law of marine insurance
TRANSCRIPT
Prepce
Lloyd's Market Association for permission to quote from and reproduce various Institute and International clauses; to Xchanging Group for permission ro reproduce and/or quore from the Ins-sure Companies Marine Policy and associ ated schedules; and to the Britannia Steam Ship Insurance Association Ltd for similar permission in respect of the Association)s rules.
I am also extremely grateful to Lord Mance, whose judgments have contributed so significantly to the development of insurance contract law in the period since the first edition, for graciously agreeing to contribute a foreword.
On a personal note, I should like to thank my wife, Fouzia, who has provided unfailing support and warm encouragement, and has tolerated an author's pre occupation with indulgence and good humour. Special acknowledgements are due also to our daughter, Sonia, who has become accustomed to a laptop computer accompanying her to ballet lessons, and our little son, Adam, who has lived his entire life with the project, blithely unawate of the challenge posed by the doctrine of utmost good faith to the sleep-deprived.
I have endeavoured to stare the law as at 31 October 2005. Attention should, howevet, be dtawn to the commercially sensitive judgment ofAikens J in Enter prise Oil Ltd v Strand Insurance Co Ltd [2006] EWHC 58 (Comm) indicating (obiter) a disinclination to follow the reasoning of Colman J in Lumbermens Mutual Casualty Co v Bovis Lend Lease Ltd (discussed at 21.16 below) on global settlement and claims undet liability policies. Needless to say, responsibility for
. . .. any errors or omISSIOns remaIns ffime.
Howatd Bennett Nottingham
1. Introduction to the Law of Marine Insurance
2. Formation of Marine Insurance Contracts
3. Insurable Interest, Illegality, and Public Policy
4. The Doctrine of Utmost Good Faith
5. Marine Insurance Brokers
8. Inrerpretation and Rectification ofInsurance Contracts
9. Principles of Causarion
13. War Risks
14. Srrikes Risks
15. Excluded Losses
17. Duration of Cover
19. Sub-standard Shipping
V
Vll
XXXl
25. Subrogation
Appendices
Index
729
747
1. Introduction to the Law of Marine Insurance
V
Vll
XXXI
x
A. Marine Insurers 1.03 (1) The Early Evolution of Lloyd's 1.04 (2) The Rise of Lloyd's to Prominence within the
Marine Market 1.09 (a) The Vansittart scandal 1.10 (b) The South Se, Bubble 1.12 (c) The effect of the Bubble Act on the marine insurance
market 1.15 (d) The marine insurance market and Lloyd's 1.17
(3) The Institute of London Underwriters and the International Underwriting Association of London 1.19
(4) The Mutual Insurance Associations 1.22 (5) Government Involvement in Marine War Risks Insurance 1.27
(a) The origins of government involvement in war risks insurance 1.28
(b) Modern government-backed war risks cover: Queen's enemy risks 1.31
B. Marine Insurance Law 1.34 (1) From Law Merchant to Common Law: Early Development of
Marine Insurance Law 1.34 (2) Lord Mansfield 1.41 (3) Codification 1.44
C. The Nature of Marine Insurance 1.50 (1) Insurance of Losses Incident to Marine Adventure 1.51 (2) Extension to Mixed Land and Sea Adventures 1.58
Xl
Contents Contents
2. Formation of Marine Insurance Courracrs (2) The Concept of Insurable Interest 3.20
A. Contract Formation in a Subscription Matket 2.04 (a) The concept of insurable interest prior to the Marine
Insurance Act 1906 3.21 B. Contract Formation outside the London Market 2.25 (b) The concept of insurable interest in the Marine
C. Obligatory and Facultative Agreements 2.28 Insurance Act 1906 3.26
(c) The relationship between insurable interest (I) Floating Policies 2.29 and wagering 3.31 (2) Facultative/Obligatory Covers 2.38 (d) Defeasible, contingent, and partial interests 3.37 (3) Facultative Covers 2.43 (3) Insurable Interest in Particular Types of Insurance 3.40
D. Leading Underwritet Agreements 2.44 (a) Property insurance 3.41
(I) IdentifYing rhe Leader 2.45 (h) Insurance on freight, hire, and profits 3.52
(2) Extent of a Leader's Power to Bind the Following (c) Liability insurance 3.56
Marker 2.47 (4) Limited Interests 3.57
(a) Amendments to cover 2.48 (5) Pervasive Interests 3.58
Impacr of the LMP reforms 2.51 B. Embodiment in a Policy 3.65 (h) Declarations under open covers 2.55 C. Illegality of the Insured Adventure 3.70(c) Claims 2.56
(3) Legal Nature ofa Leader's Power 2.57 D. The Impact ofWar on Contracts of Insurance 3.78 (4) Termination of a Leader's Power 2.61
E. Delegated Authorities 2.62 4. The Doctrine of Utmost Good Faith (1) Binding Authorities 2.63
A. Evolution and Framework of the Doctrine of Utmost (2) Line Slips 2.66
Good Faith 4.02 F. Joint and Composite Policies 2.69 (1) Misrepresentation and Non-disclosure in General Contract Law 4.03
(1) Definition ofJoint and Composite Insurance 2.70 (2) Insurance as a Contract Uberrimae Fidei 4.05 (2) Legal Structure of Composite Policies 2.77 (3) Utmost Good Faith in the Marine Insurance Acr 1906 4.08 (3) Contractual Status Under Composite Policies 2.79 (4) Voidable, not Void 4.10
(a) Authorized agency 2.81 (5) Source ofthe Doctrine and the Remedy ofAvoidance: Common (h) Ratification 2.86 Law or Equity? 4.11
(4) Is Classification as Joint or Composite Insurance a Matter (6) Avoidance and Rescission 4.22 of Law or Contract? 2.92
