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CHAPTER 8
MARINE INSURANCE
Dr. Poomintr Sooksripaisarnkit
PARA.
1. Introduction ........................................................................................................................... 8.001
2. Introduction to Marine Insurance Law and Marine Insurance Standard Form Contracts .... 8.003
3. Formation of a Marine Insurance Contract ........................................................................... 8.011

(a) Placing of risk at Lloyd’s Market ..................................................................................... 8.012
(b) Placing of risk outside the Lloyd’s Market ...................................................................... 8.025
4. Vitiating Factors .................................................................................................................... 8.039

(a) Lack of Insurable Interest ................................................................................................ 8.040
(b) Breaches of the duty of utmost good faith ...................................................................... 8.062
(i) Pre-contractual utmost good faith: non-disclosure and misrepresentation............... 8.063
5. Terms of Marine Insurance Agreements ............................................................................... 8.104

(a) Warranty and analogous terms ....................................................................................... 8.104
(b) Conditions ....................................................................................................................... 8.118
(c) Innominate terms ............................................................................................................. 8.122
6. Causation............................................................................................................................... 8.123
7. Marine Risks ......................................................................................................................... 8.128

(a) Perils of the Seas.............................................................................................................. 8.129
(b) Fire .................................................................................................................................. 8.136
(c) Theft ................................................................................................................................ 8.138
(d) Jettison ............................................................................................................................ 8.139
(e) Piracy .............................................................................................................................. 8.140
8. Excluded Risks...................................................................................................................... 8.143

(a) Wilful misconduct............................................................................................................ 8.145
(b) Delay .............................................................................................................................. 8.154
(c) Ordinary wear and tear .................................................................................................... 8.156
(d) Inherent Vice ................................................................................................................... 8.157
9. Claims ................................................................................................................................... 8.164

(a) Fraudulent claims ............................................................................................................ 8.165
(b) Damages for late payment of insurance claims ............................................................... 8.173
10. Losses in Marine Insurance Law........................................................................................... 8.175

(a) Actual Total Loss ............................................................................................................. 8.177
(i) The subject-matter is damaged as to cease to be a thing of the kind insured ........... 8.179
(ii) Where the assured is irretrievably deprived of the subject-matter insured ............... 8.181
Maritime Law and Practice in Hong Kong_CH08.indd 269 11/25/15 5:11 PM

270 MARINE INSURANCE
(b) Constructive Total Loss ................................................................................................... 8.183

(i) Reasonable abandonment of the subject-matter insured .......................................... 8.185
(ii) Deprivation of possession of ships or goods ............................................................ 8.190
(iii) Damage to ships ....................................................................................................... 8.192
(iv) Damage to goods ...................................................................................................... 8.196
(c) Partial Loss ...................................................................................................................... 8.203

1. INTRODUCTION
Marine insurance is one of the most primitive forms of any insurance arrangements 8.001
on earth. Greeks and Romans were: ‘in the habit…of guarding themselves against
some of the risks of maritime enterprise…whether in the shape of loans or mutual
guarantee’.1 Despite rising markets for marine insurance businesses such as the
Scandinavian Market, the fact remains that the London Market is still the ‘largest
marine insurance market in the world’.2 Therefore, this chapter will focus mainly
on English laws and practices in relation to marine insurances, not least because the
Marine Insurance Ordinance (Cap.329) (“MIO”) is almost identical to the Marine
Insurance Act 1906 of the United Kingdom (“MIA”).3
It must be reminded that, ultimately, a marine insurance is a contract. As set out in 8.002
s.2(1) of the MIO: ‘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’. Bearing
this in mind, this chapter, after introducing the MIO and other standard form contracts
used in the industry, will proceed by examining the process of formation of a marine
insurance contract, then consider the most common vitiating factors, namely a lack
of insurable interest and a material non-disclosure or misrepresentation. It will then
discuss the terms of marine insurance agreements, then the issue of ‘causation’ for
there would be no compensation if the assured, for example a ship-owner or a cargo-
owner, cannot prove that its ship or its cargo was lost due to a marine risk specified in
the marine insurance contract. Thereafter, it will examine the ambits and peculiarities
of typical marine risks and excluded perils. Lastly, this chapter will touch upon the
types of losses in marine insurance and the measures of indemnity.
2. INTRODUCTION TO MARINE INSURANCE LAW AND MARINE

INSURANCE STANDARD FORM CONTRACTS
As mentioned above, the MIO is an almost verbatim reproduction of the MIA. The MIA 8.003
itself has had a long history. It was drafted by Sir McKenzie Chalmers. As stated right at
the preamble, this piece of legislation is to: ‘codify the Law relating to marine insurance’.
Being a codified statute, it was a product from digesting of principles from cases decided
over the last 200 years prior to its enactment.4 This method of codification reflects a
belief of the draftsman himself. ‘When the principles of the law are well settled, and
when the decided cases that accumulate are in the main mere illustrations of accepted
general rules, then the law is ripe for codification’.5 The draftsman also maintained the
view that the purpose of code: ‘is to set out…those principles of the law which have
1
Frederick Martin, The History of Lloyd’s and of Marine Insurance in Great Britain with an Appendix containing
statistics relating to marine insurance (Macmillan and Co 1876) 2.
2
Codan Marine, ‘The Markets’ < http://www.codanmarine.com/codanmarine/Page18337.html> accessed
27 August 2013.
3
In this chapter, a statutory provision of the MIO will be referred to unless otherwise stated.
4
Robert Merkin, Marine Insurance Legislation (4th edn, Lloyd’s List Group 2010) xliv.
5
MD Chalmers, ‘Codification of Mercantile Law’ (1903) 19 LQR 10, 11.

already stood the test of time’.6 Indeed, the MIA itself has stood a test of time for it has
never been amended throughout its over one-hundred years of history. Nevertheless,
the MIA is not a complete code on all aspects of marine insurance. Therefore, case
law before the enactment of the MIA remains relevant.7 As Rose explained,8 this is in
line with the equivalent s.91 of the MIO which states: ‘The rules of the common law
including the law merchant, save in so far as they are inconsistent with the express
provisions of this Ordinance, shall continue to apply to contracts of marine insurance’.
References to these common law rules should only be made for matters falling outside
the language of the MIA. The method of interpreting such a codified statute is laid down
in Bank of England v Vagliano Brothers,9 in the context of the Bills of Exchange Act
1882, also drafted by Chalmers. There, Lord Herschell explained:10
“I think the proper course is in the first instance to examine the language of the
statute and to ask what is its natural meaning, uninfluenced by any considerations
derived from the previous state of the law…and then, assuming that it was
probably intended to leave it unaltered, to see if the words of the enactment will
bear an interpretation in conformity with this view.”
8.004 As observed by Merkin, however, much of what is stated in the MIA is providing
default positions which parties may depart from by agreements.11 Indeed, there have
been standard form contracts used in practice.
8.005 A form of policy known as the SG policy (ship & goods) indeed pre-dated the MIA.
The trace of which is unknown but it was already condemned by the court in 1791
as outdated. Yet, it was used until the 1980s.12 To date, the language of the SG policy
remains and can be found in Schedule 1 of the MIA (and as well the MIO). This should
be borne in mind in interpreting marine insurance contracts as stated in s.30(2) of
the MIO: ‘Subject to the provisions of this Ordinance, and unless the context of the
policy otherwise requires, the terms and expressions mentioned in the Schedule shall
be construed as having the scope and meaning in that schedule assigned to them’.
8.006 The SG policy form was replaced by a series of standard form contracts known
generally as the ‘Institute Clauses’ which were drafted under the auspice of the
then Institute of London Underwriters which in 1998 became the International
Underwriting Association of London (IUA) following a merger with the London
Insurance and Reinsurance Market Association (LIRMA).13 These Institute Clauses
are not stand-alone documents. They must be incorporated into the marine policy
form such as the Lloyd’s Marine Policy (MAR). In the context of the London Market,
a policy is evidence of the marine insurance contract, not the contract in itself.14
6
Chalmers (n 5).
7
FD Rose, Marine Insurance Law and Practice (LLP 2004) para 1.6.
8
Ibid.
9
The Governor and Company of The Bank of England v Vagliano Brothers [1891] A.C. 107.
10
Ibid., 144-145.
11
Merkin (n 4) xliv.
12
Howard Bennett, The Law of Marine Insurance (2nd edn, Oxford University Press 2006) para 7.02.
13
Merkin (n 4) xliv.
14
See s.22 of the MIO.

INTRODUCTION TO MARINE INSURANCE LAW 273
This is to be explained below in relation to the formation of a marine insurance

contract. The MIO specifies that a policy must state the name of the assured and its
agent (i.e a broker).15 The policy must also contain the insurer’s signature.16 Also,
the ‘subject-matter insured’ must be stated in the policy.17 In the context of marine
insurance, two of the most common subject-matter insureds are ships or goods.18 This
could be seen from the most commonly used standard terms in the industry such as
the Institute Cargo Clauses,19 the Institute Time Clauses (Hulls),20 the Institute Voyage
Clauses (Hulls)21 and the International Hull Clauses.22 One would observe that, for
hull insurance, there are two sets of standard Institute Clauses – a time and a voyage.
This reflects a practice that a marine insurance can be on either a time basis or a
voyage basis. This is well-recognised in s.25 of the MIO that a marine policy can be
either a ‘time policy’ or a ‘voyage policy’. This provision reads:
“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 time policy.”
The latter part of this provision deserves attention. The learned editors of Arnould’s 8.007
Law of Marine Insurance and Average explained a contract for both voyage and time
by giving an illustration of a hull insurance for a voyage to a specified port and then
with an additional cover for 30 days upon arrival.23 The fact whether a policy is a
voyage or time has certain implications, for example in relation to an implied warranty
of seaworthiness, in relation to the beginning and the end of the risk, and in relation to
a rule on deviation.24 These will be considered further below.
Apart from the said method of categorisation, a marine policy can also be either a 8.008
valued policy or an unvalued policy. A valued policy as defined in s.27(2) of the MIO is
‘a policy which specifies the agreed value of the subject-matter insured’. An unvalued
policy, on the other hand, according to s.28 of the MIO, 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’. Whether a policy is
a valued or an unvalued policy has implications on the measure of indemnity, bearing
15
16
17
18
Rose (n 7) para 2.4.
19
The Institute Cargo Clauses (A) (01/01/82) or (01/01/09); The Institute Cargo Clauses (B) (01/01/82) or
(01/01/09); The Institute Cargo Clauses (C) (01/01/82) or (01/01/09). The Institute Cargo Clauses (A) contains
the widest coverage so these are sometimes known as “all risks”. See Rhidian Thomas, ‘Insuring the Risk of
Maritime Piracy’ (2004) 10(4) Journal of International Maritime Law 355, 359.
20
The Institute Time Clauses (Hulls) (01/10/83); The Institute Time Clauses (Hulls) (01/11/95).
21
The Institute Voyage Clauses (Hulls) (01/10/83); The Institute Voyage Clauses (Hulls) (01/11/95).
22
The International Hull Clauses (01/11/02); The International Hull Clauses (01/11/03).
23
Jonathan Gilman and Robert Merkin (eds), Arnould’s Law of Marine Insurance and Average (17th edn, Sweet &
Maxwell 2008) para 2-20.
24
See Merkin (n 4) 37.

