Ullman SA v. Scandia (UK) Insurance Co Ltd [1990] 1 QB 665 and are not appropriate for misrepresentation in marine insurance cases, Highlands Insurance Co v. Continental Insurance Co [1987] 1 Lloyd’s Rep. 109 at p. 118. 61. For the use of this word see, e.g., the judgment of Longmore LJ in K.S. Merc Scandia XXXXII v. Lloyd’s Underwriters (The Mercandian Continent) [2001] 2 Lloyd’s Rep. 563 (CA). 62. See, e.g., the United States position, Tradeline, 266 F.3d 112, considered at para. 8.10 above. 63. See para. 9.25 above. 64. Article 1893 of the Italian Civil Code, and see further para. 9.26 et seq. above. 65. See para. 10.47 above. Note that the DTV-Cargo Conditions may be more favourable to insurers than the general provisions of German law but gross negligence is still required, and ordinary negligence is not enough. 66. See para. 10.51 above. 67. Article L.172-2 of the French Insurance Code, and see paras 11.8 and 11.9 above. 68. See further para. 12.24 above. 69. Chinese Maritime Code, Art. 223; see para. 13.7 above. 70. Ibid. 71. See Shandong High People’s Court case no (2002) Lu Min Si Zong Zi 45, cited at para. 13.7 above.

519

15.13

COMPARATIVE ANALYSIS

of the fact that the cargo was carried on the deck of a barge had such an “impact” and the loss was caused by deck carriage and the policy was therefore avoidable. Formalities, insurable interest and illegality Formalities 15.14 Under English law there are now few documentary formalities required by statute72 though, in practice, the London market rules require that a detailed written contract, in the form of the Market Reform Contract (“MRC”), must be drawn up before the risk attaches and signed by or on behalf of the insurers who are required to be properly identified.73 Section 22 of the Marine Insurance Act 1906 nevertheless still provides that a “contract of marine insurance is inadmissible in evidence unless it is embodied in a marine policy in accordance with this Act”.74 This evidential requirement, which was introduced in England for fiscal reasons, in order to raise stamp duties on insurance policies,75 is echoed in the provisions of civil law. In Italy, Article 1888 of the Civil Code provides that “a contract of insurance shall be evidenced in writing” and the contract, though valid in principle, cannot be proved orally before a court and written evidence must be produced.76 The same applies in France where an oral agreement may constitute a valid contract of insurance, but Article R.172-1 of the Insurance Code provides that in legal proceedings the terms of the agreement must be supported by evidence in written form.77 A similar rule applies in Germany, where an insurance contract can be concluded verbally and it is not necessary that a policy is issued for the insurance contract to be valid, though under section 3 of the Insurance Contracts Act the insurer should issue a policy.78 In the PRC it has been held that the fact a policy has not been issued does not affect the formation of the contract of insurance.79 The US courts recognise the validity of an oral contract of insurance for a limited period of time in order to allow for a policy to be issued,80 and there may be a binding agreement as long as there is agreement to the material terms.81 Insurable interest 15.15 The insurable interest requirement is common to the systems of law considered in this book82 even though the need for such a requirement has been questioned bearing 72. The remaining requirements of MIA 1906 s. 23(1) (name of assured); s. 24(1) (signature of insurer) and s. 26(1) (designation of subject-matter) are considered at para. 3.13 above. 73. See para. 3.20 above for the MRC and, for an example of a MRC, see Appendix 5 to Dunt, Marine Cargo Insurance. 74. The repeal of this section has been proposed by the Law Commissions, see para. 3.13 above. 75. Stamp duty was abolished by the Finance Act 1970 s. 30. 76. See para. 9.38 above. 77. See para. 11.13 above. 78. This provision of the Act is not mandatory but, in practice, the insurer has to issue a cargo policy, see the DTV-Cargo Conditions, cl. 11.1 and para. 10.63 above. 79. See Ningbo Liangyou v. PICC P&C Shanghai discussed at para. 13.9 above. 80. See para. 8.16 above. Where the contract is not one of ocean marine insurance, state laws may apply formalities designed to protect the assured. 81. See para. 8.15 above and for the similar position in the PRC, see Ningbo Liangyou v. PICC P&C Shanghai (supra) and para. 13.9 above. 82. See for US law, para. 8.18 et seq.; Italian law, para. 9.14 et seq.; German law, para. 10.14 et seq.; French law, para. 11.14 et seq.; Norwegian law, para. 12.15 et seq. and PRC law, at para. 13.14 et seq.

520

FORMATION OF A CONTRACT OF MARINE CARGO INSURANCE

15.15

in mind the principle of indemnity which requires that the assured must have suffered a loss.83 So far as English law and practice is concerned, the Institute Cargo Clauses 1/1/2009 provide that the assured “must have an insurable interest in the subject-matter insured at the time of the loss”.84 In practice, issues of insurable interest may arise where containerised goods are sold CFR or FOB and are pilfered from the container prior to shipment. In such circumstances a clean bill of lading is likely to be issued and the buyer may pay for the documents, representing the goods, which he or she insures for their full value, even though not all the goods are present in the container or, if they are, they may already have been damaged. For example, in New South Wales Leather Pty Ltd v. Vanguard Insurance Co Ltd85 the assured purchased quantities of leather in containers on FOB terms, cash against documents, from Brazilian suppliers. After the containers were closed and sealed they were broken into and the bulk of the leather stolen, following which fresh seals were fraudulently attached to the containers. The assured, as FOB buyers, paid against the documents, and the loss which had occurred prior to shipment was only discovered at destination. The leather was not owned by the buyers before shipment nor was it at their risk. They had no insurable interest at the time of the loss and the claim would not have succeeded under the Institute Cargo Clauses 1/1/200986 though it would have succeeded and did succeed under the SG Form and the proviso to section 6(1) of the Marine Insurance Act 1906 which allows for the acquisition of a retrospective insurable interest.87 The US courts recognise that the FOB consignee has an insurable interest in the goods when a loss occurs prior to delivery if it would cause the consignee to suffer a loss.88 In Italy it has been held that where there is an FOB/CFR sale, the seller is entitled to the indemnity if the loss occurs before his interest in the goods passed to the buyer,89 which would presumably preclude a claim by the buyer on his insurance as that would lead to the possibility of dual recovery. In Germany, the Federal Court acknowledged the insurable interest of a buyer, who had bought goods “FOB Hong Kong airport”, which were exchanged with valueless imitations on the inland pre-carriage to the airport in circumstances where the purchase price had to be paid by documentary letter of credit. The court held that the buyer had an interest on grounds that he was insured against the risk that in case of loss or damage he would have to pay for the goods and it was uncertain whether the seller would refund the purchase price. It is submitted that this approach, which treats cargo insurance as cover for contingencies going beyond loss of or damage to the goods, is an unwarranted extension of the concept of insurable interest in the context of marine cargo insurance.90 However, it appears that an approach similar to that adopted in Germany has been applied in the PRC

83. See Law Commissions’ Report on Insurable Interest, Issues Paper 4, January 2008, para. 7.94. 84. ICC, cl. 11.1; see also MIA 1906 ss. 5 and 6. 85. (1990) 103 FLR 70, Supreme Court of New South Wales, Admiralty Division, at first instance Carruthers J gives a learned summary of the history of insurances “lost or not lost” which includes the law in England, the United States, France and Germany, though his decision was reversed by the Supreme Court of New South Wales, Court of Appeal (1991) 105 FLR 381. 86. The same position applies under the ICC 1/1/82, see Dunt, Marine Cargo Insurance at para. 4.19. 87. MIA 1906 s. 6(1) states that “provided that the subject-matter is insured ‘lost or not lost’, the assured may recover although he may not have acquired his interest until after the loss …” and see Sutherland v. Pratt (1843) 11 M&W 296, discussed in Dunt at para. 4.18. 88. See para. 8.20 above. 89. Arbitral Award cited at para. 9.14 above at fn. 24. 90. For the criticisms of this case in Germany, see para. 10.17 fn.12 above.

521

15.15

COMPARATIVE ANALYSIS

on the basis of the risk being borne by the buyer.91 The potential problem with this solution is that it leaves both seller and buyer with an insurable interest as the FOB/CFR seller will retain property and risk before shipment, which ought to be insured on a sellers’ interest basis.92 The insurance of cargo is not an insurance against the risk that the buyer may not be paid by the seller and such an unwarranted extension leads to the potential for dual claims. It is submitted that the better solution is that adopted by the English courts in Sutherland v. Pratt93 where goods in transit from Bombay to London were pledged to the assured as security for an advance at a time when (unknown to the assured and his insurers) the goods had already suffered serious wetting by sea damage which rendered them useless. At the time of that loss the assured had not made the loan on the goods and had no interest in them but it was nevertheless held that the policy, which was underwritten on a “lost or not lost” basis, was “clearly a contract of indemnity against all past, as well as all future losses …”.94 This approach, whereby the insurable interest of the seller is acquired by the buyer, would not permit dual claims as the rights have passed to the buyer and would, at the same time, allow a FOB buyer to recover for losses that have occurred prior to shipment as indeed was the result in New South Wales Leather case.95 Illegality and public policy 15.16 In general, principles of illegality apply in the jurisdictions considered in this book.96 Illegality may be treated as a general principle of contract law, rendering the contract unenforceable,97 or may be a requirement of the marine adventure as it is, for example, under English law where there is an implied warranty by which the assured promises that the adventure is legal and will be carried out in a lawful manner.98 In current practice the issue arises whether a ransom payment to pirates, commonly recovered from cargo interests as a contribution to general average,99 is illegal or against public policy. Under English law such a payment to pirates is neither illegal100 nor against public policy.101 15.17 German law, like English law, does not recognise illegality by foreign law but enforcement of a contract that is illegal by the place of performance may be considered void as a violation of public policy. For example, the Federal High Court regarded an insurance contract for the export of cultural objects from Nigeria to Germany as invalid

91. Metrich International Trading Ltd & Chaoan Wenci v. PICC P&C Guangzhou, Guangdong High People’s Court’s case no (1999) Yu Fa Jing Er Zhoung Zi 274 and see also She Lu Yi Co v. Huatai Insurance & Huatai Insurance Shanghai, Shanghai Maritime Court’s case no (2005) Yu Hi Fa Hang Chu Zi 632, cited at para. 13.14 above. 92. For a description of “sellers’ interest” clauses, see Dunt, Marine Cargo insurance at para. 4.22. 93. (1843) 11 M&W 296. 94. Per Parke B. at p. 311. 95. Supra., at fn. 85. 96. See, e.g., US law, para. 8.21; German law, para. 10.28; French law, para. 11.19 and Norwegian law, para. 12.16. 97. See, under English law, Regazzoni v. KC Sethia (1944) Ltd [1958] AC 301 (HL); Foster v. Driscoll [1929] 1 KB 470 and Ispahani v. Bank Melli Iran [1998] Lloyd’s Rep. Bank 133. 98. MIA 1906 s. 41. 99. And guaranteed by insurers under standard forms of marine cargo insurance, see, e.g., ICC 1/1/2009, cl. 2. 100. See para. 3.17 above, where this issue is considered in some detail. 101. Masefield AG v. Amlin Corporate Member [2010] EWHC 280 (Comm, David Steel J), [2010] 1 Lloyd’s Rep. 509, aff’d [2011] EWCA Civ. 24, [2011] 1 Lloyd’s Rep. 630 (CA) and para. 3.17 above.

522

THE USE INTERNATIONALLY OF STANDARD TERMS AND CLAUSES

15.20

because the export of the items in question contravened the laws of Nigeria intended for the protection of cultural assets.102

THE USE INTERNATIONALLY OF STANDARD TERMS AND CLAUSES Standard terms and clauses in use 15.18 The role of standard clauses is central to marine cargo insurance as it is to many aspects of international trade which depend, for example, on standard forms of bills of lading and charterparties. Insurance law has, from the earliest times, consisted, on the one hand, of positive law, that is statutes, codes or common law, and, on the other hand, standard insurance terms agreed between the parties which supplement or supersede that law. For example, there was written in the late sixteenth century a little book on marine insurance entitled Le Guidon de la Mer which contained both the rules of insurance law and examples of policies.103 Indeed, it has even been said that marine insurance law is no more than a guide for the construction of standard forms of policy.104 Most of the provisions of the Marine Insurance Act 1906 (and its equivalents) are not mandatory, and, similarly, in the civil law systems the parties are free to vary most of the rules set out in the statutory codes dealing with marine insurance. In these circumstances, standard clauses varying or supplementing positive law are central to any examination of marine insurance in practice. 15.19 The Institute Cargo Clauses are widely used in the jurisdictions subject to the Marine Insurance Act 1906 or equivalent legislation and those clauses find their way into other jurisdictions when cargoes insured under them, often at the behest of banks, are imported on CIF terms. The use of Incoterms,105 which make reference to the Institute Cargo Clauses and to the UCP106 banking code, may also encourage the use of the Institute Cargo Clauses. The Institute Cargo Clauses are invariably used by the Japanese and Korean international insurance marine cargo markets whose policies are subject to English law and practice for the settlement of claims.107 15.20 The Institute Cargo Clauses were revised in 2009108 and, in respect of the duration of the insurance, followed in some respects advances in cover provided by the Norwegian Cargo Clauses,109 in particular, the provision that insurers’ liability attaches “from the time the goods are moved for direct loading into the means of transport”.110 A similar approach 102. This was in violation of s. 138 of the German Civil Code, see para. 10.29 above. 103. See Forestal Land, Timber and Railways Co Ltd v. Rickards; Middows Ltd v. Robertson and other cases (1941) 70 Ll. L. Rep. 173 (HL) at p. 183, per Viscount Maugham. 104. Middows Ltd v. Robertson and other cases (1940) 68 Ll. L. Rep. 45 per MacKinnon LJ at p. 63: “The truth is that this law of marine insurance is nothing more than a collection of rules for the construction of the ancient form of policy.” 105. See Incoterms cl. A(3)(b) which provide that the CIF seller must obtain “…cargo insurance complying at least with the minimum cover provided by Clauses(C) of the Institute Cargo Clauses (LMA/IUA) or any similar clauses”. 106. See ICC’s Commentary on the UCP 600 (ICC Publication 680) at p. 132. 107. See, as to the Japanese position, para. 6.1 above. 108. A revision of the ancillary and trade clauses is currently reaching the stage of public consultation. 109. See para. 12.4 et seq. above. 110. Norwegian Cargo Clauses, s. 14 (para. 12.40 above, Appendix 17), compare the ICC 1/1/2009, cl. 8.1 which attaches cover “from the time the subject-matter insured is first moved … for the purpose of immediate loading …”.

523

15.20

COMPARATIVE ANALYSIS

has been adopted in the French Cargo Policies 2009 under which the insurance attaches, “when the cargo is moved in the warehouse … for the commencement of the insured transit for the purpose of its immediate loading onto the carrying vehicle”.111 15.21 In Italy the Cargo Policy 2006 edition is in use.112 This scheme operates so that general terms and conditions, applicable to all types of marine cargo insurance, are then supplemented by clauses providing the particular type of cover in each case, for example, all risks, named perils or war risks etc.113 There is also a provision to provide cover on the terms of the Institute Cargo Clauses (subject to English law and practice) where required by foreign buyers of Italian goods.114 15.22 The German system is such that the DTV-Cargo Conditions effectively form a major part of the positive law of marine cargo insurance as statute leaves a gap in insurance law which is filled by these clauses.115 15.23 In the United States, there was for some time an adherence to the English SG Form of policy116 and although the position today is that all risks clauses are used for marine cargo insurance, this is still carried out in some cases by way of modification of the old SG perils. 15.24 In the PRC, both the Institute Cargo Clauses and the China Insurance Clauses are used.117 There are separate forms of China Insurance Clauses for carriage by air, postal shipments, carriage by land (road and rail) and carriage by sea. The Ocean Marine Clauses are used in international shipping practice and are examined in the PRC chapter.118 Identification and conflict between clauses 15.25 A problem much encountered in practice, at least in the common law jurisdictions where the Institute Cargo Clauses are widely used, is which version of the clauses should apply, the 1982 Clauses or the 2009 edition.119 A similar problem arises where the Institute Clauses are referred to on the face of a certificate or policy at the request of the assured under a CIF sale that requires Institute Clauses, and yet other clauses are still referred to in the printed wording of the insurance company’s certificate or policy, or, in some cases, printed on the back. The approach of the English courts to this problem is that written clauses have greater weight than printed or formal parts of the policy. It has long been held in England that added words, for example, typed words, are entitled to have greater effect attributed to them than the printed or formal words.120 It is often the case that where one set of clauses supersedes another, or where the parties, having agreed manuscript alterations

111. See para. 11.57 above, Appendix 11. 112. See para. 9.53 above, Appendix 9. 113. See para. 9.52 above. 114. Ibid. 115. See para. 10.9 et seq. above as to the statutory provisions and para. 10.7 regarding the DTV-Cargo Conditions, Appendix 10. 116. See, O’May, Marine Insurance, 1993, Sweet & Maxwell, at p. 15 et seq. For the current practice, which is to insure on all risks terms, see para. 8.41 above. 117. See para. 13.23 above. 118. See Chapter 13 and para. 13.24 above, Appendix 19. 119. This problem seems to be particularly prevalent in Australia, and for the solution there, see Chapter 7 (Australia law), at para. 7.38. 120. Robertson v. French (1803) 4 East 130 per Lord Ellenborough.

524

WARRANTIES AND OTHER CONDITIONS

15.27

to printed terms, they nevertheless attach the printed version un-amended. In particular, the words of the clauses that should be omitted are not physically deleted, or, indeed, whole clauses that have been superseded are left attached to the policy.121 In general the English courts recognise the practice of the markets whereby the parties write into their printed forms the alterations they have agreed, by typing on the new material, without striking out other words that should logically have been deleted.122 15.26 In many jurisdictions it is the practice to underwrite marine cargo insurance according to standard clauses, such as the Institute Cargo Clauses, but including additional clauses. By the early 1980s it was not unusual for a risk placed in the United States to run to some 40 typed pages of detailed typed additional terms. This approach then passed to the London market, whose clients demanded cover tailored to their needs, and, of late, the same approach has reached Japan. In Japan, however, there is a more sophisticated understanding of the difficulties that this approach invites, in particular with regard to a potential conflict between the additional clauses. The Japan covers are based, therefore, on a core of printed clauses, such as the Institute Cargo Clauses 2009, to which are added a selection of clauses common in the Japanese market, which may be termed “standard” clauses. A further set of “special” clauses is then added, with the special clauses having paramount status, and starting with the words “Notwithstanding anything herein to the contrary …”. However, this still does not solve the problem where there is a conflict between special clauses, a conflict which can only be resolved by trying to adduce the intention of the parties from the document as a whole.123 It is not unknown for more than one set of Institute Clauses to be attached to a Japanese cover and, indeed, all three versions, the Institute Cargo Clauses (All Risks) 1/1/63, the Institute Cargo Clauses1/1/1892 and the Institute Cargo Clauses1/1/2009 may occasionally be incorporated. In these circumstances it is sometimes the practice to include a clause entitled “The Paramount Clause against the ICC 2009”. This clause is designed to give the assured the benefits of the wider cover under the Institute Cargo Clauses (All Risks) 1/1/63. However, the 2009 Clauses generally extend cover to the equivalent of the 1963 Clauses124 and the dangers inherent in having more than one set of Institute Clauses on one policy probably outweigh any vestiges of increased cover to be derived from the 1963 Clauses.

WARRANTIES AND OTHER CONDITIONS Warranties, conditions precedent and alteration of risk The nature of warranties 15.27 The word “warranty” is used here in the sense of a promissory warranty, that is to say, “a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled or affirms or negates a particular 121. Some London brokers altered, amended or deleted individual clauses within the Institute Clauses when attached to a formal policy, but this practice, which is time-consuming and detailed work, is not always followed in practice today with the advent of the Market Reform Contract. 122. Dudgeon v. Pembroke (1877) 2 App. Cas. 284, 1 QBD 96, L.R. 9 QB 581. 123. Arnould, Marine Insurance and Average, 17th edn, 2008, Sweet & Maxwell, at para. 3-32. 124. See J. Dunt and W. Melbourne, “Insuring cargoes in the new millennium: the Institute Cargo Clauses 2009”, in R. Thomas, The Modern Law of Marine Insurance, 2009, volume 3, ch. 6.

525

15.27

COMPARATIVE ANALYSIS 125

state of facts”. The twin attributes of a warranty under English law, and in those jurisdictions that have adopted legislation equivalent to the Marine Insurance Act 1906, are that (1) a warranty “must be strictly complied with” and (2) this strict rule applies to the warranty “whether it be material to the risk or not”.126 The role of promissory warranties in international marine insurance was one of the topics for particular enquiry by the CMI127 and is comprehensively examined by Professor Trine-Lise Wilhelmsen in her analysis of the replies to an international CMI questionnaire on warranties and other issues.128 The English Law Commissions have also carried out a comparative study of warranties in other jurisdictions129 and a detailed analysis of the English, German and Norwegian approaches to breach of warranty in marine insurance has been undertaken by Professor Baris Soyer.130 This section of the book will therefore address warranty issues with particular reference to marine cargo insurance though the animosity towards warranties cannot go unremarked. The Law Commissions record that “Many civil lawyers express astonishment at the idea that insurers can avoid liability for trivial breaches of obligations … unconnected with the loss”.131 Professor Trine-Lise Wilhelmsen, in the context of affirmative warranties, states that it is “beyond reason why the insurer needs the protection of the United Kingdom Marine Insurance Act 1906 concerning the [affirmative] warranties when he already has the United Kingdom Marine Insurance Act 1906 s.17 and s.20 [good faith, misrepresentation]”.132 The condemnation of warranties is not confined to the civil lawyers, as both Australia and New Zealand have modified the strict warranty rules by statute in non-marine cases,133 though in Australia the review of the Marine Insurance Act 1909134 concluded that the non-marine legislation went too far for marine insurance purposes as the practical effect was “to allow the insured to unilaterally alter the bargain made by the parties, arguably to the extent of fundamentally changing the scope of the insurance”.135 In Canada, the courts have construed warranties in insurance contracts, even marine insurance contracts, to effectively deprive them of their effect.136 In the United States, it was a problem of 125. MIA 1906 s. 33 and see para. 3.24 above. 126. MIA 1906 s. 33(3). 127. The CMI carried out a comparative study of certain specific issues of marine insurance law, see para. 1.15 above. 128. Wilhelmsen, CMI Analysis at p. 385 et seq.; see also Graydon S. Staring, “Harmonisation of Warranties and Conditions: Study and Proposals”, CMI Yearbook 2003. 129. Covering Australia, New Zealand, United States, Canada and the civil law jurisdictions, Law Commissions Issues Paper No 2 entitled “Insurance Contract Law: Warranties”, November 2006, www.lawcommission. justice.gov.uk. 130. B. Soyer, Warranties in Marine Insurance, 2nd edn, 2006, Routledge. Other important studies include, T. Shoenbaum, “Warranties in the Law of Marine Insurance: Some Suggestions for Reform of English and American law”, 23 Tul Ra LJ 267 (1998–1999), 314; John Hare, “The Omnipotent Warranty: England v. The World”, paper presented at International Marine Insurance Conference, November 1999. 131. Issues Paper on Warranties at para. 6.1, p. 45. 132. Wilhelmsen, CMI Analysis at p. 393. 133. New Zealand, Law Reform Act 1977 s. 11 (modifying the rules as to causation) and in Australia, Insurance Contracts Act 1984 s. 54, see para. 7.41 above, and see Law Commissions Issues Paper on Warranties, at para. 6.20 et seq. 134. Australian Law Reform Commission (ALRC), Review of the Marine Insurance Act 1909 (2001) No 91, www.austlii.edu.au. 135. Op. cit. at para. 9.120. 136. See, e.g. Century Insurance Co of Canada v. Case Existological Laboratories Ltd (The Bamcell II) [1984] 1 WWR 97, where a manning requirement for a barge used for oceanographic experiments, which required a watchman at night, was construed in such a way as not to apply when the casualty occurred during daylight hours, even though it was common ground that there was no watchman at night and the warranty was not complied with. Compare the English cases on manning or crewing of smaller vessels “at all times” referred to in para. 3.27 above.

526

WARRANTIES AND OTHER CONDITIONS

15.29

the application of marine warranties that led to the decision of the Supreme Court in Wilburn Boat Co v. Fireman’s Fund Insurance Co137 and possibly the antipathy of that court to the strict application of marine warranties may, in part, have led to the rule in the United States that, absent a well-established rule of federal admiralty law, or the need for such a rule, state law applies.138 Warranties in marine cargo insurance 15.28 In the jurisdictions that are subject to the Marine Insurance Act 1906, and its equivalents, and in the United States,139 warranties are used by underwriters to control various aspects of the risk including the seaworthiness of the vessel used to carry the cargo; the limits on the voyage or transit, and any special risks, in particular, towage risks. Further, the legality of the risk, and the carrying out of the voyage, is controlled by the implied warranty of legality.140 Taking these in turn, so far as seaworthiness is concerned, the implied warranties of seaworthiness141 and cargo-worthiness142 imposed by the Marine Insurance Act 1906, or equivalent legislation in other jurisdictions, are unconditionally waived by clause 5.3 of the Institute Cargo Clauses.143 However, it is invariably the practice to include the Institute Classification Clause in marine cargo insurances underwritten in England and this provides that the insurance only applies to vessels classed with the IACS Classification Societies and within the age limits specified. This effectively operates as a warranty as there is no contract of insurance if the vessel does not qualify, whether or not this is causative of any loss.144 15.29 The limits to the voyage or transit are governed by the implied warranties in sections 42 to 49 of the Marine Insurance Act 1906 (and equivalent legislation) which, however, have in some cases become obsolete and irrelevant145 or are waived by the Institute Cargo Clauses.146 The Institute Cargo Clauses do, however, reflect the terms of section 48 of the 1906 Act which, under the title “Delay in Voyage”, provides that “the adventure must be prosecuted throughout its course with reasonable despatch” and that, if the adventure is not so prosecuted, the insurer is discharged from liability “as from the

137. 348 U.S. 310 (1955); [1955] AMC 467. 138. See further para. 8.1 above. 139. The approach to warranties in the United States is a matter of some difficulty following the decision in Wilburn Boat, see para. 8.32 above, but insofar as there is an established rule of federal admiralty law that is applied, it is suggested that US law, in general terms, reflects the English common law practice, as compared and contrasted to the practice in civil law jurisdictions, as most US courts have applied the strict compliance rule, para. 8.32 above. 140. MIA 1906 s. 41, “there is an implied warranty that the adventure is a lawful one and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner”; see further para. 3.16 above. 141. MIA 1906 s. 39(1), “In a voyage policy there is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured”. 142. MIA 1906 s. 40(4), “In a voyage policy on goods … there is an implied warranty that at the commencement of the voyage the ship is not only seaworthy as a ship, but also that she is reasonably fit to carry the goods … to the destination contemplated by the policy”. 143. ICC 1/1/2009, cl. 5.3, see also ICC 1/1/82 where the waiver is subject to the proviso that neither the “Assured or their servants are privy to such unseaworthiness or unfitness”. 144. See, the decision of the Singapore Court of Appeal in Everbright Commercial Enterprises Pte Ltd v. Axa Insurance Singapore Pte Ltd [2001] 2 SLR 316. 145. MIA s. 42, commencement of voyage, is, e.g. no longer applicable as commencement is now governed by cl. 8 of the ICC, the Transit Clause, which was preceded by the warehouse to warehouse clause. 146. See para. 3.55 above in the context of seaworthiness, and see further, e.g., cl. 10.2 (“Change of Voyage”) which ameliorates the harshness of ss. 44 and 45 of the MIA 1906, see para. 3.87 above.

527

15.29

COMPARATIVE ANALYSIS

time when the delay became unreasonable”. Similarly, under the heading “Avoidance of Delay”, clause 18 of the Institute Cargo Clauses provides that “it is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances within their control”. It is unclear whether this clause operates as a warranty as such147 though the effect of delay by the assured will be to take the goods off risk.148 Although some implied warranties are still relied upon, it may be submitted that, to a large extent, cargo insurers in England have recognised that the implied warranties in the 1906 Act are, by and large, no longer appropriate. 15.30 Some risks nevertheless call for special precautions as such unusual enhanced risks would otherwise be uninsurable. In this respect express warranties still have a role. Most notable of these risks, and frequently encountered in practice, perhaps because of the number of casualties, are towage risks. The standard towage warranty typically reads: “Tug, tow, stowage and towage arrangements surveyed by [a surveyor nominated by the underwriters and agreed with the assured] and all recommendations complied with … .”

A similar provision was imposed in The Cendor MOPU149 though in that case it took the form of a condition precedent.150 Alteration of risk 15.31 In practice civil law systems also control the legality of the voyage,151 the seaworthiness of the vessel used to carry the cargo152 and the limits to the voyage or transit and the subject-matter of the insurance. With regard to the voyage and the subject-matter of the risk, the control over the risk is not exercised through warranties, but material changes are treated as an “alteration of risk”, a concept little known to marine insurance in the common law jurisdictions where a rule more favourable to the assured applies as, in principle, any alteration of the risk after the contract is concluded does not automatically discharge the underwriters from liability even if the risk is materially enhanced.153 A policyholder “who insures [his property against fire] may light as many candles as he pleases in his house, though each additional candle increases the danger of setting the house on fire”.154 The same rule applies to marine insurance where the loading of an additional cargo of bullion,155 and a cargo of prisoners (later prominent in a mutiny), were held to be circumstances which materially enhanced the risk. However, as these alterations to the risk occurred after the

147. See para. 15.44 below as to the somewhat controversial status of this provision. 148. In particular they will no longer be in the “ordinary course of transit” within cl. 8.1 of the ICC, see para. 15.44 below. 149. [2011] UKSC 5, [2011] 1 Lloyd’s Rep. 560 (SC); applied in European Group Ltd v. Chartis Insurance UK Ltd [2012] 2 Lloyd’s Rep. 117. 150. See the judgment of Blair J at first instance, [2009] 2 Lloyd’s Rep. 72 at p. 76. 151. See, e.g., German law, para. 15.17 above. 152. See, e.g., Italian law, para. 9.103 above. 153. The MIA 1906 s. 18 only imposes a duty of disclosure until the contract is concluded, and the same rule applies to misrepresentation under MIA 1906 s. 20. As to the timing of the duty, see further para. 15.6 above. 154. Baxendale v. Harvey (1849) 4H&N 445, 449, 452, cited by Malcolm Clarke “An interim Discussion Paper on Alteration of Risk” CMI Yearbook 2003 (M. Clarke, Alteration of Risk), 500 at p. 503. 155. Raine v. Bell (1808) 9 East 195.