B. The Definition ofMateriality 4.23
(1) Materiality Prior to Pan Atlantic v Pine Top in the House 3. Insurable Interest, Illegality, and Public Policy of Lord, 4.27
A. Insurable Interest 3.02 (2) Materiality in rhe Honse of Lord, in Pan Atlantic v Pine Top
and Beyond 4.35 (1) The Legal Matrix 3.03
4.41(a) The evolution of the law on insurable interest prior to C. Inducement
the Marine Insurance Act 1906 3.04 (1) Establishing the Requirement for Inducement as a Matter of
(h) The insurable interest requirements of the Marine Legal Principle 4.42
Insurance Act 1906 3.08 (2) The Meaning ofInducement 4.44
The contract formation requirement 3.D9 (3) Proofof Inducement 4.53 The time of loss requirement 3.12 (a) The so-called 'presumption' of inducement 4.54
(c) The Marine Insurance (Gambling Policies) Act 1909 3.16 (h) Unknown information 4.60 (d) The general law on gaming and wagering contracts 3.17 (4) Inducement in a Subscription Market 4.61
Xli Xlll
Contents Contents
(5) Negating Inducement 4.64 M. Co-insurance 4.184
D. Circumstances Requiring Disclosure 4.66 N. Utmost Good Faith after the Formation of the Contract 4.193
(1) The Physical Hazard 4.67 O. Basis Clauses 4.205 (2) The Moral Hazard 4.69 (3) Other Circumstances Relevant to Assessment of the Risk 4.72 5. Marine Insurance Brokers
E. Information 4.79 A. Agency 5.02
F. Misleading or Inaccurate Circumstances 4.82 (1) The Broker as Agent of the Assured 5.03
G. Circumstances not Requiring Disclosure 4.89 (2) Liability ro Third Parties 5.05
(1) Diminution of the Risk 4.90 B. Brokers and Sub-Agency 5.09
(2) Within the Insurer's Actual or Presumed Knowledge 4.91 (1) Contract 5.10
(3) Waiver 4.99 (2) Tort 5.15 (4) Warranties 4.106 C. The Scope of the Broker's Duty to the Assured 5.16 (5) Application to Misrepresentation 4.108
The Standard of the Broker's Duty 5.20D. H. Knowledge of the Assured 4.111 5.23E. Duties of Brokers(1) Who is the Assured? 4.113
The Broker's Duty to Obtain Cover 5.23 (2) Constructive Knowledge 4.117
(1)
(2) The Broker's Duty to Ensure Proper Presentation of the I. Brokers and the Doctrine of Utmost Good Faith 4.122 Risk to the Insurer 5.30
(1) Independent Duties 4.123 (3) The Broker's Duty in Placing the Cover 5.36 (2) The Relevant Brokers 4.124 (4) The Broker's Duty when Assisting in Making Claims 5.40 (3) Scope of Disclosure Duty 4.125
F. Remedies for Breach of Duty 5.42 (4) Relationship Between the Duties of the Assured and the
(1) Measure of Damages: Basis ofAssessment 5.43 Placing Broker 4.129
(2) Cost ofAlternative Insurance 5.50 ]. Actionable Misrepresentations 4.130
G. Causation Defences 5.51 (1) Representations of Fact 4.131
The Risk was Uninsurable on Terms the Assured would(2) Representations of Expectation or Belief 4.133 (1) have Accepted 5.52
K. Marine Insurance Act 1906, Section 17: Pre-formation (2) The 'Two Defence' Problem 5.58 Utmost Good Faith Beyond Sections 18-20 4.147
H. Contributoty Negligence 5.62 (1) Fraudulent Misrepresentation and Non-disclosure by
the Assured 4.148 I. Brokers' Rights to Remuneration 5.74
(2) Non-material Misrepresentation and Non-disclosure 4.150 J. Brokers' Security for Sums Due 5.76 (3) Mistake by the Insurer, Known to the Assured 4.151 (4) The Insurer's Pre-formation Duties of Dtmost Good Faith 4.152 6. Premiums
L. Remedies 4.154 A. Whether and When Premium is Earned 6.02 (1) Avoidance 4.155 B. Time of Payment 6.09
(a) Nature of the Remedy 4.156 (b) Proportionality in General Contract Law 4.158 C. Consequences of Failure to Pay on Time 6.13
(c) Loss of the Right ofAvoidance 4.163 (1) At Common Law 6.14 (d) Post-formation Revelations 4.168 (a) Renunciation 6.15
(e) The Consequences ofAvoidaI1ce 4.172 (b) Substantial failure of performance 6.17
(2) Damages 4.173 (2) Premium Default Clauses 6.18
XIV XV
D. Brokers and Premiums 6.21
(I) Liability of the Broker for Premium 6.21 (2) Consequences of the Broker's Liability for Premium 6.24
(a) Default 6.25 (b) Set-off 6.27 (c) Premium default clauses 6.29 (d) Payment of premium and issuance of policy 6.32
(3) The Position as Between Broker and Assured 6.33 (4) Displacing the Brokers' Premium Liability Rule 6.35
(5) Market Recapitalization 6.37
E. Mutual Insurance 6.38
6.41
Response to Perils
The Language of Causation (1) The Adhesiveness of the Proximate Cause Rule (2) Displacing the Proximate Cause Rule
(al Displacement by a Combination of Wording and Other Circumstances
(b) Displacement by Simple Change of Language
Contents
A. The SG Policy
B. The Separation of Marine and War Risks Cover
C. Modern Cover (1) The Policy (2) Cargo Cover (3) Hull Insurance (4) The Eiusdem GenerisClause
D. Valued aud Uuvalued Policies (I) The Significance ofan Agreed Value (2) Determining Whether a Policy is Valued: Agreed Value
v Sum Insured (3) Re-opening an Agreed Value
E. Burden aud Standard of Proof (1) General Principles (2) 'All Risks' Covet (3) Exclusions
8. Interpretation and Rectification ofIusurance Contracts
A. Principles ofInterpretation (I) The Intention of the Parties (2) Factors Taken into Account in Interpreting Contracts
(a) The natural meaning of the words (b) Specialist meaning 1: technical legal meaning (c) Specialist meaning 2: custom and usage (d) Schedule 1 rules of interpretation (e) Context within the contract (f) Excessive unreasonableness
XV!