in mind a marine insurance contract is a contract to ‘indemnify’, which, to explain in

layman language, is a contract to ‘pay’ the assured for loss covered by the insurance.25
8.009 Last but not least, it should be noted also that a policy on ships may be a floating
policy. This is referred to in s.29(1) of the MIO: ‘A floating policy is a policy which
describes the insurance in general terms, and leaves the name of the ship or ships
or other particulars to be defined by the subsequent declaration’. By this definition,
this type of policy can be confused with an ‘open cover’ arrangement. The typical
arrangement of the open cover is explained by Rose at para 6.70 as follows:
“The standard arrangement, however, is that for an agreed period – whether it

be a definite period (often of twelve months) or an indefinite period subject to
termination by either party – the assured will declare all shipments made within
the terms of the cover (declarations “off cover”) and the insurer will then issue
policies for all those shipments (though his ability to do so is commonly limited
to a specified amount per voyage).”
8.010 The difference, as explained by Bennett, is that for the floating policy there exists
a ‘specified maximum aggregate value’26 and hence ‘the assured would have to be
continually alert to the cumulative value of declared risks for fear of exhausting cover
and running uninsured risks’.27 But, under the open cover arrangement, there is no
maximum aggregate as such. Under the open cover, there is an imposed limit for each
declared risk.28 Different from the floating policy, the term ‘open cover’ could not be
found in the statute.29 Bennett therefore proceeded to discuss whether the open cover
arrangement would fall within the ambit of s.29 dealing with the floating policy in the
statute.30 Both Bennett31 and the learned editors of Arnould’s Law of Marine Insurance
and Average32 opine that the open cover may be regarded as a form of the floating
policy attracting the application of the statute.
3. FORMATION OF A MARINE INSURANCE CONTRACT

8.011 This part deals with formation of the marine insurance contract. This will be broken
down into two sections: (i) namely the placing of risk inside the Lloyd’s Market;
and (ii) the placing of risk outside the Lloyd’s Market. The reason for this separate
consideration is that the Lloyd’s Market has adopted a rather unique procedure for risk
placing. Having said this, the Lloyd’s Market will also be briefly explained in the first
section of this part.
25
26
Bennett (n 12) para 2.30.
27
Ibid., para 2.31.
28
Ibid.
29
Ibid.
30
Ibid.
31
Ibid.
32
Gilman and Merkin (n 23) para 9-11.

FORMATION OF A MARINE INSURANCE CONTRACT 275
(a) Placing of risk at Lloyd’s Market

The Lloyd’s Market had its name after Mr. Edward Lloyd who established his coffee 8.012
house business on Tower Street in London. It was unknown when he first set up his
coffee house but the earliest evidence could be traced back to the year 1688.33 Merchants
who assembled at the coffee house started covering each other’s risks. Among these
merchants, there were also retired ship’s masters sitting across the table, those who had
better sense of sea risks and could calculate ‘insurance rates’.34 Whilst the passing of
the Bubble Act 1720 gave monopolistic status to two marine insurance companies –
the Royal Exchange Assurance and the London Assurance – individual underwriters
were not affected.35 Marine insurance businesses carried out by these two companies,
however, were not successful. From the start, these two marine insurance companies
had financial difficulties. They had problems recruiting experienced underwriters
for managerial positions. They concentrated more on fire and life insurances.36 On
the other hand, individual underwriters had the benefit of professional networking,
using ‘Lloyd’s coffee-house’ as their prime business base.37 The coffee house became
a venue where shipping merchants as well as brokers and underwriters could obtain
market intelligence.38 In the year 1769, certain clients of the Lloyd’s coffee house
agreed to set up the ‘New Lloyd’s Coffee House’, which ‘represented a determined
attempt by leading city men to put their business on a better regulated footing’.39
A premise of the New Lloyd’s Coffee House at Pope’s Head Alley soon proved to be
too small for merchants, brokers, and underwriters. To obtain new premises, seventy-
nine merchants, underwriters, and brokers entered into an agreement which formed
the foundation of the ‘Society of Lloyd’s’ by agreeing to pay £100 into the Bank of
England for this purpose. As a consequence, the New Lloyd’s Coffee House turned
out to be the property of the subscribers and from this point those who conducted the
business at this New Lloyd’s Coffee House ‘were to be bound together in a loose but
formal association, controlled by an elected committee’.40 This characteristic of the
‘Subscription Market’ is retained until the modern day.
However, the ever-expanding influence of individual underwriters who gathered at the 8.013
New Lloyd’s Coffee House was not met with approval by all ship-owners.41 Whilst
Britain gained prosperity in shipping and trade, the fact that the two marine insurance
companies were in London and individual underwriters gathered at New Lloyd’s
meant that shipowners in other ports found it to be inconvenient.42 Some individual
33
Raymond Flower and Michael Wynn Jones, Lloyd’s of London: An Illustrated History (Lloyd’s of London Press
Ltd, 1974) 20.
34
Jeremy A. Herschaft, ‘Not Your Average Coffee Shop: Lloyd’s of London – A Twenty-First-Century Primer on
the History, Structure, and Future of the Backbone of Marine Insurance’ (2004-2005) 29 Tulane Maritime Law
Journal 169.
35
36
Flower and Jones (n 33) 45.
37
Ibid.
38
Herschaft (n 34) 171.
39
Flower and Jones (n 33) 54.
40
Ibid., 57.
41
42
William RA Birch Reynardson, ‘The History and Development of P & I Insurance: The British Scene’ (1969) 43
Tulane Law Review 457, 461-462.

underwriters became inactive in winter worried of potential high marine risks during
that period. Underwriters who were active during winter could thus charge higher
premiums due to their monopolistic opportunity.43 ‘In view of the unsatisfactory
position for shipowners – particularly those residing outside London – groups of
shipowners at various ports associated together to insure their hull risks on a mutual
basis…’44 This found a basis for an early history of what to became known today as the
mutual associations or the Protection and Indemnity (P & I) clubs.45
8.014 Meanwhile, in 1871, the New Lloyd’s of London was incorporated by the statute under
the name ‘Lloyd’s’. ‘The Act empowered Lloyd’s to own property, to pay and receive
debts and to regulate its own affairs by by-law’.46 Prior to that, the duopolistic positions
granted by the Bubble Act 1720 had also been relaxed following the enactment of the
Marine Insurance Act 1824.47 The combined effects of these were that Lloyd’s became
more structured and could be able to offer more competitive premiums. On the other
hand, many marine insurance companies were founded and became competitors of
mutual associations.48 ‘The result was that the better class of vessel was insured at
Lloyd’s, and the Clubs were left with those risks that were unacceptable elsewhere’.49
It was during the period of such declination of the mutual associations which sought
to insure hulls that the idea of third party liabilities was developed. Whilst third party
liabilities were refused by underwriters, the process of these mutual associations who
previously accepted hull risks to adjust themselves to accept these third party liability
risks were relatively simple.50
8.015 Despite over centuries old, the Lloyd’s of London still retains its practice. In modern
days, individual underwriters known as ‘Names’ make their financial investment
in Lloyd’s by joining in one of the syndicates.51 A syndicate may be explained as
an informal grouping of individual underwriters. Each syndicate’s administration
is looked after by a managing agent.52 However, in present time, there are also
corporate members of Lloyd’s known as ‘Capital Providers’.53 Lloyd’s no longer
admits individual members and those individuals who want to carry out their
businesses at Lloyd’s must do so via corporate members.54 Therefore, Lloyd’s
still maintains its characteristic as a ‘Subscription Market’ even though it must be
emphasised that the term ‘Subscription Market’ may connote a wider meaning to
include insurance companies in the London Market who adopt the same risk placing
practices as Lloyd’s.55
43
Reynardson (n 42).
44
Ibid., 463.
45
Bennett (n 12) paras 1.23 and 1.24.
46
47
48
Reynardson (n 42) 464.
49
Ibid.
50
Ibid.
51
52
53
Ibid.
54
Ibid.
55

In practice, placing the risk with a syndicate must be done through the managing 8.016
agent.56 Suppose that Mr. X, a ship-owner, wants to insure his ship in the Lloyd’s
Market, he has to contact the Lloyd’s registered broker.57 The Lloyd’s broker will then
prepare a document known as a ‘slip’, which can be explained as:58
“…an oblong piece of paper containing details of the intended insurance, in

sufficiently precise form to enable anyone conversant with the business to draw
up, without difficulty and without going beyond its four corners, the policy
which it is proposed to effect. It gives the name of the vessel, or description
of the subject matter to be insured, the voyage or period for which insurance
is required, the valuation (if any) and amount to be insured, and the standard
clauses to be incorporated, and sets out any special terms or warranties that may
be required.”
So, the slip is actually an offer from X which the Lloyd’s broker then takes around 8.017
the underwriting room at Lloyd’s for underwriters to consider. Each underwriter will
then ‘accept’ the offer by ‘scratching’ the slip, i.e. signing the slip and indicating the
percentage of risk he is willing to accept and also putting the name of the syndicate.59
The broker takes the slip around the market until the risk is completely (100%)
accepted but in practice the broker can continue even after the risk is 100% accepted.
He will then do arithmetical adjustment so that the total subscription is exactly 100%.
This is called a ‘signing down’ process.60 Once the broker obtained all subscription
as per the slip, the broker will then take the policy (which wordings and terms should
reflect those in the slip) along with the fully subscribed slip to the ‘Xchanging Ins-Sure
Services (XIS)’ at Lloyd’s (previously, the ‘Lloyd’s Policy Signing Office’ (LPSO))
who will then issue the formal policy.61
From the process as described, a question which springs into mind is the legal status 8.018
of the slip and the policy. In explaining the nature of the slip, Bennett refers to the
explanation given by Blackburn J. in Ionides v Pacific Insurance Co.62 In this case,
Blackburn J. elaborated on the slip as follows:63
“The slip is, in practice, and according to the understanding of those engaged in
marine insurance, the complete and final contract between the parties, fixing the
terms of the insurance and the premium, and neither party can, without the assent
of the other, deviate from the terms thus agreed on without a breach of faith, for
which he would suffer severely in his credit and future business.”
56
Gilman and Merkin (n 23) para 4.07.
57
Robert Merkin and the others (eds), Colinvaux’s Law of Insurance in Hong Kong (Thomson Reuters 2009)
para 1.030.
58
59
Ibid.
60
Howard N. Bennett, ‘The role of slip in marine insurance law’ [1994] LMCLQ 94.
61
62
Bennett (n 60) 99 citing Ionides and Chapeaurouge v The Pacific Fire and Marine Insurance Company (1871)
LR 6 QB 674.
63
Ibid., 684-685.