528

15.33

ALL RISKS 156

policies were agreed, they did not discharge underwriters from liability. The rule in civil law jurisdictions is that alteration of risk creates a new situation and, in effect, there is a continuing duty of good faith requiring prompt disclosure of any material alteration, though the remedy of termination may depend upon whether the assured is grossly negligent or has wilfully brought about the change in risk, as now considered.157 15.32 In Italy, an increase in the risk during the contract as a result of which the insurer would not have entered into the contract, or would have charged a higher premium, must immediately be notified to the insurer who is entitled to terminate the contract by giving one month’s notice.158 Similar rules apply in Germany about notification of alteration of risk.159 In France the obligation of good faith continues during the course of the contract and any modification of the risk, either of matters that were agreed at the time the contract was concluded, or of the subject matter insured, shall terminate the risk unless the modification is declared to the insurer within three days.160 In the PRC the assured shall inform the insurer, in a timely manner, of any “remarkable” increase in the risk that takes place during the performance of the contract.161 The meaning of “remarkable” is unclear but where the contract provides specifically for certain matters to be held covered, such as a change of voyage or error in the description of the subject-matter insured, it appears that “according to the contract” such changes are to be treated as “remarkable” and, as such, must be notified promptly.162 In Norway the duty of disclosure ceases on completion of the contract but factual issues occurring afterwards may constitute a change in risk163 which may be regulated by the Norwegian Cargo Clauses as are changes to the risk brought about by delay.164 Alterations to the voyage, including delay, are therefore dealt with under the civil law systems in a strict manner though the key to the remedies in these systems tends to be ameliorated as it depends on whether or not the assured were at fault, either in wilfully altering the risk or by reason of gross negligence.165

ALL RISKS Limitations and exclusions on all risks Inherent vice and insufficiency of packing 15.33 In practice cases of inherent vice and insufficiency of packing frequently give rise to disputes between underwriters and their assureds. The decision of the English Supreme Court in The Cendor MOPU166 is considered above167 and is likely to be followed in most 156. Toulmin v. Inglis (1808) 1 Camp 421, and see further to the same effect Arnold’s Law of Marine Insurance, 17th edn at para. 15-117 and the cases there cited. 157. See M. Clarke, Alteration of Risk at p. 504 para. 3.2. 158. Article 1898 Italian Civil Code, see para. 9.33 above. 159. DTV-Cargo Conditions, cl. 5.2, and see para. 10.52 et seq. above. 160. Article L-172-3 of the Insurance Code, and see para. 11.10 above. 161. Article 52, Insurance Law, see para. 13.8 above. 162. See para. 13.8 above. 163. See para. 12.23 above. 164. Norwegian Cargo Clauses, s. 16 and see para. 12.26 above. 165. See M. Clarke, Alteration of Risk at p. 510, and for the position in Italy, see para. 9.31 et seq., and for Germany, see para. 10.52 et seq. above. 166. [2011] 1 Lloyd’s Rep. 560 (SC). 167. At para. 3.45 et seq.

529

15.33

COMPARATIVE ANALYSIS

of the common law jurisdictions which have legislation equivalent to the Marine Insurance Act 1906.168 In the United States the principle is that an “all risks” event does not include losses caused by an in-dwelling fault in the goods that existed prior to the attachment of the insurance cover.169 Italian law provides that, unless otherwise agreed, the insurer is not liable for inherent vice170 and the Cargo Policy171 excludes loss or damage caused by “inherent vice, [and] inherent nature of the subject-matter insured”. Insufficiency of packing in Italy is generally regarded as falling within the category of inherent vice,172 though the Italian Cargo Policy excludes insufficiency in terms similar to those of the 2009 version of the Institute Cargo Clauses.173 The key to recovery from insurers in Italy in cases of inherent vice is to show that the loss was brought about “by some other external cause” and this echoes the approach of the English Supreme Court in The Cendor MOPU.174 In Germany the insurer is not liable for inherent vice or nature of the goods175 as the insurance only covers damage due to unforeseen events caused by external hazards.176 Where kapok was specifically insured against self-heating, a fluctuation in climate that was to be anticipated during the voyage in question triggered a loss due to self-heating, and it was only because of the special inclusion of the cover for self-heating that the insurers were liable.177 In France the insurance does not cover material damage or loss caused by any inherent defect in the cargo,178 but French law insists that inherent vice is only excluded where it is the sole proximate cause of the loss.179 15.34 Losses which result from insufficiency of packing are excluded under the Institute Cargo Clauses 1/1/2009 where the packing is carried out prior to the attachment of the insurance or where the goods are packed at any time by the assured or their employees.180 In the United States it has been held that the principle of “proper packing” is sufficiently broad so as to include the fact that the assured must provide proper shipping instructions for the safe transportation of the product.181 It is undecided in English law whether the packing is 168. See, e.g., Australian law at para. 7.48 and South African law at para. 14.95. As to inherent vice in Singapore, see, Keck Seng & Co Ltd v. Royal Exchange Assurance [1964] 1 MJL 256, considered at para. 5.34 above. 169. See para. 8.47 above. 170. Article 1906 of the Civil Code, para. 9.87 above. 171. Article 2d of cl. 1, para. 9.88 above. 172. Ferrarini p. 135, see para. 9.89 above. The South African courts have also taken the view that inherent vice extends to insufficiency of packing, see Blackshaws v. British Engine Insurance Co of SA Ltd & Another, 1981 (4) SA 659 (C), considered at para. 14.94 above. Arnould’s First Supplement to the 17th edn at p. 141 considers this an “open question” under English law though, so far as insurances under the ICC are concerned, the position would appear to be that the parties have agreed to regulate inherent vice by the exclusion in cl. 4.4 of the ICC while the position with regard to insufficiency or unsuitability of packing is specifically dealt with by the terms of cl. 4.3 of the ICC. 173. See ICC(A)1/1/2009, cl. 4.3 examined at para. 3.47 above and summarised at para. 15.34 below. 174. For a consideration of this case, see para. 3.45 et seq. above. 175. Clause 2.5.1.2 of the DTV-Cargo Conditions. 176. See para. 10.96 above. 177. OGL Hamburg, Vers R 1998, 580, see para. 10.97 above and, for a similar English example, see Soya GmbH Mainz KG v. White [1983] 1 Lloyd’s Rep. 122 (HL), a case of self-heating of soya beans insured against that type of risk, being a risk of inherent vice, and therefore covered by the insurance. 178. Articles L.121-7 and L.172-18(a) of the French Insurance Code and Art. 7.3 of the Cargo Policies, see para. 11.43 above. 179. See para. 11.44 above, citing AGF v. Pominter, Court of Appeal of Bordeaux, Second Chamber, 16 June 1998, which appears to have anticipated the approach of the English Supreme Court in The Cendor MOPU [2011] 1 Lloyd’s Rep. 560 (SC), see para. 3.45 et seq. above. 180. See para. 3.47 et seq. above. 181. See para. 8.50 above.

530

15.36

TERRORISM 182

to be considered as “carried out” by the assured if the work is done by contractors using materials provided by the assured and under the assured’s specific instructions as to how to pack the goods, but in extreme cases the court might consider the assured responsible for the packing even though undertaken by an independent contractor.183 On a related issue, in the PRC it has been held that a container rented by the shippers of the goods, or owned by the assured as shippers, as contrasted to a container provided by the carriers, shall be deemed as packing.184

TERRORISM The cover for terrorism 15.35 The cover for terrorism as defined in the revised Institute Cargo Clauses 1/1/2009185 is generally limited to goods in transit. This restriction arises because of the concerns of reinsurers that they would potentially be unable to sustain an aggregation of losses in one place on land, such as a terrorist attack on a port, possibly using a dirty bomb,186 with loss and damage to cargo in numerous warehouses. The influence of reinsurers is such that the restriction of the terrorism risk to goods in transit is common throughout most of the jurisdictions considered in this book often through the use of the Termination of Transit Clause (Terrorism), known as JC56.187 However, the position may be different in South Africa, where the South African Special Risk Insurance Association Limited (“SASRIA”) was created in 1979 out of the threat of politically motivated violence following riots and civil commotions in 1978.188 This is, in essence, a government reinsurance of risks, including terrorism, which would extend to goods in store.189

DURATION OF THE INSURANCE Scope of this section 15.36 The Transit Clause is dealt with earlier in this book in the English law chapter.190 There are, however, some important Australian and South African decisions on the “ordinary course of transit” and the relationship between that phrase and the Avoidance of Delay 182. See the wording of the ICC, cl. 4.3. 183. See Dunt, Marine Cargo Insurance, at para. 8.31. 184. Xie Kent Cheng Yi v. UMS General Marine SpA, Shanghai Maritime Court case no (2001) Hu Hai Fu Shung Chu Zi 445, see para. 13.35 above. 185. See paras 3.66 to 3.68 above. 186. A “dirty bomb” is a conventional explosive with radioactive material. 187. See para. 3.68 above. 188. See Chapter 14 (South Africa), at para. 14.100. 189. Op. cit. 190. See Chapter 3 at para. 3.72 et seq. In connection with the Transit Clause in the ICC 1/1/82 it was held in Hong Kong that where goods were insured “from the time they left the warehouse for the commencement of transit” they were not in transit while they remained on the apron of a warehouse which was likened to the open porch of a house, see Wunsche Handelsgesellschaft International MBH v. General Accident Insurance Asia Ltd [1994] HCCL 73. Accordingly, goods which passed through the door of a warehouse and were loaded onto a lorry backed up onto the apron were not in transit as they were not physically separated from the warehouse, ibid. para. 23. It is submitted that this approach may be too narrow and that once goods have left the warehouse the insurance attaches under cl. 8 of the ICC1/1/82.

531

15.36

COMPARATIVE ANALYSIS

Clause in the Institute Cargo Clauses. These issues have not been explored to the same depth, or at all, by the English courts and are therefore examined in some detail in this section of the book. There is then a consideration of the position under clause 8.1.2 of the Transit Clause which terminates the insurance cover where the assured “elects” to use a warehouse for storage or allocation, an issue explored in Australia, South Africa and Hong Kong.191 This section of the book concludes with a comparison of the approach in the various jurisdictions to cover for cargo which, unknown to the assured, is carried on deck.192 This is analysed here as a deviation or variation of the risk which may terminate the insurance cover. “Ordinary course of transit” A self-standing requirement 15.37 Clause 8 of the Institute Cargo Clauses provides that the insurance attaches from the time the subject-matter is first moved in the warehouse named in the contract of insurance193 and “continues during the ordinary course of transit”. The 2009 Institute Clauses seek to make it clearer that this is a self-standing requirement for the continuation of cover,194 but the point is only covered by authority in Australia where this was the approach adopted by Ormiston J in Verna Trading Pty Ltd v. New India Assurance Co Ltd.195 In this case the assured imported video cassettes in a container to Melbourne from Hong Kong and left the container in a stevedore’s bonded compound area for about a month after they were discharged on the quay. Whilst the container was in the bonded area it was broken into, the cassettes were taken, and the seals were replaced. The transit had not terminated under clause 8 of the Institute Cargo Clauses 1/1/82 as the goods had not reached their final destination under clause 8.1.1 nor had the assured elected to use the compound for storage under clause 8.1.2.196 Nevertheless the goods were not in the “ordinary course of transit”. As Ormiston J put it197: “Two matters must be satisfied under cl. 8, the first being that the cargo left the consignor’s warehouse and did not reach the end of the defined adventure and the second being that the nature of the continued voyage or journey at the time of the loss came within the description ‘the ordinary course of transit’.”

191. At para. 15.45 below. 192. At para. 15.51 below. 193. See paras 3.72 and 3.73 above for a consideration of the issues arising in relation to the commencement of transit. 194. By placing these words on a separate line as a separate paragraph, see Dunt & Melbourne “Insuring cargoes in the new millennium: The Institute Cargo Clauses 2009”, in R. Thomas (ed.), The Modern Law of Marine Insurance, 2009, Informa, volume 3, ch. 6 para. 6.72; Arnould, First Supplement para. 13–40 at p. 84, fn. 43. 195. [1991] 1 VR 129. In Hong Kong in Anbest Electronic Ltd v. CGU International Insurance plc [2009] HKCA 573 (CA), it was held that the words “ordinary course of transit” had to be read in the full context of the events enumerated in cls 8.1.1 to 8.1.3 so that transit did not terminate when goods were delivered at a container terminal at the port of discharge and the “ordinary course of transit” continued insofar as that transit fell within cls 8.1.1 to 8.1.3 of the ICC(A) 1/1/82. 196. Op. cit. Verna Trading at p. 162 per Ormiston J. Nor had the 60 days expired under cl. 8.1.3 (now cl. 8.1.4 under the 2009 Clauses) as the goods were only in the stevedore’s compound area for about a month. 197. At p. 160. See also Arnould’s Law of Marine Insurance and Average at para. 13-40, p. 460 to the same affect and Arnould, First Supplement at p. 83.

532

DURATION OF THE INSURANCE

15.38

In the Verna Trading case, Ormiston J also made the most detailed consideration of the authorities and textbooks in order to determine what constitutes the “ordinary course of transit”.198 He concluded his analysis relying, in particular, on the case of S.C.A. (Freight) Ltd v. Gibson,199 which held that goods cease to be in transit when they are on a journey which is not in reasonable furtherance of their carriage to their ultimate destination, and gave the following description of the “ordinary course of transit”200: “It would therefore appear that the ‘ordinary course of transit’ would end if an act or acts took place which would, reasonably considered, indicate that the transit had terminated or that the transit had been so interrupted that it could not be seen as likely that the transit would recommence without there being a positive decision to that affect by the assured or consignee. Even if neither of those two conclusions could be drawn, the cargo may no longer be in the ‘ordinary course’ of transit if it is dealt with in a manner inconsistent with the prosecution of the adventure, that is, in a way or for a purpose which is unrelated to bringing the transit to its expected conclusion by delivery to the defined warehouse or store.”

Applying this definition to the facts in Verna Trading, outlined above, Ormiston J held that the goods remained in transit but, where the assured had left the container of video cassettes in the stevedore’s compound for his own purposes, they were no longer in the “ordinary course” of that transit and, therefore, that the cover ceased before the theft took place. Meaning of “transit”; the collateral purpose test 15.38 In Helicopter Resources Pty Ltd v. Sun Alliance Australia Ltd (The Icebird)201 Ormiston J considered the phrase “ordinary course of transit” in the context of cargo carried on deck. In this case a cargo of four helicopters was being carried from Hobart to the Australian Antarctic Base at Casey and to other bases in the Antarctic. When the vessel neared the Antarctic bases the helicopters were brought up from the hold and lashed on deck where they were used for reconnaissance and transport on the approach of the vessel to the bases. In answer to insurers’ allegation that the securing and stowing of the helicopters at sea in varying weather conditions was a material enhancement of the risk, which had not been disclosed, Ormiston J, “found that the policy of marine insurance terminated at the point of time at which the helicopters were unlashed and commenced to be used for reconnaissance and transportation of passengers”. This conclusion was reached on the basis that the helicopters were no longer “in the ordinary course of transit” within the meaning of clause 8 of the Institute Cargo Clauses.202

198. At pp. 164–170. 199. [1974] 2 Lloyd’s Rep. 533. 200. At p. 168. 201. [1991] 312 LMLN, noted by S Hetherington [1992] LMCLQ 21. 202. Ibid., Note by S Hetherington at p. 23. It is unclear from this note and the transcript whether it was the putting of the helicopters on deck, which would have implications for other cases, or the use of the helicopters for “spotting” and transport which took them off risk. It is submitted, however, that both are likely to have been factors and that placing cargo on deck therefore takes the goods out of the ordinary course of transit, see para. 15.51 et seq. below where the issue of deck cargo is examined further.

533

15.39

COMPARATIVE ANALYSIS

15.39 The decision in Verna Trading203 was followed in Nec Australia Ltd v. Gamif Pty Ltd and others204 which, though a case decided under a “Carriers’ Liability Policy”, considers a question that arises under cargo insurance, which is whether the goods remain covered when housed in intermediate warehouses during the course of transit. In the Nec Australia case the policy covered the transporter against liability for goods “in transit” described as follows205: “For the purposes of this policy, ‘in transit’ includes loading and unloading and packing and unpacking and whilst in the normal course of transit the property is temporally housed on or off vehicles.”

There was a theft of fax machines which were housed in an intermediate depot awaiting instructions for delivery. Some machines had been in the depot for three weeks, others for two or two-and-a-half months, and some for as long as six months. The court held that the machines were not in transit. Lockhart J defined “transit” as follows206: “In my opinion the policy covers machines … whilst being transported from one place to another. It does not mean that the machines must be in motion at all times. But it does mean that the overall object of the insurance contract is to facilitate the transportation of the machines … from one place to another. The ‘transit’ may be interrupted to permit efficient and economical loading, transhipment, unloading and storage to await another vehicle to carry the goods from the point of original shipment to the point of destination; but the interruption cannot be merely for the commercial convenience of one of the parties. The ordinary meaning of ‘transit’ essentially denotes that the goods are in motion between two points, but the period of transit may continue during intervals or periods when they may be loaded or unloaded and temporarily housed provided that this is reasonably referable to the furtherance of the carriage of goods to the final destination. The notion of ‘in transit’ accepts that the movement of the goods may be interrupted by circumstances associated with the requirements of their transportation”.207

The Institute Cargo Clauses 2009 have widened the concept of transit cover for the goods from when they are first moved until the completion of unloading from the carrying vehicle,208 as long as the goods remain in the “ordinary course of transit”.209 It is submitted that the description of “transit” in the passage set out above from the judgment of Lockhart J accords generally with the extent of “transit” as contemplated under the 2009 Clauses. 15.40 The test outlined in the previous paragraphs has been treated as a “collateral purpose test”,210 and appears to derive from Pearson v. Commercial Union Assurance Co.211 In this case there was an insurance of a steamship which was insured if the vessel should 203. Supra, fn. 195. 204. Nec Australia Pty Ltd v. Gamif Pty Ltd; Neway Transport Industries Pty Ltd; Australian Eagle Insurance Co Ltd; Colonial Mutual General Insurance Co Ltd and Webden Pty Ltd [1993] 7 ANZ Insurance Cases 61-188 (extract); (1993) 42 FCR 410, a decision of Federal High Court of Australia NSW District Registry. 205. The terms of the policy are summarised at para. 17 of the judgment. 206. At paras 27 and 28. 207. Relying on Commercial Union Assurance Co v. The Niger Co Ltd (1922)13 Ll. L. Rep. 75 at 81-2; Safadi v. Western Assurance Co (1933) 46 Ll. L. Rep. 140 at p. 142 and Verna Trading Pty Ltd v. New India Assurance Co Pty Ltd (1991) 1 VR 140 per Kaye J (with whose reasons McGavie J agreed) at p. 147 and per Ormiston J at pp. 169–170. 208. ICC, 1/1/2009, cl. 8.1.1. 209. ICC, 1/1/2009, cl. 8.1. 210. See, e.g., Stone J in E.L.A.Z. International Co v. Hong Kong & Shanghai Insurance Co Ltd [2006] HCCL 16 unreported decision in the High Court of the Hong Kong Special Administrative Region (Commercial Action), 10 May 2006 at paras 121 and 125. See also Dunt, Marine Cargo Insurance at para. 11.34. 211. (1875–76) LR 1 App Cas 498.

534

DURATION OF THE INSURANCE

15.41

“go into any dry dock”. In considering whether the vessel was “in transit” into the dry dock when she was damaged, Lord Cairns said this212: “If, …, a delay in the transit to or from the dry dock were to occur, not as part of the usual and ordinary means or mode of effecting the transit, but for some collateral object or purpose, then, in my opinion, however usual and convenient a delay for the purpose of attaining that collateral object might be, the ship would not, during the delay, be covered by the policy.”

A similar approach was adopted by the South African courts in the case of Tension Overhead Electric (Pty) Ltd v. National Employers General Insurance Co Ltd213 where the assured insured two large spools of high tension conductor under a policy which covered “materials in transit”. The spools were delivered to the assured’s premises prior to a weekend and he kept them there intending to deliver them early the following week to the site where they were to be installed by him which, at the time the spools were stored in his own premises, was not secure. The spools were stolen from the fenced compound at the assured’s own premises following the weekend and the day before they were due to be delivered to their final destination. The question therefore arose as to whether they were “in transit” within the terms of the policy at the time of the loss. It was held that the goods were not insured as the delay had not been occasioned by circumstances which could broadly be described as part of the usual and ordinary means of effecting transit.214 Avoidance of delay 15.41 The question of whether the goods remain in the ordinary course of transit often turns, in practice, on whether there has been delay, in particular, delay to which the assured has contributed, for example, by not taking prompt delivery of the goods. In 1907 the Hong Kong Supreme Court held in Hip On Insurance Exchange & Loan Co Ltd v. Hang On Marine & Fire Insurance Co Ltd215 that, where there was unreasonable delay, that delay would relieve the underwriters from their risk. In this case part of a cargo of sugar was destroyed by a typhoon as it took some days to unload it in Hong Kong harbour and it was held that the delay was not in fact unreasonable as it was consistent with the shipping operations that prevailed in the port of Hong Kong at that time. There are now two provisions which bear on the assured’s obligation to avoid delay: section 48 of the Marine Insurance Act 1906 (headed “Delay in Voyage”) and clause 18 of the Institute Cargo Clauses (headed “Avoidance of Delay”). It is appropriate to consider the statutory requirement first. Section 48 of the Marine Insurance Act 1906 states as follows: “Delay in voyage In the case of a voyage policy, the adventure insured must be prosecuted throughout its course with reasonable despatch and, if without lawful excuse it is not so prosecuted, the insurer is discharged from liability as from the time when the delay became unreasonable.”

The Australian courts have taken the view that the “adventure insured” under a voyage policy does not include the inland transit from warehouse to warehouse under the transit 212. At pp. 502, 503. 213. 1990 4 SA 190, South Africa, Witwatersrand Local Division. 214. At p. 196. As the assured was attempting to preserve the goods from danger this was a hard decision, but sound in principle. 215. (1906–07) 2 HKLR 182 (SC).

535

15.41

COMPARATIVE ANALYSIS 216

clause but only the sea voyage. This was the majority view of the Appeal Division of the Supreme Court of Victoria in the Verna Trading case217 where Kaye J (with whom McGarvie J agreed) assumed that, “… the purpose of s.54 and 55(2)218 is to minimise the period of risk while the ship and goods insured are at sea”. Ormiston J, however, after a very full review of the English and Australian authorities, concluded that, “the relevant adventure referred to is not confined to the sea voyage but, in the case of a policy incorporating the cargo clauses, it comprehends the whole movement of the cargo from the consignor’s warehouse to the consignee’s final warehouse”.219 It is submitted that Ormiston J’s view is more consistent with authority, both Australian and English,220 and is to be preferred. If this is correct, there is a statutory obligation upon the assured to prosecute the adventure throughout its course, including the land transit, with reasonable despatch. The effect of breach is to discharge the insurer from liability, but only as “from the time when the delay became unreasonable”. The Institute Clause does not expressly provide that the insurance only terminates when the delay becomes unreasonable, but as the requirement is one of “reasonable” despatch it would appear that the Institute Clause and the statutory requirement impose parallel and similar obligations on the assured in this respect, at least.221 15.42 Clause 18 of the Institute Cargo Clauses, under the heading “Avoidance of Delay”, provides as follows: “18. It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances within their control.”

A number of questions arise as to the meaning of this provision. The first is whether the Institute Clause merely repeats the statutory requirement in section 48 of the Marine Insurance Act 1906 or whether it imposes a different requirement with a more draconian remedy. If the clause has a different wider meaning is it intended to apply to “all circumstances”, as a general requirement that the assured act expeditiously, or does it mean that after a loss the assured must take immediate steps to preserve the goods from further loss or damage, or does it merely require that the voyage or journey must be pursued expeditiously by the assured as required by the statute? If there is a breach, is the insurer automatically relieved of liability or does it depend on the seriousness of the breach so that, in effect, the insurer has to show a serious breach from which loss results (e.g., loss of or damage to the goods caused during and by the period of delay, in particular, by exposing the goods to theft or bad weather). 15.43 The difficulties that arise with the Avoidance of Delay Clause have been tackled by the Australian courts on a number of occasions in two judgments which call for some detailed examination. In Wiggins Teape Australia Pty Ltd v. Baltica Insurance Co Ltd222 a cargo of wood pulp was left in a port warehouse, for the convenience of the assured. In particular, the goods were left in the warehouse “as a matter of voluntary decision” by the assured. It was held that the effect of the Avoidance of Delay Clause was that 216. Verna Trading Pty Ltd v. New India Assurance Co Ltd [1991] 1 VR 129. 217. Supra. 218. MIA 1909, equivalent to MIA 1906 (UK) ss. 48 and 49(2). 219. At p. 166. 220. Arnould’s, Marine Insurance and Average, 17th edn at para. 14-53; Arnould, First Supplement at p. 119, fn. 36, and Dunt, op. cit. at paras 11.5 and 11.39. 221. The view is expressed by Arnould in First Supplement at para. 19-35, pp. 118–120 that the Avoidance of Delay Clause also has a wider role in relation to post casualty delays, see para. 15.44 below. 222. [1970] 2 NSWR 77.

536

DURATION OF THE INSURANCE

15.44

“the warehouse-to-warehouse clause only covers the goods during transit with reasonable despatch”. In particular, it was held that the “condition” imposed by that clause effectively operated as if it were a promissory warranty because “the policy extends only during transit prosecuted with reasonable despatch”.223 The clause was said to be “a condition governing all other clauses”.224 15.44 In the Verna Trading case225 it was held at first instance, by Beach J, following Wiggins Teape, that where the assured did not act with reasonable despatch, so far as delivery of the cargo to its destination was concerned, the assured’s failure to do so was a breach of policy and there was no cover. On appeal, Kaye J upheld that decision, saying226: “The movement of the goods after having been discharged from the ship was a matter essentially within and subject to the control of the assured. It was the assured’s responsibility to transport the goods or to arrange for their transportation and delivery to the final destination. Until the goods reached the final destination, the underwriters remain liable to indemnify the assured in the event of loss. The risk of loss of, or damage to the goods might have been expected to increase as the period increased between the unloading of the goods from the ship and the time of their delivery to the final destination. Consequently, it was in the interests of both parties, and particularly the underwriters, that the period of risk should not be longer than reasonably necessary for the delivery of the goods. It followed that by requiring the assured to deliver the goods to the final destination with reasonable despatch the purpose of the policy would be achieved.”

The Australian courts have therefore approached this difficult clause on the basis that it imposes a very wide obligation reinforcing the other clauses in the policy including, in particular, the obligation to prosecute the land transit expeditiously.227 It operates as a warranty depriving the assured of cover if the journey, whether inland or at sea, is not prosecuted by the assured with reasonable despatch. In practice, this is most likely to occur on land, where the assured allows the goods to remain in intermediate storage. As the effect of that may be to bring the goods out of the “ordinary course of transit”, it is likely that the risk will terminate, in any event, under clause 8 of the Institute Cargo Clauses. However, if for some reason the risk has not terminated under clause 8, the Australian position appears to be that the risk terminates, effectively for breach of warranty. Influenced by these Australian decisions, Dunt in Marine Cargo Insurance takes the view that the Avoidance of Delay Clause operates as a promissory warranty under English law.228 However, Arnould considers that in England the clause operates, “as an innominate term, applying to delays at any stage”.229 It is common ground that, in practice, this difference of opinion as to whether the clause operates as a warranty is unlikely to ever be determinative because unreasonable delay will, as indicated above, result in the goods ceasing to be “in the ordinary course of transit” and the cover under clause 8 of the Institute Cargo Clauses will terminate.230 There remains the issue of whether, as Arnould maintains,231 the Avoidance of Delay 223. At p. 81. 224. At p. 80. 225. [1991] 1 VR 129. 226. At p. 146. 227. This was the majority view in Verna Trading which depended, in part, on the somewhat doubtful assumption that the Avoidance of Delay Clause filled the gap left by the fact that the MIA 1909 s. 54 (MIA 1906 (UK) s. 48) did not apply to land transits, see Kaye J at p. 146. However, the dissenting judgment of Ormiston J (at p. 172) is to be preferred on this point, see para. 15.41 and the text above. 228. See, Dunt, Marine Cargo Insurance, at paras 6.26, 6.29 and 11.38 to 11.39. 229. Arnould, First Supplement at para. 19-35, p. 119. 230. See para. 15.37 et seq. above. 231. First Supplement at p. 119.

537

15.44

COMPARATIVE ANALYSIS

Clause extends to post-casualty delays insofar as it requires that the assured shall “act with reasonable despatch in all circumstances within their control”. Although the words “in all circumstances” lend support to this approach, Arnould’s view is inconsistent with the history of the clause, the wording of which originated in wartime delays.232 Moreover, the word “despatch” reflects the same word in section 48 of the Marine Insurance Act 1906 which, in the Act, is clearly addressed only to the voyage or transit.233 In addition, there is no further need for reinforcement of the requirement to act promptly to minimise the loss after a casualty, which is regulated by the Duty of Assured Clause234 and the Note at the end of the Institute Clauses.235 More generally it is submitted that the courts would be reluctant to impose anything tantamount to a general duty to act expeditiously, or with due diligence, without specific wording to that effect and that they are likely, therefore, to restrict the Avoidance of Delay Clause to the obligation to pursue the voyage or land transit itself without unreasonable delay. Termination of cover by election to store the goods Election to store out of the ordinary course of transit 15.45 Clause 8 of the Institute Cargo Clauses 1/1/2009 contemplates that the insurance normally terminates on completion of unloading at the final warehouse or place of storage named in the insurance certificate or the open cover.236 Where containers are delivered to a storage area where they are held under bond until they have been collected by the importer, the transit is unlikely to have terminated because a bonded storage area or transit shed is not usually the “final” warehouse or place of storage.237 However the insurance also terminates where the assured or their employees elect to use a warehouse, container or vehicle for storage (1) other than in the ordinary course of transit or (2) for allocation or distribution.238 These terminating events are now considered in light of the Australian, South African and Hong Kong authorities which have examined the question of election in some detail. 15.46 In the Verna Trading case239 Ormiston J considered whether the assured, who left a container of video cassettes in a stevedore’s bonded compound for about a month, pending delivery to its final destination, had made an election to use the container for storage other than in the ordinary course of transit under what is now clause 8.1.2 of the Institute Cargo Clauses 1/1/2009.240 Although the goods were held not to be in the ordinary

232. See Dunt, Marine Cargo Insurance at para. 11.38. The clause originated in the wording of the Institute Cargo Clauses (Wartime Extension) introduced in 1942 to cover cargoes during wartime delays, particularly where vessels were held up awaiting convoys. 233. It appears under the part of the Act headed “The Voyage” and under a section headed “Delay in Voyage”. 234. ICC, cl. 16. 235. In this respect see Kaye J in Verna Trading (supra) at p. 146. 236. ICC 1/1/2009, cl. 8.1. 237. Pope’s International (HK) Ltd v. National Insurance Co Ltd Unreported, (01/06/2000, HCCL 194/1997) decision of Stone J, HK Commercial List, following, John Martin of London Ltd v. Russell [1960] 1 Lloyd’s Rep. 554 and Overseas Commodities v. Style [1958] 1 Lloyd’s Rep. 546 at p. 56, McNair J. 238. ICC, cls 8.1.2 and 8.1.3. 239. Verna Trading Pty Ltd v. New India Assurance Co Ltd [1991] 1 VR 129. 240. The case was decided under the 1982 Clauses and the equivalent cl. 8.1.2.1.