7.02
7.03
7.24 7.26
7.33 7.38
Contents
(g) Business common sense (h) Validity rathet than invalidity (i) Taking advantage of one's own wrongdoing 0) Context outside the contract
Evolutionof the modern approach to admissibility Restrictions on admissibility of extrinsic evidence The utility of extrinsic evidence Context excluding extrinsic evidence
(k) Ambiguity (I) Estoppel by convention
(3) Contractual Interpretation and the Doctrine of Precedent
The Slip as an Aid to Interpretation of the Policy (I) General Admissibility but Variable Evidential Value (2) The Rule ofLaw Approach
(a) Inadmissibility of contractual negotiations (b) The patol evidence rule (c) Marine Insurance Act 1906, section 89
C. Rectification
C. The Contextual Nature of Proximity; also of Complex Causes
D. Concurrent Proximate Causes (1) One Proximate Cause or More?
(2) Concurrent Causes, One Cause Specifically Included, None Specifically Excluded
(3) Concurrent Causes, at Least One Specifically Excluded (4) Exceptions or Exclusions?
E. Applying the Effectiveness Test of Proximate Cause
F. Apprehension of a Peril
G. Mistaken Belief ofPetil
H.
I.
XVll
8.26 8.32 8.33 8.34 8.35 8.39 8.42 8.50 8.51 8.58 8.59
8.63
8.77
9.03
9.08
9.12
10. Marine Risks
A. Hull and Freight Insurance (I) Perils of the Seas, Rivers, Lakes, or Other Navigable Waters
(a) Fortuitous accidents (b) Of the seas (c) Proof (d) Causation
(2) Fire and Explosion
(4) Jettison (5) Piracy
B. Cargo Insurance
(I) 'All Risks' Cover Under the Institute Cargo Clauses (A) (2) Named Perils Cover Under the Institute Cargo Clauses
(B) and (C)
A. Covered Perils under the Inchmaree Clause
(I) Bursting of Boilers, Breakage of Shafts, and Latent Defects in the Machinery or Hull (a) 'Shafts' (b) 'Latent defect'
'Defect' 'Latent'
(c) Requirement of consequential loss or damage Damage Timing of the damage Causation
(d) Measure of indemnity (e) 'Additional perils' cover
(2) Negligence (a) No defence of opetational negligence of the master
or crew (b) Negligence as a covered peril
(3) Barratry of Masters, Officers, or Crew (a) Prejudice (b) Who is the owner? (c) Fraudulent or criminal conduct (d) Barratry of mariners (e) Causation (f) Burden of proof (g) Proof of complicity (h) Relationship with war and strikes cover
XVl11
10.02
10.70 10.74
10.77
10.78
10.81
11.03
11.03 11.04 11.05 11.06 11.13 11:14 11.16 11.21 11.24 11.25 11.28 11.29
11.30 11.37 11.43 11.44 11.47 11.54 11.57 11.58 11.60 11.64 11.65
Contents
B. The Due Diligence Proviso
C. Relationship Between the Cover Provided under the Inchmaree Clause and that Provided in Respect of Maritime Perils
12. Collision and Conract Losses
A. Loss of or Damage to the Subject-matter Insured (I) Contact
(2) Aircraft, Helicopters, and Satellites (3) Accidents in Cargo Handling (4) Cargo Insurance
B. Third Parry Liability
(I) Collision Liability under Hull Policies (a) 'Legally liable by way of damages' (b) 'Any sum Or sums paid' (c) 'Three-fourths' (d) 'Vessel' (e) 'Coming into collision' (f) Basis for the assessment of liability (g) Limitations and exclusions (h) Legal costs cover
(2) Collision Liability under Cargo Insurance
13. War Risks
A. Perils ofWar, Uprising, and Hostility (I) Perils ofWar
(a) Warlike operations (b) The modern perils of 'war' and 'civil war'
(2) Revolution, Rebellion, and Insurrection
(3) Civil Strife arising Thereform
(4) Any Hostile Act By or Against a Belligerent Power
B. Perils of Deprivation and Inhibition on Use (I) Capture and Seizure
(2) Arrest, Restraint, and Detainment
(3) The Consequences Thereof (4) Any Atrempt Thereat
(5) Confiscation or Expropriation (6) Restrictions on Scope ofCover
(a) Clause 5.1.2: requisition and pre-emption (b) Clause 5.1.3: order ofgovernment Or public or local
authority (c) Clause 5.1.4: arrest restraint detainment confiscation or
XIX
11.66
11.73
12.02
12.10 12.11 12.13 12.14 12.15 12.18 12.20 12.21 12.22 12.23
13.05
13.70
Contents
expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations
(d) Clause 5.1.5: ordinary judicial process, failure to provide security or to pay any fine or penalty or any financial cause
(e) Characterization and burden of proof
C. Derelict Weapons
14. Strikes Risks
(I) Loss or Damage Caused by Participants (2) Strikers
(3) Locked-out Workmen (4) Persons Taking Part in Labour Disturbances
(5) Persons Taking Part in Riots (6) Persons Taking Part in Civil Commotions
B. Terrorism and Associated Perils
(I) Any Tertorist (2) Persons Acting Maliciously
(3) Politically Motivated Persons
(I) The General Voluntary Conduct Limitation (2) Wilful Misconduct
(a) Wilful (b) Causation (c) Standard of proof (d) Scuttling (e) Pleading
(3) Co-Insurance
B. Delay (I) Losses 'Consequent On' Delay (2) Delay and the Proximate Cause Rule
(3) Perils of Deprivation and Inhibition on Use
C. Losses that Occur in rhe Natural Course of Events
(I) Ordinary Wear and Tear, Ordinary Breakage, and Ordinary Leakage
(2) Inherent Vice or Nature of the Subject-matter InsufG-d (a) The meaning of inherent vice
xx
13.71
14.18 14.19 14.20 14.28
15.29 15.30 15.33 15.38
(3) Rats or Vermin
(1) Effecting the Distinction Between Marine and Non-Marine Risks
(2) The War and Strikes Risks Exclusions
F. The Marine Risks Exclusion in War and Strikes Clauses for Hulls or Freight
G. Radioactivity and Non-Conventional Weapons
16. Cover Provided by Mutual Insurance Associations
A. Protection and Indemnity Cover
B. War Risks
(1) Government Reinsurance
