Insurance in Insurance in International TradeInternational Trade

Dr Vanessa SimsDr Vanessa Sims

University of East AngliaUniversity of East Anglia

I. IntroductionI. Introduction social and commercial importance of social and commercial importance of

insuranceinsurance huge range of subject-matter:huge range of subject-matter:

shipsships goodsgoods warehouseswarehouses building projectsbuilding projects oil rigsoil rigs

huge range of risks:huge range of risks: natural disasters (storms, earthquakes…)natural disasters (storms, earthquakes…) piracypiracy non-payment non-payment exchange rate fluctuationsexchange rate fluctuations strikesstrikes political changespolitical changes warwar

I. Introduction

II. Lloyd’s of LondonII. Lloyd’s of London insurance marketinsurance market origin: origin:

coffee housecoffee house(1680s)(1680s)

meeting place meeting place for captains for captains and insurersand insurers

II. Lloyd’s of LondonII. Lloyd’s of London market leaders in many fieldsmarket leaders in many fields often first to offer insurance for new risks:often first to offer insurance for new risks:

cars: 1904cars: 1904 planes: 1911planes: 1911 satellites: 1960ssatellites: 1960s

almost bankrupt in 1980/90s:almost bankrupt in 1980/90s: Exxon ValdezExxon Valdez – hurricane Andrew – hurricane Andrew Piper AlphaPiper Alpha – asbestosis – asbestosis

II. Lloyd’s of LondonII. Lloyd’s of London market profitable againmarket profitable again capacity 2008: £16.1 billion in premiumscapacity 2008: £16.1 billion in premiums profit 2006: £3.7 billionprofit 2006: £3.7 billion money for insurance provided by ‘names’money for insurance provided by ‘names’ are grouped together in syndicatesare grouped together in syndicates insurance arranged by brokers and insurance arranged by brokers and

underwritersunderwriters

Lloyd’s Market Structure 2007Lloyd’s Market Structure 2007

72 Syndicates

47 Managing Agents(underwriters)

£16.1bn Capacity

BUSINESS FLOW

167Lloyd’sBrokers

CAPITAL PROVISION

Members

Source: Lloyd’sAll numbers as at 1st August 2007

Corporation of Lloyd’s

Policyholders

• Direct • Corporate (123)

• Individual (1124)

• Reinsurance

III. Contract FormationIII. Contract Formation prospective insured = proposerprospective insured = proposer use of agents (brokers)use of agents (brokers) different procedure at Lloyd’s: different procedure at Lloyd’s:

broker fills out slipbroker fills out slip takes slip to underwriterstakes slip to underwriters they accept percentage of risk by initialling slipthey accept percentage of risk by initialling slip

IV. Insurable InterestIV. Insurable Interest insurable interest: legal or equitable

relationship with subject-matter

Laucena v Craufurd (1806) 2 Bos & Pul (NR) 269

Macaura v Northern Assurance Co Ltd [1925] AC 619

Petrofina (UK) Ltd v Magnaload Ltd [1983] 2 Lloyd’s Rep 91

IV. Insurable InterestIV. Insurable Interest Feasy v Sun Life Assurance Co of Canada

[2003] EWCA Civ 885: “It is not a requirement of property insurance that the insured must have a ‘legal or equitable’ interest in the property as those terms might normally be understood. It is sufficient for a sub-contractor to have a contract that relates to the property and a potential liability for damage to the property to have an insurable interest in the property.” (Per Waller LJ)

V. Utmost Good FaithV. Utmost Good Faith utmost good faith = utmost good faith = uberrima fidesuberrima fides

Carter v BoehmCarter v Boehm (1766) 3 Burr 1905: (1766) 3 Burr 1905:“Insurance is a contract upon speculation. “Insurance is a contract upon speculation. The special facts, upon which the The special facts, upon which the contingent chance is to be computed, lie contingent chance is to be computed, lie most commonly in the knowledge of the most commonly in the knowledge of the insured only...” (per Lord Mansfield)insured only...” (per Lord Mansfield)

V. Utmost Good FaithV. Utmost Good Faith s.17 Marine Insurance Act 1906:s.17 Marine Insurance Act 1906:

“A contract of marine insurance is a “A contract of marine insurance is a contract based upon the utmost good faith, contract based upon the utmost good faith, and, if the utmost good faith be not and, if the utmost good faith be not observed by either party, the contract may observed by either party, the contract may be avoided by the other party.”be avoided by the other party.”

V. Utmost Good FaithV. Utmost Good Faith s.18 Marine Insurance Act:s.18 Marine Insurance Act:

“Subject to the provisions of this section, the “Subject to the provisions of this section, the assured must disclose to the insurer, before assured must disclose to the insurer, before the contract is concluded, every material the contract is concluded, every material circumstance which is known to the circumstance which is known to the assured… If the assured fails to make such assured… If the assured fails to make such disclosure, the insurer may avoid the disclosure, the insurer may avoid the contract.”contract.”

V. Utmost Good FaithV. Utmost Good Faith Container Transport International Inc v Container Transport International Inc v

Oceanus Mutual Underwriting Association Oceanus Mutual Underwriting Association (Bermuda) Ltd(Bermuda) Ltd [1984] 1 Lloyd’s Rep 476: [1984] 1 Lloyd’s Rep 476: rejection of “decisive influence test”rejection of “decisive influence test”

Pan Atlantic Insurance Co v Pine Top Pan Atlantic Insurance Co v Pine Top Insurance CoInsurance Co [1995] 1 AC 501: [1995] 1 AC 501: requirement of “inducement”requirement of “inducement”

V. Utmost Good FaithV. Utmost Good Faith moral hazardmoral hazard

Roselodge Ltd v CastleRoselodge Ltd v Castle [1966] 2 Lloyd’s [1966] 2 Lloyd’s Rep 113Rep 113

Rehabilitation of Offenders Act 1974Rehabilitation of Offenders Act 1974

physical hazardphysical hazard

V. Utmost Good FaithV. Utmost Good Faith mutual duty of utmost good faithmutual duty of utmost good faith

Banque Financière de la Cité SA v Banque Financière de la Cité SA v Westgate Insurance Co LtdWestgate Insurance Co Ltd [1991] 2 AC [1991] 2 AC 249249

VI. Loss and CausationVI. Loss and Causation peril: event insured againstperil: event insured against exception: event expressly excludedexception: event expressly excluded loss: total or partial lossloss: total or partial loss constructive total lossconstructive total loss doctrine of abandonmentdoctrine of abandonment causation: “proximate cause”causation: “proximate cause”

VI. Loss and CausationVI. Loss and Causation Becker, Gray & Co v London Assurance Becker, Gray & Co v London Assurance

CorpCorp [1918] AC 101 [1918] AC 101

Marsden v City & County InsuranceMarsden v City & County Insurance (1865) (1865) LR 1 CP 232LR 1 CP 232

Leyland Shipping Co v Norwich Union Fire Leyland Shipping Co v Norwich Union Fire Insurance Society LtdInsurance Society Ltd [1918] AC 350 [1918] AC 350

VII. SubrogationVII. Subrogation indemnity principleindemnity principle

Castellain v PrestonCastellain v Preston (1883) 11 QBD 380 (1883) 11 QBD 380

two elements:two elements: recovery of money received from third partyrecovery of money received from third party action against third partyaction against third party