538

DURATION OF THE INSURANCE

15.48

241

course of transit, Ormiston J was of the opinion that there was insufficient evidence of any election. He said242: “Furthermore, it was not alleged, nor did it otherwise appear, that ‘the assured’ had made any election pursuant to para. 8.1.2, … although the clause carefully gives the option to terminate the adventure at that stage to the assured, as opposed to the consignee referred to in para. 8.1.1, there is no evidence to suggest that the assured or its assignee, the appellant, made an election under that paragraph. So far as one can tell the goods were still under the control of the consignor, but, although it or the consignee (upon deciding to delay collection) could have made an election pursuant to sub-para 8.1.2.1 to use [the stevedore’s bonded area] for storage of the consignment ‘other than in the ordinary course of transit’, neither of them did so, so far as the evidence suggested.”

It appears, therefore, that in order to trigger the application of this sub-clause, it is not only necessary that the goods come out of the “ordinary course of transit” but that there is evidence of an election. 15.47 In South Africa in the case of Fedsure General Insurance Ltd v. Carefree Investments (Pty) Ltd243 a clothing manufacturer in Ladysmith insured a containerised consignment of fabric whilst in transit from Korea to Durban. The goods were insured under the 1982 Clauses which included the election under clause 8.1.2 which terminates the insurance on delivery to any warehouse “which the Assured elect to use … for storage other than in the ordinary course of transit”. The goods were stolen from a bonded warehouse at the docks at Durban where the assured chose to leave the goods rather than clearing them to his own warehouse in the city. The facts were, accordingly, very much as those dealt with by the Australian courts in Verna Trading.244 The goods were left in the bonded warehouse, rather than being cleared to the assured’s own warehouse as it was the assured’s “wont” to wait for a favourable cash flow position before proceeding to clear the imported goods. At first instance the judge held that as the assured did not have control of the goods he was not in a position to make an election, a finding which reflects, to some extent, that made in Verna Trading, though in the Court of Appeal in South Africa Howie JA was of the view that it might be possible for an election to be made even before control was exercised though he expressed no final opinion on that issue.245 It is submitted, in the circumstances, that there must be some clear evidence of an election for the operation of this sub-paragraph. This may be of importance, in particular, in view of the extension of the insurance to unloading under clause 8.1.3 of the 2009 Institute Clauses where the election is intended to ensure that goods do not remain covered while left on trailers or in containers in the assured’s yard for their own convenience. 15.48 The Hong Kong courts have considered the question of election under the Transit Clause of the Institute Cargo Clauses 1/1/82 in three cases. In Pope’s International (HK) Ltd v. National Insurance Co Ltd246 a consignment of electronic goods was shipped in two containers from Singapore to Harare, Zimbabwe, via Durban, South Africa. The containers arrived safely in Durban and were then taken by rail to a customs compound or storage area in Harare where they were to be stored under bond until collected by the importer.

241. See para. 15.37 above. 242. At p. 162. 243. (477/99) [2001] ZASCA 88 (11 September 2001). 244. See para. 15.46 above. 245. At para. 11. 246. Unreported, (01/06/2000, HCCL 194/1997) decision of Stone J in the Hong Kong Commercial List.

539

15.48

COMPARATIVE ANALYSIS

The goods were stolen from that area when they were taken by use of a forged bill of lading and delivery release order. In the meantime, the assured had given instructions for the goods to be diverted from Durban to Felixstowe or Southampton, not appreciating that the containers had already been sent by rail to Harare. It was argued that the decision of the assured to divert the goods from Harare and forward them to England meant that, in effect, there had been an election to store the goods pending their onward carriage to an alternative destination. Stone J dismissed this argument pointing out that the election “encompasses elements of knowledge and intention” and that it should accordingly be construed to mean a choice on the assured’s part specifically to opt for storage “in any other warehouse” other than the originally designated final warehouse.247 He was unable to discover any such “election” on the facts of the case. In E.L.A.Z. International Co v. Hong Kong & Shanghai Insurance Co Ltd248 a consignment of garments was insured for a transit from China, where they were manufactured, to Mexico via Laredo in Texas. In Laredo the garments were devanned from the original conventional international shipping container into a trailer-container for carriage over the border to Mexico. During a delay of some 31 days in the trailer compound this trailer-container and its tractor unit were stolen and the garments removed. It was argued on behalf of insurers that it should be inferred from this delay that the assured had elected to use the trailer compound for storage and that the insurance had terminated within the terms of the Institute Cargo Clauses. Stone J rejected this approach following the Australian and South African cases referred to in the previous paragraphs.249 He held that there was undoubtedly delay in Laredo but that there was no “collateral commercial purpose” on behalf of the assured to which this delay was attributable. Stone J therefore rejected the suggestion that there was an election, or that the storage was “other than in the ordinary course of transit”.250 In Miruvor Ltd v. National Insurance Co Ltd251 the assured exported eight shipments of electronic goods from Hong Kong to Paraguay, insuring them under the Institute Cargo Clauses (A). The insurers relied upon clause 8.1.2 and argued that cover had ceased because, at the assured’s election, the goods had been stored at the Santos/Paraguay warehouses other than “in the ordinary course of transit”. In particular, the insurers relied on the payment delays experienced by the assured which, in turn, delayed the transit and delivery of the goods. The court relied upon the South African and Australian decisions discussed earlier,252 as well as the decision in Leaders Shoes (Aust) Pty Ltd v. Liverpool & London & Globe Insurance Co Ltd253 discussed below, and the unreported decision in the Central London County Court in First Art Investments Ltd v. Guardian Insurance Ltd.254 The Hong Kong Court of Appeal

247. At para. 40. Stone J indicated (para. 44) that even if he had decided that there was an election, with consequent potential termination of the insurance, the cover may still have remained in place, in any event, under Clause 8.2 which extends cover where a further journey is contemplated, “until commencement of transit to such other destination”, in this case, Felixstowe or Southampton. 248. [2006] WL 496756 (CFI), [2006] HKEC 825, (10/05/2006, HCCL 16/2003). 249. In particular, Fedsure General Insurance Ltd v. Carefree Investments (Pty) Ltd (supra, fn. 243) and Verna Trading Pty Ltd v. New India Insurance Co Ltd (supra, fn. 239). 250. At paras 125 and 126. 251. [2003] HKEC 237, [2003] WL 17634 (CA). 252. Fedsure General Insurance Ltd v. Carefree Investments (Pty) Ltd (supra) and Verna Trading Ltd v. New India Assurance Co Ltd (supra). 253. [1968] 1 NSWR 279 (Supreme Court of New South Wales). 254. Unreported decision of Judge Hallgarten QC dated 14 February 2002.

540

DURATION OF THE INSURANCE

15.49

held, following the Australian and South African authorities, that the interruption and/or termination of the insurance cover was brought about by a voluntary decision or act within the control of the assured and that, in the absence of such a voluntary decision, the ordinary course of transit would continue.255 Insurers argued that the length of the delay was such that an election to leave the goods in store should be inferred but the Hong Kong court did not agree, finding support for their approach in the English case of First Art Investments Ltd decided in England where Judge Hallgarten QC observed256: “… underwriters are well aware of the complexities which attend the financing of overseas shipments, whether by letter of credit, bill of exchange or otherwise, and they must be taken to appreciate that these may well give rise to delay between the arrival of goods at their destination and presentation of documents for their release. Insofar as that delay increases underwriters’ risk – as must inevitably be the case – in my opinion the problem is met by sub-Clause 13 of the Duration Provisions: the period during which underwriters are at risk cannot extend beyond 60 days after discharge overside from the oversea vessel at the final port of discharge.”

The Hong Kong court further held that, to make good a case of election, there had to be sufficient evidence to support such a finding, relying upon the Leaders Shoes case which is now examined. Election to store for allocation or distribution 15.49 Clause 8.1.2 of the Institute Cargo Clauses 1/1/2009 provides that the insurance terminates if the assured or their employees elect to use any warehouse or place of storage for “allocation or distribution”. In Leaders Shoes (Aust) Pty Ltd v. Liverpool & London & Globe Insurance Co Ltd257 a consignment of cartons of shoes, too large to be delivered direct to the assured’s various customers, as was the usual practice, was delivered to the assured’s warehouse, from where it was stolen while being parked in a lorry overnight. The shoes were insured according to the Institute Cargo Clauses (All Risks) of 1963 in which clause 1(b)(ii) was materially the same as the current clause 8.1.2 in the 2009 Clauses. The insurers maintained that the insurance terminated before the loss occurred when the goods were delivered to the assured’s warehouse for allocation and distribution. It was accepted on the evidence that the assured intended to send the cartons from his warehouse to the various different customers. Macfarlane J said258: “In my opinion there is not any technical or trade meaning of the word ‘distribution’ and therefore the meaning which is applicable is that derived from the usage of the common man. The Shorter Oxford Dictionary in the relevant sense describes ‘distribution’ as ‘dispersal’ and I cannot think that what was elected by the applicant was other than an election that the goods should be dispersed and thereby distributed from the warehouse to the applicant’s customers.”

The judge also rejected the argument that “distribution” meant “breaking up the cartons and distributing the contents” saying that, in his opinion, this construction was unreal in relation to the transaction in question.

255. At p. 4. 256. At para. 21. 257. [1968] 1 NSWR 279 (Supreme Court of New South Wales). 258. At p. 284.

541

15.50

COMPARATIVE ANALYSIS

Election: the intention of the assured 15.50 The issue arises as to whether the subjective intention of the assured is relevant to the election under clauses 8.1.2 and 8.1.3 of the Institute Cargo Clauses. It is also unclear whether a different approach to intention should be adopted with regard to the election to store goods out of the “ordinary course of transit” and the quite separate and distinct election, which also terminates cover, to store goods for “allocation or distribution”. In the South African case of Tension Overhead Electric (Pty) Ltd v. National Employers General Insurance Co Ltd259 the assured retained goods in his yard in the belief that they would be more secure there than at the unprotected final destination. However, it was held that the goods were not “in transit”, one of the reasons being that, “the intention of the party at whose instance the storage is undertaken cannot have the effect of altering the objective meaning of the phrase ‘in transit’”.260 This is consistent with the English case of John Martin of London Ltd v. Russell261 which is authority for the view that the assured’s objective intention is to be disregarded as it could lead to a “shifting cover”.262 In the South African case of Fedsure General Insurance Ltd v. Carefree Investments Pty Ltd263 where the assured left goods in a warehouse to suit his cash flow, it was argued that this subjective reason could not be taken into account, but the court held that the matter was to be tested objectively by comparison with the usual practice. While it may be that the appropriate test for the election in relation to storage out of the ordinary course of transit requires an objective approach, in order to determine what constitutes the “ordinary” course of transit, it is submitted that in relation to the election to use a warehouse, or place of storage, for allocation or distribution, the assured’s subjective intention may be relevant as this requirement of clause 8.1.2 is directed towards what the assured intends to do with the goods. Cover for cargo carried on deck: deviation Deck cargo must be insured specifically 15.51 This section of the book now examines a problem encountered in practice where cargo, for example, machinery, is placed on deck (unknown to the assured) and suffers damage during the voyage, typically as a result of exposure to seawater. In practice the modern form of bill of lading introduced in the 1980s provides a liberty purporting to entitle the carriers to stow the cargo on deck, subject to the provisions of the Hague-Visby Rules.264 So far as the cargo insurance is concerned, clause 8.3 of the Institute Cargo Clauses automatically continues the insurance, without notice to the insurers or an additional premium, in the following circumstances: “This insurance shall remain in force (subject to termination as provided for in Clauses 8.1.1 to 8.1.4 above and to the provisions of Clause 9 below) during delay beyond the control of the Assured, any deviation, forced discharge, reshipment or transhipment and during any variation of the adventure arising from the exercise of a liberty granted to carriers under the contract of carriage.” 259. 1990 4 SA 190. 260. At p. 195. 261. [1960] 1 Lloyd’s Rep. 554. 262. At p. 565, per Pearson J. 263. (477/99) [2001] ZASCA 88 (11 September 2011, Supreme Court of Appeal). 264. See the judgment of Thomas LJ in Geofizika DD v. MMB International Ltd (The Green Island) [2010] 1 Lloyd’s Rep. 458 where this practice is explained.

542

DURATION OF THE INSURANCE

15.53

Is carriage on deck within a liberty in the bill of lading within the insurance by reason of the extension provided by clause 8.3 of the Institute Cargo Clauses? The situation typically arises where machinery, which will not fit into a container, is placed in a flat-rack or opentop container. The New Zealand decision in Craftware Products Ltd v. Commercial Union General Insurance Co Ltd265 illustrates the position. In this case the assured company contracted to sell an injection moulding machine to an Australian company. The machine was broken down into three parts which were placed in a flat-rack container at the assured’s premises in New Zealand. After packing in the container the machine extended beyond the sides of the container some few inches and was noted as “over height”. It was carried from Lyttelton to Melbourne and quite extensively damaged as a result of being exposed to both salt water and ordinary water. The High Court of New Zealand decided that the damage to the machinery was covered under a cargo policy underwritten in terms of the Institute Cargo Clauses 1982. The only point taken by the insurers was that the cargo was insufficiently packed for carriage on deck and that the loss was therefore excluded under clause 4.3 which excludes “loss damage or expense caused by insufficiency or unsuitability of packing or preparation”.266 In particular, the insurers did not deny liability for the cargo carried on deck even though it was held by the judge that the machine was probably carried on deck and the damage was caused in part at least by this. The insurers accepted a claim for mechanical damage suffered by the machine due to rough handling and that, in principle, the cargo carried on deck was insured under the policy. However, it may be suggested that an additional point was open to insurers, if the policy was on usual terms, which is that deck cargo is only covered if insured specifically. 15.52 In this respect, rule 17 of the Rules for Construction scheduled to the Marine Insurance Act 1906 provides that “deck cargo … must be insured specifically”. In the English case of British and Foreign Marine Insurance Co v. Gaunt267 Atkin LJ, in the Court of Appeal, explained this rule saying268: “I think that this must be read as enacting, not that the general description ‘goods’ does not include deck cargo, but that the subject-matter of the insurance, however described, will not be covered while carried on deck unless it is specifically insured as deck cargo.”

A number of English cases have proceeded on the basis that the rule means, therefore, that the “goods”, whether it be a motor car269 or bales of wool,270 or barrels of kerosene,271 however described, will not be covered while carried on deck unless specifically insured as deck cargo. On this basis it is argued that when cargo is placed on deck this takes it out of what is insured under the policy and, additionally, outside the “ordinary course of transit” as required by clause 8.1 of the Institute Cargo Clauses. 15.53 As noted above, this approach appears to have been adopted in the Australian case of Helicopter Resources Pty Ltd v. Sun Alliance Australia Ltd (The “Icebird”)272 where Ormiston J considered the phrase “ordinary course of transit” in the context of cargo 265. (1987) 4 ANZ Insurance Cases 60-819. 266. For a discussion of this exclusion, see para. 3.47 et seq. above. 267. [1920] 1 KB 903 (CA). 268. At pp. 914, 915. 269. Hood v. West End Motor Co [1917] 2 KB 38 (CA). 270. British & Foreign Marine Insurance Co Ltd v. Gaunt [1921] 1 AC 41(HL). 271. Alluvials Mining Machinery Co v. Stowe (1922) 10 Ll. L. Rep. 96. 272. [1991] 312 LMLN, noted by S Hetherington [1992] LMCLQ 21. The “ordinary course of transit” issue is analysed at para. 15.38 above.

543

15.53

COMPARATIVE ANALYSIS

carried on deck. In this case a cargo of four helicopters was being carried from Hobart to the Australian Antarctic Base at Casey and to other bases in the Antarctic. When the vessel neared the Antarctic bases the helicopters were brought up from the hold and lashed on deck where there were used for reconnaissance and transport on the approach of the vessel to the bases. In answer to insurers’ allegation that the securing and stowing of the helicopters at sea in varying weather conditions was a material enhancement of the risk, which had not been disclosed, Ormiston J, “found that the policy of marine insurance terminated at the point of time at which the helicopters were unlashed and commenced to be used for reconnaissance and transportation of passengers on the basis that they were no longer ‘in the ordinary course of transit’ within the meaning of Clause 8 of the Institute Cargo Clauses”.273 15.54 A different point of view was taken by the Malaysian court in the case of Leong Brothers Industries v. Jerneh Insurance Corp274 where the assured were the owners and shippers of a cargo of men’s sports shoes which were carried on deck in breach of the contract of carriage. The sports shoes were damaged during the voyage and it was held that this was a fortuitous result of the goods being improperly carried. The only case cited appears to have been Gaunt’s275 case and the only text Templeman on Marine Insurance, where reference was made to passages in the footnotes suggesting that improper stowage could amount to a fortuity. It appears that no reference was made to the other passages in Templeman that deal with “deck cargo”276 and the case proceeded on the assumption that the proximate cause of the loss was the carriage of the cargo on deck, rather than the heavy weather that actually caused the loss. It is notable that it was held that the equivalent to rule 17 of the Marine Insurance Act 1906 did not apply in circumstances where an underdeck bill of lading was issued, which raises the question of the application of the liberties in the bill of lading. Impact of the liberties in the bill of lading 15.55 In the English case of Alluvials Mining Machinery Co v. Stowe277 a consignment of barrels of kerosene was insured for carriage from the United Kingdom to mines in Nigeria. The barrels of kerosene were shipped on deck and were damaged during the voyage. The assured was aware that the cargo was to be shipped on deck but argued that the cargo was covered where the transit was varied by reason “of the exercise of any liberty granted to the shipowner or charterer” under a contract of affreightment.278 Greer J held that as the goods were shipped on deck at the outset of the voyage, the variation clause could not apply. He said279: 273. Ibid., Note by S Hetherington at p. 23. The transcript of the judgment, kindly provided to the author by Mr. Hetherington, puts the main emphasis (at p.27) on the fact that the helicopters were unlashed and taken onto deck for purposes not connected with transit, e.g., reconnaissance. However, it is submitted that the placing of the helicopters on deck was also, of itself, an important factor and, in this context, Ormiston J concludes his remarks by indicating that “the ordinary course of transit would not have recommenced until the helicopters had been lashed down again in the hold”. 274. Unreported case in the High Court of Penang decided on 27 October 1990. 275. British & Foreign Marine Insurance Co Ltd v. Gaunt [1921] 1 AC 41 (HL). 276. See, in particular, R.J. Lambeth, Templeman on Marine Insurance, 6th edn,1986; Pitman, at pp. 146–147 to the effect that “in the absence of any usage to the contrary cargo carried on deck must be insured specifically: otherwise, cargo so carried would not be covered by an ordinary insurance on goods”, and see also op. cit. at p. 112. 277. Supra. 278. The ICC applicable at the time of the decision contained the same wording in cl. 5 of those clauses as that which now appears in cl. 8.3. 279. At p. 98.

544

DURATION OF THE INSURANCE

15.56

“In my judgment [this clause] does not cover [the assured’s] risk in regard to the goods. There was not, in my judgment, a variation in the risk at all; or, rather, there was no variation of the risk by reason of the exercise of any liberty granted to the shipowner. There was no liberty granted the shipowner in the contract of affreightment to carry these goods on deck, in the sense of the words that he was free to carry them on deck, because it was part of the contract to carry on deck. I think those words mean the contract of carriage is for ordinary carriage of goods in the usual place and way, but there are liberties reserved to the shipowner to vary that from time to time in certain ways, and the facts in this case do not show any exercise of liberty to vary that risk within the meaning of the words.”

The decision also turned on the fact that there was an express agreement for the goods to be carried on deck, an agreement which had been made before the insurance had been arranged. Nevertheless this case is authority for the proposition that the variation in the adventure, permitted by clause 8.3 of the Institute Cargo Clauses, does not extend to cargo carried on deck.280 Goodacre, Marine Insurance Claims, similarly states as follows281: “… and as a shipment on deck is not considered to be a ‘variation of the adventure’, this extension of the risk cannot be claimed automatically under the ‘Transit Clause’ in the standard cargo clauses.”

15.56 There is old authority of Lord Mansfield in Pelly v. Royal Exchange Assurance Co282 which suggests that where there is a change in the voyage or adventure, rather than a mere variation, the cover ceases. In this case Lord Mansfield said283: “The insurer, in estimating the price at which he is willing to indemnify the trader against all risks, must have under his consideration the nature of the voyage to be performed, and the usual course and manner of doing it. Everything done in the usual course must have been foreseen and in contemplation, at the time he engaged. He took the risk upon a supposition that what was usual or necessary, would be done.”

On this basis it is submitted that goods when placed on deck are no longer in the “ordinary course of transit”.284 It is arguable that the extension of the insurance in clause 8.3, to cover the liberty in the bill of lading, does not therefore apply as the goods came off risk when they were placed on deck: this is not a variation of the risk but an alteration of the risk leading to an increase in the risk of loss or damage to an extent that may be very serious,285 such that it becomes a quite different risk. Alternatively, it may be that the liberty although potentially valid does not apply. In England it was held in Svenska Traktor v. Maritime Agencies (Southampton) Ltd286 that a liberty in a bill of lading permitting the carriage of goods on deck operates effectively as a liberty but the carriage is subject to the Hague Rules. This approach was recently approved and upheld by Thomas LJ in Geofizika DD v. MMB International Ltd (The Green Island),287 a case which concerned vehicles carried on deck and washed overboard. It was argued, but it was unnecessary to decide, whether carriage of these vehicles on deck, apparently lashed to containers, was in breach of the 280. This does seem to be a separate basis for the decision and is treated as such by Dover’s Handbook of Marine Insurance, 8th edn, Witherby & Co at pp. 387, 388. 281. At p. 173. 282. (1757) 1 Burr 341. 283. At p. 348. 284. Within the terms of cl. 8.1 of the ICC. 285. Deawoo Heavy Industries Ltd v. Klipriver Shipping Ltd (The Kapitan Petro Voivoda) [2003] 2 Lloyd’s Rep. 1. Arnould, Marine Insurance at para. 10-11. 286. [1953] 2 Lloyd’s Rep. 124. 287. [2010] 2 Lloyd’s Rep. 1 (CA).

545

15.56

COMPARATIVE ANALYSIS

carriers’ duty under the Hague-Visby Rules to carefully stow and carry the cargo.288 If the liberty was contrary to the obligation to carefully stow and carry the cargo, the liberty, though potentially valid, could not actually protect the carriers and therefore, in turn, it could not operate to extend the insurance under clause 8.3 of the Institute Cargo Clauses. In support of the view that an invalid liberty cannot extend the insurance, it may be noted that a similar approach was taken to clause 8.3 of the Institute Cargo Clauses in the Hong Kong case of Kallis v. Success Insurance Co.289 In this case goods were insured for carriage on ship A under an onboard bill of lading for that ship but were in fact carried by ship B. It was held that the liberty clause in the onboard bill of lading for ship A could not apply because the carriage aboard that ship, and the liberty contained in the bill, did not allow the carriers to ship the goods, from the first, on a completely different vessel, ship B. In the circumstances, as the liberty in the bill of lading was ineffective, the insurance could not therefore remain “in force” within clause 8.3. If this is the correct approach, then the question of whether clause 8.3 applies must, in the first instance, turn on whether there was a valid liberty to carry on deck within the terms of the bill of lading and any compulsorily applicable rules, more particularly the Hague-Visby Rules. Insofar as the liberty to carry on deck is contrary to the obligation to care for the cargo, it is not effective and the insurance cover cannot be extended under clause 8.3 of the Institute Cargo Clauses to cargo carried on deck. Deck cargo covered against major casualties only 15.57 If, as it is submitted here, the effect of the carriage of the goods on deck, even if unknown to the assured, takes them off risk, this is hard on the assured. However, this is ameliorated by the practice of certain insurance markets. In particular, in Japan the practice is to incorporate in open covers the “on-deck clause” which normally provides as follows: “On-deck Clause Notwithstanding anything contained herein to the contrary, it is specially understood and agreed that in the event of the goods hereby insured or any part thereof being carried on deck, whether by the exercise of a liberty granted to shipowners or charterers under the contract of affreightment or not, the condition of such deck load shall be subject to Institute Cargo Clauses (C)…, including the risk of Washing Overboard, so long as the goods hereby insured are stored on deck.”

A similar practice also applies in England in some cases. For example, it was noted in Hood v. West End Motor Co Ltd290 that, for the insurance of a motor car carried on deck, the terms would have been free of particular average (“FPA”) plus washing overboard. In the recent decision of the Court of Appeal in England in The “Green Island”291 the standard insurance cover held by the freight forwarders provided that for new cars carried under deck the insurance would be on the terms of the Institute Cargo Clauses (A) but that for vehicles exceeding five years, and/or vehicles shipped on deck not containerised,292 the 288. Article III rule 2. 289. [1985] 2 Lloyd’s Rep. 8 (PC). 290. [1917] 2 KB 38 (CA). 291. [2010] 2 Lloyd’s Rep. 1 (CA). 292. It is to be noted that the on-deck cover extended to containers as long as they were “containers of all solid construction”, and this also reflects a Japanese practice which allows shipment on deck in containers but excludes flat-rack or open-top containers.

546

CLAIMS AND LOSSES

15.59

293

Institute Cargo Clauses (C) would apply. It is submitted that the solution to the very difficult problem of deck cargo, where the cargo is placed on deck unknown to the assured, is to follow the practice whereby insurance cover is provided to protect the cargo against the major traditional risks covered under the Institute Cargo Clauses (C) plus the risk of washing overboard. This is the practice adopted in some of the civil jurisdictions. The approach in practice in the civil law jurisdictions 15.58 In some civil law jurisdictions a similar practice has been adopted. In Italy, the cover for goods carried on deck (where the assured is unaware of such stowage) is subject to the specific regime in Article 28 of the Italian Policy. This restricts insurance to named perils, broadly equivalent to the Institute Cargo Clauses (C), that is to say, the traditional major casualties at sea.294 In Germany, clause 5.3 of the DTV-Cargo Conditions lists examples of change of risk, including where goods are stowed on deck, but if the carrier stows the goods on deck without the assured’s consent, the assured remains covered in case of loss or damage.295 In France, cargo carried on deck is subject to specific rules, in effect, only covered against the major casualties at sea covered under the “FAP Sauf” policy,296 but the Commercial Court of Paris has ruled that where the carrier loads cargo on deck, unknown to the assured, the carrier is liable.297 It is submitted that this decision appears inconsistent with Article 5.2 of the French Cargo Clauses which provide cover for jettison and washing overboard at an additional premium if the assured declares the cargo on deck “as soon as he himself is aware of it”. This clearly implies that the limitations on the risks for deck cargo are intended to apply whether or not the assured is aware that the cargo is being carried on deck.298 This would be consistent with the approach described here which is that the goods come off risk, as carriage on deck is a fundamental alteration in the risk not contemplated when the insurance was arranged. However, in practice, cover should be provided on limited terms, so that major casualties which would have damaged the cargo, whether it was on deck or not, are still covered.

CLAIMS AND LOSSES Total loss of cargo: actual and constructive Constructive total loss 15.59 Under English law there is a separate concept of constructive total loss, a principle confined to marine insurance. This approach is shared by those common law jurisdictions that have adopted versions of the Marine Insurance Act 1906 as well as the United States where, in principle, the assured can claim a constructive total loss where the goods are damaged to more than half of their value, a rule that in practice is varied by the express 293. The cover did not extend to washing overboard which was in fact the cause of the loss in this case. 294. See para. 9.78 above. 295. See paras 10.53 to 10.55 above. 296. See para. 11.49 above. 297. Commercial Court of Paris, 21 September 1977, DMF 1978, 294. 298. See para. 11.49 above.

547

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COMPARATIVE ANALYSIS

policy terms to reflect the rules of the 1906 Act that the goods cannot be preserved from an actual total loss without an expenditure that would exceed its full value when that expenditure has been incurred.299 Civil law jurisdictions tend to favour a calculation that, on some occasions, applies a rule that entitles the assured to recover for a total loss even when the expenditure is less than the full value of the goods.300 For example, French law recognises that where the loss or damage to the cargo amounts to at least three-quarters of the amount insured, there is the right to claim a constructive total loss.301 In Italy, the law does not formally draw a distinction between actual and constructive total loss but, in common with other civil law jurisdictions, a loss is “constructive” where the subject-matter insured is missing or damaged beyond repair in which case a total loss may be claimed through abandonment to the insurer.302 The civil law jurisdictions, particularly in Italy and France, lay down a code regulating the time when the vessel has not been heard of which entitles the assured to claim for a total loss so that, for example, in France where the ship or goods have been missing for a period of four months, there is an entitlement to abandon the cargo and claim for a total loss.303 German law does not contain particular provisions defining a constructive total loss but where goods are damaged to such an extent that they are not repairable or not worth repairing, or the repair costs would exceed the sound value of the goods, the claim for damage will be settled on a total loss basis.304 The Norwegian Cargo Clauses make elaborate provisions for total loss which, in practice, reflect the provisions of English law and entitle the assured to recover for what is in effect a constructive total loss without, however, using or adopting that principle.305 15.60 There are differences under the civil law systems as to whether a loss of possession entitles the assured to claim for a constructive total loss. In particular, in Italy where the assured is deprived of possession of the goods, for example, by pirates, it is unclear whether a constructive total loss can be claimed as neither the Italian Cargo Policy306 nor the Code of Navigation307 contemplates abandonment where the assured is deprived of possession.308

SUBROGATION AND RIGHTS OF CONTRIBUTION Subrogation Exercise of subrogation rights in practice 15.61 There is a striking uniformity of approach to the principle of subrogation, that is to say, that on payment of a marine cargo insurance claim the insurers are entitled to exercise 299. American ICC All Risks 2004 (1 January 2004), cl. 7.A, see Appendix 7, following MIA 1906 s. 60(1), and see para. 8.96 above. 300. See, e.g., for the historical background to this approach, the Glasgow Rules, considered at para. 1.12 above, which adopted a rule that there was a constructive total loss if the cost of repair would exceed three-fourths of the insurable value of the cargo. 301. See para. 11.72 above. 302. See para. 9.131 et seq. above. 303. See para. 11.72 above, as to the position in France, and as to the position in Italy see para. 9.132 above. 304. See para. 10.149 above. 305. See para. 12.86 et seq. above. 306. Article 31. 307. Article 541. 308. Contrast MIA 1906 s. 60(2)(i) and see para. 9.133 above.