(3) Further Cover Available under the British War Risks Rules
C. Defence Cover
B. Cargo Insurance
D. Voyage Policies on Hulls
E. Voyage Policies on Freight
F. Time Policies on Hulls and Freight
G. War Risks Hull Insurance
H. Continuation Clauses
I. Mutual Insurance
A. Failure of Risk to Attach in Voyage Policies
(I) Failure to Embark upon the Route of the Designated Voyage (2) Delayed Commencement of the Designated Voyage
B. The General Doctrine ofAlteration ofRisk
C. Alteration of Risk in Voyage Policies
XXI
D. Promissory Warranties 18.54
(2) Identifying Promissory Warranties 18.61
(3) Interpretation and Breach 18.66
(a) Interpretation generally 18.67
(e) The additional insurances warranty under the Institute and International hull clauses 18.83
(f) Sailing warranties 18.87
(a) Contractual drafting 18.98
(I) Examples of Held Covered Clauses 18.111
(2) Scope 18.114
19. Sub-standard Shipping
A. The Concepts of Seaworthiness and Cargoworthiness
(1) Seaworthiness (a) Physical condition (b) Master and crew (c) Documentation
(2) Cargoworthiness
Contents
(4) The Relative Nature of Seaworthiness and Cargoworthiness
B. Seaworthiness in Voyage Policies (I) Rationale for the Warranty (2) Time of Compliance and the Doctrine ofStages
C. Seaworthiness in Time Policies (1) Privity (2) Who is the Assured? (3) Causation
(a) Unseaworthiness and the doctrine of proximate cause (b) The causation test of section 39(5)
(4) Multiple Instances of Unseaworthiness
D. Proof of Unseaworthiness
E. The Relationship Between Unseaworthiness and Cover under the Inchmaree Clause
F. The Relationship Between Unseaworthiness, Inherent Vice, and Ordinary Wear and Tear
G. Cargo Policies
H. Contractual Responses to Sub-standard Shipping (I) The Due Diligence Proviso to the Inchmaree Clause (2) Ownership, Management, and Flag (3) Classification
(4) The International Safety Management Code
20. Rights ofThird Parties
B. Assignment
(1) Assignment of the Subject-matter Insured . (2) Assignment of the Benefit of the Contract of Insurance
(3) Assignment of rhe Policy (4) Protection of the Insurer (5) Contractual Restrictions on Assignment
C. Third Parties (Rights against Insurers) Act 1930 (1) Insurance Policies Covered (2) QualifYing Events for a Transfer of Rights (3) The Timing of a Transfer of Rights (4) Anti-avoidance Provisions
(5) The Rights that are Transferred (a) An enforceable right to claim under a liability policy
xxiii
19.51
19.56
19.60
19.61
19.64
20.33 20.36 20.40 20.42 20.44 20.48 20.49
Contents
(b) Defences Notification and claims co-operation provisions Dispute resolution procedures Restrictions on the scope of cover Pay first clauses Liabilities and set-off
Limitation (6) Distriburion ofInadequate Fund
(7) Ptovision ofInformation (a) Section 2(1): disclosure by persons othet than an insurer (b) Section 2(2): disclosure by an insurer
(8) Relationship Between Assured and Third Party in rhe Light of a Statutory Transfer of Rights
(9) Relationship Between Insurer and Assured in the Light of a Statutoty Transfer of Rights
(10) Recovety of the Assured
21. Losses
B. Attaching Losses to Periods of Cover
(1) Ptoperty Insurance
(2) Liability Insurance
C. The Classification of Losses
(1) Actual Total Loss (a) Destruction (b) Damage so as to cease to be a thing of the kind insured (c) Itretrievable deprivation (d) Applicability of the de minimis principle
(2) Constructive Total Loss (a) Constructive total loss based on reasonable abandonment (b) Constructive total loss based on deprivation of
possessIOn Deprivation of possession Unlikelihood of recovery
(c) Constructive total loss based on damage to insured
ptoperty (d) Calculating whether insured property is a constructive
total loss
XXiV
20.56 20.57 20.60 20.61 20.62 20.65 20.68 20.73 20.74 20.75 20.80
20.81
21.59 21.60 21.62
21.90
21.91
Contents
(2) Relationship Between Loss of Freight and Loss of Vessel or Cargo
(3) Whether Total Loss of Freight is Actual or Constructive
E. Loss of Adventure
F. Finality of Losses and the Doctrine ofAdemption of Loss
G. Successive Losses
(2) Successive Unrepaired Losses
(3) The Doctrine of Merger of Unrepaired Partial Losses (4) Successive Total Losses
Claims and Claims Handling
B. Liabilities in a Subscription Market
C. Occurrence Notification Obligations (1) Notification Provisions in Marine 'Policies
(2) The Consequences of Non-compliance with Notification Provisions (a) Condition precedent (b) Suspensive condition (c) Watranty (d) Condition or innominate term (e) Severable innominate term
(3) Non-compliance Under Marine Wordings
D. The Doctrine ofAbandonment and the Notice of
Abandonment Procedure
(1) The Doctrine ofAbandonment (2) Abandonmenr and Notice ofAbandonment Distinguished
(3) When Notice ofAbandonment is Not Required (4) Insurers' Rights upon Acceptance of Abandonment
(5) The Impact ofAbandonment on the Assured's Rights (a) Unilateral divesring of rights (b) Does abandonment deny unilateral divesting? (c) Consequences of improper divesting
(6) Form of Notice ofAbandonment
(7) Time for Giving a Notice ofAbandonment (8) Acceptance and Refusal ofa…
Lloyd's Market Association for permission to quote from and reproduce various Institute and International clauses; to Xchanging Group for permission ro reproduce and/or quore from the Ins-sure Companies Marine Policy and associ ated schedules; and to the Britannia Steam Ship Insurance Association Ltd for similar permission in respect of the Association)s rules.