8.019 So, the slip is taken to be a contract between the assured and each underwriter who
subscribed to it by ‘scratching’ the slip.64 So, what exactly is the policy? In this context,
one should be reminded of the language of s.22 of the MIO:
“Subject to the provisions of any Ordinance, a contract of marine insurance is

inadmissible in evidence unless it is embodied in a marine policy in accordance
with this Ordinance. The policy may be executed and issued either at the time
when the contract is concluded, or afterwards.”
8.020 This provision itself has its origin in history and there has been a discussion by the
English and the Scottish Law Commissions in their joint reform project on insurance
law whether the requirement of formal policy and the equivalent s.22 of the MIA should
be abolished.65 The said history starting from the Stamp Act 1795 which imposed taxes
upon policies of insurance requiring them, among other things, to be typed or written.66
Such requirements were followed through subsequent revenue legislations enacted in the
United Kingdom.67 The practice of the marine insurance contract concluded in the slip
with the policy issued subsequently has raised complicated questions of the relationship
between the slip and the policy. Such complication can be observed from conflicting
case laws. However, the learned editors of Arnould’s Law of Marine Insurance and
Average relied heavily on the passage of Rix LJ in HIH Casualty and General Insurance
Ltd v New Hampshire Insurance Co & Or.68 The case itself is not a marine insurance
case. Instead, it is a case arising from complex film finance insurances. In other words,
insurances were procured against the loss of revenue from the film production.69 A slip
was issued in the form of a ‘slip policy’ and subsequently a ‘policy’ was issued. So, one
of the issues considered before the Court of Appeal is as to the status of the policy. In
other words, ‘does it entirely supersede the insurance slip, or is it to be read together
with the insurance slip’?70 Reviewing relevant authorities, Rix LJ did not find earlier
cases of Youell v Bland Welch71 and Punjab Bank v De Boinville72 which seemed to
suggest that the policy, once issued, supersedes the slip in its entirety, to be conclusive.
He explained that in both cases ‘it was common ground that the policies in question
were intended to supersede the slips’.73 He then proceeded to opine:74
“In the light of the uncertain status of the slip until relatively speaking modern
time, I would for myself with genuine respect consider it dangerous to build…
on the single case of Ionides v Pacific Fire & Marine…that a slip could never be
used to assist in the construction of a policy. I would, however, agree that in the
64
65
See The English and The Scottish Law Commissions, ‘The Requirement for a Formal Marine Policy: Should
Section 22 Be Repealed?’ (Issues Paper 9, October 2010) <http://lawcommission.justice.gov.uk/docs/ICL9_
Requirement_for_Formal_Marine_Policy.pdf> accessed 24 January 2014.
66
Bennett (n 60) 95.
67
See Ibid., 95-97.
68
[2001] EWCA Civ 735; [2001] CLC 1480 cited in Gilman and Merkin (n 23) para 2-14.
69
Ibid., [2].
70
Ibid., [17].
71
Youell v Bland Welch & Co. Ltd and Others [1992] 2 Lloyd’s Rep. 127.
72
Punjab National Bank v De Boinville and Others [1992] 1 Lloyd’s Rep. 7.
73
HIH v New Hampshire (n 68) [81].
74
Ibid., [92].

absence of a plea of rectification a slip could not be used to alter or contradict the
construction of a policy which had superseded a slip.”
From the above quoted passage, it appears that Rix LJ supported the position that the 8.021
slip could be used as a construing aid for the policy. However, the slip may have a more
significant role when one of the parties plead rectification. Therefore, rectification of a
marine insurance policy is to be mentioned briefly at this stage.
Bennett explained that rectification as ‘the equitable remedy by which a court can 8.022
remedy mistakes in the recording of the parties’ agreement’.75 As for the conditions
which must be fulfilled before rectification can be invoked, he cited the passage of
Slade LJ, albeit in a different context, in The Nai Genova.76 In that case, however, Slade
LJ purported to summarise rules on rectification from an authoritative treatise, Snell’s
Principles of Equity.77 In the more recent edition of Snell’s Equity,78 the learned editors
emphasised that the role of rectification is to correct mistakes in the document. ‘What
is rectified is not a mistake in the transaction itself, but a mistake in the way in which
the transaction has been expressed in writing’.79 Rectification falls within the courts’
discretion and the court can even rectify the document in the absence of the plea.80
Rectification must be resorted to only after it is ascertained that such mistake cannot
be fixed by the usual method of contractual interpretation.81 However, interpretation
may not fit the purpose if the mistake is not apparent. Or, ‘if reliance is placed upon
the subjective intentions of the parties, rectification would be a more appropriate
remedy than interpretation’.82 Different from interpretation, rectification has the effect
of changing terms of the contract.83 The term ‘mistake’ as referred to in this context
can be either a unilateral or a common mistake.84 In the event of common mistake, a
plea for rectification will succeed only if following factors can be established:85
“[F]irst, that there was some prior agreement between the parties; secondly, that
this was still effective when the instrument was executed; thirdly, that by mistake
the instrument fails to carry out that agreement; and fourthly, that if rectified as
claimed, the instrument would carry out that agreement.”
Rectification in the event of unilateral mistake is more restricted, however. This is only 8.023
possible if: ‘one party to a transaction knows that the instrument contains a mistake in his
favour, but does nothing to correct it and seeks to take advantage of the other’s mistake…’86
75
76
Ibid., para 8.78 citing Agip S.p.A v Navigazione Alta Italia S.p.A (The “Nai Genova” and “Nai Superba”) [1984]
1 Lloyd’s Rep. 353.
77
The Nai Genova [1984] 1 Lloyd’s Rep. 353, at 359 citing P.V Baker and P.St. J. Langan (eds), Snell’s Principles
of Equity (28th edn, Sweet & Maxwell 1982).
78
John McGhee QC and the others (eds), Snell’s Equity (32nd edn, Thomson Reuters 2010).
79
Ibid., para 16-001.
80
Ibid., paras 16-002-16.003.
81
Ibid., para 16-008.
82
Ibid.
83
Ibid., para 16-011.
84
Ibid., para 16-012.
85
Ibid., para 16-013.
86
Ibid., para 16-019.

8.024 In the context of marine insurance, Bennett referred as an example the case of Wilson,
Holtage & Co, Ltd v The Lancashire & Cheshire Insurance Corporation, Ltd87 where
the plea of rectification from the slip was said to be successful.88 The case involved
insurance for cargoes carried on board the ship Titan from Singapore to Liverpool against
losses due to leakage. The policy described the cargo as ‘palm kernel oil’ while the actual
cargo shipped was ‘palm oil’.89 One of the defences which the underwriters raised was
that goods were not correctly described.90 Baihache J. was ready to rectify the policy.91
In his language, ‘I must have regard to the original contract [the slip] which…is the real
contract [the underwriters] made, and in the original contract the goods are described as
palm oil, and I disregard the mistake made afterwards’.92 Whilst the burden of proof in
the plea for rectification is still on the usual civil standard of the balance of probability,
there is heavy evidential burden to convince the court that there was a mistake.93
(b) Placing of risk outside the Lloyd’s Market

8.025 Outside the context of the Subscription Market, the placing of risk follows the usual
contract law principles. It is usually the case that the ‘offer’ comes from the prospective
assured who ‘gives to the insurers particulars of the risk which he wishes them to
undertake’.94 This may be done through the broker. The insurer then accepts or comes
up with a ‘counter offer’.95 Such a counter offer may be in the form of a condition
imposed.96 An example was given by Clarke and the others to a life insurance case
of Canning v Farquhar.97 In this case, the proposal was forwarded to the insurance
company for the life insurance of Mr. Canning. This prompted the letter from the
insurance company purporting to accept the risk. However, there was a sentence in
the letter: ‘No assurance can take place until the first premium is paid’.98 Just less than
a month afterwards, the premium was tendered simultaneously with the information
given to the insurance company that shortly before, Mr. Canning had sustained severe
injuries following his falling from the cliff.99 The insurance company refused to accept
the premium.100 Lindley L.J. clearly classified the insurance company’s purported
acceptance as a ‘counter offer’.101 He considered the point would be difficult had there
been no change in the risk as the counter offer would be a continuing one in nature
which the assured accepted when the first premium was tendered. However, in this case,
there was a change in the nature of the risk as Mr. Canning fell down the cliff. So, ‘there
87
(1922) 13 Ll L Rep 486.
88
89
Wilson, Holtage & Co (n 87) 486.
90
Ibid., 487.
91
Ibid., 488.
92
Ibid., 487.
93
McGhee QC and the others (eds) (n 78) para 16-022.
94
Merkin and others (n 57) para 1.020.
95
Ibid., para 1.022.
96
Ibid.
97
(1886) 26 QBD 727 cited in Malcolm Clarke and the others, The Law of Insurance Contracts (6th edn, Informa
2009) para 11-2E.
98
Ibid., 728.
99
Ibid.
100
Ibid.
101
Ibid., 733.

was no contract before the tender; and the risk being changed the company’s offer could
not fairly be regarded as a continuing offer which Canning was entitled to accept. His
tender was a new offer for the new risk which the company was at liberty to decline’.102
In either method of risk placing, inside or outside the Lloyd’s Market, a consideration 8.026
is in the form of ‘premium’.103 As far as the premium is concerned in the context of
marine insurance, one should be reminded of the language of s.53 of the MIO when
the broker is engaged to place the risk:
“(1) Unless otherwise agreed, where a marine policy is effected on behalf of

the assured by a broker, a 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.”
This section proved controversial and the English and the Scottish Law Commissions 8.027
are considering alterations to this provision.104 Criticisms are well-addressed, for
example, by Gloster.105 She explained that s.53 of the MIO reflected the practice at
Lloyd’s whereby ‘an assured required additional time to pay the premium but the
Lloyd’s marine underwriters were only prepared to extend credit to the Lloyd’s broker
with whom they were dealing’.106 This practice formed the basis of what she called a
‘fiction’ as she continued to explain:107
“[T]he broker was deemed to have paid the premiums to the underwriter, who then
immediately advanced the premiums back to the broker by way of loan. So, even if
the policy contained an express clause requiring the assured to pay the underwriter,
the liability remained that of the broker, not that of the assured. The effect is that,
as between the underwriter and the assured, the premium has been paid so that the
insurer cannot sue the insured. Thus, the risk of the broker’s insolvency is placed
on the underwriter not the insured…”
102
Ibid.
103
Merkin and the others (n 57) para 8.001.
104
See The English and The Scottish Law Commissions, ‘Insurance Contract Law: Post Contract Duties and Other
Issues’ (The Law Commission Consultation Paper No. 201 and The Scottish Law Commission Discussion Paper
No. 152, December 2011) <http://lawcommission.justice.gov.uk/docs/cp201_ICL_post_contract_duties.pdf>
accessed 16 April 2014, see in particular paras 18.1-18.19.
105
Dame Elizabeth Gloster, ‘Who pays the piper – who calls the tune? Recent issues arising in the context of s.53
of the Marine Insurance Act 1906’ [2007] LMCLQ 302.
106
Ibid., 307.
107
Ibid.