548

SUBROGATION AND RIGHTS OF CONTRIBUTION

15.61

the assured’s rights against any third party responsible for the loss or damage to the goods.309 However, there are important differences in practice as to whether the action is taken in the name of the assured, as it is in the common law jurisdictions, or in the name of insurers, as is the more usual practice in the civil law jurisdictions, though not in Norway.310 In South Africa, which is a hybrid jurisdiction, part common law and part civil law, the courts have grappled with the concept of subrogation. In accordance with the civil law the principle is accepted that rights are transferred to insurers on payment of the insurance claim, but the practice of those rights being exercised in the name of the assured has led to some confusion in the lower courts.311 The question of whose name is used is not merely a matter of form but may be a decisive factor in some jurisdictions where an assignment (or the equivalent) may enhance insurers’ recovery prospects. In France, for example, there is a strict rule that the insurance claim must have fallen within the terms of the policy. Accordingly, where damage resulted from insufficiency of packing, excluded under the policy,312 the insurers in France were unable to rely on legal subrogation.313 Similarly in the United States some authorities suggest that a third party may defend on the basis that there was no insurance coverage under the policy and that the insurer was a mere “volunteer” not entitled to subrogation.314 In England in King v. Victoria Insurance Co,315 on an appeal from the Supreme Court of Queensland, it was held that a payment honestly made by insurers in satisfaction of a claim by the assured entitles the insurers to the remedies available to the assured and that these remedies cannot be resisted on grounds that the payment was not within the terms of the policy. In this case a cargo of wool was insured from Townsville to London “including risk of fire and flood from sheep’s back until water-borne at Townsville”. The wool was loaded into a lighter which capsized when it fell foul of boats which had not been properly secured and which broke away in a storm. The wool was lost before it was loaded on the carrying vessel to England so a real issue arose as to whether it was insured against marine perils whist in the lighter, though it was insured against fire and flood from sheep’s back. The owner of the boats who caused the capsize, and the subsequent loss of the wool, was held liable to the insurers and argued that the original loss was not within the policy. The Privy Council described this argument as being as “novel as it is startling” and rejected it outright saying that no payment would have been made if no policy existed and that it would be an “excess of refinement to hold that it was not a payment on the policy”. It was made clear that under English law, and Australian law, a stranger has no right to question a settlement “honestly and reasonably” made by insurers as to hold otherwise would create rules for promoting law-suits.316 This rule, which was forcefully expressed by the Privy Council, appears never to have been questioned. A similar rule applies in Italy where the third party cannot rely 309. See para. 3.120, English law; para. 8.120, United States law; para. 9.139, Italian law; para. 10.195, German law; para. 11.76, French law; para. 12.106 Norwegian law; para. 13.46, PRC law and para. 14.143, South African law (based on civil law concepts rather than the English common law). 310. In Norway the practice is to proceed in the name of the assured though legally the position is unclear, see para. 12.108 fn. 151 above. 311. See paras 14.149 and 14.150 above. 312. See, e.g., ICC, cl. 4.3, considered at para. 3.47 above. 313. Court of Appeal of Versailles, 8 November 2001, BMF 2002, p. 630, see paras 11.77 and 11.78 above. 314. Junior Gallery Ltd v. Neptune Orient Lines Ltd, 1997 U.S. Dist. LEXIS 499 (SPNY 1997), contrast: Nord Deutscher Lloyd v. Insurance Co of North America 11 Fed. R. 420 (1901). 315. [1896] AC 250 (PC). 316. At p. 255.

549

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COMPARATIVE ANALYSIS

on the voidness of the policy (e.g., because the risk never existed) or the payment of the claim to a person not entitled to receive it.317 Where there is any doubt as to whether the payment falls within the policy it is possible in France to transfer the assured’s rights by “conventional subrogation”,318 though the strict requirements for this type of assignment of a claim are not easily achieved.319 Similarly in the United States the assignment of a claim may prevent any arguments by the third party that the insurers have acted as “volunteers” and that there is therefore no liability under the policy.320

Contribution between insurers Which law applies? 15.62 Where there are two policies of marine cargo insurance both covering the same cargo and a double insurance situation arises, the policies are quite likely to be governed by different systems of law, particularly where the double insurance has arisen between buyer and seller in an international context. The question then arises as to what law should govern the rights of contribution between insurers. In the English case of American Surety Co of New York v. Wrightson,321 it was held that English law, as the law of the forum, applied to the obligation of American insurers to contribute. Under English law the obligation to contribute has its origins in the equitable doctrine of contribution between co-sureties, and it follows that in an English court the defendant insurer, who is called upon to contribute, is obliged to do so by virtue of English law rules whatever law governs the policy. The forum for the dispute may therefore be crucially important, particularly as continental European systems of law may tend to favour the broad proposition that the policy which comes first in time should first of all meet liability in full,322 and sometimes clauses in United States policies have a similar effect.323

Contribution: voluntary payments 15.63 Occasionally a CIF buyer who, perhaps, is not comfortable with the policy provided by his seller, takes out an insurance of his own, so that the conditions for double insurance are fulfilled, that is to say, there is one assured holding two policies on the same goods with a value which exceeds the insured value.324 The general rule of English law regarding contribution, which, it is anticipated, is likely to be followed in most common law jurisdictions, is that each insurer is bound as between himself and the other insurer 317. See para. 9.144 above. 318. This appears to reflect in some ways the English law concept of assignment of a claim under s. 136 of the Law of Property Act 1925, see Dunt, Marine Cargo Insurance at para. 3.53. 319. See para. 11.80 above. 320. See para. 8.123 above. 321. (1910) 16 Com Cas 37. 322. Halsbury’s Laws of England, 2003 re-issue, volume 25, Insurance, Lexis Nexis Butterworths, at para. 495, p. 388, fn. 4. On the other hand, Italian law (at para. 9.46 above) appears to reflect the English position with pro-rata sharing between insurers as does French law, see para. 11.83 above. Special rules apply in Japan, see para. 6.45 above. 323. See para. 8.124 et seq. below. 324. MIA 1906 s. 32.

550

SUBROGATION AND RIGHTS OF CONTRIBUTION

15.63

to contribute rateably to the loss in proportion to the amount for which he is liable under his contract.325 The right to contribution is also subject to the application of any noncontribution or rateable contribution clauses. Marine cargo policies do not normally include non-contribution clauses, or excess clauses, except in the Japanese market where it is usual to include an excess clause in the policy.326 It is also to be noted that United States cargo insurers generally protect themselves from double insurance with a clause that makes the first policy taken out the primary policy and the second policy the excess policy.327 Under English law,328 the question arises whether the insurer with an excess clause, in particular, a Japanese insurer, who has no liability under English law to his assured, has a right of contribution if he nevertheless pays his assured and then claims a contribution from the other insurer, or whether, by reason of the voluntary payment, the insurer loses the right to contribution. In England in Legal & General Assurance Society Ltd v. Drake Insurance Co Ltd329 it was held that as the insurer claiming contribution had chosen to pay as a volunteer he was unable to enforce his right of contribution. However, the Court of Appeal in England in Drake Insurance plc v. Provincial Insurance plc330 held that where an insurer was partially protected by a rateable contribution clause,331 and payment was made by that insurer under protest, the insurer would not be treated as a volunteer and was entitled to a contribution.332 The Singapore courts have taken this one step further in SHC Ltd v NTUC Income Insurance Cooperative Ltd333 and applied the principle to an excess clause, such as that which appears in the typical Japanese marine cargo insurance policy, which protects the insurer from any payment and transfers the whole risk to the other insurer. It was held in this Singapore case that an insurer, protected by a non-contribution clause,334 who paid under protest, was entitled to recover not merely a rateable contribution but a full 100% indemnity from the other insurer. It would follow on the basis of this decision that if a Japanese insurer, protected by an excess clause, paid 325. See para. 3.124 above. For a recent non-marine illustration in England, see National Farmers Union Mutual Insurance Society Ltd v. HSBC [2011] Lloyd’s Rep. IR 86. 326. This clause normally provides that the insurance, “does not cover any loss or damage to the property which at the time of the happening of such loss or damage is insured by or would but for the existence of this policy be insured by any fire or other insurance policies or policies except in respect of any excess beyond the amount which would have been payable under the fire or other insurance policy or policies had this insurance not been effected”. For the practice, see Dunt Marine Cargo Insurance at para. 6.28. 327. This type of clause provides that where the insured is covered by other insurance which attached prior to the coverage “provided by this policy”, the insurer shall be liable only for the amount in excess of such prior insurance. The American Institute Cargo Clauses 2004, All Risks, Clause D(2) provide that if the assured shall have procured any other ocean marine cargo insurance attaching earlier, then the insurers shall only be liable for any deficiency in such prior insurance; however, where the insurances are simultaneous, pro-rata sharing is provided for, see cl. D(4), and see also para. 8.125 above. 328. The question of which law applies is considered in para. 15.62 above, and, by English law, depends on the forum where the claim for contribution is made. 329. [1992] 1 All ER 283. 330. [2004] Lloyd’s Rep. IR 277. 331. A rateable contribution clause differs from a non-contribution clause, or an excess clause, in that it merely gives the insurer the proportionate protection, by virtue of its provision that the insurer will only pay his rateable proportion of the loss, whilst a non-contribution clause, or an excess clause, provides complete protection insofar as it asserts that no payment will be made where there is another insurance policy, or, in the case of an excess clause, the only payment made will be the excess amount. 332. Drake Insurance plc v. Provincial Insurance plc [2004] QB 610, per Rix LJ at 638–639, paras 124 to 126, [2004] Lloyd’s Rep. IR 277. 333. [2010] SGHC 224, High Court of Singapore (Chan Seng Onn J). 334. Rather than merely by a rateable contribution clause as was the position in Drake Insurance plc v. Provincial Insurance plc above.

551

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COMPARATIVE ANALYSIS

his own assured under protest, having claimed against the other insurer, who had refused payment, a good action would lie for contribution for recovery of 100% of the amount paid. It is submitted that this decision of Singapore law is, with respect, the proper and sound approach as it encourages the first insurer to settle the claim promptly, and he is not prejudiced by that settlement. As the Singapore judge put it, there was much to be said for encouraging insurers to pay out expeditiously, leaving disputes on liability between different insurers to be resolved at a later date, without the paying insurer’s right of recourse being removed on the ground that he had acted as a volunteer.335

335. At para. 42.

552

APPENDICES ENGLAND Legislation 1 Marine Insurance Act 1906 (UK) Clauses 2 Institute Cargo Clauses (A) 1/1/82 3 Institute Cargo Clauses (A) 1/1/09 JAPAN Legislation 4 Commercial Code (Japan) 5 Insurance Law (Japan) AUSTRALIA Legislation 6 Insurance Contracts Act 1984 (Australia) UNITED STATES Clauses 7 American Institute (AIMU) Cargo Clauses 2004 (All Risks) 8 American Institute (AIMU) War Risk and Strikes Forms AIMU War Risk Open Policy (Cargo) (December 2, 1993) AIMU Strikes, Riots and Civil Commotions (Form 12A) (January 1, 2008) ITALY Clauses 9 Cargo Policy Clause N.1/Cargo 2006 Cargo Insurance (All Risks) Clause N.2/Cargo 2006 Cargo Insurance II (Named Risks) Clause N.3/Cargo 2006 Goods Carried by Truck or Rail Clause N.4/Cargo 2006 Cargo Insurance Strike Risks Clause N.5/Cargo 2006 Cargo Insurance War Risks Additional Terms N.1/Cargo 2006 Goods Carried in Refrigerated Conditions GERMANY Clauses 10 DTV-Cargo Conditions 2000/2011 (All Risks) FRANCE Legislation 11 Insurance Code (France) Clauses 12 French Marine Cargo Insurance Policy: “All Risks” Cover 1/7/2009 13 French Marine Cargo Insurance Policy: “F.A.P. Sauf …” Cover 1/7/2009 14 Additional Clauses 26 (Theft etc) and 27 (Disappearance) 15 Certificate of Insurance

553

APPENDICES

NORWAY Legislation 16 Insurance Contracts Act (Norway) Clauses 17 Norwegian Cargo Clauses: Conditions relating to Insurance for the Carriage of Goods 1995: Version 2004 and Appendices PEOPLE’S REPUBLIC OF CHINA Legislation 18 Maritime Code (PRC) Clauses 19 PICC Property and Casualty Company Limited Ocean Marine Cargo Clauses (2009) SOUTH AFRICA Legislation 20 Admiralty Jurisdiction Act/Short-term Insurance Act (South Africa)

554

APPENDIX 1 MARINE INSURANCE ACT 1906 (UK) ARRANGEMENT OF SECTIONS Marine Insurance 1. Marine insurance defined. 2. Mixed sea and land risks. 3. Marine adventure and maritime perils defined. Insurable Interest 4. Avoidance of wagering or gaming contracts. 5. Insurable interest defined. 6. When interest must attach. 7. Defeasible or contingent interest. 8. Partial interest. 9. Re-insurance. 10. Bottomry. 11. Master’s and seamen’s wages. 12. Advance freight. 13. Charges of insurance. 14. Quantum of interest. 15. Assignment of interest. Insurable Value 16. Measure of insurable value. Disclosure and Representations 17. Insurance is uberrimae fidei. 18. Disclosure by assured. 19. Disclosure by agent effecting insurance. 20. Representations pending negotiation of contract. 21. When contract is deemed to be concluded. The Policy 22. Contract must be embodied in policy. 23. What policy must specify. 24. Signature of insurer. 25. Voyage and time policies. 26. Designation of subject-matter. 27. Valued policy. 28. Unvalued policy. 29. Floating policy by ship or ships. 30. Construction of terms in policy. 31. Premium to be arranged. Double Insurance 32. Double insurance. Warranties, etc. 33. Nature of warranty. 34. When breach of warranty excused. 35. Express warranties. 36. Warranty of neutrality. 37. No implied warranty of nationality.

555

APPENDIX 1

38. 39. 40. 41.

Warranty of good safety. Warranty of seaworthiness of ship. No implied warranty that goods are seaworthy. Warranty of legality.

The Voyage 42. Implied condition as to commencement of risk. 43. Alteration of port of departure. 44. Sailing for different destination. 45. Change of voyage. 46. Deviation. 47. Several ports of discharge. 48. Delay in voyage. 49. Excuses for deviation or delay. Assignment of Policy 50. When and how policy is assignable. 51. Assured who has no interest cannot assign. The Premium 52. When premium payable. 53. Policy effected through broker. 54. Effect of receipt on policy. Loss and Abandonment 55. Included and excluded losses. 56. Partial and total loss. 57. Actual total loss. 58. Missing ship. 59. Effect of transhipment, etc. 60. Constructive total loss defined. 61. Effect of constructive total loss. 62. Notice of abandonment. 63. Effect of abandonment. Partial Losses (Including Salvage and General Average and Particular Charges) 64. Particular average loss. 65. Salvage charges. 66. General average loss. Measure of Indemnity 67. Extent of liability of insurer for loss. 68. Total loss. 69. Partial loss of ship. 70. Partial loss of freight. 71. Partial loss of goods, merchandise, etc. 72. Apportionment of valuation. 73. General average contributions and salvage charges. 74. Liabilities to third parties. 75. General provisions as to measure of indemnity. 76. Particular average warranties. 77. Successive losses. 78. Suing and labouring clause. Rights of Insurer on Payment 79. Right of subrogation. 80. Right of contribution. 81. Effect of under insurance.

556

MARINE INSURANCE ACT 1906 (UK)

Return of Premium 82. Enforcement of return. 83. Return by agreement. 84. Return for failure of consideration. Mutual Insurance 85. Modification of Act in case of mutual insurance. Supplemental 86. Ratification by assured. 87. Implied obligations varied by agreement or usage. 88. Reasonable time, etc., a question of fact. 89. Slip as evidence. 90. Interpretation of terms. 91. Savings. 92. Repeals. 93. Commencement. 94. Short title. SCHEDULES An Act to codify the Law relating to Marine Insurance.

[21 December 1906]

MARINE INSURANCE 1. Marine insurance defined. A contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure. 2. Mixed sea and land risks. (1) A contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage. (2) Where a ship in course of building, or the launch of a ship, or any adventure analogous to a marine adventure, is covered by a policy in the form of a marine policy, the provisions of this Act, in so far as applicable, shall apply thereto; but, except as by this section provided, nothing in this Act shall alter or affect any rule of law applicable to any contract of insurance other than a contract of marine insurance as by this Act defined. 3. Marine adventure and maritime perils defined. (1) Subject to the provisions of this Act, every lawful marine adventure may be the subject of a contract of marine insurance. (2) In particular there is a marine adventure where— (a) Any ship goods or other moveables are exposed to maritime perils. Such property is in this Act referred to as “insurable property”; (b) The earning or acquisition of any freight, passage money, commission, profit, or other pecuniary benefit, or the security for any advances, loan, or disbursements, is endangered by the exposure of insurable property to maritime perils; (c) Any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property, by reason of maritime perils. “Maritime perils” means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers, thieves, captures, seisures, restraints, and detainments of princes and peoples, jettisons, barratry, and any other perils, either of the like kind or which may be designated by the policy.

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APPENDIX 1

INSURABLE INTEREST 4. Avoidance of wagering or gaming contracts. (1) Every contract of marine insurance by way of gaming or wagering is void. (2) A contract of marine insurance is deemed to be a gaming or wagering contract— (a) Where the assured has not an insurable interest as defined by this Act, and the contract is entered into with no expectation of acquiring such an interest; or (b) Where the policy is made “interest or no interest,” or “without further proof of interest than the policy itself,” or “without benefit of salvage to the insurer,” or subject to any other like term: Provided that, where there is no possibility of salvage, a policy may be effected without benefit of salvage to the insurer. 5. Insurable interest defined. (1) Subject to the provisions of this Act, every person has an insurable interest who is interested in a marine adventure. (2) In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof. 6. When interest must attach. (1) The assured must be interested in the subject-matter insured at the time of the loss though he need not be interested when the insurance is effected: Provided that where the subject-matter is insured “lost or not lost,” the assured may recover although he may not have acquired his interest until after the loss, unless at the time of effecting the contract of insurance the assured was aware of the loss, and the insurer was not. (2) Where the assured has no interest at the time of the loss, he cannot acquire interest by any act or election after he is aware of the loss. 7. Defeasible or contingent interest. (1) A defeasible interest is insurable, as also is a contingent interest. (2) In particular, where the buyer of goods has insured them, he has an insurable interest, notwithstanding that he might, at his election, have rejected the goods, or have treated them as at the seller’s risk, by reason of the latter’s delay in making delivery or otherwise. 8. Partial interest. A partial interest of any nature is insurable. 9. Re-insurance. (1) The insurer under a contract of marine insurance has an insurable interest in his risk, and may re-insure in respect of it. (2) Unless the policy otherwise provides, the original assured has no right or interest in respect of such re-insurance. 10. Bottomry. The lender of money on bottomry or respondentia has an insurable interest in respect of the loan. 11. Master’s and seamen’s wages. The master or any member of the crew of a ship has an insurable interest in respect of his wages. 12. Advance freight. In the case of advance freight, the person advancing the freight has an insurable interest, in so far as such freight is not repayable in case of loss. 13. Charges of insurance. The assured has an insurable interest in the charges of any insurance which he may effect.

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14. Quantum of interest. (1) Where the subject-matter insured is mortgaged, the mortgagor has an insurable interest in the full value thereof, and the mortgagee has an insurable interest in respect of any sum due or to become due under the mortgage. (2) A mortgagee, consignee, or other person having an interest in the subject-matter insured may insure on behalf and for the benefit of other persons interested as well as for his own benefit. (3) The owner of insurable property has an insurable interest in respect of the full value thereof, notwithstanding that some third person may have agreed, or be liable, to indemnify him in case of loss. 15. Assignment of interest. Where the assured assigns or otherwise parts with his interest in the subject-matter insured, he does not thereby transfer to the assignee his rights under the contract of insurance, unless there be an express or implied agreement with the assignee to that effect. But the provisions of this section do not affect a transmission of interest by operation of law. INSURABLE VALUE 16. Measure of insurable value. Subject to any express provision or valuation in the policy, the insurable value of the subject-matter insured must be ascertained as follows:— (1) In insurance on ship, the insurable value is the value, at the commencement of the risk, of the ship, including her outfit, provisions and stores for the officers and crew, money advanced for seamen’s wages, and other disbursements (if any) incurred to make the ship fit for the voyage or adventure contemplated by the policy, plus the charges of insurance upon the whole: The insurable value, in the case of a steamship, includes also the machinery, boilers, and coals and engine stores if owned by the assured, and, in the case of a ship engaged in a special trade, the ordinary fittings requisite for that trade: (2) In insurance on freight, whether paid in advance or other-wise, the insurable value is the gross amount of the freight at the risk of the assured, plus the charges of insurance: (3) In insurance on goods or merchandise, the insurable value is the prime cost of the property insured, plus the expenses of and incidental to shipping and the charges of insurance upon the whole: (4) In insurance on any other subject-matter, the insurable value is the amount at the risk of the assured when the policy attaches, plus the charges of insurance. DISCLOSURE AND REPRESENTATIONS 17. Insurance is uberrimae fidei. A contract of marine insurance is a contract based upon the utmost good faith, and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party. 18. Disclosure by assured. (1) Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in 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. (2) Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk. (3) In the absence of inquiry the following circumstances need not be disclosed, namely:— (a) Any circumstance which diminishes the risk; (b) Any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business, as such, ought to know; (c) Any circumstance as to which information is waived by the insurer; (d) Any circumstance which it is superfluous to disclose by reason of any express or implied warranty.

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(4) Whether any particular circumstance, which is not disclosed, be material or not is, in each case, a question of fact. (5) The term “circumstance” includes any communication made to, or information received by, the assured. 19. Disclosure by agent effecting insurance. Subject to the provisions of the preceding section as to circumstances which need not be disclosed, where an insurance is effected for the assured by an agent, the agent must disclose to the insurer— (a) Every material circumstance which is known to himself, and an agent to insure is deemed to know every circumstance which in the ordinary course of business ought to be known by, or to have been communicated to, him; and (b) Every material circumstance which the assured is bound to disclose, unless it come to his knowledge too late to communicate it to the agent. 20. Representations pending negotiation of contract. (1) Every material representation made by the assured or his agent to the insurer during the negotiations for the contract, and before the contract is concluded, must be true. If it be untrue the insurer may avoid the contract. (2) A representation is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk. (3) A representation may be either a representation as to a matter of fact, or as to a matter of expectation or belief. (4) A representation as to a matter of fact is true, if it be substantially correct, that is to say, if the difference between what is represented and what is actually correct would not be considered material by a prudent insurer. (5) A representation as to a matter of expectation or belief is true if it be made in good faith. (6) A representation may be withdrawn or corrected before the contract is concluded. (7) Whether a particular representation be material or not is, in each case, a question of fact. 21. When contract is deemed to be concluded. A contract of marine insurance is deemed to be concluded when the proposal of the assured is accepted by the insurer, whether the policy be then issued or not; and, for the purpose of showing when the proposal was accepted, reference may be made to the slip or covering note or other customary memorandum of the contract [although it be unstamped]. NOTE: Words in square brackets repealed by the Finance Act 1959 (c. 58), s. 37(5), Sch. 8 Pt. II. THE POLICY 22. Contract must be embodied in policy. Subject to the provisions of any statute, a contract of marine insurance is inadmissible in evidence unless it is embodied in a marine policy in accordance with this Act. The policy may be executed and issued either at the time when the contract is concluded, or afterwards. 23. What policy must specify. A marine policy must specify— (1) The name of the assured, or of some person who effects the insurance on his behalf: [(2) The subject-matter insured and the risk insured against: (3) The voyage, or period of time, or both, as the case may be, covered by the insurance: (4) The sum or sums insured: (5) The name or names of the insurers.] NOTE: Subs 2–5 repealed by the Finance Act 1959 (c. 58), ss. 30(5), (7), 37(5), Sch. 8 Pt. II. 24. Signature of insurer. (1) A marine policy must be signed by or on behalf of the insurer, provided that in the case of a corporation the corporate seal may be sufficient, but nothing in this section shall be construed as requiring the subscription of a corporation to be under seal.

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(2) Where a policy is subscribed by or on behalf of two or more insurers, each subscription, unless the contrary be expressed, constitutes a distinct contract with the assured. 25. Voyage and time policies. (1) 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. [(2) Subject to the provisions of section eleven of the Finance Act, 1901, a time policy which is made for any time exceeding twelve months is invalid.] NOTE: Subs (2) Repealed by the Finance Act 1959 (c. 58), ss. 30(5), (7), 37(5), Sch. 8 Pt. II. 26. Designation of subject-matter. (1) The subject-matter insured must be designated in a marine policy with reasonable certainty. (2) The nature and extent of the interest of the assured in the subject-matter insured need not be specified in the policy. (3) Where the policy designates the subject-matter insured in general terms, it shall be construed to apply to the interest intended by the assured to be covered. (4) In the application of this section regard shall be had to any usage regulating the designation of the subject-matter insured. 27. Valued policy. (1) A policy may be either valued or unvalued. (2) A valued policy is a policy which specifies the agreed value of the subject-matter insured. (3) Subject to the provisions of this Act, and in the absence of fraud, the value fixed by the policy is, as between the insurer and assured, conclusive of the insurable value of the subject intended to be insured, whether the loss be total or partial. (4) Unless the policy otherwise provides, the value fixed by the policy is not conclusive for the purpose of determining whether there has been a constructive total loss. 28. Unvalued policy. An unvalued policy is a policy which does not specify the value of the subject-matter insured, but, subject to the limit of the sum insured, leaves the insurable value to be subsequently ascertained, in the manner herein-before specified. 29. Floating policy by ship or ships. (1) A floating policy is a policy which describes the insurance in general terms, and leaves the name of the ship or ships and other particulars to be defined by subsequent declaration. (2) The subsequent declaration or declarations may be made by indorsement on the policy, or in other customary manner. (3) Unless the policy otherwise provides, the declarations must be made in the order of dispatch or shipment. They must, in the case of goods, comprise all consignments within the terms of the policy, and the value of the goods or other property must be honestly stated, but an omission or erroneous declaration may be rectified even after loss or arrival, provided the omission or declaration was made in good faith. (4) Unless the policy otherwise provides, where a declaration of value is not made until after notice of loss or arrival, the policy must be treated as an unvalued policy as regards the subject-matter of that declaration. 30. Construction of terms in policy. (1) A policy may be in the form in the First Schedule to this Act. (2) Subject to the provisions of this Act, and unless the context of the policy otherwise requires, the terms and expressions mentioned in the First Schedule to this Act shall be construed as having the scope and meaning in that schedule assigned to them. 31. Premium to be arranged. (1) Where an insurance is effected at a premium to be arranged, and no arrangement is made, a reasonable premium is payable.

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(2) Where an insurance is effected on the terms that an additional premium is to be arranged in a given event, and that event happens but no arrangement is made, then a reasonable additional premium is payable. DOUBLE INSURANCE 32. Double insurance. (1) Where two or more policies are effected by or on behalf of the assured on the same adventure and interest or any part thereof, and the sums insured exceed the indemnity allowed by this Act, the assured is said to be over-insured by double insurance. (2) Where the assured is over-insured by double insurance— (a) The assured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may think fit, provided that he is not entitled to receive any sum in excess of the indemnity allowed by this Act; (b) Where the policy under which the assured claims is a valued policy, the assured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject-matter insured; (c) Where the policy under which the assured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any other policy: (d) Where the assured receives any sum in excess of the indemnity allowed by this Act, he is deemed to hold such sum in trust for the insurers, according to their right of contribution among themselves. WARRANTIES, ETC. 33. Nature of warranty. (1) A warranty, in the following sections relating to warranties, means a promissory warranty, that is to say, a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts. (2) A warranty may be express or implied. (3) A warranty, as above defined, is a condition which must be exactly complied with, whether it be material to the risk or not. If it be not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date. 34. When breach of warranty excused. (1) Non-compliance with a warranty is excused when, by reason of a change of circumstances, the warranty ceases to be applicable to the circumstances of the contract, or when compliance with the warranty is rendered unlawful by any subsequent law. (2) Where a warranty is broken, the assured cannot avail himself of the defence that the breach has been remedied, and the warranty complied with, before loss. (3) A breach of warranty may be waived by the insurer. 35. Express warranties. (1) An express warranty may be in any form of words from which the intention to warrant is to be inferred. (2) An express warranty must be included in, or written upon, the policy, or must be contained in some document incorporated by reference into the policy. (3) An express warranty does not exclude an implied warranty, unless it be inconsistent therewith. 36. Warranty of neutrality. (1) Where insurable property, whether ship or goods, is expressly warranted neutral, there is an implied condition that the property shall have a neutral character at the commencement of the risk, and that, so far as the assured can control the matter, its neutral character shall be preserved during the risk.

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(2) Where a ship is expressly warranted “neutral” there is also an implied condition that, so far as the assured can control the matter, she shall be properly documented, that is to say, that she shall carry the necessary papers to establish her neutrality, and that she shall not falsify or suppress her papers, or use simulated papers. If any loss occurs through breach of this condition, the insurer may avoid the contract. 37. No implied warranty of nationality. There is no implied warranty as to the nationality of a ship, or that her nationality shall not be changed during the risk. 38. Warranty of good safety. 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. 39. Warranty of seaworthiness of ship. (1) In a voyage policy there is an implied warranty that at the commencement of the voyage the ship shall be seaworthy for the purpose of the particular adventure insured. (2) Where the policy attaches while the ship is in port, there is also an implied warranty that she shall, at the commencement of the risk, be reasonably fit to encounter the ordinary perils of the port. (3) Where the policy relates to a voyage which is performed in different stages, during which the ship requires different kinds of or further preparation or equipment, there is an implied warranty that at the commencement of each stage the ship is seaworthy in respect of such preparation or equipment for the purposes of that stage. (4) A ship is deemed to be seaworthy when she is reasonably fit in all respects to encounter the ordinary perils of the seas of the adventure insured. (5) In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness. 40. No implied warranty that goods are seaworthy. (1) In a policy on goods or other moveables there is no implied warranty that the goods or moveables are seaworthy. (2) In a voyage policy on goods or other moveables there is an implied warranty that at the commencement of the voyage the ship is not only seaworthy as a ship, but also that she is reasonably fit to carry the goods or other moveables to the destination contemplated by the policy. 41. Warranty of legality. There is an implied warranty that the adventure insured is a lawful one, and that, so far as the assured can control the matter, the adventure shall be carried out in a lawful manner. THE VOYAGE 42. Implied condition as to commencement of risk. (1) Where the subject-matter is insured by a voyage policy “at and from” or “from” a particular place, it is not necessary that the ship should be at that place when the contract is concluded, but there is an implied condition that the adventure shall be commenced within a reasonable time, and that if the adventure be not so commenced the insurer may avoid the contract. (2) The implied condition may be negatived by showing that the delay was caused by circumstances known to the insurer before the contract was concluded, or by showing that he waived the condition. 43. Alteration of port of departure. Where the place of departure is specified by the policy, and the ship instead of sailing from that place sails from any other place, the risk does not attach. 44. Sailing for different destination. Where the destination is specified in the policy, and the ship, instead of sailing for that destination, sails for any other destination, the risk does not attach.