I am also extremely grateful to Lord Mance, whose judgments have contributed so significantly to the development of insurance contract law in the period since the first edition, for graciously agreeing to contribute a foreword.
On a personal note, I should like to thank my wife, Fouzia, who has provided unfailing support and warm encouragement, and has tolerated an author's pre occupation with indulgence and good humour. Special acknowledgements are due also to our daughter, Sonia, who has become accustomed to a laptop computer accompanying her to ballet lessons, and our little son, Adam, who has lived his entire life with the project, blithely unawate of the challenge posed by the doctrine of utmost good faith to the sleep-deprived.
I have endeavoured to stare the law as at 31 October 2005. Attention should, howevet, be dtawn to the commercially sensitive judgment ofAikens J in Enter prise Oil Ltd v Strand Insurance Co Ltd [2006] EWHC 58 (Comm) indicating (obiter) a disinclination to follow the reasoning of Colman J in Lumbermens Mutual Casualty Co v Bovis Lend Lease Ltd (discussed at 21.16 below) on global settlement and claims undet liability policies. Needless to say, responsibility for
. . .. any errors or omISSIOns remaIns ffime.
Howatd Bennett Nottingham
1. Introduction to the Law of Marine Insurance
2. Formation of Marine Insurance Contracts
3. Insurable Interest, Illegality, and Public Policy
4. The Doctrine of Utmost Good Faith
5. Marine Insurance Brokers
8. Inrerpretation and Rectification ofInsurance Contracts
9. Principles of Causarion
13. War Risks
14. Srrikes Risks
15. Excluded Losses
17. Duration of Cover
19. Sub-standard Shipping
V
Vll
XXXl
25. Subrogation
Appendices
Index
729
747
1. Introduction to the Law of Marine Insurance
V
Vll
XXXI
x
A. Marine Insurers 1.03 (1) The Early Evolution of Lloyd's 1.04 (2) The Rise of Lloyd's to Prominence within the
Marine Market 1.09 (a) The Vansittart scandal 1.10 (b) The South Se, Bubble 1.12 (c) The effect of the Bubble Act on the marine insurance
market 1.15 (d) The marine insurance market and Lloyd's 1.17
(3) The Institute of London Underwriters and the International Underwriting Association of London 1.19
(4) The Mutual Insurance Associations 1.22 (5) Government Involvement in Marine War Risks Insurance 1.27
(a) The origins of government involvement in war risks insurance 1.28
(b) Modern government-backed war risks cover: Queen's enemy risks 1.31
B. Marine Insurance Law 1.34 (1) From Law Merchant to Common Law: Early Development of
Marine Insurance Law 1.34 (2) Lord Mansfield 1.41 (3) Codification 1.44
C. The Nature of Marine Insurance 1.50 (1) Insurance of Losses Incident to Marine Adventure 1.51 (2) Extension to Mixed Land and Sea Adventures 1.58
Xl
Contents Contents
2. Formation of Marine Insurance Courracrs (2) The Concept of Insurable Interest 3.20
A. Contract Formation in a Subscription Matket 2.04 (a) The concept of insurable interest prior to the Marine
Insurance Act 1906 3.21 B. Contract Formation outside the London Market 2.25 (b) The concept of insurable interest in the Marine
C. Obligatory and Facultative Agreements 2.28 Insurance Act 1906 3.26
(c) The relationship between insurable interest (I) Floating Policies 2.29 and wagering 3.31 (2) Facultative/Obligatory Covers 2.38 (d) Defeasible, contingent, and partial interests 3.37 (3) Facultative Covers 2.43 (3) Insurable Interest in Particular Types of Insurance 3.40
D. Leading Underwritet Agreements 2.44 (a) Property insurance 3.41
(I) IdentifYing rhe Leader 2.45 (h) Insurance on freight, hire, and profits 3.52
(2) Extent of a Leader's Power to Bind the Following (c) Liability insurance 3.56
Marker 2.47 (4) Limited Interests 3.57
(a) Amendments to cover 2.48 (5) Pervasive Interests 3.58
Impacr of the LMP reforms 2.51 B. Embodiment in a Policy 3.65 (h) Declarations under open covers 2.55 C. Illegality of the Insured Adventure 3.70(c) Claims 2.56
(3) Legal Nature ofa Leader's Power 2.57 D. The Impact ofWar on Contracts of Insurance 3.78 (4) Termination of a Leader's Power 2.61
E. Delegated Authorities 2.62 4. The Doctrine of Utmost Good Faith (1) Binding Authorities 2.63
A. Evolution and Framework of the Doctrine of Utmost (2) Line Slips 2.66
Good Faith 4.02 F. Joint and Composite Policies 2.69 (1) Misrepresentation and Non-disclosure in General Contract Law 4.03
(1) Definition ofJoint and Composite Insurance 2.70 (2) Insurance as a Contract Uberrimae Fidei 4.05 (2) Legal Structure of Composite Policies 2.77 (3) Utmost Good Faith in the Marine Insurance Acr 1906 4.08 (3) Contractual Status Under Composite Policies 2.79 (4) Voidable, not Void 4.10
(a) Authorized agency 2.81 (5) Source ofthe Doctrine and the Remedy ofAvoidance: Common (h) Ratification 2.86 Law or Equity? 4.11
(4) Is Classification as Joint or Composite Insurance a Matter (6) Avoidance and Rescission 4.22 of Law or Contract? 2.92
B. The Definition ofMateriality 4.23
(1) Materiality Prior to Pan Atlantic v Pine Top in the House 3. Insurable Interest, Illegality, and Public Policy of Lord, 4.27