8.028 Insensible as it may sound, as Gloster noted, this fiction was referred to with approval
in some cases. In Power v Butcher,108 a case by the plaintiff, an assignee of the
bankrupt broker, against the defendants, ship-owners, for the premiums due to the
underwriters,109 there Bayley J. explained the practice in the following terms:110
“Now, according to the ordinary course of trade between the assured, the broker,
and the underwriter, the assured do not, in the first instance, pay the premium to
the broker, nor does the latter pay it to the underwriter. But as between the assured
and the underwriter the premiums are considered as paid. The underwriter, to
whom, in most instances, the assureds are unknown, looks to the broker for
payment, and he to the assured. The latter pays the premium to the broker only,
and he is the middle-man between the assured and the underwriter. But he is not
solely agent; he is a principal to receive the money from the assured, and to pay it
to the underwriters….The assured have had the benefit of the policies; and if the
underwriters were liable upon the risk, they were warranted in calling upon the
broker to pay the premiums…”
8.029 However, the practice was explained in slightly different way by Parke J. in the same
case:111
“By the course of dealing, the broker has an account with the underwriter; in
that account the broker gives the underwriter credit for the premium when the
policy is effected, and he, as the agent of both the assured and the underwriter,
is considered as having paid the premium to the underwriter, and the latter as
having lent it to the broker again, and so becoming his creditor. The broker is then
considered as having paid the premium for the assured. The fact of giving credit
in account by the broker to the underwriter, and the underwriter by the terms of
the policy having acknowledged the receipt of the premium, are equivalent to
actual payment.”
8.030 The passage of Parke J was quoted by the Court of Appeal in Universo Company
of Milan v Merchant Marine Insurance Company, Ltd.112 The Court of Appeal was
willing to find the same custom existed in the context of non-marine insurance. The
case involved a re-insurance and the crux of the argument, which was denied by the
Court of Appeal, was the contract contained a clause to the effect that the reassured
promised to pay the premiums to the reinsurer and hence this promise effectively
excluded the custom.113 Nevertheless, the Court of Appeal found the promise in the
contract meant that the reassured promised to pay the premium to the reinsurer ‘in the
way in which according to the universal custom such payments are made…’114
108
(1829) 10 B & C 329, 109 ER 472.
109
Ibid., 329-335; 472-474.
110
Ibid., 339-340; 476.
111
Ibid., 346-347; 479.
112
[1897] 2 QB 93, see in particular 95-96 (per Lord Esher M.R.), 98-99 (per A.L. Smith LJ), 99-100 (Chitty L.J.).
113
Ibid., 98.
114
Ibid., 99.

A better explanation of this s.53 was given by Merkin,115 as noted also by Gloster,116 is 8.031
to view the broker in paying the premium ‘as acting as a principal in his own right or
under some form of dual agency, and not merely as an agent for the assured’.117 Gloster
noted that this explanation received judicial support in Chapman v Kadirga Denizeilik
ve Ticaret.118 Arguments in this case involved whether certain clauses in the policy fell
within the opening word of the equivalent s.53(1) of the MIA and hence ousted the
operation of this provision and the custom behind. Sir Brian Neill, after referring to
the explanation of Merkin cited above, elaborated further that clear language in the
policy is needed for s.53(1) to be inapplicable and that the policy must be construed
as a whole because ‘the relationship between parties in the ordinary case where the rule
operates without question is between parties with independent rights and obligations…’119
The explanation of Sir Brian Neill was referred to with approval in the more recent
Court of Appeal case of Heath Lambert Ltd v Sociedad de Corretaje de Seguros120
where in that case a Venezuelan ship-owning company placed insurance of its fleet
with a local insurer through the local broker. It was either this local broker or the local
insurer itself who approached the London broker, Heath Lambert, to place a back-to-
back reinsurance with various syndicates at Lloyd’s of London.121 Heath Lambert paid
the premiums and tried to recover that from either the Venezuelan insurer or broker in
question.122 It is to be noted that the re-insurance contract as placed by Heath Lambert
contained a clause: ‘Warranted premium payable on cash basis to London Underwriters
within 90 days of attachment’.123 Lord Justice Clarke emphasised: ‘care should be taken
before having regard to fiction…’124 If the fiction were adopted, the premium payment
warranty clause would be nugatory which would not be the case. Therefore, as between
Heath Lambert, the primary insurer, and the primary broker, their obligations should
be determined as a matter of construction.125 He referred to two significant points in the
contract that ‘ousted’ the fiction. First, the use of the word ‘payable’ suggests when the
premium should be paid. Second, the use of the word ‘in cash’ suggested the agreement
different from the usual course of dealing between the broker and the underwriter that
the payment between them would be on the basis of the account between them.126
While the broker has a duty to pay the premium, in turn, he receives remuneration for 8.032
his service from the underwriter.127 This is a sensitive point that can lead to a blatant
conflict of interests in practice. This is against the usual logic for, if the broker is
115
[1897] 2 QB 93 (n 112).
116
Gloster (n 105) 308.
117
Robert M. Merkin, ‘The Duties of Marine Insurance Brokers’ in D. Rhidian Thomas (ed.), The Modern Law of
Marine Insurance (LLP 1996) 275, 283.
118
JA Chapman & Co Ltd (In Liquidation) v Kadirga Denizcilik Ve Tiracet; JA Chapman & Co Ltd (In Liquidation) v
Chios Breeze Marine Company; JA Chapman & Company Ltd (In Liquidation) v Kadirga Denizcilik ve Ticaret
AS [1998] Lloyd’s Rep IR 377 cited in Gloster (n 105) 308.
119
Ibid., 386 and 387-388.
120
[2004] EWCA Civ 792; [2005] 1 Lloyd’s Rep 597.
121
Ibid., [2]-[3].
122
Ibid., [6].
123
Ibid., [4].
124
Ibid., [23].
125
Ibid., [25].
126
Ibid., [28].
127
Merkin (n 117) 280.

taken to be an agent of the assured for placing the risk, logic dictates that he should
have been paid by his principal.128 In fact, ‘[c]omission is obtained from insurers by
deduction of commission from the premium’.129 This has been a widely accepted
practice. In Hong Kong, the judicial position is clear as Mr. Justice Reyes (as he then
was) put in Hobbins v Royal Skandia Life Assurance Ltd:130
“[T]here is “lawful authority” (consisting of a long line of judicial pronouncements

stretching from the 19th century to the present) for the commercial practice that
an insurance broker acts as an agent of the insured and not of the insurance
company. As a result of that line of judicial pronouncements, it has been long
settled in common law that commission paid to an insurance broker by an insurer
does not constitute an illegal secret profit unless it is in excess of what is normally
paid within the insurance market.”
8.033 The context in which Mr. Justice Reyes came to consider the legality of commission
paid by the insurer to the broker was in relation to the purchase of an insurance product.
In many occasions, the broker made clear to the assured that he would not have to pay
for its services since the insurers would pay it.131 The assured maintained however
that he had never been informed of the exact amount of commissions the broker
received from the insurer. This constituted a breach of the fiduciary duties and also the
agreement made by the assured engaging this broker along with the insurance product
the assured purchased were all in breach of the Prevention of Bribery Ordinance (Cap.
201), especially s.9(2).132 Mr. Justice Reyes held, following his passage quoted above,
that the broker in receiving commission was not in breach of the Prevention of Bribery
Ordinance. Nor did he decide that the broker was in breach of fiduciary duties. He left
this point undecided but nevertheless proceeded to opine obiter that: ‘[t]he common
law has long accepted the practice of an insurance broker receiving commission from
an insurer, provided…those commissions do not exceed the usual market rate’.133 It
is in relation to the point on the brokers’ fiduciary duties that deserve to be examined
here in some length.
8.034 Fiduciary duties may be explained simply as ‘the obligation of loyalty’.134 One of the
most explicit facets of the fiduciary duties is a duty ‘not to make a secret profit’.135 It is
therefore hard to see how in general the fact that the broker does not have to disclose
the commissions he received from the underwriter fits into this aspect of the fiduciary
128
Merkin (n 117) 280.
129
Ibid.
130
[2012] 1 HKLRD 977, [79].
131
Ibid., [2]-[3].
132
Ibid., [5] and [77]. Section 9(2) of the Prevention of Bribery Ordinance (Cap.201) provides: ‘Any person who,
without lawful authority or reasonable excuse, offers any advantage to nay agent as an inducement to or reward
for or otherwise on account of the agent’s: (a) doing or forbearing to do, or having done or forborne to do, any
act in relation to his principal’s affairs or business; or, (b) showing or forbearing to show, or having shown or
forborne to show, favour or disfavour to any person in relation to his principal’s affairs or business, shall be guilty
of an offence’.
133
Ibid., [102].
134
F.M.B. Reynolds (ed.), Bowstead and Reynolds on Agency (18th edn, Sweet & Maxwell 2006) para 6-032.
135
Ibid., 6-041.

duties. As observed by Henley: ‘[t]his lack of necessity to disclose the commission

is curious because the insurer may have increased his rate of premium to reflect the
broker’s higher rate of commission…’136 Henley also noted two practices existing in
the market. One practice, which has since been condemned by Lloyd’s, is so-called
‘grossing up’ which is explained as:137
“[A] practice whereby the gross premium (i.e. including brokerage) which the
broker notifies to the insured as being payable exceeds the gross premium in
fact agreed with and payable to the insurer. Effectively the broker adds a sum on
top and retains it for his own benefit, crucially without knowledge and therefore
consent of the insured.”
Another less blatant, and indeed obscure, practice is ‘net rating’ which is explained as:138 8.035
“This occurs when the underwriter agrees the net premium he requires, which
is specified in the slip, and leaves it to the broker to fix his own brokerage…
there appear to be two main complaints against net rating. The first is that the
accounting to the client is in some way misleading, perhaps because the amount
agreed as the contractual rate for the premium is not properly disclosed to the
principal by the broker. The second is that the premium charged to the principal
may contain an element of brokerage which can be categorised as a secret profit
payable to the broker.”
Moreover, what constitutes a ‘commission’ the disclosure of which is unnecessary is 8.036

unclear. There is case law which seems to suggest that a ‘discount for prompt payment’
does not have to be disclosed.139 The rule relating to disclosure of commission received
explicit judicial approval by the English court as early as 1874 in Great Western
Insurance Company v Cunliffe.140 The case involved a marine insurance company in
New York appointed an agent in London. The agent was also to effect the re-insurance
contracts as instructed by the principal.141 As noted by Mellish LJ, the principal
had never asked the agent as to the remuneration for effecting re-insurances.142 He
continued to explain:143
“Then it is quite obvious that [the principal] must have known, and they do not
deny that they did know, that [the agent] were to be remunerated by receiving a
certain allowance or discount from the underwriters with whom they made the
bargains. It was easy to ascertain by inquiry what was the usual and ordinary
charge which agents…are entitled to make. If a person employs another, who he
knows carries on a large business, to do certain work for him, as his agent with
136
Christopher Henley, The Law of Insurance Broking (2nd edn, Sweet & Maxwell 2004) para 2-051.
137
Ibid., 2-063.
138
Ibid., 2-064.
139
Ibid., 2-051.
140
(1874) LR 9 Ch Ap 525.
141
Ibid., 525-526 and 539.
142
Ibid., 539.
143
Ibid., 539-540.