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45. Change of voyage. (1) Where, after the commencement of the risk, the destination of the ship is voluntarily changed from the destination contemplated by the policy, there is said to be a change of voyage. (2) Unless the policy otherwise provides, where there is a change of voyage, the insurer is discharged from liability as from the time of change, that is to say, as from the time when the determination to change it is manifested; and it is immaterial that the ship may not in fact have left the course of voyage contemplated by the policy when the loss occurs. 46. Deviation. (1) Where a ship, without lawful excuse, deviates from the voyage contemplated by the policy, the insurer is discharged from liability as from the time of deviation, and it is immaterial that the ship may have regained her route before any loss occurs. (2) There is a deviation from the voyage contemplated by the policy— (a) Where the course of the voyage is specifically designated by the policy, and that course is departed from; or (b) Where the course of the voyage is not specifically designated by the policy, but the usual and customary course is departed from. (3) The intention to deviate is immaterial; there must be a deviation in fact to discharge the insurer from his liability under the contract. 47. Several ports of discharge. (1) Where several ports of discharge are specified by the policy, the ship may proceed to all or any of them, but, in the absence of any usage or sufficient cause to the contrary, she must proceed to them, or such of them as she goes to, in the order designated by the policy. If she does not there is a deviation. (2) Where the policy is to “ports of discharge,” within a given area, which are not named, the ship must, in the absence of any usage or sufficient cause to the contrary, proceed to them, or such of them as she goes to, in their geographical order. If she does not there is a deviation. 48. Delay in voyage. In the case of a voyage policy, the adventure insured must be prosecuted throughout its course with reasonable dispatch, and, if without lawful excuse it is not so prosecuted, the insurer is discharged from liability as from the time when the delay became unreasonable. 49. Excuses for deviation or delay. (1) Deviation or delay in prosecuting the voyage contemplated by the policy is excused— (a) Where authorised by any special term in the policy; or (b) Where caused by circumstances beyond the control of the master and his employer; or (c) Where reasonably necessary in order to comply with an express or implied warranty; or (d) Where reasonably necessary for the safety of the ship or subject-matter insured; or (e) For the purpose of saving human life, or aiding a ship in distress where human life may be in danger; or (f) Where reasonably necessary for the purpose of obtaining medical or surgical aid for any person on board the ship; or (g) Where caused by the barratrous conduct of the master or crew, if barratry be one of the perils insured against. (2) When the cause excusing the deviation or delay ceases to operate, the ship must resume her course, and prosecute her voyage, with reasonable dispatch. ASSIGNMENT OF POLICY 50. When and how policy is assignable. (1) A marine policy is assignable unless it contains terms expressly prohibiting assignment. It may be assigned either before or after loss.

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(2) Where a marine policy has been assigned so as to pass the beneficial interest in such policy, the assignee of the policy is entitled to sue thereon in his own name; and the defendant is entitled 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 on behalf of whom the policy was effected. (3) A marine policy may be assigned by indorsement thereon or in other customary manner. 51. Assured who has no interest cannot assign. Where the assured has parted with or lost his interest in the subject-matter insured, and has not, before or at the time of so doing, expressly or impliedly agreed to assign the policy, any subsequent assignment of the policy is inoperative: Provided that nothing in this section affects the assignment of a policy after loss. THE PREMIUM 52. When premium payable. Unless otherwise agreed, the duty of the assured or his agent to pay the premium, and the duty of the insurer to issue the policy to the assured or his agent, are concurrent conditions, and the insurer is not bound to issue the policy until payment or tender of the premium. 53. Policy effected through broker. (1) Unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly responsible to the insurer for the premium, and the insurer is directly responsible to the assured for the amount which may be payable in respect of losses, or in respect of returnable premium. (2) Unless otherwise agreed, the broker has, as against the assured, a lien upon the policy for the amount of the premium and his charges in respect of effecting the policy; and, where he has dealt with the person who employs him as a principal, he has also a lien on the policy in respect of any balance on any insurance account which may be due to him from such person, unless when the debt was incurred he had reason to believe that such person was only an agent. 54. Effect of receipt on policy. Where a marine policy effected on behalf of the assured by a broker acknowledges the receipt of the premium, such acknowledgement is, in the absence of fraud, conclusive as between the insurer and the assured, but not as between the insurer and broker. LOSS AND ABANDONMENT 55. Included and excluded losses. (1) Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against. (2) In particular— (a) The insurer is not liable for any loss attributable to the wilful misconduct of the assured, but, unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against, even though the loss would not have happened but for the misconduct or negligence of the master or crew; (b) Unless the policy otherwise provides, the insurer on ship or goods is not liable for any loss proximately caused by delay, although the delay be caused by a peril insured against; (c) Unless the policy otherwise provides, the insurer is not liable for ordinary wear and tear, ordinary leakage and breakage, inherent vice or nature of the subject-matter insured, or for any loss proximately caused by rats or vermin, or for any injury to machinery not proximately caused by maritime perils.

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56. Partial and total loss. (1) A loss may be either total or partial. Any loss other than a total loss, as hereinafter defined, is a partial loss. (2) A total loss may be either an actual total loss, or a constructive total loss. (3) Unless a different intention appears from the terms of the policy, an insurance against total loss includes a constructive, as well as an actual, total loss. (4) Where the assured brings an action for a total loss and the evidence proves only a partial loss, he may, unless the policy otherwise provides, recover for a partial loss. (5) Where goods reach their destination in specie, but by reason of obliteration of marks, or otherwise, they are incapable of identification, the loss, if any, is partial, and not total. 57. Actual total loss. (1) 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 thereof, there is an actual total loss. (2) In the case of an actual total loss no notice of abandonment need be given. 58. Missing ship. Where the ship concerned in the adventure is missing, and after the lapse of a reasonable time no news of her has been received, an actual total loss may be presumed. 59. Effect of transhipment, etc. Where, by a peril insured against, the voyage is interrupted at an intermediate port or place, under such circumstances as, apart from any special stipulation in the contract of affreightment, to justify the master in landing and reshipping the goods or other moveables, or in transhipping them, and sending them on to their destination, the liability of the insurer continues, notwithstanding the landing or transhipment. 60. Constructive total loss defined. (1) Subject to any express provision in the policy, 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. (2) In particular, there is a constructive total loss— (i) Where the assured is deprived of the possession of his ship or goods by a peril insured against, and (a) it is unlikely that he can recover the ship or goods, as the case may be, or (b) the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered; or (ii) In the case of damage 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, In estimating the cost of repairs, no deduction is to be made in respect of general average contributions to those repairs payable by other interests, but 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 (iii) In the case of damage to goods, where the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival. 61. Effect of constructive total loss. Where there is a constructive total loss the assured may either treat the loss as a partial loss, or abandon the subject-matter insured to the insurer and treat the loss as if it were an actual total loss. 62. Notice of abandonment. (1) Subject to the provisions of this section, where the assured elects to abandon the subject-matter insured to the insurer, he must give notice of abandonment. If he fails to do so the loss can only be treated as a partial loss. (2) Notice of abandonment may be given in writing, or by word of mouth, or partly in writing and partly by word of mouth, and may be given in any terms which indicate the intention of the assured to abandon his insured interest in the subject-matter insured unconditionally to the insurer.

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(3) Notice of abandonment must be given with reasonable diligence after the receipt of reliable information of the loss, but where the information is of a doubtful character the assured is entitled to a reasonable time to make inquiry. (4) Where notice of abandonment is properly given, the rights of the assured are not prejudiced by the fact that the insurer refuses to accept the abandonment. (5) The acceptance of an abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer after notice is not an acceptance. (6) Where notice of abandonment is accepted the abandonment is irrevocable. The acceptance of the notice conclusively admits liability for the loss and the sufficiency of the notice. (7) Notice of abandonment is unnecessary where, at the time when the assured receives information of the loss, there would be no possibility of benefit to the insurer if notice were given to him. (8) Notice of abandonment may be waived by the insurer. (9) Where an insurer has re-insured his risk, no notice of abandonment need be given by him. 63. Effect of abandonment. (1) Where there is a valid abandonment the insurer is entitled to take over the interest of the assured in whatever may remain of the subject-matter insured, and all proprietary rights incidental thereto. (2) Upon the abandonment of a ship, the insurer thereof is entitled to any freight in course of being earned, and which is earned by her subsequent to the casualty causing the loss, less the expenses of earning it incurred after the casualty; and, where the ship is carrying the owner’s goods, the insurer is entitled to a reasonable remuneration for the carriage of them subsequent to the casualty causing the loss. PARTIAL LOSSES (INCLUDING SALVAGE AND GENERAL AVERAGE AND PARTICULAR CHARGES) 64. Particular average loss. (1) A particular average loss is a partial loss of the subject-matter insured, caused by a peril insured against, and which is not a general average loss. (2) Expenses incurred by or on behalf of the assured for the safety or preservation of the subjectmatter insured, other than general average and salvage charges, are called particular charges. Particular charges are not included in particular average. 65. Salvage charges. (1) Subject to any express provision in the policy, salvage charges incurred in preventing a loss by perils insured against may be recovered as a loss by those perils. (2) “Salvage charges” means the charges recoverable under maritime law by a salvor independently of contract. They do not include the expenses of services in the nature of salvage rendered by the assured or his agents, or any person employed for hire by them, for the purpose of averting a peril insured against. Such expenses, where properly incurred, may be recovered as particular charges or as a general average loss, according to the circumstances under which they were incurred. 66. General average loss. (1) A general average loss is a loss caused by or directly consequential on a general average act. It includes a general average expenditure as well as a general average sacrifice. (2) There is a general average act where any extraordinary sacrifice or expenditure is voluntarily and reasonably made or incurred in time of peril for the purpose of preserving the property imperilled in the common adventure. (3) Where there is a general average loss, the party on whom it falls is entitled, subject to the conditions imposed by maritime law, to a rateable contribution from the other parties interested, and such contribution is called a general average contribution. (4) Subject to any express provision in the policy, where the assured has incurred a general average expenditure, he may recover from the insurer in respect of the proportion of the loss which falls upon him; and, in the case of a general average sacrifice, he may recover from the insurer in respect of the whole loss without having enforced his right of contribution from the other parties liable to contribute.

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(5) Subject to any express provision in the policy, where the assured has paid, or is liable to pay, a general average contribution in respect of the subject insured, he may recover therefore from the insurer. (6) In the absence of express stipulation, the insurer is not liable for any general average loss or contribution where the loss was not incurred for the purpose of avoiding, or in connexion with the avoidance of, a peril insured against. (7) Where ship, freight, and cargo, or any two of those interests, are owned by the same assured, the liability of the insurer in respect of general average losses or contributions is to be determined as if those subjects were owned by different persons. MEASURE OF INDEMNITY 67. Extent of liability of insurer for loss. (1) The sum which the assured can recover in respect of a loss on a policy by which he is insured, in the case of an unvalued policy to the full extent of the insurable value, or, in the case of a valued policy to the full extent of the value fixed by the policy is called the measure of indemnity. (2) Where there is a loss recoverable under the policy, the insurer, or each insurer if there be more than one, is liable for such proportion of the measure of indemnity as the amount of his 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. 68. Total loss. Subject to the provisions of this Act and to any express provision in the policy, where there is a total loss of the subject-matter insured,— (1) If the policy be a valued policy, the measure of indemnity is the sum fixed by the policy: (2) If the policy be an unvalued policy, the measure of indemnity is the insurable value of the subject-matter insured. 69. Partial loss of ship. Where a ship is damaged, but is not totally lost, the measure of indemnity, subject to any express provision in the policy, is as follows:— (1) Where the ship has been repaired, the assured is entitled to the reasonable cost of the repairs, less the customary deductions, but not exceeding the sum insured in respect of any one casualty: (2) Where the ship has been only partially repaired, the assured is entitled to the reasonable cost of such repairs, computed as above, and also to be indemnified for the reasonable depreciation, if any, arising from the unrepaired damage, provided that the aggregate amount shall not exceed the cost of repairing the whole damage, computed as above: (3) Where the ship has not been repaired, and has not been sold in her damaged state during the risk, the assured is entitled to be indemnified for the reasonable depreciation arising from the unrepaired damage, but not exceeding the reasonable cost of repairing such damage, computed as above. 70. Partial loss of freight. Subject to any express provision in the policy, where there is a partial loss of freight, the measure of indemnity is such proportion of the sum fixed by the policy in the case of a valued policy, or of the insurable value in the case of an unvalued policy, as the proportion of freight lost by the assured bears to the whole freight at the risk of the assured under the policy. 71. Partial loss of goods, merchandise, etc. Where there is a partial loss of goods, merchandise, or other moveables, the measure of indemnity, subject to any express provision in the policy, is as follows:— (1) Where part of the goods, merchandise or other moveables insured by a valued policy is totally lost, the measure of indemnity is such proportion of the sum fixed by the policy as the insurable value of the part lost bears to the insurable value of the whole, ascertained as in the case of an unvalued policy:

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(2) Where part of the goods, merchandise, or other moveables insured by an unvalued policy is totally lost, the measure of indemnity is the insurable value of the part lost, ascertained as in case of total loss: (3) Where the whole or any part of the goods or merchandise insured has been delivered damaged at its destination, the measure of indemnity is such proportion of the sum fixed by the policy in the case of a valued policy, or of the insurable value in the case of an unvalued policy, as the difference between the gross sound and damaged values at the place of arrival bears to the gross sound value: (4) “Gross value” means the wholesale price, or, if there be no such price, the estimated value, with, in either case, freight, landing charges, and duty paid beforehand; provided that, in the case of goods or merchandise customarily sold in bond, the bonded price is deemed to be the gross value. “Gross proceeds” means the actual price obtained at a sale where all charges on sale are paid by the sellers. 72. Apportionment of valuation. (1) Where different species of property are insured under a single valuation, the valuation must be apportioned over the different species in proportion to their respective insurable values, as in the case of an unvalued policy. The insured value of any part of a species is such proportion of the total insured value of the same as the insurable value of the part bears to the insurable value of the whole, ascertained in both cases as provided by this Act. (2) Where a valuation has to be apportioned, and particulars of the prime cost of each separate species, quality, or description of goods cannot be ascertained, the division of the valuation may be made over the net arrived sound values of the different species, qualities, or descriptions of goods. 73. General average contributions and salvage charges. (1) Subject to any express provision in the policy, where the assured has paid, or is liable for, any general average contribution, the measure of indemnity is the full amount of such contribution, if the subject-matter liable to contribution is insured for its full contributory value; but, if such subjectmatter be not insured for its full contributory value, or if only part of it be insured, the indemnity payable by the insurer must be reduced in proportion to the under insurance, and where there has been a particular average loss which constitutes a deduction from the contributory value, and for which the insurer is liable, that amount must be deducted from the insured value in order to ascertain what the insurer is liable to contribute. (2) Where the insurer is liable for salvage charges the extent of his liability must be determined on the like principle. 74. Liabilities to third parties. Where the assured has effected an insurance in express terms against any liability to a third party, the measure of indemnity, subject to any express provision in the policy, is the amount paid or payable by him to such third party in respect of such liability. 75. General provisions as to measure of indemnity. (1) Where there has been a loss in respect of any subject-matter not expressly provided for in the foregoing provisions of this Act, the measure of indemnity shall be ascertained, as nearly as may be, in accordance with those provisions, in so far as applicable to the particular case. (2) Nothing in the provisions of this Act relating to the measure of indemnity shall affect the rules relating to double insurance, or prohibit the insurer from disproving interest wholly or in part, or from showing that at the time of the loss the whole or any part of the subject-matter insured was not at risk under the policy. 76. Particular average warranties. (1) Where the subject-matter insured is warranted free from particular average, the assured cannot recover for a loss of part, other than a loss incurred by a general average sacrifice, unless the contract contained in the policy be apportionable; but, if the contract be apportionable, the assured may recover for a total loss of any apportionable part.

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(2) Where the subject-matter insured is warranted free from particular average, either wholly or under a certain percentage, the insurer is nevertheless liable for salvage charges, and for particular charges and other expenses properly incurred pursuant to the provisions of the suing and labouring clause in order to avert a loss insured against. (3) Unless the policy otherwise provides, where the subject-matter insured is warranted free from particular average under a specified percentage, a general average loss cannot be added to a particular average loss to make up the specified percentage. (4) For the purpose of ascertaining whether the specified percentage has been reached, regard shall be had only to the actual loss suffered by the subject-matter insured. Particular charges and the expenses of and incidental to ascertaining and proving the loss must be excluded. 77. Successive losses. (1) Unless the policy otherwise provides, and subject to the provisions of this Act, the insurer is liable for successive losses, even thought the total amount of such losses may exceed the sum insured. (2) Where, under the same policy, a partial loss, which has not been repaired or otherwise made good, is followed by a total loss, the assured can only recover in respect of the total loss: Provided that nothing in this section shall affect the liability of the insurer under the suing and labouring clause. 78. Suing and labouring clause. (1) Where the policy contains a suing and labouring clause, the engagement thereby entered into is deemed to be supplementary to the contract of insurance, and the assured may recover from the insurer any expenses properly incurred pursuant to the clause, notwithstanding that the insurer may have paid for a total loss, or that the subject-matter may have been warranted free from particular average, either wholly or under a certain percentage. (2) General average losses and contributions and salvage charges, as defined by this Act, are not recoverable under the suing and labouring clause. (3) Expenses incurred for the purpose of averting or diminishing any loss not covered by the policy are not recoverable under the suing and labouring clause. (4) It is the duty of the assured and his agents, in all cases, to take such measures as may be reasonable for the purpose of averting or minimising a loss. RIGHTS OF INSURER ON PAYMENT 79. Right of subrogation. (1) Where the insurer pays for a total loss, either of the whole, or in the case of goods of any apportionable part, of the subject-matter insured, he thereupon becomes entitled to take over the interest of the assured in whatever may remain of the subject-matter so paid for, and he is thereby subrogated to all the rights and remedies of the assured in and in respect of that subject-matter as from the time of the casualty causing the loss. (2) Subject to the foregoing provisions, where the insurer pays for a partial loss, he acquires no title to the subject-matter insured, or such part of it as may remain, but he is thereupon subrogated to all rights and remedies of the assured in and in respect of the subject-matter insured as from the time of the casualty causing the loss, in so far as the assured has been indemnified, according to this Act, by such payment for the loss. 80. Right of contribution. (1) Where the assured is over-insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute rateably to the loss in proportion to the amount for which he is liable under his contract. (2) If any insurer pays more than his proportion of the loss, he is entitled to maintain an action for contribution against the other insurers, and is entitled to the like remedies as a surety who has paid more than his proportion of the debt.

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81. Effect of under insurance. Where the assured is insured for an amount less than the insurable value or, in the case of a valued policy, for an amount less than the policy valuation, he is deemed to be his own insurer in respect of the uninsured balance. RETURN OF PREMIUM 82. Enforcement of return. Where the premium or a proportionate part thereof is, by this Act, declared to be returnable,— (a) If already paid, it may be recovered by the assured from the insurer; and (b) If unpaid, it may be retained by the assured or his agent. 83. Return by agreement. Where the policy contains a stipulation for the return of the premium, or a proportionate part thereof, on the happening of a certain event, and that event happens, the premium, or, as the case may be, the proportionate part thereof, is thereupon returnable to the assured. 84. Return for failure of consideration. (1) Where the consideration for the payment of the premium totally fails, and there has been no fraud or illegality on the part of the assured or his agents, the premium is thereupon returnable to the assured. (2) Where the consideration for the payment of the premium is apportionable and there is a total failure of any apportionable part of the consideration, a proportionate part of the premium is, under the like conditions, thereupon returnable to the assured. (3) In particular— (a) Where the policy is void, or is avoided by the insurer as from the commencement of the risk, the premium is returnable, provided that there has been no fraud or illegality on the part of the assured; but if the risk is not apportionable, and has once attached, the premium is not returnable: (b) Where the subject-matter insured, or part thereof, has never been imperilled, the premium, or, as the case may be, a proportionate part thereof, is returnable: Provided that where the subject-matter has been insured “lost or not lost” and has arrived in safety at the time when the contract is concluded, the premium is not returnable unless, at such time, the insurer knew of the safe arrival. (c) Where the assured has no insurable interest throughout the currency of the risk, the premium is returnable, provided that this rule does not apply to a policy effected by way of gaming or wagering; (d) Where the assured has a defeasible interest which is terminated during the currency of the risk, the premium is not returnable; (e) Where the assured has over-insured under an unvalued policy, a proportionate part of the premium is returnable; (f) Subject to the foregoing provisions, where the assured has over-insured by double insurance, a proportionate part of the several premiums is returnable: Provided that, if the policies are effected at different times, and any earlier policy has at any time borne the entire risk, or if a claim has been paid on the policy in respect of the full sum insured thereby, no premium is returnable in respect of that policy, and when the double insurance is effected knowingly by the assured no premium is returnable. MUTUAL INSURANCE 85. Modification of Act in case of mutual insurance. (1) Where two or more persons mutually agree to insure each other against marine losses there is said to be a mutual insurance. (2) The provisions of this Act relating to the premium do not apply to mutual insurance, but a guarantee, or such other arrangement as may be agreed upon, may be substituted for the premium.

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(3) The provisions of this Act, in so far as they may be modified by the agreement of the parties, may in the case of mutual insurance be modified by the terms of the policies issued by the association, or by the rules and regulations of the association. (4) Subject to the exceptions mentioned in this section, the provisions of this Act apply to a mutual insurance. SUPPLEMENTAL 86. Ratification by assured. Where a contract of marine insurance is in good faith effected by one person on behalf of another, the person on whose behalf it is effected may ratify the contract even after he is aware of a loss. 87. Implied obligations varied by agreement or usage. (1) Where any right, duty, or liability would arise under a contract of marine insurance by implication of law, it may be negatived or varied by express agreement, or by usage, if the usage be such as to bind both parties to the contract. (2) The provisions of this section extend to any right, duty, or liability declared by this Act which may be lawfully modified by agreement. 88. Reasonable time, etc. a question of fact. Where by this Act any reference is made to reasonable time, reasonable premium, or reasonable diligence, the question what is reasonable is a question of fact. 89. Slip as evidence. Where there is a duly stamped policy, reference may be made, as heretofore, to the slip or covering note, in any legal proceeding. 90. Interpretation of terms. In this Act, unless the context or subject-matter otherwise requires,— “Action” includes counter-claim and set off: “Freight” includes the profit derivable by a shipowner from the employment of his ship to carry his own goods or moveables, as well as freight payable by a third party, but does not include passage money: “Moveables” means any moveable tangible property, other than the ship, and includes money, valuable securities, and other documents: “Policy” means a marine policy. 91. Savings. (1) Nothing in this Act, or in any repeal effected thereby, shall affect— (a) The provisions of the Stamp Act 1891, or any enactment for the time being in force relating to the revenue; (b) The provisions of the Companies Act 1862, or any enactment amending or substituted for the same; (c) The provisions of any statute not expressly repealed by this Act. (2) The rules of the common law including the law merchant, save in so far as they are inconsistent with the express provisions of this Act, shall continue to apply to contracts of marine insurance. 92. [The enactments mentioned in the Second Schedule to this Act are hereby repealed to the extent specified in that schedule.] NOTE: Repealed by Statute Law Revision Act 1927 (c. 42). 93. [This Act shall come into operation on the first day of January one thousand nine hundred and seven.] NOTE: Repealed by Statute Law Revision Act 1927 (c. 42). 94. Short title. This Act may be cited as the Marine Insurance Act 1906.

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SCHEDULES FIRST SCHEDULE Section 30 FORM OF POLICY

Lloyd’s S.G. Policy. BE IT KNOWN THAT .. .. .. .. as well in .. .. .. .. own name as for and in the name and names of all and every other person or persons to whom the same doth, may, or shall appertain, in part or in all doth make assurance and cause .. . . . . .. and them, and every of them, to be insured lost or not lost, at and from .. .. .. .. Upon any kind of goods and merchandise, and also upon the body, tackle, apparel, ordnance, munition, artillery, boat, and other furniture, of and in the good ship or vessel called the .. .. .. .. whereof is master under God, for this present voyage, .. .. .. .. or whosoever else shall go for master in the said ship, or by whatsoever other name or names the said ship, or the master thereof, is or shall be named or called; beginning the adventure upon the said goods and merchandises from the loading thereof aboard the said ship. upon the said ship, etc and so shall continue and endure, during her abode there, upon the said ship, etc. And further, until the said ship, with all her ordnance, tackle, apparel, etc, and goods and merchandises whatsoever shall be arrived at .. .. .. .. upon the said ship, etc, until she hath moored at anchor twenty-four hours in good safety; and upon the goods and merchandises, until the same be there discharged and safely landed. And it shall be lawful for the said ship, etc, in this voyage to proceed and sail to and touch and stay at any ports or places whatsoever. without prejudice to this insurance. The said ship, etc, goods and merchandises, etc, for so much as concerns the assured by agreement between the assured and assurers in this policy, are and shall be valued at .. .. .. .. Touching the adventures and perils which we the assurers are contented to bear and do take upon us in this voyage: they are of the seas, men of war, fire, enemies, pirates, rovers, thieves, jettisons, letters of mart and countermart, surprisals, takings at sea, arrests, restraints, and detainments of all kings, princes, and people, of what nation, condition, or quality soever, barratry of the master and mariners, and of all other perils, losses, and misfortunes, that have or shall come to the hurt, detriment, or damage of the said goods and merchandises, and ship, etc, or any part thereof. And in case of any loss or misfortune it shall be lawful to the assured, their 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, etc, or any 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 herein assured. And it is especially declared and agreed that no acts of the insurer or insured in recovering, saving, or preserving the property insured shall be considered as a waiver, or acceptance of abandonment. And it is agreed by us, the insurers, that this writing or policy of assurance shall be of as much force and effect as the surest writing or policy of assurance heretofore made in Lombard Street, or in the Royal Exchange, or elsewhere in London. And so we, the assurers, are contented, and do hereby promise and bind ourselves, each one for his own part, our heirs, executors, and goods to the assured, their executors, administrators, and assigns, for the true performance of the premises, confessing ourselves paid the consideration due unto us for this assurance by the assured, at and after the rate of .. .. .. .. IN WITNESS whereof we, the assurers, have subscribed our names and sums assured in London. N.B.—Corn, fish, salt, fruit, flour, and seed are warranted free from average, unless general, or the ship be stranded—sugar, tobacco, hemp, flax, hides and skins are warranted free from average, under five pounds per cent., and all other goods, also the ship and freight, are warranted free from average, under three pounds per cent. unless general, or the ship be stranded.

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APPENDIX 1 RULES FOR CONSTRUCTION OF POLICY

The following are the rules referred to by this Act for the construction of a policy in the above or other like form, where the context does not otherwise require:— 1. Lost or not lost. Where the subject-matter is insured “lost or not lost,” and the loss has occurred before the contract is concluded, the risk attaches unless, at such time the assured was aware of the loss, and the insurer was not. 2. From. Where the subject-matter is insured “from” a particular place, the risk does not attach until the ship starts on the voyage insured. 3. At and from. [Ship.] (a) Where a ship is insured “at and from” a particular place, and she is at that place in good safety when the contract is concluded, the risk attaches immediately. (b) If she be not at that place when the contract is concluded, the risk attaches as soon as she arrives there in good safety, and, unless the policy otherwise provides, it is immaterial that she is covered by another policy for a specified time after arrival. (c) Where chartered freight is insured “at and from” a particular place, and the ship is at that place in good safety when the contract is concluded the risk attaches immediately. If she be not there when the contract is concluded, the risk attaches as soon as she arrives there in good safety. (d) Where freight, other than chartered freight, is payable without special conditions and is insured “at and from” a particular place, the risk attaches pro rata as the goods or merchandise are shipped; provided that if there be cargo in readiness which belongs to the shipowner, or which some other person has contracted with him to ship, the risk attaches as soon as the ship is ready to receive such cargo. 4. From the loading thereof. Where goods or other moveables are insured “from the loading thereof,” the risk does not attach until such goods or moveables are actually on board, and the insurer is not liable for them while in transit from the shore to the ship. 5. Safely landed. Where the risk on goods or other moveables continues until they are “safely landed,” they must be landed in the customary manner and within a reasonable time after arrival at the port of discharge, and if they are not so landed the risk ceases. 6. Touch and stay. In the absence of any further licence or usage, the liberty to touch and stay “at any port or place whatsoever” does not authorise the ship to depart from the course of her voyage from the port of departure to the port of destination. 7. Perils of the seas. The term “perils of the seas” refers only to fortuitous accidents or casualties of the seas. It does not include the ordinary action of the winds and waves. 8. Pirates. The term “pirates” includes passengers who mutiny and rioters who attack the ship from the shore. 9. Thieves. The term “thieves” does not cover clandestine theft or a theft committed by any one of the ship’s company, whether crew or passengers.

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10. Restraint of princes. The term “arrests, etc., of kings, princes, and people” refers to political or executive acts, and does not include a loss caused by riot or by ordinary judicial process. 11. Barratry. The term “barratry” includes every wrongful act wilfully committed by the master or crew to the prejudice of the owner, or, as the case may be, the charterer. 12. All other perils. The term “all other perils” includes only perils similar in kind to the perils specifically mentioned in the policy. 13. Average unless general. The term “average unless general” means a partial loss of the subject-matter insured other than a general average loss, and does not include “particular charges.” 14. Stranded. Where the ship has stranded, the insurer is liable for the excepted losses, although the loss is not attributable to the stranding, provided that when the stranding takes place the risk has attached and, if the policy be on goods, that the damaged goods are on board. 15. Ship. The term “ship” includes the hull, materials and outfit, stores and provisions for the officers and crew, and, in the case of vessels engaged in a special trade, the ordinary fittings requisite for the trade, and also, in the case of a steamship, the machinery, boilers, and coals and engine stores, if owned by the assured. 16. Freight. The term “freight” includes the profit derivable by a shipowner from the employment of his ship to carry his own goods or moveables, as well as freight payable by a third party, but does not include passage money. 17. Goods. The term “goods” means goods in the nature of merchandise, and does not include personal effects or provisions and stores for use on board. In the absence of any usage to the contrary, deck cargo and living animals must be insured specifically, and not under the general denomination of goods. SECOND SCHEDULE [Enactments Repealed.] NOTE: Repealed by Statute Law Revision Act 1927 (c. 42).