A. Insurable Interest 3.02 (2) Materiality in rhe Honse of Lord, in Pan Atlantic v Pine Top
and Beyond 4.35 (1) The Legal Matrix 3.03
4.41(a) The evolution of the law on insurable interest prior to C. Inducement
the Marine Insurance Act 1906 3.04 (1) Establishing the Requirement for Inducement as a Matter of
(h) The insurable interest requirements of the Marine Legal Principle 4.42
Insurance Act 1906 3.08 (2) The Meaning ofInducement 4.44
The contract formation requirement 3.D9 (3) Proofof Inducement 4.53 The time of loss requirement 3.12 (a) The so-called 'presumption' of inducement 4.54
(c) The Marine Insurance (Gambling Policies) Act 1909 3.16 (h) Unknown information 4.60 (d) The general law on gaming and wagering contracts 3.17 (4) Inducement in a Subscription Market 4.61
Xli Xlll
Contents Contents
(5) Negating Inducement 4.64 M. Co-insurance 4.184
D. Circumstances Requiring Disclosure 4.66 N. Utmost Good Faith after the Formation of the Contract 4.193
(1) The Physical Hazard 4.67 O. Basis Clauses 4.205 (2) The Moral Hazard 4.69 (3) Other Circumstances Relevant to Assessment of the Risk 4.72 5. Marine Insurance Brokers
E. Information 4.79 A. Agency 5.02
F. Misleading or Inaccurate Circumstances 4.82 (1) The Broker as Agent of the Assured 5.03
G. Circumstances not Requiring Disclosure 4.89 (2) Liability ro Third Parties 5.05
(1) Diminution of the Risk 4.90 B. Brokers and Sub-Agency 5.09
(2) Within the Insurer's Actual or Presumed Knowledge 4.91 (1) Contract 5.10
(3) Waiver 4.99 (2) Tort 5.15 (4) Warranties 4.106 C. The Scope of the Broker's Duty to the Assured 5.16 (5) Application to Misrepresentation 4.108
The Standard of the Broker's Duty 5.20D. H. Knowledge of the Assured 4.111 5.23E. Duties of Brokers(1) Who is the Assured? 4.113
The Broker's Duty to Obtain Cover 5.23 (2) Constructive Knowledge 4.117
(1)
(2) The Broker's Duty to Ensure Proper Presentation of the I. Brokers and the Doctrine of Utmost Good Faith 4.122 Risk to the Insurer 5.30
(1) Independent Duties 4.123 (3) The Broker's Duty in Placing the Cover 5.36 (2) The Relevant Brokers 4.124 (4) The Broker's Duty when Assisting in Making Claims 5.40 (3) Scope of Disclosure Duty 4.125
F. Remedies for Breach of Duty 5.42 (4) Relationship Between the Duties of the Assured and the
(1) Measure of Damages: Basis ofAssessment 5.43 Placing Broker 4.129
(2) Cost ofAlternative Insurance 5.50 ]. Actionable Misrepresentations 4.130
G. Causation Defences 5.51 (1) Representations of Fact 4.131
The Risk was Uninsurable on Terms the Assured would(2) Representations of Expectation or Belief 4.133 (1) have Accepted 5.52
K. Marine Insurance Act 1906, Section 17: Pre-formation (2) The 'Two Defence' Problem 5.58 Utmost Good Faith Beyond Sections 18-20 4.147
H. Contributoty Negligence 5.62 (1) Fraudulent Misrepresentation and Non-disclosure by
the Assured 4.148 I. Brokers' Rights to Remuneration 5.74
(2) Non-material Misrepresentation and Non-disclosure 4.150 J. Brokers' Security for Sums Due 5.76 (3) Mistake by the Insurer, Known to the Assured 4.151 (4) The Insurer's Pre-formation Duties of Dtmost Good Faith 4.152 6. Premiums
L. Remedies 4.154 A. Whether and When Premium is Earned 6.02 (1) Avoidance 4.155 B. Time of Payment 6.09
(a) Nature of the Remedy 4.156 (b) Proportionality in General Contract Law 4.158 C. Consequences of Failure to Pay on Time 6.13
(c) Loss of the Right ofAvoidance 4.163 (1) At Common Law 6.14 (d) Post-formation Revelations 4.168 (a) Renunciation 6.15
(e) The Consequences ofAvoidaI1ce 4.172 (b) Substantial failure of performance 6.17
(2) Damages 4.173 (2) Premium Default Clauses 6.18
XIV XV
D. Brokers and Premiums 6.21
(I) Liability of the Broker for Premium 6.21 (2) Consequences of the Broker's Liability for Premium 6.24
(a) Default 6.25 (b) Set-off 6.27 (c) Premium default clauses 6.29 (d) Payment of premium and issuance of policy 6.32
(3) The Position as Between Broker and Assured 6.33 (4) Displacing the Brokers' Premium Liability Rule 6.35
(5) Market Recapitalization 6.37
E. Mutual Insurance 6.38
6.41
Response to Perils
The Language of Causation (1) The Adhesiveness of the Proximate Cause Rule (2) Displacing the Proximate Cause Rule
(al Displacement by a Combination of Wording and Other Circumstances
(b) Displacement by Simple Change of Language
Contents
A. The SG Policy
B. The Separation of Marine and War Risks Cover
C. Modern Cover (1) The Policy (2) Cargo Cover (3) Hull Insurance (4) The Eiusdem GenerisClause
D. Valued aud Uuvalued Policies (I) The Significance ofan Agreed Value (2) Determining Whether a Policy is Valued: Agreed Value
v Sum Insured (3) Re-opening an Agreed Value
E. Burden aud Standard of Proof (1) General Principles (2) 'All Risks' Covet (3) Exclusions
8. Interpretation and Rectification ofIusurance Contracts
A. Principles ofInterpretation (I) The Intention of the Parties (2) Factors Taken into Account in Interpreting Contracts
(a) The natural meaning of the words (b) Specialist meaning 1: technical legal meaning (c) Specialist meaning 2: custom and usage (d) Schedule 1 rules of interpretation (e) Context within the contract (f) Excessive unreasonableness
XV!