other persons, and does not choose to ask him what his charge will be, and in fact
knows that he is to be remunerated, not by him, but by the other persons – which
is very common in mercantile business – and does not choose to take the trouble
of inquiring what the amount is, he must allow the ordinary amount which agents
are in the habit of charging.”
8.037 However, an above-quoted passage should be read along with a peculiar feature in
this case, namely the principal found out that the agent received commissions from
underwriters and yet continued businesses with that agent for a further two years
without any objection.144 Therefore, to the extent that the case is accepted to establish
the general principle that brokers do not have to disclose commissions received from
underwriters is somewhat dubious. The case was followed in Baring v. Stanton.145
The case involved London merchants who insured ships for an American shipowner.
By the arrangement between these London merchants and the insurance companies,
the merchants were to retain five per cent as commission and ten per cent for ‘ready
money’ (prompt payment of premiums).146 Mellish LJ who came to decide this latter
case found it to be indistinguishable from the Cunliffe case. Again, he appeared to base
his decision on the fact that there was a course of dealing between this American ship-
owner and the London merchants.147 Clarke explained the practice may be justified on
the basis of ‘informed consent’ but he added this ‘requires an actual awareness in the
customer of a kind that is not always obvious in practice’.148 Perhaps, the explanation
on the basis of the ‘informed consent’ would be in line with the factual situations in
the Cunliffe and Baring cases. Nevertheless, Lowry and the others also observed that
to constitute an informed consent there must be ‘knowledge of material facts’.149 They
referred to the case of NZ Netherlands Society v Kuys.150 The case was not an insurance
case. The case involved a society and an individual who used to be the secretary of the
society over the publication of newspaper.151 Lord Wilberforce dealt with the point on
disclosure shortly that: ‘…as a matter of law…if an arrangement is to stand, whereby a
particular transaction, which would otherwise come within a person’s fiduciary duty, is
to be exempted from it, there must be full and frank disclosure of all material facts’.152
Therefore, it is doubtful why the relationship between the broker as the agent and the
assured as a principal has to depart from this general principle.
8.038 Before this part ends, it is worth mentioning at this stage that there are other aspects
of the broker’s duties which deserve consideration and these will be dealt with in
different parts of this chapter.
144
Ibid., 540.
145
(1876) 3 Ch D 502.
146
Ibid.
147
Ibid., 506-507.
148
Clarke and the others (n 97) para 9-4B2.
149
John Lowry and the others, Insurance Law: Doctrines and Principles (3rd edn, Hard Publishing 2011) 81.
150
New Zealand Netherlands Society “Oranje” Incorporated v Laurentius Cornelis Kuys and Another [1973] WLR
1126.
151
Ibid., 1128.
152
Ibid., 1132.

VITIATING FACTORS 287
4. VITIATING FACTORS
Since a marine insurance contract is nothing more than a specific contract, it is 8.039
subjected to the same vitiating factors as other contracts. This part will deal only with
two vitiating factors peculiar to marine insurance contracts. The first is the lack of
‘insurable interest’ and the second is breaches of the duty of utmost good faith.
(a) Lack of Insurable Interest

The concept of ‘insurable interest’ is explained in rather hard to understand terms in 8.040
s. 5 of the MIO:
(1) Subject to the provisions of this Ordinance, 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 be benefit by the safety or
due arrival of insurable property, or may be prejudiced by its loss, or by
damage thereto, or by detention thereof, or may incur liability in respect
thereof.
It has been explained that the rationale behind the concept of insurable interest is to 8.041
prevent the insurance contract turning out to be a gambling or wagering contract.153
A classic judicial exposition to the ‘insurable interest’ is that of Lucena v Craufurd.154
There, in an oft-cited passage of Lawrence J:155
“…interest does not necessarily imply a right to the whole, or a part of a thing,
nor necessarily and exclusively that which may be the subject of privation,
but the having some relation to, or concern in the subject of insurance, which
relation or concern by the happening of the perils insured against may be
so affected as to produce a damage, detriment, or prejudice to the person
insuring; and where a man is so circumstanced with respect to matters
exposed to certain risks or dangers, as to have a moral certainty of advantage
or benefit, but for those risks or dangers he may be said to be interested in
the safety of the thing. To be interested in the preservation of a thing, is to be
circumstanced with respect to it as to have benefit from its existence, prejudice
from its destruction.”
153
Bennett (n 12) para 3.01. See also s.4 of the MIO: ‘(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 Ordinance and the contract is entered into with no
expectation of acquiring such an interest…’ Legh-Jones QC observed that the use of the present tense in ‘the
contract is entered into’ suggests the interest must exist or can be anticipated at the time of contract formation.
Nicholas Legh-Jones QC., ‘The Elements of Insurable Interest in Marine Insurance Law’ in D. Rhidian Thomas,
The Modern Law of Marine Insurance Volume 2 (LLP 2002) para 4.10 (italics followed the original text).
154
Lucena v Craufurd and Others in Error (a) (1806) 2 Bos & Pul (NR) 269, 127 ER 630.
155
Ibid., 302, 643 (emphasis added).

8.042 Lord Eldon in the same case expressed some doubts as to the above explanation:156
“In order to distinguish that intermediate thing between a strict right, or a right
derived under a contract, and a mere expectation or hope, which has been termed
an insurable interest, it has been said in many cases to be that which amounts to
a moral certainty. I have in vain endeavoured however to find a fit definition of
that which is between a certainty and an expectation; nor am I able to point out
what is an interest unless it be a right in the property, or a right derivable out of
some contract about the property, which in either case may be lost upon some
contingency affecting the possession or enjoyment of the party.”
8.043 Thomas referred to Lord Eldon’s approach as a ‘legalistic approach’ explaining that
under this approach there must be an ‘existing’ right, either legal or equitable, and a mere
anticipated right would not be sufficient.157 On the other hand, Lawrence J’s approach
is referred to by Thomas as a ‘pecuniary interest approach’.158 Thomas explained that
the legalistic approach has been followed with approval in some subsequent cases
while the pecuniary interest approach was ignored by the draftsman of the MIA.159
However, he maintains that it is feasible to interpret the language of the MIA along the
lines of the pecuniary interest approach, citing the method of interpretation adopted in
The Moonacre.160 The pecuniary interest approach takes a ‘much wider approach’ with
the focus ‘wholly on pecuniary interest, free from the additional constraint of having
to prove that the pecuniary interest arose from the assured’s legal or equitable relation
to the subject-matter insured’.161
8.044 One of the cases post-MIA enactment where the legalistic approach was followed is
that of the House of Lords in Macaura v Northern Assurance Co.162 This was a simple
case of an individual who owned an estate filled with timber. He assigned all these to
a company in exchange for the shares in the company. The insurance for the timber
against loss by fire was effected by this individual against insurance companies. The
latter argued that the individual had no insurable interest in the timber.163 The House of
Lords were unanimous in upholding the insurance companies’ argument. According
to Lord Buckmaster, ‘no shareholder has any right to any item of property owned by
the company, for he has no legal or equitable interest therein’.164 Albeit this individual
was the shareholder of the company, his interest as a shareholder was found to be of
different nature. Lord Buckmaster proceeded to explain:165
156
Lucena v Craufurd (n 154), 321; 650.
157
D Rhidian Thomas, ‘Insurable Interest – accelerating the liberal spirit’ in D. Rhidian Thomas (ed), Marine
Insurance: The Law in Transition (Informa 2006) paras 2.59-2.61.
158
Ibid., paras 2.65-2.66.
159
Ibid., paras 2.63 and 2.67.
160
Ibid., para 2.68 citing Anthony John Sharp and Roarer Investments Ltd v Sphere Drake Insurance plc Minster
Insurance Co Ltd and EC Parker and Co Ltd (The “Moonacre”) [1992] 2 Lloyd’s Rep. 501.
161
Thomas (n 157) para 2.65.
162
Macaura v Northern Assurance Company Ltd [1925] A.C. 619.
163
Ibid., 624.
164
Ibid., 625.
165
Ibid., 626-627.

“He [a shareholder] is entitled to a share in the profits while the company

continues to carry on business and a share in the distribution of the surplus assets
when the company is wound up. If he were at liberty to effect the insurance
against loss by fire of any item of the company’s property, the extent of his
insurable interest could only be measured by determining the extent to which his
share in the ultimate distribution would be diminished by the loss of the asset – a
calculation almost impossible to make.”
Lord Buckmaster proceeded to reject the approach of Lawrence J in Lucena v 8.045

Craufurd on the basis that it is not feasible to understand the ‘moral certainty’ so
as to make it ‘an essential part of a definite legal position’.166 As noted by Wright
and Thomas,167 the court in Hong Kong followed the Macaura case. They cited
an unreported judgment of the District Court in Ali AH Saleh v Falcon Insurance
Company (Hong Kong) Ltd.168 In this case, the plaintiff who resided in the Lebanon
purported to be a director of the company. The said company entered into a sale
and purchase transaction on C.I.F terms with a Hong Kong company.169 The plaintiff
maintained that he had the insurable interest under the cargo insurance policy
effected by the Hong Kong company.170 The judge denied the plaintiff ’s insurable
interest. ‘[H]is status as director would not give him a legal or equitable interest in the
company’s property’.171 However, it can be observed from recent English authorities
that the English courts have shown more willingness to depart from the rather narrow
‘legalistic approach’.172 Two cases should be mentioned here: The Moonacre173 and
The Marin P.174
The Moonacre involved a businessman who sought to spend his retirement life on 8.046
sailing. For tax reasons, the yacht was acquired not by him, instead by a specific-
purpose company. Nevertheless he was instrumental in arranging insurance for this
yacht and the policy was issued stating his name as the assured.175 The yacht was
destroyed by fire while she was laid up.176 While the case turned ultimately on the
exception clause, one of the grounds raised by the insurer for rejecting the claim was
the man’s lack of insurable interest.177 Relevant to the issue of insurable interest, it
transpired that the company had given the man a power of attorney stating broadly
his right to control and use the yacht.178 Mr. AD Colman QC explained the equivalent
166
Macaura v Northern Assurance Co (n 162), 627.
167
Colin Wright and Caroline Thomas, ‘Hong Kong Law and Practice’ in John Dunt (ed), International Cargo
Insurance (Informa 2012) para 4.25.
168
DCCJ 6260 & 6261/2002.
169
Ibid., [5]. For CIF terms, see further details in Chapter 4.
170
Ibid., [6].
171
Ibid., [9].
172
See observation of Waller LJ in Feasey v Sun Life Assurance Co. of Canada [2003] EWCA Civ.885; [2004] 1
CLC, [95].
173
The Moonacre (n 160).
174
O’Kane v Jones (The “Martin P”) [2003] EWHC 3470 (Comm), [2004] 1 Lloyd’s Rep 389.
175
The Moonacre (n 160) 504.
176
Ibid., 505.
177
Ibid., 506.
178
Ibid., 509.