© Crown Copyright.

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APPENDIX 2 INSTITUTE CARGO CLAUSES (A) (1/1/82) (FOR USE ONLY WITH THE NEW MARINE POLICY FORM) RISKS COVERED Risks Clause 1 This insurance covers all risks of loss of or damage to the subject-matter insured except as provided in Clauses 4, 5, 6 and 7 below. General Average Clause 2 This insurance covers general average and salvage charges, adjusted or determined according to the contract of affreightment and/or the governing law and practice, incurred to avoid or in connection with the avoidance of loss from any cause except those excluded in Clauses 4, 5, 6 and 7 or elsewhere in this insurance. “Both to Blame Collision” Clause 3 This insurance is extended to indemnify the Assured against such proportion of liability under the contract of affreightment “Both to Blame Collision” Clause as is in respect of a loss recoverable hereunder. In the event of any claim by shipowners under the said Clause the Assured agree to notify the Underwriters who shall have the right, at their own cost and expense, to defend the Assured against such claim. EXCLUSIONS General Exclusions Clause 4 In no case shall this insurance cover 4.1 loss damage or expense attributable to wilful misconduct of the Assured 4.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter insured 4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured (for the purpose of this Clause 4.3 “packing” shall be deemed to include stowage in a container or liftvan but only when such stowage is carried out prior to attachment of this insurance or by the Assured or their servants) 4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured 4.5 loss damage or expense proximately caused by delay, even though the delay be caused by a risk insured against (except expenses payable under Clause 2 above) 4.6 loss damage or expense arising from insolvency or financial default of the owners managers charterers or operators of the vessel 4.7 loss damage or expense arising from the use of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter. Unseaworthiness and Unfitness Exclusion Clause 5 5.1 In no case shall this insurance cover loss damage or expense arising from unseaworthiness of vessel or craft, unfitness of vessel craft conveyance container or liftvan for the safe carriage of the subjectmatter insured, where the Assured or their servants are privy to such unseaworthiness or unfitness, at the time the subject-matter insured is loaded therein.

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5.2 The Underwriters waive any breach of the implied warranties of seaworthiness of the ship and fitness of the ship to carry the subject-matter insured to destination, unless the Assured or their servants are privy to such unseaworthiness or unfitness. War Exclusion Clause 6 In no case shall this insurance cover loss damage or expense caused by 6.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power 6.2 capture seizure arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat 6.3 derelict mines torpedoes bombs or other derelict weapons of war. Strikes Exclusion Clause 7 In no case shall this insurance cover loss damage or expense 7.1 caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions 7.2 resulting from strikes, lock-outs, labour disturbances, riots or civil commotions 7.3 caused by any terrorist or any person acting from a political motive. DURATION Transit Clause 8 8.1 This insurance attaches from the time the goods leave the warehouse or place of storage at the place named herein for the commencement of the transit, continues during the ordinary course of transit and terminates either 8.1.1 on delivery to the Consignees’ or other final warehouse or place of storage at the destination named herein, 8.1.2 on delivery to any other warehouse or place of storage, whether prior to or at the destination named herein, which the Assured elect to use either 8.1.2.1 for storage other than in the ordinary course of transit or 8.1.2.2 for allocation or distribution, or 8.1.3 on the expiry of 60 days after completion of discharge overside of the goods hereby insured from the overseas vessel at the final port of discharge, whichever shall first occur. 8.2 If, after discharge overside from the oversea vessel at the final port of discharge, but prior to termination of this insurance, the goods are to be forwarded to a destination other than that to which they are insured hereunder, this insurance, whilst remaining subject to termination as provided for above, shall not extend beyond the commencement of transit to such other destination. 8.3 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 control of the Assured, any deviation, forced discharge, reshipment or transhipment and during any variation of the adventure arising from the exercise of a liberty granted to shipowners or charterers under the contract of affreightment. Termination of Contract of Carriage Clause 9 If owing to circumstances beyond the control of the Assured either the contract of carriage is terminated at a port or place other than the destination named therein or the transit is otherwise terminated before delivery of the goods as provided for in Clause 8 above, then this insurance shall also terminate unless prompt notice is given to the Underwriters and continuation of cover is requested when the insurance shall remain in force, subject to an additional premium if required by the Underwriters, either 9.1 until the goods are sold and delivered at such port or place, or, unless otherwise specially agreed, until the expiry of 60 days after arrival of the goods hereby insured at such port or place, whichever shall first occur, or

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9.2 if the goods are forwarded within the said period of 60 days (or any agreed extension thereof) to the destination named herein or to any other destination, until terminated in accordance with the provisions of Clause 8 above. Change of Voyage Clause 10 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 prompt notice being given to the Underwriters. CLAIMS Insurable Interest Clause 11 11.1 In order to recover under this insurance the Assured must have an insurable interest in the subject-matter insured at the time of the loss. 11.2 Subject to 11.1 above, the Assured shall be entitled to recover for insured loss occurring during the period covered by this insurance, notwithstanding that the loss occurred before the contract of insurance was concluded, unless the Assured were aware of the loss and the Underwriters were not. Forwarding Charges Clause 12 Where, as a result of the operation a risk covered by this insurance, the insured transit is terminated at a port or place other than that to which the subject-matter is covered under this insurance, the Underwriters will reimburse the Assured for any extra charges properly and reasonably incurred in unloading storing and forwarding the subject-matter to the destination to which it is insured hereunder. This Clause 12, which does not apply to general average or salvage charges, shall be subject to the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from the fault negligence insolvency or financial default of the Assured or their servants. Constructive Total Loss Clause 13 No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter insured is reasonably abandoned either on account of its actual total loss appearing to be unavoidable or because the cost of recovering, reconditioning and forwarding the subject-matter to the destination to which it is insured would exceed its value on arrival. Increased Value Clause 14 14.1 If any Increased Value insurance is effected by the Assured on the cargo insured herein the agreed value of the cargo shall be deemed to be increased to the total amount insured under this insurance and all Increased Value insurances covering the loss, and liability under this insurance shall be in such proportion as the sum insured herein bears to such total amount insured. In the event of claim the Assured shall provide the Underwriters with evidence of the amounts insured under all other insurances. 14.2 Where this insurance is on Increased Value the following clause shall apply: The agreed value of the cargo shall be deemed to be equal to the total amount insured under the primary insurance and all Increased Value insurances covering the loss and effected on the cargo by the Assured, and liability under this insurance shall be in such proportion as the sum insured herein bears to such total amount insured. In the event of claim the Assured shall provide the Underwriters with evidence of the amounts insured under all other insurances. BENEFIT OF INSURANCE Not to Inure Clause 15 This insurance shall not inure to the benefit of the carrier or other bailee.

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MINIMISING LOSSES Duty of Assured Clause 16 It is the duty of the Assured and their servants and agents in respect of loss recoverable hereunder 16.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss, and 16.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised and the Underwriters will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges properly and reasonably incurred in pursuance of these duties. Waiver Clause 17 Measures taken by the Assured or the Underwriters with the object of saving, protecting or recovering the subject-matter insured shall not be considered as a waiver or acceptance of abandonment or otherwise prejudice the rights of either party. AVOIDANCE OF DELAY Reasonable Despatch Clause 18 It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances within their control. LAW AND PRACTICE English Law and Practice Clause 19 This insurance is subject to English law and practice.

NOTE: —It is necessary for the Assured when they become aware of an event which is “held covered” under this insurance to give prompt notice to the Underwriters and the right to such cover is dependent upon compliance with this obligation.

CL 252: 1/1/82 © The Institute of London Underwriters. Reproduced with the permission of the International Underwriting Association of London (IUA).

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APPENDIX 3 INSTITUTE CARGO CLAUSES (A) (1/1/09) RISKS COVERED Risks 1 This insurance covers all risks of loss of or damage to the subject-matter insured except as excluded by the provisions of Clauses 4, 5, 6 and 7 below. General Average 2 This insurance covers general average and salvage charges, adjusted or determined according to the contract of carriage and/or the governing law and practice, incurred to avoid or in connection with the avoidance of loss from any cause except those excluded in Clauses 4, 5, 6 and 7 below. “Both to Blame Collision Clause” 3 This insurance indemnifies the Assured, in respect of any risk insured herein, against liability incurred under any Both to Blame Collision Clause in the contract of carriage. In the event of any claim by carriers under the said Clause, the Assured agree to notify the Insurers who shall have the right, at their own cost and expense, to defend the Assured against such claim. EXCLUSIONS 4

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In no case shall this insurance cover 4.1 loss damage or expense attributable to wilful misconduct of the Assured 4.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter insured 4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of these Clauses “packing” shall be deemed to include stowage in a container and “employees” shall not include independent contractors) 4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured 4.5 loss damage or expense caused by delay, even though the delay be caused by a risk insured against (except expenses payable under Clause 2 above) 4.6 loss damage or expense caused by insolvency or financial default of the owners managers charterers or operators of the vessel where, at the time of loading of the subject-matter insured on board the vessel, the Assured are aware, or in the ordinary course of business should be aware, that such insolvency or financial default could prevent the normal prosecution of the voyage This exclusion shall not apply where the contract of insurance has been assigned to the party claiming hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding contract 4.7 loss damage or expense directly or indirectly caused by or arising from the use of any weapon or device employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter. 5.1 In no case shall this insurance cover loss damage or expense arising from 5.1.1 unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of the subject-matter insured, where the Assured are privy to such unseaworthiness or unfitness, at the time the subject-matter insured is loaded therein 5.1.2 unfitness of container or conveyance for the safe carriage of the subject-matter insured, where loading therein or thereon is carried out prior to attachment of this insurance or by the Assured or their employees and they are privy to such unfitness at the time of loading.

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5.2 Exclusion 5.1.1 above shall not apply where the contract of insurance has been assigned to the party claiming hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding contract. 5.3 The Insurers waive any breach of the implied warranties of seaworthiness of the ship and fitness of the ship to carry the subject-matter insured to destination. In no case shall this insurance cover loss damage or expense caused by 6.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power 6.2 capture seizure arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat 6.3 derelict mines torpedoes bombs or other derelict weapons of war. In no case shall this insurance cover loss damage or expense 7.1 caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions 7.2 resulting from strikes, lock-outs, labour disturbances, riots or civil commotions 7.3 caused by any act of terrorism being an act of any person acting on behalf of, or in connection with, any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of any government whether or not legally constituted 7.4 caused by any person acting from a political, ideological or religious motive. DURATION

Transit Clause 8 8.1 Subject to Clause 11 below, this insurance attaches from the time the subject-matter insured is first moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit, continues during the ordinary course of transit and terminates either 8.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the final warehouse or place of storage at the destination named in the contract of insurance, 8.1.2 on completion of unloading from the carrying vehicle or other conveyance in or at any other warehouse or place of storage, whether prior to or at the destination named in the contract of insurance, which the Assured or their employees elect to use either for storage other than in the ordinary course of transit or for allocation or distribution, or 8.1.3 when the Assured or their employees elect to use any carrying vehicle or other conveyance or any container for storage other than in the ordinary course of transit or 8.1.4 on the expiry of 60 days after completion of discharge overside of the subject-matter insured from the oversea vessel at the final port of discharge, whichever shall first occur. 8.2 If, after discharge overside from the oversea vessel at the final port of discharge, but prior to termination of this insurance, the subject-matter insured is to be forwarded to a destination other than that to which it is insured, this insurance, whilst remaining subject to termination as provided in Clauses 8.1.1 to 8.1.4, shall not extend beyond the time the subject-matter insured is first moved for the purpose of the commencement of transit to such other destination. 8.3 This insurance shall remain in force (subject to termination as provided for in Clauses 8.1.1 to 8.1.4 above and to the provisions of Clause 9 below) during delay beyond the control of the Assured, any deviation, forced discharge, reshipment or transhipment and during any variation of the adventure arising from the exercise of a liberty granted to carriers under the contract of carriage. Termination of Contract of Carriage 9 If owing to circumstances beyond the control of the Assured either the contract of carriage is terminated at a port or place other than the destination named therein or the transit is otherwise

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terminated before unloading of the subject-matter insured as provided for in Clause 8 above, then this insurance shall also terminate unless prompt notice is given to the Insurers and continuation of cover is requested when this insurance shall remain in force, subject to an additional premium if required by the Insurers, either 9.1 until the subject-matter insured is sold and delivered at such port or place, or, unless otherwise specially agreed, until the expiry of 60 days after arrival of the subject-matter insured at such port or place, whichever shall first occur, or 9.2 if the subject-matter insured is forwarded within the said period of 60 days (or any agreed extension thereof) to the destination named in the contract of insurance or to any other destination, until terminated in accordance with the provisions of Clause 8 above. Change of Voyage 10 10.1 Where, after attachment of this insurance, the destination is changed by the Assured, this must be notified promptly to Insurers for rates and terms to be agreed. Should a loss occur prior to such agreement being obtained cover may be provided but only if cover would have been available at a reasonable commercial market rate on reasonable market terms. 10.2 Where the subject-matter insured commences the transit contemplated by this insurance (in accordance with Clause 8.1), but, without the knowledge of the Assured or their employees the ship sails for another destination, this insurance will nevertheless be deemed to have attached at commencement of such transit. CLAIMS Insurable Interest 11 11.1 In order to recover under this insurance the Assured must have an insurable interest in the subject-matter insured at the time of the loss. 11.2 Subject to Clause 11.1 above, the Assured shall be entitled to recover for insured loss occurring during the period covered by this insurance, notwithstanding that the loss occurred before the contract of insurance was concluded, unless the Assured were aware of the loss and the Insurers were not. Forwarding Charges 12 Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a port or place other than that to which the subject-matter insured is covered under this insurance, the Insurers will reimburse the Assured for any extra charges properly and reasonably incurred in unloading storing and forwarding the subject-matter insured to the destination to which it is insured. This Clause 12, which does not apply to general average or salvage charges, shall be subject to the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from the fault negligence insolvency or financial default of the Assured or their employees. Constructive Total Loss 13 No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter insured is reasonably abandoned either on account of its actual total loss appearing to be unavoidable or because the cost of recovering, reconditioning and forwarding the subject-matter insured to the destination to which it is insured would exceed its value on arrival. Increased Value 14 14.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured under this insurance the agreed value of the subject-matter insured shall be deemed to be increased to the total amount insured under this insurance and all Increased Value insurances covering the loss, and liability under this insurance shall be in such proportion as the sum insured under this insurance bears to such total amount insured. In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured under all other insurances.

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14.2 Where this insurance is on Increased Value the following clause shall apply: The agreed value of the subject-matter insured shall be deemed to be equal to the total amount insured under the primary insurance and all Increased Value insurances covering the loss and effected on the subject-matter insured by the Assured, and liability under this insurance shall be in such proportion as the sum insured under this insurance bears to such total amount insured. In the event of claim the Assured shall provide the Insurers with evidence of the amounts insured under all other insurances. BENEFIT OF INSURANCE 15 This insurance 15.1 covers the Assured which includes the person claiming indemnity either as the person by or on whose behalf the contract of insurance was effected or as an assignee, 15.2 shall not extend to or otherwise benefit the carrier or other bailee. MINIMISING LOSSES Duty of Assured 16 It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder 16.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss, and 16.2 to ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges properly and reasonably incurred in pursuance of these duties. Waiver 17 Measures taken by the Assured or the Insurers with the object of saving, protecting or recovering the subject-matter insured shall not be considered as a waiver or acceptance of abandonment or otherwise prejudice the rights of either party. AVOIDANCE OF DELAY 18 It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances within their control. LAW AND PRACTICE 19 This insurance is subject to English law and practice.

NOTE:— Where a continuation of cover is requested under Clause 9, or a change of destination is notified under Clause 10, there is an obligation to give prompt notice to the Insurers and the right to such cover is dependent upon compliance with this obligation.

CL 382: 01/01/2009 © Copyright 11/08—Lloyd’s Market Association (LMA) and International Underwriting Association of London (IUA). Reproduced with their permission.

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APPENDIX 4 COMMERCIAL CODE (JAPAN)* CHAPTER VI. INSURANCE Article 815 (Marine Insurance) (1) A marine insurance contract shall cover losses arising from accidents of navigation. (2) Except otherwise provided in this chapter, Sections 1 to 4 and 6 of Chapter II as well as Chapter V of the Insurance Law shall apply to marine insurance contracts. Article 816 (Losses covered) Except as otherwise provided in this Chapter, or the insurance contract, the insurer shall cover all loss or damage to the subject matter insured arising from insured accidents of navigation which occur during the insurance period. Article 817 (General Average Contribution to be covered) The insurer shall cover general average contributions payable by the assured. If only a part of insurance value is uninsured, the insurer’s liability shall be determined by [comparing] the proportion of the amount insured to the insurable value. Article 818 (Insurance Value of Hull Insurance) In hull insurance, the insured value shall be the value of the ship at the time of the commencement of the insurer’s liability. Article 819 (Insurance Value of Cargo Insurance) In cargo insurance, the insured value shall be the value of the cargo at the place and the time of loading plus the expense relating to the loading and the insurance premium. Article 820 (Insurance Value of Prospective Profit Insurance) In the insurance of prospective profit or freight to be earned upon the arrival of cargo, the insured amount shall be deemed to be the insurance value, if the insurance value has not been fixed in the contract. Article 821 (Insured Period of Hull Insurance) (1) If the ship is insured for a single voyage, the liability of the insurer shall commence at the time when the loading of the cargo or ballast is commenced. (2) If the ship is insured after the cargo and ballast have been loaded, the liability of the insurer shall commence at the time of the execution of the contract. (3) In case of the preceding two paragraphs, the liability of the insurer shall terminate upon the completion of the unloading of the cargo and ballast at the port of destination: provided however, if the unloading is delayed by force majure, it shall terminate at the time when the unloading should have been completed. Article 822 (Insured Period of Cargo or Prospective Profit Insurance) If the cargo is insured or the prospective profit or the freight to be earned upon arrival of the cargo is insured, the liability of the insurer shall commence at the time when the cargo leaves the land and terminate at the time when the unloading is completed at the port of discharge. Article 823 (Particulars on the Marine Insurance Policy) A marine insurance policy shall ,besides the particulars provided in Art 6 para. 1 of the Insurance Law, contain the following particulars;

* Unofficial translation from the Japanese.

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(1) In the case of hull insurance, name, nationality and description of the ship, the full name of master and the ports of departure, arrival and or call , if any. (2) In the case of insurance of cargo and or prospective profit and or freight to be earned upon arrival of cargo, name, nationality and description of ship, ports of loading and discharge. Article 824 (Change of Voyage) (1) If the voyage is changed before the commencement of the insurer’s liability, the insurance contract shall be of no effect. (2) If the voyage is changed after the commencement of the insurer’s liability, the insurer shall not be liable for any accident which occurrs after the change of voyage; however, this shall not apply if the insurance contractor or the assured is not responsible for the change. (3) If the port of destination is changed and the execution of the change is commenced, the voyage shall be deemed to be changed even if the deviation has not yet been made from the insured voyage. Article 825 (Deviation and Other Increase of Risk) If the assured fails to commence or continue the voyage or changes the route or materially changes or increases the risk in any other way, the insurer shall not be liable for any accident which occurrs after the change or the increase, provided however, this shall not be applicable if such accident is not attributable to the change or increase or the loss or damage has resulted from an accident for which the insurer is liable or any reasonable reason exists. Article 826 (Change of Master) Even though the master has been nominated in the contract of insurance, the change of mater shall not affect the validity of the contract. Article 827 (Change of Ship) In the case of insurance of cargo and or prospective profit and or freight to be earned upon arrival of cargo, where the ship is changed, the insurer shall not be liable for any accident which occurs after the change, provided however, this shall not be applicable if the change is not attributable to the insurance contractor or the assured. Article 828 (Insurance of Cargo on Undetermined Ship) (1) If the ship on which the cargo is to be loaded has not been determined at the time of the execution of the insurance contract, the insurance contractor or the assured shall notify the insurer of the name and the nationality of the ship as soon as he or she is aware of the loading of the cargo. (2) If the insurance contractor or the assured fails to notify as provided in the preceding paragraph, the insurance contract shall be of no effect. Article 829 (Insurer’s Exclusions) The insurer shall not liable for (1) Any loss or damage arising from inherent vice or the nature of the subject matter insured, ordinary wear and tear and/or intentional act or gross negligence of the insurance contractor or the assured. (2) Any loss or damage arising from the failure to make the necessary preparation for a safe voyage or to prepare the necessary documents on board at the commencement of voyage in case of the insurance of the ship or the freight. (3) Any loss or damage arising from intentional act or gross negligence of the charterer, the insurance contractor or the assured in case of the insurance of the cargo or the profit or the freight earned upon arrival of the cargo. (4) Pilotage, port charge, lighthouse charge, quarantine and other ordinary charges paid for the voyage with respect to the ship or the cargo. Article 830 (Non-liability of Insurer for small loss and or expenses) (1) If the loss or expenses, exclusive of expense for calculation, other than general average, do not exceed two percent of the insurance value, the insurer is not liable for them. (2) If the above loss or expenses exceed two percent of the insurance value, the insurer shall pay the full insurance value thereof.

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(3) The preceding two paragraphs shall apply to the cases where the parties have fixed by the contract the proportion of loss or expenses for which the insurer shall not liable. (4) The proportion provided in the preceding three paragraphs shall be computed separately in respect of each voyage. Article 831 (Liability for Partly Damaged Cargo) If the cargo insured arrives at the port of discharge in damaged condition, the insurer shall be liable for the insurance value in the proportion that the value of the damaged cargo bears to the value of the sound cargo. Article 832 (Liability for Cargo Sold in Force Majeure) (1) If the insured cargo is sold by reason of force majeure during the voyage, the insurer shall be liable for the difference between the insurance value and the sales proceed minus freight and other charges; however, this shall not prevent the application of Article 19 of the Insurance Law in case a part of the insurance value is uninsured. (2) In case of the preceding paragraph, if the buyer does not pay the purchase price, the insurer shall pay it. In case the insurer pays the purchase price, he or she acquire the assured’s right to the buyer. Article. 833 (Cause of Abandonment) The assured may abandon the subject matter insured to the insurer and claim the full insured amount; (1) If the ship is sunk (2) If the ship is missing (3) If the ship is un-repairable (4) If the ship and or the cargo is captured (5) If the ship and or the cargo is restrained by order of a government and not released after more than 6 months. Article 834 (Cause of Abandonment-Missing) (1) A ship shall be deemed to be missing if the existence of the ship is unknown for 6 months. (2) Even if the insured period has elapsed during the period provided for in the preceding paragraph, the assured shall be entitled to abandon; however, the abandonment shall be void if it is proved that the ship was not lost during the insurance period. Article 835 (Cause of Abandonment-Continuance of Carriage by another Ship) If the master continues to carry the cargo by another ship without delay, the assured may not be able to abandon. Article 836 (Notice of Abandonment) (1) If the assured intends to abandon, the assured shall give Notice of Abandonment to the insurer within 3 months. (2) In case of the Items 1, 3 or 4 of Article 833, the period shall be started to count from the time when the assured becomes aware of the cause of the abandonment. (3) In case of re-insurance, the period of the preceding paragraph shall start to count from the time when the re-assured receives the Notice of Abandonment from the assured. Article 837 (Condition of Abandonment) (1) The abandonment shall be unconditional. (2) Abandonment shall be in respect of the whole subject matter insured; however, if the cause of the abandonment occurs in respect of a part of subject matter insured, the abandonment can be in respect of that part thereof. (3) If a part of the insurable value is insured, the abandonment can be done in the proportion of the insured amount to the insured value.

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Article 838 (Acceptance of Abandonment) If the insurer accepts the abandonment, the insurer shall not be entitled to object to the abandonment. Article 839 (Effect of Abandonment) (1) The insurer shall acquire all the rights belonging to the assured by virtue of the abandonment. (2) The assured shall give the documents related to the subject matter insured to the insurer upon abandonment. Article 840 (Notice of Other Insurance Contract) (1) Upon abandonment, the assured shall notify the insurer whether any other insurance contract exists over the subject matter insured, whether any obligation attached to it exists and, if so, what kind, if any. (2) The insurer shall not be obliged to pay the insurance money until the notice referred to in the preceding paragraph is received. (3) If the payment period of the insurance money is fixed, such period starts to count from the time of receipt of such notice. Article 841 (Refusal of Abandonment) If the insurer refuses to accept the abandonment, the assured shall not be entitled to claim the insurance money unless he or she proves the cause of abandonment has occurred. Article 841-2 (Application to Mutual Insurance) This Chapter shall apply to the Mutual Insurance unless its nature does not allow the application.

Translated from the Japanese,© Shuji Yamaguchi.

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APPENDIX 5 INSURANCE LAW (JAPAN)* CHAPTER I. GENERAL PROVISIONS Article 1. (Purpose) This Law shall apply to the validity, effect, performance and termination of a contract related to insurance except as provided in other laws. Article 2. (Definition) In this Law, the meaning of the following terms shall be defined as provided in the following definitions. (1) “Insurance contract” means an insurance contract, mutual aid contract or any other contract in whatever name under which one party undertakes to pay financial benefit (which shall be limited to payment of money in case of a life insurance contract or fixed amount accident and health insurance contract; hereinafter called “insurance benefit”) and the other party undertakes to pay insurance premium (including mutual aid premium; the same hereinafter) in accordance with the possibility of occurrence of such events. (2) “Insurer” means the party to an insurance contract who shall pay the insurance benefit. (3) “Insurance contractor” means the party of an insurance contract who pays the insurance premium. (4) “Assured” means a person defined as follows; a) In Non- Life Insurance contracts, a person who suffers damages to be covered by the nonlife insurance contract. b) In life insurance contracts, a person whose survival or death is the subject of insurance benefit to be paid by an insurer c) In fixed amount accident and health insurance contracts, a person whose injury or illness (hereinafter called “injury or illness”)is the subject of insurance benefit to be paid by an insurer. (5) “Insurance beneficiary” means a person prescribed in a life insurance contract or a fixed amount accident and health insurance contract as a receiver of insurance benefit. (6) “Non-life insurance contract” means an insurance contract under which an insurer undertakes to cover any damage which may occur contingently by an accident. (7) “Accident and health damage insurance contract” means a non-life insurance contract under which an insurer undertakes to cover any damage which may occur by an injury or illness of a person. (The damage should be limited to that incurred by the person who suffered such injury or illness). (8) “Life insurance contract” means an insurance contract under which an insurer undertakes to pay an insurance benefit with respect to the survival or the death of a person (except a fixed amount accident and health insurance contract). (9) “Fixed amount accident and health insurance contract” means an insurance contract under which an insurer undertakes to pay insurance benefit with respect to an injury or an illness of a person. CHAPTER II. NON-LIFE INSURANCE Section 1. Execution of the Contract Article 3. (Insurable Interest in Non-life Insurance Contracts) The Interest insurable by non-life insurance contract shall be of any economical value estimated to money. * Unofficial translation from the Japanese.

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Article 4. (Duty of Disclosure) In executing a non-life insurance contract, the insurance contractor or the assured shall disclose to the insurer the material facts as to the risk to be covered by the non-life insurance contract which is required by the insurer to be disclosed to the insurer. Article 5. (Retrospective Insurance) (1) Any provision to cover damage for an insurance accident which occurs prior to the execution of the non-life insurance contract shall be null and void if the insurance contractor or the assured knows that the insurance accident has already occurred at the time the insurance contractor applies for or consents to the insurance contract. (2) Any provision to cover damage for an insurance accident which occurs prior to the application of the non-life insurance contract shall be null and void if the insurer knows that the insurance accident has not occurred at the time when the insurer or the insurance contractor applies for the non-life insurance contract. Article 6. (Document Provided upon Execution of a Non-life Insurance Contract) (1) At the time of the execution of the non-life insurance contract, the insurer shall provide an insurance contractor without delay with a document containing the following particulars: (1) The name of the insurer (2) The name of the insurance contractor (3) The name of the assured or any necessary information to identify the assured (4) The identification of the insured accidents, that is to say, the perils or risks insured (5) The Insurance period (6) The insured amount, or the fact that the insured amount is not fixed, in such a case (7) The subject matter insured if any, or necessary information to identify the subject matter insured (8) The agreed amount insured, if any, provided in the proviso of Article 9 (9) The insurance premium and the method of payment (10) The notice that must be given to the insurer if the risk is creased after execution of the insurance contract (Article 29 (1) (i)) (11) The date of execution (12) The date of issuance of the insurance document (2) The insurer (or, if the insurer is a company, the representative of the company) shall sign or stamp the chop with the insurer’s name on the document prepared under the precedent paragraph. Article 7. (Compulsorily applicable articles) Any special agreement against Article 4 disadvantageous to the insurance contractor or the assured or against Article 5 para. 2 disadvantageous to an insurance contractor shall be null and void. Section 2. Effect of the Contract Article 8. (Non-life Insurance Contracts for Third Parties) In cases where the assured is a person other than one of the parties to the insurance contract, the assured shall, automatically, be entitled to enjoy the benefits under the non-life insurance contract. Article 9. (Over Insurance) If both the insurance contractor and the assured do not know without gross negligence that the insurance amount exceeded the value of the subject matter insured (hereinafter called the ‘insurance value’) at the time of the execution of the insurance contract, the insurance contractor shall be entitled to cancel the exceeded part of the non-life insurance contract, provided however, that this does not apply where a certain amount (hereinafter called ‘agreed insurance value’) is agreed to the insurable amount.