7.02
7.03
7.24 7.26
7.33 7.38
Contents
(g) Business common sense (h) Validity rathet than invalidity (i) Taking advantage of one's own wrongdoing 0) Context outside the contract
Evolutionof the modern approach to admissibility Restrictions on admissibility of extrinsic evidence The utility of extrinsic evidence Context excluding extrinsic evidence
(k) Ambiguity (I) Estoppel by convention
(3) Contractual Interpretation and the Doctrine of Precedent
The Slip as an Aid to Interpretation of the Policy (I) General Admissibility but Variable Evidential Value (2) The Rule ofLaw Approach
(a) Inadmissibility of contractual negotiations (b) The patol evidence rule (c) Marine Insurance Act 1906, section 89
C. Rectification
C. The Contextual Nature of Proximity; also of Complex Causes
D. Concurrent Proximate Causes (1) One Proximate Cause or More?
(2) Concurrent Causes, One Cause Specifically Included, None Specifically Excluded
(3) Concurrent Causes, at Least One Specifically Excluded (4) Exceptions or Exclusions?
E. Applying the Effectiveness Test of Proximate Cause
F. Apprehension of a Peril
G. Mistaken Belief ofPetil
H.
I.
XVll
8.26 8.32 8.33 8.34 8.35 8.39 8.42 8.50 8.51 8.58 8.59
8.63
8.77
9.03
9.08
9.12
10. Marine Risks
A. Hull and Freight Insurance (I) Perils of the Seas, Rivers, Lakes, or Other Navigable Waters
(a) Fortuitous accidents (b) Of the seas (c) Proof (d) Causation
(2) Fire and Explosion
(4) Jettison (5) Piracy
B. Cargo Insurance
(I) 'All Risks' Cover Under the Institute Cargo Clauses (A) (2) Named Perils Cover Under the Institute Cargo Clauses
(B) and (C)
A. Covered Perils under the Inchmaree Clause
(I) Bursting of Boilers, Breakage of Shafts, and Latent Defects in the Machinery or Hull (a) 'Shafts' (b) 'Latent defect'
'Defect' 'Latent'
(c) Requirement of consequential loss or damage Damage Timing of the damage Causation
(d) Measure of indemnity (e) 'Additional perils' cover
(2) Negligence (a) No defence of opetational negligence of the master
or crew (b) Negligence as a covered peril
(3) Barratry of Masters, Officers, or Crew (a) Prejudice (b) Who is the owner? (c) Fraudulent or criminal conduct (d) Barratry of mariners (e) Causation (f) Burden of proof (g) Proof of complicity (h) Relationship with war and strikes cover
XVl11
10.02
10.70 10.74
10.77
10.78
10.81
11.03
11.03 11.04 11.05 11.06 11.13 11:14 11.16 11.21 11.24 11.25 11.28 11.29
11.30 11.37 11.43 11.44 11.47 11.54 11.57 11.58 11.60 11.64 11.65
Contents
B. The Due Diligence Proviso
C. Relationship Between the Cover Provided under the Inchmaree Clause and that Provided in Respect of Maritime Perils
12. Collision and Conract Losses
A. Loss of or Damage to the Subject-matter Insured (I) Contact
(2) Aircraft, Helicopters, and Satellites (3) Accidents in Cargo Handling (4) Cargo Insurance
B. Third Parry Liability
(I) Collision Liability under Hull Policies (a) 'Legally liable by way of damages' (b) 'Any sum Or sums paid' (c) 'Three-fourths' (d) 'Vessel' (e) 'Coming into collision' (f) Basis for the assessment of liability (g) Limitations and exclusions (h) Legal costs cover
(2) Collision Liability under Cargo Insurance
13. War Risks
A. Perils ofWar, Uprising, and Hostility (I) Perils ofWar
(a) Warlike operations (b) The modern perils of 'war' and 'civil war'
(2) Revolution, Rebellion, and Insurrection
(3) Civil Strife arising Thereform
(4) Any Hostile Act By or Against a Belligerent Power
B. Perils of Deprivation and Inhibition on Use (I) Capture and Seizure
(2) Arrest, Restraint, and Detainment
(3) The Consequences Thereof (4) Any Atrempt Thereat
(5) Confiscation or Expropriation (6) Restrictions on Scope ofCover
(a) Clause 5.1.2: requisition and pre-emption (b) Clause 5.1.3: order ofgovernment Or public or local
authority (c) Clause 5.1.4: arrest restraint detainment confiscation or
XIX
11.66
11.73
12.02
12.10 12.11 12.13 12.14 12.15 12.18 12.20 12.21 12.22 12.23
13.05
13.70
Contents
expropriation under quarantine regulations or by reason of infringement of any customs or trading regulations
(d) Clause 5.1.5: ordinary judicial process, failure to provide security or to pay any fine or penalty or any financial cause
(e) Characterization and burden of proof
C. Derelict Weapons
14. Strikes Risks
(I) Loss or Damage Caused by Participants (2) Strikers
(3) Locked-out Workmen (4) Persons Taking Part in Labour Disturbances
(5) Persons Taking Part in Riots (6) Persons Taking Part in Civil Commotions
B. Terrorism and Associated Perils
(I) Any Tertorist (2) Persons Acting Maliciously
(3) Politically Motivated Persons
(I) The General Voluntary Conduct Limitation (2) Wilful Misconduct
(a) Wilful (b) Causation (c) Standard of proof (d) Scuttling (e) Pleading
(3) Co-Insurance
B. Delay (I) Losses 'Consequent On' Delay (2) Delay and the Proximate Cause Rule
(3) Perils of Deprivation and Inhibition on Use
C. Losses that Occur in rhe Natural Course of Events
(I) Ordinary Wear and Tear, Ordinary Breakage, and Ordinary Leakage
(2) Inherent Vice or Nature of the Subject-matter InsufG-d (a) The meaning of inherent vice
xx
13.71
14.18 14.19 14.20 14.28
15.29 15.30 15.33 15.38
(3) Rats or Vermin
(1) Effecting the Distinction Between Marine and Non-Marine Risks
(2) The War and Strikes Risks Exclusions
F. The Marine Risks Exclusion in War and Strikes Clauses for Hulls or Freight