s.5 of the MIA that sub-section (2) ‘does not provide an exhaustive definition’.179
Instead, it spells out three characteristics which are normally present when there is an
insurable interest:180
“(a) The assured may benefit by the safety or due arrival of insurable property
or be prejudiced by its loss or damage or detention or in respect of which he
may incur liability. (b) The assured stands in a legal or equitable relation to the
adventure or to any insurable property at risk in such adventure. (c) The benefit,
prejudice or incurring of liability referred to at (a) must arise in consequence of
the legal or equitable relation referred to at (b).”
8.047 The judge further elaborated that to determine whether the assured has a ‘legal or
equitable relation’, there must be a trace into ‘whether there have been conferred on
him any rights recognized by law or in equity or imposed on him any obligations so
recognized in respect of the adventure or the insured property the enjoyment of which
obligations may be brought about or rendered more onerous by the incidence of an
insured peril’.181 The judge found the man in this case to have an insurable interest
in the yacht by reason of the power of attorney conferred on him by the company
enabling him to use the vessel. ‘The legal relation in which he stood to the vessel was
that for as long as the powers of attorney remained he was entitled to use [the yacht]
for his own purposes and to exercise over it such control as he saw fit’.182 The judge
was at pain to distinguish this case from that of the Macaura case. He explained that
in that case, as a shareholder, the detriment the assured would sustain was not due to
‘any relation in which he stood to the timber but by reason of the relation in which he
stood to the company which owned the timber’.183
8.048 In The Martin P, the owners arranged the hull & machinery insurance of this vessel.
Due to overdue premium payments, the broker threatened to cancel this insurance
cover.184 The technical manager of the vessel sought alternative insurance via its own
broker.185 In this latter insurance, however, only the technical manager was named as
the assured in the policy.186 The Martin P was severely damaged due to a hurricane
which led to the vessel becoming a constructive total loss.187 The first insurance
effected by the owners was not actually cancelled.188 By this time, therefore, there
was a ‘double insurance’ of the Martin P.189 The dispute arose when the underwriters
under the first insurance paid under the policy and tried to seek contribution from the
179
The Moonacre (n 160) 510.
180
Ibid.
181
Ibid.
182
Ibid., 512.
183
Ibid.
184
The Martin P (n 174) [2].
185
Ibid., [3].
186
Ibid., [55].
187
Ibid., [53] and [70].
188
Ibid., [63].
189
Pursuant to s.32(1) of the MIA (and the same for the MIO): ‘Where two or more policies are affected 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 Ordinance, the assured is said to be over-insured by double insurance’.

underwriters under the second policy pursuant to their rights available in the event
of the double insurance pursuant to the equivalent of s.32.190 One of the issues which
the court had to decide was whether the technical manager had an insurable interest
in the vessel so as to enable him to arrange the second insurance. Reviewing various
authorities, including The Moonacre, the Deputy High Court Judge Richard Siberry
QC, explained the insurable interest further as follows:191
“(1) Ownership or possession (or the right to possession) of the property insured
is not a necessary requirement of an insurable interest therein;
(2) Commercial convenience can be a relevant factor in determining the existence
of an insurable interest;
(3) A person exposed to liability in respect of the custody or care of property
may, as an alternative to taking out liability insurance to protect his exposure,
insure the property itself, and in the event of loss or damage thereto by a peril
insured against may recover in respect thereof up to the full sum insured,
even if that exceeds the amount for which he is liable and even if the loss or
damage has occurred without any actionable fault on his part. If and to the
extent that he has suffered no personal loss he will be liable to account to the
owner of the goods who has suffered the loss;
(4) A legal right to the use of goods, the benefit of which would be lost by their
damage or destruction, may be sufficient to constitute an insurable interest
therein;
(5) A person may also have an insurable interest in property if loss of or damage
to that property would deprive him of the opportunity of carrying out work
in relation to that property and being remunerated for such work…”
Bearing the above definition in mind, within the context of The Martin P, the technical 8.049
manager was found to have an insurable interest. The existence of the technical
management agreement whereby the technical manager had various responsibilities
meant the technical manager had ‘considerable control over the vessel and its
operation’.192 The technical manager was remunerated for its services. Such earning
of remuneration would be lost in the event of the total loss of the vessel. Plus, by
the technical management agreement, the owners could hold the technical manager
liable for loss or damages to the vessel if gross negligence on the part of the technical
manager could be established.193 Hence, the technical manager was found to stand ‘in
a legal relationship to the vessel, in consequence of which it might have benefited by
its safety, it might have been prejudiced by its loss or by damage thereto, and it might
have incurred a liability in respect thereof’.194
190
MIO and MIA (n 189).
191
The Martin P (n 174), [154].
192
Ibid., [156].
193
Ibid., [157].
194
Ibid., [156].

8.050 The analysis of the Deputy High Court Judge Richard Siberry QC in the context of
The Martin P is easy to follow, however, the concept of insurable interest as explained
in his judgment is not entirely clear. He employed the term ‘commercial convenience’.
What does this term mean exactly? How far does this term embrace? Thomas explained
that The Moonacre and The Martin P represent yet another approach to the insurable
interest, namely the ‘pragmatic commercial approach’.195 He further explained this
as a supplementary to the ‘pecuniary interest’ approach. ‘[O]nce a pecuniary interest
is established the fact that there also exists a supporting commercial dimension adds
considerable weight to the argument that the pecuniary interest should be recognised
as establishing an insurable interest’.196 He also identifies the positive advantage of the
pragmatic commercial approach as it allows flexibility as the focus of this approach is on
the commercial intention of the parties. ‘If the insurance is commercially comprehensible,
sensible and justified there is little or no reason to justify the law interfering and frustrating
the reasonable commercial expectation of the parties…’197 Importantly, Thomas was of
the view that the pragmatic commercial approach is developing and it is the approach
which the law relating to insurable interest is heading towards.198
8.051 It can be observed that, in explaining the concept of insurable interest as above, the
Deputy High Court Judge Richard Siberry QC, took into account cases on the extended
recognition of the concept of insurable interest to what is known academically as the
‘pervasive interest’. Thomas explained this as ‘the recognition that an assured with
a specific or partial interest in an insured subject-matter may insure beyond his own
particular interest to the full insurable value of the subject-matter’.199 A long line of
authorities has recognised the pervasive interest starting from Petrofina Ltd v Magnaload
Ltd.200 The case involved an extension work of the oil refinery whereby a ‘contractors
all risks insurance’ was taken out naming the owners of the refinery, the contractors,
and the sub-contractors as the assureds.201 The gantry of equipment supplied by the
sub-contractor dropped causing damage to the project. The owners brought the claim
under the policy and the insurer settled accordingly. The insurance company then
pursued the subrogated claims against the contractors and the sub-contractors.202 One
of the defences raised by the sub-contractors was that the insurer could not bring the
subrogated claims ‘because the defendants are themselves fully insured under the same
policy’.203 Lloyd J. took analogy from cases whereby the bailee was found entitling to
take insurance for full value of the goods, holding that ‘convenience’ dictates that same
logic is applicable in the case of sub-contractors.204 He explains:205
“In the case of a building or engineering contract, where numerous different sub-
contractors may be engaged, there can be no doubt about the convenience from
195
Thomas (n 157) paras 2.72-2.76.
196
Ibid., para 2.72.
197
Ibid., para 2.73.
198
Ibid., para 2.72.
199
Ibid., para 2.81.
200
Petrofina (UK) Ltd v Magnaload Ltd (1984) 1 QB 127.
201
Ibid., 130–131.
202
Ibid. For the insurer’s right of subrogation, see s.79 of the MIO.
203
Ibid., 131.
204
Ibid., 135.
205
Ibid., 136.

everybody’s point of view…of allowing the head contractor to take out a single
policy covering the whole risk, that is to say covering all contractors and sub-
contractors in respect of loss of or damage to the entire contract works. Otherwise
each sub-contractor would be compelled to take out his own separate policy.
This would mean, at the very least, extra paperwork; at worst it could lead to
overlapping claims and cross-claims in the event of an accident. Furthermore…
the cost of insuring…might, in the case of a small sub-contractor, be uneconomic.
The premium might be out of all proportion to the value of the sub-contract. If the
sub-contractor had to insure his liability in respect of the entire works, he might
well have to decline the contract…
For all these reasons, I would hold that a head contractor ought to be able to insure
the entire contract works in his own name and the name of all his subcontractors…
and that a sub-contractor ought to be able to recover the whole of the loss insured,
holding the excess over his own interest in trust for the others.”
The pervasive interest came to be considered again in Stone Vickers v AS.206 In this 8.052
case, Appledore Ferguson Shipbuilders Ltd (“AS”) contracted to build a research
vessel. It sub-contracted to Stone Vickers Ltd (“SV”) to provide the propeller. The
propeller was found to be defective. SV brought a claim against AS for the amount due
under the sub-contract agreement. AS counter-claimed for ‘the breach of quality and
design obligations’.207 Prior to the action, AS had made a claim under the insurance
cover and the underwriters settled the claim on a without prejudice basis.208 Therefore,
the underwriters had a subrogated claim but SV contended it was the co-assured under
the policy and hence the subrogated claim cannot be made against it.209 The insurance
was taken out by AS incorporating among other conditions the Institute Clauses
for Builder’s Risks. The assured was stated to include ‘Associated and Subsidiary
Companies and/or Sub-Contractors as additional Co-assured for their respective rights
and interests…’210 The Court of Appeal, based upon the construction of the insurance
contract in question, held SV was not a co-assured in this insurance.211 In the Queen’s
Bench Division, however, it was contended before Mr. Anthony Colman QC. (as he
then was), sitting as the Deputy High Court Judge, that SV had sufficient insurable
interest for it to be considered as co-assured and enabled it to resist the subrogated
claim.212 Mr. Anthony Colman QC referred to the Petrofina case with approval. He
further explained the pervasive interest which his passage deserves to be quoted here
at length:213
“The approach…is to ask whether the supplier of a part to be installed into the vessel
or contract works under construction might be materially adversely affected by loss
of or damage to the vessel or other works by reason of the incidence of any of the
206
Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1991] 2 Lloyd’s Rep 288 (QB).
207
Ibid., 290.
208
Ibid.
209
Ibid.
210
Ibid., 292.
211
See Stone Vickers Ltd v Appledore Ferguson Shipbuilders Ltd [1992] 2 Lloyd’s Rep 578, 585.
212
Stone Vickers (n 206) 299.
213
Ibid., 301.

perils insured against by the policy in question…The yardstick can best be identified
by asking whether such a supplier would have had sufficient interest to have taken
out a policy in his own name on the whole of the vessel or contract works.
…It well may be that a supplier to whom the construction of part of the vessel is
sub-contracted and who is to undertake the work on his own premises is less at
risk of loss or liability due to damage to the whole vessel than is a sub-contractor
who participates in the construction of the vessel in the head contractor’s yard. It
may also be that not every supplier under sub-contract would be exposed to risk
of loss by reason of loss or damage to the vessel as a whole which would give him
an insurable interest in the whole contract works. The supplier under sub-contract
of some relatively trivial fittings which by no stretch of the imagination could
endanger the whole vessel would lack…a pervasive interest in the entire property.
When it comes to the supplier under a sub-contract of a major part of the vessel the
failure of which may render that supplier liable for damage to the vessel beyond
mere replacement of the defective part I can see no material difference between
the position of such supplier and that of the sub-contractor who is actively engaged
in construction of the vessel. Both have pervasive interest in the entire works.”
8.053 Mr. Justice Colman came to consider the pervasive interest again in his subsequent
judgment in NOW v DOL.214 Based upon his decision on the point of construction,
the remaining issues, including the insurable interest, can be considered as obiter.215
In relation to the insurable interest, the accuracy of the judgment in the Petrofina and
the Stone Vickers cases were challenged. It was argued by the counsel for DOL that
the analogy with cases on bailment was incorrect as it is the ‘possessory interest’ that
forms the basis for bailees’ insurable interest in goods. Different from bailees, sub-
contractors had no possessory interest as such. The interest such sub-contractors have
was not in property, instead in potential liability. ‘Since the insurance in question was…
an insurance on property and not on liability, there would be no relevant insurable
interest’.216 However, Colman J. came to insist on his earlier decision. He found the lack
of possessory interest to be irrelevant. He resorted to his decision in The Moonacre and
explained that: ‘it might in some cases be unnecessary to establish that the assured had
any proprietary legal or equitable interest in the goods…’217 He further explained:218
“The suggestion that there cannot as a matter of law be an insurable interest

based merely on potential liability arising from the existence of a contract
between the assured and the owner of property or from the assured’s proximate
physical relationship to the property in question is…to confine far too narrowly
the requirements of insurable interest. There is nothing in the authorities which
prevents such a relationship to the property from giving rise to an insurable
interest in the property for the purposes of an insurance on property.”
214
National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd’s Rep 582.
215
Ibid., 606.
216
Ibid., 608.
217
Ibid., 611.
218
Ibid.