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Article 10. (Decrease of Insurance Value) If the insurable value has decreased substantially after the execution of the non-life insurance contract, the insurance contractor shall be entitled to require the insurer to reduce the insurance money amount or the agreed insured amount to the decreased insurable value and the insurance premium to the premium correspondent to the decreased insurance money amount for the future. Article 11. (Decrease of the Risk) If the risk has decreased substantially after the execution of the non-life insurance contract, the insurance contractor shall be entitled to require the insurer to reduce the insurance premium to the premium corresponding to the decreased risk for the future. Article 12. (Compulsorily applicable Articles) Any agreement against Article 8 disadvantageous to the assured or against the body of Article 9 and Article 10 and 11 disadvantageous to the insurance contractor shall be null and void. Section 3. Insurance Benefits Article 13. (Prevention of Loss Occurrence and its Expansion) When the insurance contractor or the assured learn of the occurrence of an insurance accident, they shall be obliged to prevent the occurrence of loss and its expansion. Article 14. (The Notice of Loss Occurrence) The insurance contractor or the assured shall notify the insurer of the occurrence of the insurance accident, upon learning thereof, without delay. Article 15. (Destruction of Subject Matter Insured after Occurrence of Loss) If a loss has occurred from an insurance accident, the insurer shall cover such loss even if the subject matter insured is destroyed after the occurrence of such loss due to the cause irrelevant to the insurance accident. Article 16. (Special Article for Loss Coverage by Fire Insurance Contract) The insurer of the fire insurance contract shall cover the loss caused to the subject matter insured incurred by the fire extinction, evacuation or other necessary action for the fire fighting even though no insurance accident has actually occurred. Article 17. (Insurer’s Exemption) (1) The insurer shall not be liable to cover the loss arising from intentional act or gross negligence of the insurance contractor or the assured nor from war or any disturbance. (2) In applying the preceding paragraph to liability insurance (defined as a non-life insurance contracts which cover the loss incurred to the assured by its assuming liability), “intentional act or gross negligence” in the precedent paragraph shall be replaced by “gross negligence”. Article 18. (Calculation of Loss Amount) (1) The loss amount covered by a non-life insurance contract (hereinafter called the “covered loss amount”) shall be calculated on the basis of the value at the place and the time where and when the loss has occurred. (2) If the agreed insured value exists, the covered loss amount shall be calculated by the agreed insured value. However, if the agreed insured value exceeds substantially to the actual insured value, the covered loss amount shall be calculated by the actual insured value. Article 19. (Underinsurance) If the insured amount less than the insurable value (or the agreed insured value, if any), the insurance benefit payable by the insurer shall be the amount obtained by comparing the proportion of the amount insured to the insurable value.

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Article 20. (Double Insurance) (1) Where damage covered by a non-life insurance contract is also covered by another insurance contract, the insurer is liable to pay the insurance money with respect to the entire amount of damage [that is] covered to the assured. (2) In the event that the total amount of the insurance money to be paid by each insurer of two or more non-life insurance contracts exceeds the amount of damage [that is] covered (if the amounts of the damage to be covered calculated pursuant to the respective non-life insurance contracts vary, the highest one;…) and if one of the insurers has paid the insurance money to the assured beyond its share (the amount obtained by multiplying the amount of damage to be covered by the proportion of the amount of insurance money be paid by each insurer assuming that there is no other non-life insurance contract, to the total insurance monies;…) and obtains a release on behalf of all insurers, that insurer is entitled to claim against the other insurer(s) a contribution [for any amount paid] in excess of the insurer’s own share of liability Article 21. (Payment Time of Insurance Benefit) (1) If the payment time limit is fixed as the day after the reasonable period necessary for confirming the insurance accident, the covered loss amount, the insurer’s exemption and other matters necessary for the performing the insurance benefit under insurance contract, that date when the reasonable period has passed shall be the date when the insurer shall pay the insurance benefit. (2) Where no payment time limit is fixed, the insurer shall not be responsible for the period from the time of claim for insurance benefit to the expiration of the necessary period for confirming the insurance accident and the covered loss amount of the claim. (3) If the insurance contractor or the assured withholds information or fails to cooperate the insurer’s necessary investigation for confirming the information required in the precedent two paragraphs, the insurer shall not be responsible for the period of delay caused by such hindrance or such failure. Article 22. (Liability Insurance Contract Lien) (1) A person who is entitled to claim for damages against the assured as a result of an insured accident covered by a liability insurance contract shall have a lien over the assured’s right to claim insurance benefit. (2) An assured shall be entitled to claim the insurance benefit from the insurer to the extent of the amount repaid with respect to the claim for damages under the preceding paragraph or the amount agreed by a person who is entitled to claim for damages. (3) The right to claim the insurance benefit shall not be transferred, pledged or attached except in case (1) the right to claim is transferred to or is attached by the person who is entitled to claim for damages referred in paragraph 1, (2) the assured has the right to claim to the insurer under the preceding paragraph. Article 23. (Payment of Expenses) (1) The following expenses shall be paid by the insurer (1) any expense necessary to calculate the damage amount (2) in case of Article 13, any expense necessary or contributory to prevent the occurrence or expansion of the damage (2) Article 19 shall apply mutatis mutandis to the amount of the expenses referred in sub-paragraph (2) of the preceding paragraph. In such a case, “the damage amount to be covered” in the said Article shall be deemed to be replaced with “the amount of expenses referred in Article 23, paragraph 1. Article 24. (Subrogation of Residue) If the subject matter insured is entirely destroyed [or lost] and the insurer has paid the insurance benefit, the insurer, automatically, shall acquire the title or the property right of the subject matter insured owned by the assured in accordance with the proportion of the amount of the insurance benefit to the insurance value ( or the agreed insurance value, if any).

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Article 25. (Subrogation of Claim) If the insurer has paid the insurance benefit, the insurer shall, automatically, acquire the rights of the assured obtained as the result of the damage caused by the insurance accident (including the right to claim in case of the non-life insurance contract covers the damage to by default of a contract or other reason hereinafter called ‘the assured’s claim’) to the extent of the lesser of: (1) The amount of insurance benefit paid by such insurer or (2) The amount of the assured’s claim [against the third party] … if the indemnity is less than the amount of damage suffered by the assured, the assured shall claim the unpaid damage [from the third party] in priority to the subrogated claim acquired by the insurer. Article 26. (Compulsorily Applicable Articles) Any special agreement against the Provisions of Article 15, Paragraph 1 or Paragraph 3 of Article 21 or the preceding two articles disadvantageous to the assured shall be null and void. Section 4. Termination Article 27. (Cancellation of Insurance Contractor) The insurance contractor may cancel the non-life insurance contract at any time. Article 28. (Cancellation due to Breach of Duty of Disclosure) (1) The insurer may cancel a non-life insurance contract if the insurance contractor or the assured, intentionally or by gross negligence, fails to disclose the fact or makes false disclosure with respect to the matters to be disclosed. (2) Notwithstanding the preceding paragraph, the insurer may not cancel a non-life insurance contract; (i) if the insurer was aware of the facts referred in the preceding paragraph or was not aware of them by negligence at the time of the execution of the non-life insurance contract or (ii) if a person negotiating execution of the insurance contract on behalf of the insurer (excluding the person acting as an agent of the insurance contract upon execution of the insurance contract; hereinafter called ‘the insurance broker) prevents the insurance contractor or the assured from disclosing the facts referred in the preceding paragraph or (iii) if the insurance broker urges the insurance contractor or the assured to fail to disclose the facts or to make false disclosure provided in the preceding paragraph. (3) Sub-paragraphs (ii) and (iii) of the preceding paragraph shall not apply if it is considered that the insurance contractor or the assured would fail to disclose the fact or make the false disclose provided paragraph 1 even if it were not for the acts of the insurance broker provided in each item. (4) The right to cancellation provided paragraph 1 of this Article shall cease to exist if the insurer fails to exercise the right for one month from the time when he or she has become aware of the existence of the cause of cancellation under the said paragraph. The same shall apply when five years have elapsed from the time of the execution of the insurance contract. Article 29. (Cancellation due to Increase of Risk) (1) Even if such non-life contract may be continued in case of increase of risk (which means the situation that the risk as the matters to be disclosed increases and the insurance premium of the insurance contract becomes less than the premium calculated on the basis of the increased risk; hereinafter the same in this article and Article 31 sub-paragraph 2 ) if the insurance premium is changed to the amount correspondent to the increase of risk, the insurer shall be entitled to cancel the insurance contract: (i) If it is provided in the non-life insurance contract that the insurance contractor or the assured shall without delay notify the insurer of any change in the matters to be disclosed with respect to the increase of risk and (ii) If the insurance contractor or the assured has failed to notify as provided in the preceding sub-paragraph intentionally or by gross negligence.

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(2) Paragraph 4 of the preceding Article shall apply mutatis mutandis to the right to cancel provided in the preceding paragraph. In such a case,“ the time of the execution of the non-life insurance contract” in sub-paragraph 4 of the said Article shall be deemed to be replaced with “the time when the risk increases provided in paragraph 1 of the following article”. Article 30. (Cancellation due to a Material Event) The insurer may cancel a non-life insurance contract; (1) if the insurance contractor or the assured has caused or intended to cause damage in order to make the insurer pay the insurance benefit under the non-life insurance contract; or (2) if the assured has committed or intended to commit fraud in connection with the claim for the insurance benefit under the non-life insurance contract; or (3) if any other material event happens other than those referred to in the preceding two subparagraphs in which the insurer’s trust in either the insurance contractor or the assured is undermined or which makes the continuance of the non-life insurance difficult. Article 31. (Effect of Cancellation) (1) Any cancellation of the non-life insurance contract shall be effective only for the future. (2) The insurer shall not be liable to cover any damage set out in each of the following sub-paragraphs: (1) In case of cancellation under paragraph 1 of Article 28, any damage due to the insurance accident arising not later than the time of cancellation (excluding any damage due to the insurance accident which has occurred but did not result from the non-disclosed facts provided in the said paragraph) (2) In case of cancellation under paragraph 1 of Article 29, any damage due to the insurance accident during the period from the time when the risk concerning the cancellation has increased to the time of the cancellation (excluding and insurance accident which did not result from the increase in risk) (3) In case of cancellation under the preceding Article, any damage due to the insurance accident arising during the period from the time when the event provided in each item of the said article has occurred to the time of the cancellation Article 32. (Limitation of Refund of Insurance Premium) The insurer shall not be obliged to refund the insurance premium; (1) if the insurer expressed an intention to cancel the non-life insurance contract on the grounds of fraud or intimidation of the insurance contractor or the assured or (2) if a non-life insurance contract become invalid in accordance with Paragraph 1 of Article 5, unless the insurer has applied or agreed to the application for the non-life insurance contract with knowledge of the occurrence of the insured accident. Article 33. (Compulsorily Applicable Articles) (1) Any special agreement against provisions of Paragraph 1 to of Article 28, Paragraph 1 of Article 29, Article 30 and Article 31 disadvantageous to the insurance contractor or the assured shall be null and void. (2) Any special agreement against the preceding article disadvantageous to the insurance contractor shall be null and void. Section 5. (Articles 34 and 35) Omitted Section 6. Exclusion of Application Article 36. Article 7, 12, 26 and 33 shall not apply to (1) marine insurance contracts as defined in Paragraph 1 of Article 815 of the Commercial Code of Japan (2), (3), (4) omitted Translated from the Japanese,© Shuji Yamaguchi.

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APPENDIX 6 INSURANCE CONTRACTS ACT 1984 (AUSTRALIA) (Selected sections 8, 9, 9A, 13, 14, 16, 17, 21–27, 37, 44, 45, 52, 54, 56, 57, 63, 65–68, 76) 8 Application of Act (1) Subject to section 9, the application of this Act extends to contracts of insurance and proposed contracts of insurance the proper law of which is or would be the law of a State or the law of a Territory in which this Act applies or to which this Act extends. (2) For the purposes of subsection (1), where the proper law of a contract or proposed contract would, but for an express provision to the contrary included or to be included in the contract or in some other contract, be the law of a State or of a Territory in which this Act applies or to which this Act extends, then, notwithstanding that provision, the proper law of the contract is the law of that State or Territory. 9 Exceptions to application of Act (1) Except as otherwise provided by this Act, this Act does not apply to or in relation to contracts and proposed contracts: (a) of reinsurance; or (b) of insurance entered into, or proposed to be entered into, by a private health insurer within the meaning of the Private Health Insurance Act 2007 in respect of its health insurance business within the meaning of Division 121 of that Act; or (ba) of insurance entered into, or proposed to be entered into, by a private health insurer within the meaning of the Private Health Insurance Act 2007 in respect of its health related business within the meaning of section 131-15 of that Act that is conducted through a health benefits fund (as defined by section 131-10 of that Act); or (c) of insurance entered into, or proposed to be entered into, by a friendly society; or (ca) of insurance entered into, or proposed to be entered into, by the Export Finance and Insurance Corporation, other than short-term insurance contracts within the meaning of the Export Finance and Insurance Corporation Act 1991 that are entered into on or after the commencement of this paragraph; or (d) to or in relation to which the Marine Insurance Act 1909 applies; or (e) entered into or proposed to be entered into for the purposes of a law (including a law of a State or Territory) that relates to: (i) workers’ compensation; or (ii) compensation for the death of a person, or for injury to a person, arising out of the use of a motor vehicle. (2) This Act does not apply to or in relation to contracts and proposed contracts of insurance entered into, or proposed to be entered into, in the course of State insurance or Northern Territory insurance, including contracts and proposed contracts entered into, or proposed to be entered into, by: (a) a State or the Northern Territory; and (b) some other insurer; as joint insurers. (3) Sections 37, 41, 58, 59, 60, 63, 69 and 74 do not apply in relation to contracts, and proposed contracts, of insurance against the risk of the loss of an aircraft, or damage to the hull of an aircraft, as a result of war. (4) Sections 53 and 63 do not apply in relation to a provision of a contract, or a proposed contract, of insurance to the extent that: (a) the provision authorises or permits the insurer to vary or cancel either or both of the following: (i) cover for risks related to war; (ii) cover for risks related to terrorism; and (b) the provision is prescribed or otherwise identified by the regulations.

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9A Exclusion of pleasure craft from the Marine Insurance Act 1909 (1) The Marine Insurance Act 1909 does not apply to a contract of marine insurance made in respect of a pleasure craft unless the contract is made in connection with the pleasure craft’s capacity as cargo. (2) For the purposes of this section, a pleasure craft is a ship that is: (a) used or intended to be used: (i) wholly for recreational activities, sporting activities, or both; and (ii) otherwise than for reward; and (b) legally and beneficially owned by one or more individuals; and (c) not declared by the regulations to be exempt from this subsection. (3) For the purposes of paragraph (2)(a), any minor, infrequent and irregular use of a ship for activities other than: (a) recreational activities; or (b) sporting activities; is to be ignored. (4) In this section: contract of marine insurance has the same meaning as in the Marine Insurance Act 1909. 13 The duty of the utmost good faith A contract of insurance is a contract based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith. 14 Parties not to rely on provisions except in the utmost good faith (1) If reliance by a party to a contract of insurance on a provision of the contract would be to fail to act with the utmost good faith, the party may not rely on the provision. (2) Subsection (1) does not limit the operation of section 13. (3) In deciding whether reliance by an insurer on a provision of the contract of insurance would be to fail to act with the utmost good faith, the court shall have regard to any notification of the provision that was given to the insured, whether a notification of a kind mentioned in section 37 or otherwise. PART III—INSURABLE INTERESTS Division 1—General insurance 16 Insurable interest not required (1) A contract of general insurance is not void by reason only that the insured did not have, at the time when the contract was entered into, an interest in the subject-matter of the contract. 17 Legal or equitable interest not required at time of loss Where the insured under a contract of general insurance has suffered a pecuniary or economic loss by reason that property the subject-matter of the contract has been damaged or destroyed, the insurer is not relieved of liability under the contract by reason only that, at the time of the loss, the insured did not have an interest at law or in equity in the property. PART IV—DISCLOSURES AND MISREPRESENTATIONS Division 1—The duty of disclosure 21 The insured’s duty of disclosure (1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that: (a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or

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(b) a reasonable person in the circumstances could be expected to know to be a matter so relevant. (2) The duty of disclosure does not require the disclosure of a matter: (a) that diminishes the risk; (b) that is of common knowledge; (c) that the insurer knows or in the ordinary course of the insurer’s business as an insurer ought to know; or (d) as to which compliance with the duty of disclosure is waived by the insurer. (3) Where a person: (a) failed to answer; or (b) gave an obviously incomplete or irrelevant answer to; a question included in a proposal form about a matter, the insurer shall be deemed to have waived compliance with the duty of disclosure in relation to the matter. 21A Eligible contracts of insurance—disclosure of specified matters (1) This section applies to an eligible contract of insurance unless it is entered into by way of renewal. Position of the insurer (2) The insurer is taken to have waived compliance with the duty of disclosure in relation to the contract unless the insurer complies with either subsection (3) or (4). (3) Before the contract is entered into, the insurer requests the insured to answer one or more specific questions that are relevant to the decision of the insurer whether to accept the risk and, if so, on what terms. (4) Before the contract is entered into, both: (a) the insurer requests the insured to answer one or more specific questions that are relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; and (b) the insurer expressly requests the insured to disclose each exceptional circumstance that: (i) is known to the insured; and (ii) the insured knows, or a reasonable person in the circumstances could be expected to know, is a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; and (iii) is not a matter that the insurer could reasonably be expected to make the subject of a question under paragraph (a); and (iv) is not a matter covered by subsection 21(2). (5) If: (a) the insurer complies with subsection (3) or (4); and (b) the insurer asks the insured to disclose to the insurer any other matters that would be covered by the duty of disclosure in relation to the contract; the insurer is taken to have waived compliance with the duty of disclosure in relation to those matters. Position of the insured (6) If: (a) the insurer complies with subsection (3); and (b) in answer to each question referred to in subsection (3), the insured discloses each matter that: (i) is known to the insured; and (ii) a reasonable person in the circumstances could be expected to have disclosed in answer to that question; the insured is taken to have complied with the duty of disclosure in relation to the contract. (7) If: (a) the insurer complies with subsection (4); and (b) in answer to each question referred to in paragraph (4)(a), the insured discloses each matter that: (i) is known to the insured; and (ii) a reasonable person in the circumstances could be expected to have disclosed in answer to that question; and

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(c) the insured complies with the request referred to in paragraph (4)(b); the insured is taken to have complied with the duty of disclosure in relation to the contract. Onus of proof—exceptional circumstance (8) In any proceedings relating to this section, the onus of proving that a matter is an exceptional circumstance covered by subparagraph (4)(b)(iii) lies on the insurer. Definition (9) In this section: eligible contract of insurance means a contract of insurance that is specified in the regulations. 22 Insurer to inform of duty of disclosure (1) The insurer shall, before a contract of insurance is entered into, clearly inform the insured in writing of the general nature and effect of the duty of disclosure and, if section 21A applies to the contract, also clearly inform the insured in writing of the general nature and effect of section 21A. (2) If the regulations prescribe a form of writing to be used for informing an insured of the matters referred to in subsection (1), the writing to be used may be in accordance with the form so prescribed. (3) An insurer who has not complied with subsection (1) may not exercise a right in respect of a failure to comply with the duty of disclosure unless that failure was fraudulent. DIVISION 2—MISREPRESENTATIONS 23 Ambiguous questions Where: (a) a statement is made in answer to a question asked in relation to a proposed contract of insurance or the provision of insurance cover in respect of a person who is seeking to become a member of a superannuation or retirement scheme; and (b) a reasonable person in the circumstances would have understood the question to have the meaning that the person answering the question apparently understood it to have; that meaning shall, in relation to the person who made the statement, be deemed to be the meaning of the question. 24 Warranties of existing facts to be representations A statement made in or in connection with a contract of insurance, being a statement made by or attributable to the insured, with respect to the existence of a state of affairs does not have effect as a warranty but has effect as though it were a statement made to the insurer by the insured during the negotiations for the contract but before it was entered into. 25 Misrepresentation by life insured Where, during the negotiations for a contract of life insurance but before it was entered into, a misrepresentation was made to the insurer by a person who, under the contract, became the life insured or one of the life insureds, this Act has effect as though the misrepresentation had been so made by the insured. 26 Certain statements not misrepresentations (1) Where a statement that was made by a person in connection with a proposed contract of insurance was in fact untrue but was made on the basis of a belief that the person held, being a belief that a reasonable person in the circumstances would have held, the statement shall not be taken to be a misrepresentation. (2) A statement that was made by a person in connection with a proposed contract of insurance shall not be taken to be a misrepresentation unless the person who made the statement knew, or a reasonable person in the circumstances could be expected to have known, that the statement would have been relevant to the decision of the insurer whether to accept the risk and, if so, on what terms.

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(3) This section extends to the provision of insurance cover in respect of: (a) a person who is seeking to become a member of a superannuation or retirement scheme; or (b) a person who is a holder, or is applying to become a holder, of an RSA. 27 Failure to answer questions A person shall not be taken to have made a misrepresentation by reason only that the person failed to answer a question included in a proposal form or gave an obviously incomplete or irrelevant answer to such a question. 37 Notification of unusual terms An insurer may not rely on a provision included in a contract of insurance (not being a prescribed contract) of a kind that is not usually included in contracts of insurance that provide similar insurance cover unless, before the contract was entered into the insurer clearly informed the insured in writing of the effect of the provision (whether by providing the insured with a document containing the provisions, or the relevant provisions, of the proposed contract or otherwise). 44 Average provisions (1) An insurer may not rely on an average provision included in a contract of general insurance unless, before the contract was entered into, the insurer clearly informed the insured in writing of the nature and effect of the provision including whether the provision is based on indemnity or on replacement value of the property that is the subject-matter of the contract. (2) Where the sum insured in respect of property that is the subject-matter of a contract of general insurance that provides insurance cover in respect of loss of or damage to a building used primarily and principally as a residence for the insured, for persons with whom the insured has a family or personal relationship, or for both the insured and such persons, or loss of or damage to the contents of such a building, or both, is not less than 80% of the value of the property, the liability of the insurer in respect of loss of or damage to the property is not reduced by reason only of the operation of an average provision included in the contract. (3) Where: (a) the sum insured in respect of property that is the subject-matter of such a contract is less than 80% of the value of the property; and (b) but for this subsection, an average provision included in the contract would have the effect of reducing the liability of the insurer in respect of loss of or damage to the property to an amount that is less than the amount ascertained in accordance with the formula AS P where: A is the number of dollars equal to the amount of the loss or damage. S is the amount of the sum insured under the contract in respect of the property; and P is 80% of the number of dollars equal to the value of the property. the average provision has the effect of reducing the liability of the insurer to the amount so ascertained. (4) In this section: value, in relation to property, means: (a) if the relevant contract provides for indemnifying the insured in respect of loss of or damage to the property—the indemnity value of the property; or (b) if the relevant contract provides for reinstatement or replacement of the property—the reinstatement or replacement value of the property; at the time when the relevant contract was entered into. 45 “Other insurance” provisions (1) Where a provision included in a contract of general insurance has the effect of limiting or excluding the liability of the insurer under the contract by reason that the insured has entered into some

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other contract of insurance, not being a contract required to be effected by or under a law, including a law of a State or Territory, the provision is void. (2) Subsection (1) does not apply in relation to a contract that provides insurance cover in respect of some or all of so much of a loss as is not covered by a contract of insurance that is specified in the first-mentioned contract. 52 “Contracting out” prohibited (1) Where a provision of a contract of insurance (including a provision that is not set out in the contract but is incorporated in the contract by another provision of the contract) purports to exclude, restrict or modify, or would, but for this subsection, have the effect of excluding, restricting or modifying, to the prejudice of a person other than the insurer, the operation of this Act, the provision is void. (2) Subsection (1) does not apply to or in relation to a provision the inclusion of which in the contract is expressly authorized by this Act. 53 Variation of contracts of insurance Where a provision included in a contract of insurance (other than a contract of insurance that is included in a class of contracts declared by the regulations to be a class of contracts in relation to which this section does not apply) authorizes or permits the insurer to vary, to the prejudice of a person other than the insurer, the contract, the provision is void. DIVISION 3—REMEDIES 54 Insurer may not refuse to pay claims in certain circumstances (1) Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but the insurer’s liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interests were prejudiced as a result of that act. (2) Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim. (3) Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act. (4) Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act. (5) Where: (a) the act was necessary to protect the safety of a person or to preserve property; or (b) it was not reasonably possible for the insured or other person not to do the act; the insurer may not refuse to pay the claim by reason only of the act. (6) A reference in this section to an act includes a reference to: (a) an omission; and (b) an act or omission that has the effect of altering the state or condition of the subject-matter of the contract or of allowing the state or condition of that subject-matter to alter. PART VI—CLAIMS 56 Fraudulent claims (1) Where a claim under a contract of insurance, or a claim made under this Act against an insurer by a person who is not the insured under a contract of insurance, is made fraudulently, the insurer may not avoid the contract but may refuse payment of the claim. (2) In any proceedings in relation to such a claim, the court may, if only a minimal or insignificant part of the claim is made fraudulently and non-payment of the remainder of the claim would be harsh

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and unfair, order the insurer to pay, in relation to the claim, such amount (if any) as is just and equitable in the circumstances. (3) In exercising the power conferred by subsection (2), the court shall have regard to the need to deter fraudulent conduct in relation to insurance but may also have regard to any other relevant matter. 57 Interest on claims (1) Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section. (2) The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days: (a) the day on which the payment is made; (b) the day on which the payment is sent by post to the person to whom it is payable. (3) The rate at which interest is payable in respect of a day included in the period referred to in subsection (2) is the rate applicable in respect of that day that is prescribed by, or worked out in a manner prescribed by, the regulations. (4) This section applies to the exclusion of any other law that would otherwise apply. (5) In subsection (4): law means: (a) a statutory law of the Commonwealth, a State or a Territory; or (b) a rule of common law or equity. 63 Cancellations void Except as provided by this Act, an insurer may not cancel a contract of general insurance and any purported cancellation in contravention of this section is of no effect. PART VIII—SUBROGATION 65 Subrogation to rights against family etc. (1) Subject to subsection (2), this section applies where: (a) an insurer is liable under a contract of general insurance in respect of a loss; (b) but for this section, the insurer would be entitled to be subrogated to the rights of the insured against some other person (in this section called the third party); and (c) the insured has not exercised those rights and might reasonably be expected not to exercise those rights by reason of: (i) a family or other personal relationship between the insured and the third party; or (ii) the insured having expressly or impliedly consented to the use, by the third party, of a road motor vehicle that is the subject-matter of the contract. (2) This section does not apply where the conduct of the third party that gave rise to the loss: (a) occurred in the course of or arose out of the third party’s employment by the insured; or (b) was serious or wilful misconduct. (3) Where the third party is not insured in respect of the third party’s liability to the insured, the insurer does not have the right to be subrogated to the rights of the insured against the third party in respect of the loss. (4) Where the third party is so insured, the insurer may not, in the exercise of the insurer’s rights of subrogation, recover from the third party an amount that exceeds the amount that the third party may recover under the third party’s contract of insurance in respect of the loss. (5) An insured need not comply with a condition requiring the insured to assign those rights to the insurer in order to be entitled to payment in respect of the loss and an insurer shall not purport to impose such a condition on the making of such a payment or, before making such a payment, invite the insured so to assign those rights, or suggest that the insured so assign them. Penalty: 300 penalty units. (6) An assignment made in compliance with such a condition or in pursuance of such an invitation or suggestion is void.

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INSURANCE CONTRACTS ACT 1984 (AUSTRALIA)

(7) In subsection (1), road motor vehicle means a motor vehicle that is so constructed as to be capable of carrying by road at least one person other than the driver. 66 Subrogation to rights against employees Where: (a) the rights of an insured under a contract of general insurance in respect of a loss are exercisable against a person who is the insured’s employee; and (b) the conduct of the employee that gave rise to the loss occurred in the course of or arose out of the employment and was not serious or wilful misconduct; the insurer does not have the right to be subrogated to the rights of the insured against the employee. 67 Rights with respect to moneys recovered under subrogation (1) Where an insurer, in exercising a right of subrogation in respect of a loss, recovers an amount, the insured may recover that amount from the insurer. (2) Unless the contract expressly provides otherwise, the insured may not recover under subsection (1): (a) an amount greater than the amount (if any) by which the amount recovered by the insurer exceeds the amount paid to the insured by the insurer in relation to the loss; or (b) an amount that, together with the amount paid to the insured under the contract, is greater than the amount of the insured’s loss. (3) The rights of an insured and insurer under the preceding provisions of this section are subject to any agreement made between them after the loss occurred. (4) A reference in this section to an amount recovered by an insurer shall be construed as a reference to the amount so recovered less the administrative and legal costs incurred in connection with the recovery of the amount. 68 Contracts affecting rights of subrogation (1) Where a contract of general insurance includes a provision that has the effect of excluding or limiting the insurer’s liability in respect of a loss by reason that the insured is a party to an agreement that excludes or limits a right of the insured to recover damages from a person other than the insurer in respect of the loss, the insurer may not rely on the provision unless the insurer clearly informed the insured in writing, before the contract of insurance was entered into, of the effect of the provision. (2) The duty of disclosure does not require the insured to disclose the existence of a contract that so limits the insured’s rights. PART X—MISCELLANEOUS 76 Contribution between insurers (1) When 2 or more insurers are liable under separate contracts of general insurance to the same insured in respect of the same loss, the insured is, subject to subsection (2), entitled immediately to recover from any one or more of those insurers such amount as will, or such amounts as will in the aggregate, indemnify the insured fully in respect of the loss. (2) Nothing in subsection (1) entitles an insured: (a) to recover from an insurer an amount that exceeds the sum insured under the contract between the insured and that insurer; or (b) to recover an amount that exceeds, or amounts that in the aggregate exceed, the amount of the loss. (3) Nothing in this section prejudices the rights of an insurer or insurers from whom the insured recovers an amount or amounts in accordance with this section to contribution from any other insurer liable in respect of the same loss.

All legislative material herein is reproduced by permission but does not purport to be the official or authorised version. It is subject to Commonwealth of Australia copyright.

601

APPENDIX 7 AMERICAN INSTITUTE (AIMU) CARGO CLAUSES 2004 (ALL RISKS) American Institute (AIMU) Cargo Clauses (NR) January 1,2004 AMERICAN INSTITUTE CARGO CLAUSES 2004 ALL RISKS 1. AVERAGE TERMS "All Risks"

The following average tenns shall apply: A. Unless otherwise specified below, this policy insures against "All Risks" of physicalloss or damage from any extemal cause irrespective ofpercentage, but excluding nevertheless the risks of War, Strikes, Riots, Seizure, Detention and other risks excluded by the Nuclearl Radioactive Contamination Exclusions Clause, thc F.C & S. (Free of Capture (Strikes, Riots and Civil Commotions) and Seizure) Warranty .nd the S.R. & Warranty of this policy, excepting to the ntent that such risks are specifically covered by cndorsement.

c.e.

"On Deck" Bill 0/ Lading FPA Terms

2. ADDITIONAL COVERAGES General Average & Salvage Charges

B. Insured pTOperty while shipped on deck of an ace an vessel subject to an "On Deck" bill of lading is warranted fiee from Particular Average unless caused by the vessel being stranded, sunk or bumt, but notwithstanding this Warranty the Company is to pay any physic.l loss of or d.mage to the insured property which may reasonably be attributed to fire, eollision or contact of the vessel andlor craft andlor conveyance with any extemal substanee (iee included) other than water, or to disch.rge of cargo at apart of distr.ss. Tbis poliey shall also cover the following contributions andlor expenses: A. General Average eontribution and Salvage Charges determined to be due from or in respect to insured property.