G. Radioactivity and Non-Conventional Weapons
16. Cover Provided by Mutual Insurance Associations
A. Protection and Indemnity Cover
B. War Risks
(1) Government Reinsurance
(3) Further Cover Available under the British War Risks Rules
C. Defence Cover
B. Cargo Insurance
D. Voyage Policies on Hulls
E. Voyage Policies on Freight
F. Time Policies on Hulls and Freight
G. War Risks Hull Insurance
H. Continuation Clauses
I. Mutual Insurance
A. Failure of Risk to Attach in Voyage Policies
(I) Failure to Embark upon the Route of the Designated Voyage (2) Delayed Commencement of the Designated Voyage
B. The General Doctrine ofAlteration ofRisk
C. Alteration of Risk in Voyage Policies
XXI
D. Promissory Warranties 18.54
(2) Identifying Promissory Warranties 18.61
(3) Interpretation and Breach 18.66
(a) Interpretation generally 18.67
(e) The additional insurances warranty under the Institute and International hull clauses 18.83
(f) Sailing warranties 18.87
(a) Contractual drafting 18.98
(I) Examples of Held Covered Clauses 18.111
(2) Scope 18.114
19. Sub-standard Shipping
A. The Concepts of Seaworthiness and Cargoworthiness
(1) Seaworthiness (a) Physical condition (b) Master and crew (c) Documentation
(2) Cargoworthiness
Contents
(4) The Relative Nature of Seaworthiness and Cargoworthiness
B. Seaworthiness in Voyage Policies (I) Rationale for the Warranty (2) Time of Compliance and the Doctrine ofStages
C. Seaworthiness in Time Policies (1) Privity (2) Who is the Assured? (3) Causation
(a) Unseaworthiness and the doctrine of proximate cause (b) The causation test of section 39(5)
(4) Multiple Instances of Unseaworthiness
D. Proof of Unseaworthiness
E. The Relationship Between Unseaworthiness and Cover under the Inchmaree Clause
F. The Relationship Between Unseaworthiness, Inherent Vice, and Ordinary Wear and Tear
G. Cargo Policies
H. Contractual Responses to Sub-standard Shipping (I) The Due Diligence Proviso to the Inchmaree Clause (2) Ownership, Management, and Flag (3) Classification
(4) The International Safety Management Code
20. Rights ofThird Parties
B. Assignment
(1) Assignment of the Subject-matter Insured . (2) Assignment of the Benefit of the Contract of Insurance
(3) Assignment of rhe Policy (4) Protection of the Insurer (5) Contractual Restrictions on Assignment
C. Third Parties (Rights against Insurers) Act 1930 (1) Insurance Policies Covered (2) QualifYing Events for a Transfer of Rights (3) The Timing of a Transfer of Rights (4) Anti-avoidance Provisions
(5) The Rights that are Transferred (a) An enforceable right to claim under a liability policy
xxiii
19.51
19.56
19.60
19.61
19.64
20.33 20.36 20.40 20.42 20.44 20.48 20.49
Contents
(b) Defences Notification and claims co-operation provisions Dispute resolution procedures Restrictions on the scope of cover Pay first clauses Liabilities and set-off
Limitation (6) Distriburion ofInadequate Fund
(7) Ptovision ofInformation (a) Section 2(1): disclosure by persons othet than an insurer (b) Section 2(2): disclosure by an insurer
(8) Relationship Between Assured and Third Party in rhe Light of a Statutory Transfer of Rights
(9) Relationship Between Insurer and Assured in the Light of a Statutoty Transfer of Rights
(10) Recovety of the Assured
21. Losses
B. Attaching Losses to Periods of Cover
(1) Ptoperty Insurance
(2) Liability Insurance
C. The Classification of Losses
(1) Actual Total Loss (a) Destruction (b) Damage so as to cease to be a thing of the kind insured (c) Itretrievable deprivation (d) Applicability of the de minimis principle
(2) Constructive Total Loss (a) Constructive total loss based on reasonable abandonment (b) Constructive total loss based on deprivation of
possessIOn Deprivation of possession Unlikelihood of recovery
(c) Constructive total loss based on damage to insured
ptoperty (d) Calculating whether insured property is a constructive
total loss
XXiV
20.56 20.57 20.60 20.61 20.62 20.65 20.68 20.73 20.74 20.75 20.80
20.81
21.59 21.60 21.62
21.90
21.91
Contents
(2) Relationship Between Loss of Freight and Loss of Vessel or Cargo
(3) Whether Total Loss of Freight is Actual or Constructive
E. Loss of Adventure
F. Finality of Losses and the Doctrine ofAdemption of Loss
G. Successive Losses
(2) Successive Unrepaired Losses
(3) The Doctrine of Merger of Unrepaired Partial Losses (4) Successive Total Losses
Claims and Claims Handling
B. Liabilities in a Subscription Market
C. Occurrence Notification Obligations (1) Notification Provisions in Marine 'Policies
(2) The Consequences of Non-compliance with Notification Provisions (a) Condition precedent (b) Suspensive condition (c) Watranty (d) Condition or innominate term (e) Severable innominate term
(3) Non-compliance Under Marine Wordings
D. The Doctrine ofAbandonment and the Notice of
Abandonment Procedure
(1) The Doctrine ofAbandonment (2) Abandonmenr and Notice ofAbandonment Distinguished
(3) When Notice ofAbandonment is Not Required (4) Insurers' Rights upon Acceptance of Abandonment
(5) The Impact ofAbandonment on the Assured's Rights (a) Unilateral divesring of rights (b) Does abandonment deny unilateral divesting? (c) Consequences of improper divesting
(6) Form of Notice ofAbandonment
(7) Time for Giving a Notice ofAbandonment (8) Acceptance and Refusal ofa…