Last in the series of cases concerning pervasive interest considered in this work is 8.054
the decision of Mr. Justice Rix (as he then was) in State of Netherlands v Youell.219
In this case, the claim was brought by the State of Netherlands in relation to the two
submarines which was found to be in damaged condition while they were being built
in the shipyard. The insurance contract named the State of Netherland along with the
shipyard and the other sub-contractors as the ‘assureds’.220 In the course of discussing
whether the insurance in question was a joint insurance or a composite insurance,221
Rix J. (as he then was) sought to compare and contrast the composite interest with the
pervasive interest:222
“The concept of separate interests under a composite insurance is also to be

distinguished from the concept of a pervasive interest which the owner of one
such separate interest may have to claim in respect of the loss suffered by all
separately interested co-assureds under a single policy on property. A pervasive
interest in this sense partakes of certain characteristics of both a separate interest
and a joint interest for the very good reason that in such a case a claimant is
entitled to claim not only for himself but also for the benefit of his co-assureds in
the full amount of the loss.”
The pervasive interest can exist even if the policy is found to be a composite interest 8.055
policy.223 Whether the policy is a joint policy or a composite policy appears to be a
matter of construction.224
The insurable interest must exist at the time of the loss. This is reflected in the language 8.056
of s.6 of the MIO:
(1) The assured must be interested in the subject-matter insured at the time of
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.
219
State of the Netherlands (Represented by the Minister of Defence) v Youell and Hayward [1997] 2 Lloyd’s
Rep 440.
220
Ibid., 441-442.
221
Bennett explained a ‘joint insurance’ as ‘arises where two or more assureds share in the one and same interest
that they insure for their collective benefit. Joint owners of property can take out joint insurance on their shared
interest. The assureds enjoy a unity of interest and the policy covers that unified interest’. Differently, for a
‘composite insurance’, it ‘arises where different interests are brought together and, for reasons of convenience,
insured under the same policy but on a several basis. Common examples of a composite policy are those that
embrace the interests of the owner and managers of a ship, different companies within a group, and a head-
contractor and sub-contractors’. See Bennett (n 12) para 2.70.
222
State of Netherlands v Youell (n 219) 448.
223
Ibid., 451.
224
Ibid.

8.057 The case in relation to this provision which deserves attention here is NSW Leather v
Vanguard Insurance225 before the New South Wales Court of Appeal. This case
received attention from the Australian Law Reform Commission in its discussion for
the reform of the Marine Insurance Act 1909 (Cth), another statute similar to the MIA.
The case was said to provide an illustration of a justification for law reform.226 This
case should also be considered in comparison with the decision of Stone J. (as he then
was) in the case before the Court of First Instance in Hong Kong in Hong Kong Nylon
Enterprises Ltd v QBE Insurance (Hong Kong) Ltd.227
8.058 The facts of the NSW Leather case was that an Australian leather merchant purchased
leather goods on FOB terms from suppliers in Brazil. These leather goods were packed
in containers and sealed by customs. However, prior to the loading of containers, thieves
broke the seals, stole the goods, and re-attached the seals. These containers were then
shipped and the fact that goods were stolen only came to light when those containers
were discharged in Sydney.228 The merchant claimed from the underwriter but the
underwriter denied the claim on the basis that at the time the stealing happened, risk
did not pass to the merchant.229 The judge at first instance held that the merchant had
no insurable interest when the loss occurred since the risk did not pass.230 In the Court
of Appeal, Handley JA emphasised the importance of the language of the policy.231 He
found the insurance in this case to be one ‘on goods and/or merchandise’. However,
the type of loss the merchant suffered in this case was different as he elaborated:232
“…this policy on goods did not cover the appellant [merchant] in respect of these
goods before the risk passed to it when they were loaded on board and did not cover
it against the financial risks it incurred when it paid cash against documents…
The appellant was not at risk, except as to anticipated profits, if the goods had
been stolen while in transit from the interior, or from the freight consolidators’
depot prior to packing in the containers, if the loaded containers themselves had
been stolen, or if the goods, or the loaded containers had been destroyed by fire
prior to loading. In such cases the appellant would presumably have become
aware of the loss, and the carrier would not have issued any bill of lading for the
goods. However, and what is of critical importance, the appellant would not have
been under any liability to pay for the goods.”
8.059 He came to conclude in the later passage in his judgment that the losses the merchant
suffered were not covered by this particular policy. Instead, it would be covered by the
policy ‘in the nature of a guarantee for the sellers’ obligations to deliver’.233
225
NSW Leather Co Pty Ltd v Vanguard Insurance Co Ltd (1991) 25 NSWLR 699.
226
The Australian Law Reform Commission, ‘Review of the Marine Insurance Act 1909 (Cth) (ALRC Report 91)’
<http://www.alrc.gov.au/sites/default/files/pdfs/publications/alrc91.pdf> accessed 13 July 2014. See in particular
at paragraph 11.28.
227
HCCL 46/1999; [2003] HKEC 199 (downloaded from Westlaw Hong Kong).
228
NSW Leather (n 225), 702.
229
Ibid.
230
Ibid., 703.
231
Ibid., 708.
232
Ibid.
233
Ibid., 709.

However, this case took its turn in the further analysis of Handley JA. The policy 8.060
contained a ‘lost or not lost’ clause.234 This reminds one the language of the second
paragraph of sub-section (1) of s.6 of the MIO quoted above. This led Handley JA to
conclude in favour of the merchant. ‘Here the [merchant] suffered loss because the
goods had previously been stolen and the lost or not lost clause entitles it to recover
for the earlier thefts, although it suffered no loss when they occurred’.235 One would be
able to imagine how the merchant in this case would lose his case had the policy not
included the ‘lost or not lost’ clause.
In contrast from the NSW Leather case the Hong Kong Nylon Enterprises case 8.061
concerned an insurance of a complex plastic moulding machine. A Chinese buyer
purchased the machine from the seller in Hong Kong. The sale and purchase agreement
was concluded on CIF terms with the letter of credit opened by the buyer for the
payment of the deposit with the place of delivery of the machine in Xiamen.236 The
seller engaged the forwarding agent for the machine to be shipped to Xiamen.237 The
machine arrived at Xiamen and it was put onto the trailer to the warehouse indicated
by the buyer. On the way to the warehouse, the trailer made a sudden turn to avoid
collision with a taxi, which caused damages to the machine.238 It was contended that
the seller in this case lacked insurable interest at the time of the loss.239 However,
Stone J. rejected this point as he found the sale arrangement in this case to be based
not on a typical CIF terms. There was an arrangement between the parties to the
effect that the machine must be inspected within certain days upon arriving Xiamen.
If the machine could not pass the inspection, the seller would take the machine back
and the letter of credit was for the deposit only, not the full price.240 In light of this
arrangement, Stone J. accepted the argument of the counsel for the seller that at the
time of the damage to the machine, the seller ‘stood to benefit from the safe arrival
of the machine, and to suffer countervailing detriment if the machine was lost or
damaged’.241 It can be observed that, in the absence of the special arrangement, the
seller would necessarily be found not to have the insurable interest.
(b) Breaches of the duty of utmost good faith

While the concept of ‘good faith’ does not underpin general contract law, insurance 8.062
contracts (marine and non-marine insurance alike) are said to be contracts of the
utmost good faith. Section 17 of the MIO provides: ‘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’. This section
can be interpreted in two ways. First, it may be understood as an introductory provision
234
NSW Leather (n 225) 709. According to Rule 1 of the ‘Rules for Construction of Policy’ attached to the Schedule
of the MIO: ‘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’.
235
Ibid., 711.
236
Hong Kong Nylon (n 227) [11].
237
Ibid., [15].
238
Ibid., [18]-[19].
239
Ibid., [62].
240
Ibid., [70].
241
Ibid.

to ss.18-20 and since both sections only apply pre-contractually, s.17 has no application
at post-contractual phase.242 Literally though, the language of s.17 does not contain
such temporal limitation and there is no reason why it should not be applied post-
contractually. This latter way of interpretation received the highest judicial support in
the decision of the House of Lords in The Star Sea243 where Lord Clyde stated: ‘[o]ne
solution is to impose the limit upon the period of relationship between the parties…so
that it would apply to pre-contractual negotiations…but that solution now appears to
be past praying for…’244 However, as Soyer concluded in his thought-provoking paper,
the post-contractual aspect of the doctrine of utmost good faith is like a ‘barking dog: it
rarely bites’,245 so this chapter will omit mentioning the post-contractual aspect.
(i) Pre-contractual utmost good faith: non-disclosure and misrepresentation

8.063 While the language of s.17 of the MIO suggests that the duty of utmost good faith
is mutual, the following provisions dealing with the duties to disclose and not to
misrepresent lie only with the assured and his agent. The fact that there is an active
pre-contractual duty of disclosure requirement is another significant aspect that
makes insurance contract law different from its general contract law counter-part.
The rationale for this requirement is said to be based on a classic statement of Lord
Mansfield in Carter v Boehm:246
“First. Insurance is a contract upon speculation…

The special facts, upon which the contingent chance is to be computed, lie most
commonly in the knowledge of the insured only: the underwriter trusts to his
representation, and proceeds upon confidence that he does not keep back any
circumstance in his knowledge, to mislead the underwriter into a belief that the
circumstance does not exist, and to induce him to estimate the risk, as if it did
not exist…
The keeping back such circumstance is a fraud, and therefore the policy is void.
Although the suppression should happen through mistake, without any fraudulent
intention; yet still the underwriter is deceived, and the policy is void; because the
risk is really different from the risk understood and intended to be run, at the time
of the agreement…
The policy would equally be void, against the underwriter, if he concealed, as, if
he insured a ship on her voyage, which he privately knew to be arrived: and an
action would lie to recover the premium…
The governing principle is applicable to all contracts and dealings…
Good faith forbids either party, by concealing what he privately knows, to draw the
other into a bargain, from his ignorance of that fact, and his believing the contrary.”
242
Baris Soyer, ‘Continuing duty of utmost good faith in insurance contracts: still alive?’ [2003] LMCLQ 39, 41.
243
Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd and La Reunion Europeene (The “Star Sea”) [2001]
UKHL/1; [2001] 1 Lloyd’s Rep 389.
244
Ibid., [6] (emphasis added).
245
Soyer (n 242) 79.
246
(1766) 3 Burr 1905 1909-1910 (italics following the original text).