Landing. Warehouse & Forwarding Charges

B. L.nding, warehousing, forwarding and special charges incurred by reason of perils insured against.

Brands & Trademarks

e.

"Both 10 Blame"

D. Where insured property is shipped under a Bill ofLading containing the so- ca lied "Both to Blame Collision" Clause the Company agrees os to all lasses covered by this insurance, to indemnify the Assured for this poliey's proportion of any amount (not exceeding the amount insured) which the Assured may be legally bound to pay to the shipowners under such clause. In the event that such liability is asserted the Assured agrees to notify the Company os promptly as possible and the Company shall have the right, at its own cost and expense, to defend the Assured against such claim.

Sue & Labor Charges

E. Charge! reasonably incurred pursuant 10 the duty set forth below, wh ether said efforts are suceessful or not: In the event of lass or misforrune, it is the duty of the Assured and any assignee of the Assured's rights hereunder to take all reasonable measures to avert or minimize loss insured against by this policy and to ensure that all rights again.t third parties are preserved and exercised. Th. Company shall be liable in full for the charges incurred und er this Clause whether the combioed amount of physical lass Or damage and Sue and Labor Charges exceeded the applicable policy limit or not

Craji/Lighler Charges

F. Including transit by erafl, raft or light er to or from the vesseL Each eraft. raft Or lighter to be deemed aseparate insurance. The Assured are not to be prejudiced by any agreement exempting lightermen trom li abi lity.

Expenses to remove Brands and Trademarks pursuant to the Brands and Trademarks provisions of the Loss Adjustment Clauses.

602

AMERICAN INSTITUTE (AIMU) CARGO CLAUSES 2004 (ALL RISKS)

3. EXCLUSIONS

The following exclusions shall apply unless modified Or superseded elsewhere herein or endorsed hereon:

Basic Exclusions

A. This policy does not cover: (I) Ordinary leakage. ordinary loss in weight or volume. or ordinary wesr and lcar. (2) Loss, damage, or expense: (a) Attributable to willful miseonduct ofthe Assured; (b) eaused by inherent vice Or nature ofthe insured property; (c) arising from insolvency or finaneial default oftbe owners, managers, charterers, Or operators of the ve55el; (d) resulting from insuffieieney or IUIsuitability of packing or preparation of the insured property for the inlended voyage. For the purposes of this elause. ''packing'' shall be deemed to inelude stowage into an overseas container but only when sueh stowage is carried out prior 10 the eommeneement oflhe insured voyage or when performed by Ihe Assured or his representative.

4. PARAMOUNT

Subjecl 10 the following ParamOlUl1 Warranties which shall not be modified or superseded by any other provisions included herein or stamped or endorsed hereon unless such other provision refers speeifically to the risks excluded by these Wamnties and expressly assumes the said risks:

WARRANTIES

F.C. & S. Wa"anty

A. Notwithstanding anything herein contained to the eontrary, this insuranee is warranted free from: (1) all consequences of capture, seizure, arrest, restraint, detainment, eonfiseation, preemption, requisition, nationalization, and the eonsequenees thereof or any aUempt thereat, whether in time ofpeaee or war and wh ether lawful or otherwise; (2) allioss or damage or expense, whelher in time ofpeace or war, caused by: (a) any weapon of war employing atomic or nuclear fission andlor fusion andlor reaction or radioaetive force or matter or (b) any mine or torpedo; (3) all consequences of hostilities or warlike operations (whether there be a declaration of war or not), but this Warranty shall not exclude collision or contact with rockets or similar missiles (other than weapons of war) or with any fixed or floating objecl (other than amine or torpedo), stranding, heavy weather, fire or explosion IUIless caused directly (and independently of the nature of the voyage or service whieh the vessel concemed or, in the case of collision, any other vessel involved Iherein, is performing) by a hostile aet by or against a heIligerent power, and for the purposes of this Warranty "power" includes any authority maintaining naval, military, or air forces in association with apower; (4) all consequences of eivil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or from the consequenees of the imposition of martial law, military or usurped power, or piracy.

S.R. & c.e. Wa"anty

B. Warranted free fi"om loss, damage, or expense caused by Or resulting from: (I) strikes, lockouts, labor disturbanees, riolS, eivil commotion5, or the aelS of any person Or persons, taking part in any such occurrences or disorders; (2) vandalism, sabotage, or malicious act, which shall he deemed also to eneompass Ihe aet or aelS of one or mOre persons, whether or not agents of a sovereign power, carried out for political, terroristic or ideological purposes and whether any loss, damage or expense resulting therefrom is accidental or intentional.

Delay Wa"anty

C. Warranted free of claim for loss of market or for loss, damage, eXPense or deterioration arising from delay, whether caused by a peril insured against or otherwise.

603

APPENDIX 7

NuclearlRadioaclive Conlaminalion Exclusion WalTanly

5. ADDITIONAL CONDITIONS Seawonhiness

D. Warranted that this poliey shall not apply to any loss, damage Or expenses duc to or arising out of, whether direet1y or indireetly, nuclear reaetion, radiatinn or radioactive eontamination, regardless of how it was caused. However, !ubject 10 all provisions of this poliey, if this policy insures again!t fire, then direet physical domoge to the insured property loeated within thc United States or any territory of the Uni ted StoteS or Puerto Rieo by fire direet1y eaused by thc above exc1uded perils, is insured, provided that the nuc1ear resetion, radiation, or radioactive eontaminalion was not caused, whethcr directly or indirecUy, by any of thc perils exc1uded by the F.C, & S. Warranty of this policy. Nothing in this elause shall be eonstrued 10 cover any loss, damage or expense caused by nuclear reselion, radiation or radioaetive contaminalion ari!ing directly or indireClly from the fire mentioned above. Tbc following additional clauses shall also apply: A. The seaworthiness of Ihe vessel operating os a eommon carrier is hereby admitted ss berween the Assured and the Company and the wrongful oet or misconduct of the shipowner or his servants causing a loss is not 10 dereat the recovery by an innocent Assured irthe loss in the absence ofsuch wrongful act or misconduct would have been a loss reeoverable on this policy. With leave to sail with or without pilots, and to Iow snd assist vessets or eraft in all situations, snd to be Iowed. The Assured ;s not 10 be prejudiced by the presenee of the negligenee claus. amifor lalent defecl clause in the Bill(s) ofLading andlor Charter Party.

Carrier Clause

B. Warranted thaI this insurance shall not inure, direetly or indireetly, 10 the benefit of .ny carrier or bailee.

Economic & Trade Sanclions

C. Whenever eoverage provided by Ihis policy would be in violation of any U.S. eeonomie

or Irade sanetions such as, but not limited to, those sanclions administered and enforced by the U.s. Treasury Department's Office of Foreign AsseIS Control (''OFAC''), such coverage shall be null and void. Similarly, any eoverage relaling to or refemd to in any eertifieates or other evidences of insurance or any claim lhat would be in violation of U.s. economic or Irade sanctions as deseribed above shall also be null and void.

6. DURATION OF RISK

Transil Clause

The following conditions apply regarding the duration ofrisk: A. (I) This insurance attaches from the li me the insured property leaves Ihe warehouse, or is delivered alongside or on board the oversess eonveyance in accordance with the obligation of the Assured under the lenns of sale, for the eommeneemenl of Iransil and continues until: (a) insured property is delivered 10 the Consignee's or other final warehouse or place ofstorage at the intended destination; or (b) Ihe insured property is delivered to any other warehouse or place of storage, whether prior to or al the intended destination, whieh the Assured (including any shipper, assignee. consignee or c1aimant that has control of the insured property at the relevant time) elects to use either: i. for storage other than in the ordinary course oflTansit; or ii. for allocation or distribution; or (e) the expiring of 60 days (30 days on air shipmenlS) after completion or discharge fiom the overseas vessel (or aircraft), whichever shall first oecur. In the event of delay in excess of the limils specified in (e) above arising from cireumstanees beyond the eonlrol of the Assured. held eovered al a premium to be named for an additional 30 days provided the Assured gives notiee thereofto the Company as promptly as possible but in any event prior 10 the expiry of the original 60 days (30 days on air shipments) period.

604

AMERICAN INSTITUTE (AIMU) CARGO CLAUSES 2004 (ALL RISKS) (2) (a) This insumnce specially to cover the insured property during deviation, delay, forced discharge, re·shipment, transshipment snd any other variation of the adventure arising from the exercise of a liberty granted to the shipowner or cbarterer under thc contract of affieightment. (b) In the event of the exercise of any liberty grantcd to the shipowner or charterer under the contraet of affieightment whereby such eontraet is terminatcd at a port or place other than the original insured destination, this insuranee continues unti! the insured property is sold and delivered at such port Or place; or, if the insured property be not sold but is forwarded to thc original insured destination or to any other destination this insurance continues unti! the insured property has been sold and delivered to the warehouse or place of storage as provided in section I. (3) If while this insumnee is still in force and before the expiry of 1S days from midnight on the day on which the dischargc overside of the insured property from thc overseas vesscl at the final port of discharge i5 completed, the insured property i5 re-sold (not being a 58le within the terms of Section 2(b» and is to be forwarded to a destination other than that covcred by this insurance, the insured property is covered hereunder whilc deposited at such port of discharge until 8gain in transit or until expiry of the aforementioned 1S days whichever shall first oeeur. If s sale is effected after the expiry ofthe aforementioned IS days while this insuranee is still in force the protection afforded hereunder shall cease as from the time ofthe sale. (4) Held eovered at a premiwn to be named in case of change of voyage or of any omission or error in the description ofthe interest, vessel or voyag., (S) It is a condition of Ihis insurance that thcre shall be no intelT\lption or suspension of transit unless due to circwnstances beyond the control of the Assured, Assignee, Consignee or Claimant and the Assured, Assignee, Consignee or Claimant shall aet with reasonable dispatch in all circumstanees within their control. (6) It is agreed that insured property taken out of transit upon instructions of surveyors appointed by or on behalfofthe Company for the purposc ofestablishment oflos. or damage, shall be held covered, subject to thc original terms and conditions applying to such shipment, without payment of additional premium er advice to the Company, during such interruption or suspension of transit until disposed of by delivery to and aeceptancc by thc original Consignee or by 58le to others or otheTWise, provided that during such interruption or suspension of transit thc Assured complie. with the surveyors' instructions.

Shipments Retumed or Refused

B. In the event of refusal or inability of thc Assured, or Consignee, to accept delivery of insured property, this policy is extended to cover such insured property, subjeet to the original insuring terms, during delay andlor return or until otherwise disposed of, provided the Assured reports the facts of such situations to the Company BS soon as they have knowledge of such an occurrcnce and pays additional premium if requircd.

Consolidationl Deconsolidation

C. This policy is extcnded to cover the insured property temporarily stopped in transit for the purpose of consolidation or dcconsolidation in or from overseas containers for not exeeeding 30 days whether the said stoppage in transit is within the control of the Assured or nol. Held eovered at an additional premium to be named for an additional 30 days provided the Assured gives noliee thereof to the Company as promptly as possible but in any event prior to the expiry ofthe original 30 day period.

7. LOSS ADJUSTMENT CLAUSES Constructive Total Loss

Partial Loss

Thc following loss adjustmenl clauses shaU apply: A. No recovery for a Constructi ve Total Loss shaU be paid hereunder unless the insured property is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it cannot be preserved from actual total loss without an expenditure which would exceed its value ifthc expenditure had been incurred. B. In case of partialloss or damage insured against by this policy, a separation of sound and damaged insured property shaU be made and the amount of loss determined by:

605

APPENDIX 7

(1) an agreed percentage of depreciation, in which event the Assured shall receive such percentage of the insured value of the damaged insured property, or, if there is no agreement; (2) sale of the damaged insured pmperty, in which event the Assured shall receive the difference between the insured value of the damaged insured pmperty sold and the proceeds of sale.

General Average & Salvage Charges

C. General Average contributions and Salvage Charges shall be payable according to United States laws and usage and/or as per foreign statement andlor as per York Antwerp Rules (as prescrlbed in whole er in part) ifin accordance with the Contract of Affreightrnent.

Machinery Clallse

D. When the insured property includes a machine consisting when complete for sale or use of several parts, then, in esse of loss or damage covered by this insurance to any part of such machine, the Company shall be liable only for the proportion of the insured value of the part lost or damaged, or at the Assured's option, for the cost and expense, including labor and forwarding charges, of replacing or repairing the lost or damaged part, excluding loss, if any, sustained by payment of additional duty unless the full duty is included in the amount insured; but in no event shall the Company be liable for more than the insured value ofthe complete machine.

Labels Clallse

E. In case of damage affecting labels, capsules, or WT1Ippers, the Company, if liable therefor under the terms of this policy, shall not be liable for more than an amount sufficient to pay the cost of replacing the labels, capsules or wrappers and the cost of reconditioning the insured property, but in no event shall the Company be liable for more than the insured value ofthe darnaged insured pmperty.

Brands & Trademarks

F. In esse of damage by a perll insured against to insured property bearing abrand or trademark associated with the Assured, the damage value shall be ascertained after removal of such markings. Where removal is impractiesble, the Company Bnd the Assured shall consult as to how the 1055 may best be minimized; however, the Assured shall have the option of destroying the damaged insured property upon payment to the Company ofthe value which could have been realized by the sale ofthe insured property in its damaged condition.

SlIbrogation

G. lt is a condition of this insurance that upon payment of any loss the Company shall be subrogated to a11 rights ofthe Assured against third parties with respect to such loss. It is a funher condition of this insurance that if the Assured or any Claimant impairs or diminishes the rights to which the Company would be subrogated upon paymen!, the Company may deduct !Tom such payment a sum equal to the estimated recovery lost by reason ofthe Assured's or Claimant's action or inaction.

Notice ofLoss

H. lt is a condition of the Company's liability that the Assured, Assignee, Consignee or Claimant promptly report any lass or damage which may give rise to a claim hereunder. Notice may be given to Bny office of the Company or to the Company's claim or survey representative near the place where the insured property is or was destined. If no claim or survey representative of the Company is at or near such place, notice may be given to the nearest representative ofthe Ameriesn Institute ofMarine Underwriters, or ifno such representative is available, to the nearest Lloyd's agent

Payment of Loss

L In ease of lass, such loss to be paid no later than thirty days after satisfactory proof of lass and satisfactory proof of interest in the insured property has been established by the Company (the amount of the premium, if unpaid, being first deducted). Proofs of loss to be submitted to the representative of the Company, if there be one at the place such proofs are taken. If there be 00 such represcntative thc correspondent of the American Institute of Manne Undcrwriters may authentieate said proofs or in the absence of such corresponden!, the nearest Lloyd 's agent. Where such proofs have been established by the Company and the final amount of loss cannot be determined within said 30 days, the Company may adVBnce an amoun!, to be agreed upon, pending final adjustment of the claim. Any amount advanced in excess of the final claim amount to be refunded to the Company by the Assured.

606

AMERICAN INSTITUTE (AIMU) CARGO CLAUSES 2004 (ALL RISKS)

Notice o/Suit

J, No suit or action on this policy shall be sustainablc in any Court of Law or Equity unless the Assured shall hav. eomplied in full with all the terms and conditions of this insurance, nor unless same shall be eommenced within IWelve (12) months after thc 1055, provided that where such limitation oftime is prohibitcd b)' thc laws of thc State wherein Ibis poliey is issued, then no such suit or action shall be sustainable unless eommeneed within the shortest limitation oftime permitted by the laws ofsuch State.

Choice 0/ Law

K. It is agreed that this polic)' and its endorsement(s) is a contraet of marine insuranee protecting against marine risks and has been applied for, prieed and underwritten as such, and thc law applicable to any interpretation of Ibis poliey and thc rights and obligations of the Company and thc Assured hereunder shall be US federal maritime cOmmon law or, in the absence ofUS federal maritime eommon law, Ibe law of Ibe state ofNew Yorlc. irrespective of any prineiples ofehoiee oflaw,

8. OPERATING CLAUSES Reports 0/ Shipmenls

The fOllowing operating clauses shall apply: A. It is a eondition ofthis insurance Ibat Ibe Assured report to Ibc Compan)' all shipments of insured property or olber insured interests eoming within thc terms hereof wilbm thirty days after the end of Ibe month in whieh all details of insured shipments or other insured interests beeome known to the Assured, unless otherwise agreed, Premium for all reported shipments or other insured interests shall be paid by the Assured at rales as agreed. The Company, however, being entitled to all premium as agreed whelber interests have been reported or not. Willful failure to make such reports shall render this poliey voidable at Ibe Company's option as of Ibe date it would have attaehed to Ibe unreported shipment or other insured interest. However, unintentional error or omission or del"y in making any such report shall not void this insuranee provided Ibe same be reported to Ibe Company as soon as known to the Assured,

0/ Records

B. The Company or a person appointed by the Comp"ny ma)' examine tbe books and records of!he Assured as far as they relate 10 the subject matter of !his insurance at any time while this insuranee is in force and for twelve months after termination.

Special Cargo Policies

C. When tbe Company supplies Special Cargo Policies or Certifieates to the Assured, such action "uthorizes the Assured to utilize such Special Cargo Polieies or Ccrtificates to provide evidence of insuranee to third parties, subjeet to Ibe fOllowing restrietions: (I) Special Cargo Policies or Certificates may be used only in eonnection wi!h shipments to whieh this Open Policy attaches. (2) Terms, conditions, and values entered upon a Special Cargo Poliey or Certifieate by !he Assured must conform to Open Polic)' terms applieable to the shipment for whieh the Special Cargo Polie)' or Ccrtifieate is utilized unless the Company's written agreement to olber terms is obtained. (3) Copies of all Special Cargo Polieies or Certifieates utilized by the Assured must be sent to the Company promptIy upon issuanee. (4) In the evenl a Special Cargo Poliey or Certifieate is spoiled or voided, Ibe original and any duplicate are to be retumed to the Company. B)' utilizing a Special Cargo Polic)' or Ccrtificate, the Assured agrees to reimburse the Company, if by reason of any omission or insertions made by the Assured or !heir aulborized nepresentative upon such Special Cargo Poliey or Certificate, Ibe Company is obligated to pay • claim not eovered by this poliey or an amount in exeess of what this poliey undertakes to pay,

Other Insurance

D. As respects eaeh shipmenl or other insured interest: (1) This insurance shall be deemed void 10 Ibe extent of an)' insuranee procured by any carrier or other bailee whieh is available to the benefieiary hereof or will be so avail.ble ifthis insurance is voided.

Inspections

(2)

If!he Assured or others (exeepting an)' carrier or other bailee) shall have procured

607

APPENDIX 7

(3)

(4)

(5)

other ocean marine insurance attaching earlier than the attachment hereunder, thcn Ihis insurancc shall be liable only to the extent of any deficiency in such prior insurance as compared to the insured value hereunder. If the Assured or others (excepting any carrier or other bailee) shall have procurcd other ocean marine insurance attaching later than the attachment hereunder, then this insurance shall be Hable up 10 the insured value hereunder without any claim to contribution. Ifthe Assurcd or others (excepting any carrier or other bailee) sball have procured other ocean marine insurance attaching simultaneous with insurance hereundcr, then this insurance shall be liable, only for the pro rata share of any claim thai the insured value hereWlder bears to the total amount available from all insurance. If the Company is relieved of any liability by the operation of this c1ause it shall, nevertheless, retain all premium. In consideration of such premium tbe Company guarantees prompt payment of claims covered by this insurance. The Company further insures against any difference in conditions which make thc other insurance less favorable to the Assured than insurance hereunder.

© AIMU. Reproduced with the permission of AIMU.

608

APPENDIX 8 AMERICAN INSTITUTE (AIMU) WAR RISK AND STRIKES FORMS AIMU WAR RISK OPEN POLICY (CARGO) (DECEMBER 2, 1993)

WAR RISK OPEN POLICY (CARGO) (Deoember 2, 1993) THIS

POLICY

OF

INSURANCE WITNESSETH,

that

in consideration

cf premiums

as

agreed to be paid,

the Assurer daes make insurance and cause

lost

or not

lost,

for

accaunt

cf

wh om

it""mäy"'c'o-ilc-e'r'n-;-'-ägäInst-'-'~~iä-r'--RIsks'--ö"n-i

y

with the terms and conditions hereinafter set forth.

to ,

be

insured,

in accordance

Ta apply to shipments made on er after This Company ahall not be liable hereunder for more than $.•..... ____ ........... ___ ................ by anyone vessel. In

cases

where

the

total

value(s)

as set forth in this Policy,

at

risk on

anyone

the Assured agrees,

vessel

exceed(s)

nevertheless,

the

limit

of

liability

to report to the Assurer full

value(s) at risk and to pay premium thereon at the agreed rates. The Assured further agrees that acceptance of such reports and premium by the Assurer sha11 not serve to revoke or to overrule the limit of liability set forth in this Policy; however, subject to the limit of 1iability, the Assurer in accepting these reports does agree to pay partial los ses covered by this Policy without reduction by reason of any coinsurance which otherwise may have existed in the absence of this special agreement. Subject to the provisions of Clause 4 of this Policy, should there be an accumulat~on of interests exceeding the above limit of liability by reason of any interruption of transit beyond the control of the Assured or by reason cf any easualty, and/ar after the interests have been discharged from the ineoming overseas Vessel at an intermediate port or place for on-earriage from that or any other port or pI ace by another overseas Vessel, and/or on the on-carrying overseas Vessel, this Policy shall attach for the full amount at risk (but in oe event for more than twice the Policy limit which would be applicable to anyone Vesse1) provided written notiee be given to this Assurer as soon as known to the Assured. This Policy shall cover only these shipments which are insured against marine risks under Policy No ._____________________ . ___________ ... _._ ...... _ of this Company, it being agreed that the description of such shipments, the valuations thereof, the voyage, the designation cf the overseas Vessel (which shall be construed to include aircraft if included under the marine policy) on which the goods are to be carried and the ports and/or plaees of loading and discharge, as reported under the said Po1icy against marine risks, shall be deemed incorporated herein. Notwithstanding the foregoing, this policy shal1 not cover purely domestic shipments by air between points in the Uni ted states of America (excluding Alaska and Hawaii). Any

lass

payable

hereunder

ahall

be

payable

in

funds

current

in

the

Uni ted

States,

to

the

order of ___ .. ____ .. _..... ___ ..... ___ ._ ..... ___ ._. __ ._ .. _.... __ .... _... _..... __ ._._._._._ ... ___ ........... _. __ ._ ... _..... _._ ......... __ ._._. ___ ._._ ... _.. __ ... _.. __ ._. ____ . ___ ._._ .. __ thirty days after full proofs cf lass and proofs of interest have been filed with the Assurer. 1. (al This insurance is only against the risks of capture , seizure, destruction or damage by men-of-war, piracy, takings at sea, arrests, restraints, detainments and ether warlike operations and acts of kings, princes and peoples in prosecution of hostilities or in the application of sanctions under international agreements, whether before or after declaration of war and whether by a belligerent or otherwise, inc1uding factions engaged in civil war, revolution, rebellion or insurrection, or civil strife arising therefrom; the imposition of martia1 1aw, military or usurped power, and including the risks of aerial bombardment, floating or stationary mines and stray or derelict torpedoes. Warranted not to abandon (on any greund ether than physieal damage to ship or cargo) until after condemnation of the property insured. (b) This insuranee also covers, but only while the property insured is on board a waterborne conveyance, lass of or damage to said property directly caused by governmental authorities acting for the publie welfare to prevent or mitigate a pOllution hazard or threat thereof, provided that the accident or occurrenee creating the situation which required such governmental action would have resulted in a recoverable claim under this Policy (subjeet to all of its terms, conditions and warranties) if the property insured would have sustained physical lass or damage as a direet result of such accident or oceurrenee. 2.

Warranted free from any claim based upon loss of, or adventure caused by arrests, restraints or detainments.

609

frustration

of,

the

insured voyage

APPENDIX 8 3. This insurance does not cover any loss, damage or expense directly or indirectly arising from, contributed to , or caused by any of the following, whether due to a peril insured against or otherwise: (al commandeering, preemption, requisition or nationalization by the government er etherwise) of the country to or from which the goods are insured.

(defacto

(b) Seizure or destruction under quarantine, environmental or customs regulations. (cl Delay, deterioration and/or 1055 of market. (d)

Nuclear

reaction,

radiation

or

radioactive

contamination,

regardless

of

how

it

was

caused. 4. (al The insurance against the risks enumerated in clause 1, except the risks of floating or stationary mines and stray or derelict torpedoes, floating or submerged referred to in (bl be1ow, shall not attach to the interest hereby insured or to any part thereof: (i) prior to being on board an overseas Vessel (For the purpose of this Clause an overseas Vessel shall be deemed to mean aVessei carrying the interest from one port or place to another where such voyage involves a sea passage by that Vessel); (ii) after being discharged overside place of discharge,

from

an

overseas Vessel

at

the

intended port

or

or

after the expiry of 15 days from midnight of the day of arrival of the overseas Vessel at the intended port or place of discharge, whichever shall first occur; (lii) after expiry of 15 days from midnight of the day of arrival of the overseas Vessel at an intermediate port or place to discharge the interest for on-carriage from that or any other port or place by anether overseas Vessel, but shall reattach as the interest is loaded on the on-carrying overseas Ve5se1. During the said period of 15 days the insurance remains in force whether the interest is awaiting transit or in transit between the overseas Vessels. (iv) For the purpose of this Clause arrival at the intended port or pI ace of discharge shall be deemed to mean that time when the overseas Vessel first berths, anchors, moors or is secured in an area subject to regula tion by the au thor i ties of such port or place. (bl The insurance against the risks of floating or stationary mines and stray or derelict torpedoes, floating or submerged, attaehes as the interest hereby insured i5 first loaded on a lighter, craft or vessel after leaving the warehause at point of shipment in transit for the destination declared hereunder, and ceases to attach as the interest is finally landed from the vessel, eraft or lighter prior to delivery to warehouse at such destination. (cl If the contract of affreightment is terminated at apart or plaee other than the destination named therein such port or place shall be deemed the intended port er place of discharge for the purpose of this Clau5e 4. (d) Shipments by mail, if covered by this Policy are insured continuoualy from the time of leaving the sender's premises until delivered to the place of address. (e) Shipments by air (other than by air mail) if covered by this subject to the same terms and conditions as shipments by overseas Vessel. (fl It is a condition of this insurance that dispatch in all circumstances within their contral.

the

Assured

shall

(g) If anything contained in this Policy ahall be inconsistent shall to the extent of such inconsistency be null and void.

Policy act

with

are

with

this

insured

reasonable

Clause

4

it

5. This insurance shall not be vitiated by deviation, overcarriage, change of voyage, or by any error or unintentianal omission in the description of interest, vessel or voyage provided the same be communicated to the Assurer as soon as known to the Assured and an addi tional premium paid if required. 6. And in ease of any lass er misfortune, it shall be lawful and necessary to and for the Assured his or their factors, servants and assigns, to sue, labor and travel for, in and about the defense, safeguard and recovery of the said goods, and merchandises, or any part thereof, without prejudice to this insuranee; nor shall the acta of the Assured er Assurers, in recovering, saving and preserving the property insured, in case of disaster, be considered a waiver ar an acceptance of an abandonment; and to the charges whereof, the said Assurers will contribute according to the rate and quantity of the sum hereby insured.

610

AMERICAN INSTITUTE (AIMU) WAR RISK AND STRIKES FORMS ..,. General Average and salvage Charges payable aecording to United states laws and usage and/ar as per Foreign Statement and/or as per York-Antwerp Rules (as prescribed in whole or in part) if in aceordance with the Contraet of Affreightment. 8. It is agreed that the reports cf shipments made under the Policy against marine risks mentioned above shall be deemed to be reports under this Peliey alse, and the Assured agrees to pay premiums on all shipments insured under this Policy at the war risk rates of the Assurer as fixed from time to time. 9. No claim shall be payable hereunder which arises from collision, contact with any fixed or floating object ( other than amine or torpedo), stranding, heavy weather or fire unless caused directly (and independently of the nature of the voyage or service which the Vessel coneerned or, in the case of a collision, any other Vessel involved therein, is performing) by a hostile aet by er against a belligerent power; and for the purpose of this paragraph "power" includes any authority maintaining naval, military or air forees in association with apower. 10. No recovery for a Constructive Total Lass shall be had hereunder unless the property insured is reasonably abandoned on account of its actual total 10s5 appearing to be unavoidable, er beeause it eannot be preserved from aetual total lass without an expenditure whieh would exceed its value if the expenditure had been ineurred. 11. It is agreed that this Policy is aseparate and wholly independent contract and is not subject to any terms or conditions of the Policy against marine risks above mentioned (whether physica1ly attached therete er not) except as such terms or conditions shall have been expressly incorporated herein by reference.

12. This insurance rnay be eanceled by either party upon forty-eight hours written, telegraphic er telefaxed notiee to the ether party, but such cancellation shall not affect any shipment on which this insurance has attached under the terms of Clause 4 hereof prior to the effective date of such netiee. Shipments on which this insurance has not so attached but for which, prior to the effective date of such notiee, bills ef lading have been issued and (in the case of exports) Certificates or special pOlicies have been issued and negotiated, shall be covered from the time ef loading on the overseas Vessel, as provided in Clause 4, at the rates cf the Assurer, provided that, prior to said effective date, such shipments were at the risk ef the Assured and ware covered under the said POlicy against marine risks. In the event of loss which may give be given to this Company.

rise to

a

claim under

this

Policy,

Countersigned at This

day of .............. ___ ..... __ ._._ .. ____ . __ . __ .... .

.. -_.

·---·-·-----·-·"·""·"--""··""-"--·"-··Äüth~ri·z·ed-·Re·pr·e"s"e-iit"ä"f.Tv"e"··-"-"·-·"----···-----·-·······--

611

19

prompt

notiee shall

APPENDIX 8

AIMU STRIKES, RIOTS AND CIVIL COMMOTIONS (FORM 12A) (JANUARY 1, 2008)

AmericBn Institute of Marine Underwriters

Endorsement for Open Policies (Cargo) Strikes, Riots & Civil Commotions (Form 12A) (January I, 2008) Ta br: a«ached to and

fOIlIl

apart ofPolicy No _ .. ..•. .. ,.... ... .. •... __. _ •. •__•. . ..... ,oL._ . .•. ______ . • ____ ___ ___. " •• .. .. __ ... .. . .. ... .. •. .• .. __. _...... _.. . '. _.. .

Insurin&. ... ____________ . __ •_____ ______

. H

• •

S.R. & C. C. Endon;emcnt (Form No. 12A) THIS lNSURANCE ALSO COVERS,

(I)

Physicalloss of cr damagt to property insurc:d dirc:ctly caused by strikc:rs, locked-