It would be observed that the rationale behind the duties of utmost good faith at the pre- 8.064
contractual phase, i.e. duties to disclose and not to misrepresent, lies in the imbalance
of information. While Lord Mansfield used the term void and the language of ss.17-20
of the MIO is to similar effect, the term must be understood in the sense of ‘voidable’.247
Once a party seeks to avoid, the consequence is retrospective. The insurer has to return
the premiums he received to the assured while the assured must also return to the
insurer the payments received from the insurer for the loss previously occurred during
the same contract.248 The insurer is also discharged from any prospective claims and
the contract is taken as if it was never entered into as ‘the policy is set aside ab initio’.249
However, the premiums do not have to be returned if the breach was due to fraud.250
Section 18 of the MIO stipulates the extent of the assured’s pre-contractual duty of 8.065
disclosure as follows:
(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 an
express or implied warranty
(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” (情況) includes any communication made to, or
information received by, the assured.
According to the above provision, the assured has to disclose what he knows. He also 8.066
needs to disclose what he is supposed to know in the ordinary course of business,
247
248
Ibid., para 15-140.
249
Ibid.
250

so-called ‘constructive knowledge’.251 Nevertheless, it would be equally wrong to

assume that the assured has to disclose everything he knows or ought to know. It
is impractical for business purposes to impose such a wide duty.252 Therefore, the
assured has to disclose only material facts.
8.067 It is the language of subsection 18(2) of the MIO which leads the law to be in the state
of rigidity and causes injustices in particular to the assured. In the United Kingdom,
the English and the Scottish Law Commissions have proposed to Parliament the draft
‘Insurance Bill’ which seeks to abolish this s.18 and to substitute by the ‘duty of fair
presentation’.253 The Insurance Act 2015 received the Royal Assent on 12 February
2015. Nevertheless, this is not a concern of this chapter.
8.068 From the language of s.18(2), to be material, facts or circumstances must fall within
two limbs of the definition. First, whether facts or circumstances are ‘material’, the law
relies on the view of the ‘prudent insurer’. Then, the second limb relates to the degree
of influence which such facts have on the prudent insurer, since the statute employs the
language ‘…would influence the prudent insurer…’ What does this phrase mean? The
failure to disclose the facts or circumstances which fall within these two limbs should
lead the insurer to be able to avoid the contract. However, the House of Lords in Pan
Atlantic v Pine Top254 found a requirement of ‘inducement’ to be implicit in s.18.255 So,
the role of inducement has to be taken into account.
8.069 There is no statutory definition of the ‘prudent insurer’. While discussing the meaning,
Park refers to the passage of Atkin J. that ‘…[T]here seems to be no good reason to
impute to the insurer a higher degree of knowledge and foresight than that reasonably
possessed by the more experienced and intelligent insurers carrying on business in that
market at that time’.256 It can be seen that the ‘prudent insurer’ is nothing more than
a standard of assuming the opinion of the reasonably experienced insurer. However,
this appears unreasonable to the extent that the law expects the assured to know what
the reasonably experienced insurer thinks. Once alleged non-disclosure is raised in
litigation by the insurer as a defence, it is as well hard for the judge to assess the opinion
of the prudent insurer. As Merkin puts it, ‘…no judge can pretend to be a prudent
insurer’.257 Thus, in practice, the expert witness is admitted to represent the view of the
prudent insurer, a practice which leads to ‘professional bias’. As Park puts it:258
“The insurer can be more protected by the practice of accepting expert evidence…
through his years of experience in the insurance industry, [he] is much more
accustomed to expert evidence which mostly comes from his fellow insurers. On
251
Semin Park, The Duty of Disclosure in Insurance Contract Law (Dartmouth Publishing Company 1996) 15.
However, consumers affecting insurance do not have to disclose ‘constructive knowledge’. See Economides v
Commercial Assurance Co plc [1998] Q.B. 587.
252
Ionides v Pender (1874) LR 9 QB 531, 539.
253
See ‘Insurance Bill’ <http://www.publications.parliament.uk/pa/bills/lbill/2014-2015/0039/15039.pdf> accessed
18 August 2014.
254
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 2 Lloyd’s Rep 427.
255
See Ibid., 452.
256
Park (n 251) 77 citing Associated Oil Carriers, Ltd v Union Society Insurance of Canton, Ltd [1917] 2 KB 184,
192 (emphasis added).
257
Robert Merkin, ‘Uberrimae Fidei Strikes Again’ (1976) 39 MLR 478, 480.
258
Park (n 251) 84.

the other hand, the insured may have a very limited opportunity to get access to
expert evidence.”
To make the matter worse, the second limb is added to this complexity. Any discussion 8.070
on the degree of influence has to start with the decision of Lloyd J (as he then was) in
the trial of the case CTI v Oceanus.259 Judicial authorities prior to this were unhelpful.260
Lloyd J proclaimed what came to be academically known as the ‘decisive influence
test’,261 the essence of this being:262
“…the underwriters ought only to succeed on a defence of non-disclosure if

they can satisfy the Court…that a prudent insurer, if he had known the fact in
question, would have declined the risk altogether or charged a higher premium.”
It is submitted that from the assured’s point of view this test is unhelpful to the extent 8.071
that the assured still cannot know what exactly he has to disclose. Lloyd J only focused
on how materiality is proved once alleged non-disclosure comes to litigation. This test
is subsequently rejected by the Court of Appeal in the same case.263 The House of Lords
in Pan Atlantic v Pine Top adopted the interpretation of the Court of Appeal in the
CTI case and hence the degree of influence is expressed to be what ‘a prudent insurer
would take…into account…’264 This wide interpretation is condemned on the basis of
impracticality. As Clarke observed, ‘[t]he traditional London practice of rapid placement
of risks would be blocked by an avalanche of information’.265 Moreover, there would be
serious concerns if the insurer can avoid the contract based upon the failure to disclose
facts falling within these two limbs. The right of the insurer to avoid the contract for
material non-disclosure is regardless of the assured’s degree of culpability and regardless
of the causation between the breach and the loss. As succinctly summarised by Baatz:266
“The right to avoid the contract is an extremely draconian remedy. It does not,
in any way, depend on the fault of the party in breach of the duty…Thus the
marine insurance contract differs from the commercial contract in that first there
is an obligation to disclose material facts prior to the conclusion of the contract.
Secondly…the remedy for non-disclosure is always rescission.”
To add another hurdle to the insurer’s right to avoid the contract, the House of Lords 8.072
found the requirement of ‘inducement’ to be implied in s.18.267 The rationale, as
259
Container Transport International Inc and Reliance Group Inc v Oceanus Mutual Underwriting Association
(Bermuda) Ltd [1982] 2 Lloyd’s Rep. 178.
260
‘A very large number of cases were cited on both sides…they did not help one way or the other…’ Pan Atlantic
(n 254) 459 (per Lord Lloyd).
261
262
CTI (n 259) 187 (emphasis added).
263
See Container Transport International Inc and Reliance Group Inc v Oceanus Mutual Underwriting Association
(Bermuda) Ltd. [1984] 1 Lloyd’s Rep 476, 492.
264
Pan Atlantic (n 254) 440.
265
Malcolm Clarke, ‘Failure to Disclose and Failure to Legislate – is it material?-II’ [1988] JBL 298, 304.
266
Yvonne Baatz, ‘Utmost Good Faith in Marine Insurance Contracts’ in Mac Huybrechts and the others (eds),
Marine Insurance at the turn of the millennium volume 1 (Intersentia 1999) 15, 25.
267
Pan Atlantic (n 254) 452-453.

explained by Lord Mustill, ‘…to enable an underwriter to escape liability when he has
suffered no harm would be positively unjust…’268 It was argued by Hird that it is strange
‘to suggest that something the insurer has no idea of the existence of can actually induce
him into making a contract’.269 The House of Lords did not explain the requirement of
inducement any further. It was not until the Court of Appeal in Assicurazioni Generali
SpA v Arab Insurance Group270 where the requirement of inducement was elaborated
further. Clarke LJ summarised the legal position as follows:271
“(i) In order to be entitled to avoid a contract of insurance or reinsurance, an

insurer or reinsurer must prove on the balance of probabilities that he was
induced to enter into the contract by a material non-disclosure or by a
material misrepresentation.
(ii) There is no presumption of law that an insurer or reinsurer is induced to
enter in the contract by a material non-disclosure or misrepresentation.
(iii) The facts may, however, be such that it is to be inferred that the particular
insurer or reinsurer was so induced even in the absence from evidence
from him.
(iv) In order to prove inducement the insurer or reinsurer must show that the
non-disclosure or misrepresentation was an effective cause of his entering
into the contract on the terms which he did. He must therefore show at least
that, but for the relevant non-disclosure or misrepresentation, he would not
have entered into the contract on those terms. On the other hand, he does
not have to show that it was the sole effective cause of his doing so.”
8.073 With respect, the author has difficulties trying to reconcile paragraph (iv) above. While
the court stated that the non-disclosure or misrepresentation does not have to be the
sole cause of inducement, this seems to sit uneasily with the ‘but for’ formulation the
Court of Appeal used. It is respectfully submitted that, at least as far as Hong Kong is
concerned, this is unlikely to represent the final word on the issue.
8.074 It must be highlighted that one has to be clear of the distinction between the
materiality test that rests upon an objective test of a hypothetical prudent insurer and
the requirement of inducement that rests upon a subjective test of an actual insurer.
This is clear from (i) above.
8.075 Once the insurer can prove the materiality of undisclosed facts falling within the two
limbs above, and can establish further that he was induced to enter into the contract in
such terms by such undisclosed facts, he is then entitled to avoid the contract. However,
such right would be lost if he had ‘waived’ or he chose to ‘affirm’ the contract.
268
Ibid., 452.
269
NJ Hird, ‘Rationality in the House of Lords’ [1995] JBL 194, 196.
270
Assicurazioni Generali Spa v Arab Insurance Group [2002] EWCA Civ 1642; [2003] 1 WLR 577.
271
Ibid., [62].

The affirmation can be quickly mentioned here. As explained by Bennett, three 8.076
requirements must be met:272
“First, the insurer must know of the misrepresentation or non-disclosure. Being

put on inquiry is insufficient. Secondly, the insurer must know that, consequently,
it has the right in law to avoid the contract, but a court will readily infer that an
insurer has that knowledge. Thirdly, the insurer must unequivocally represent to
the assured that it is exercising its right of election so as to forsake its right to avoid
and instead affirm the contract. The representation may be by words or conduct.”
In relation to the waiver, this is stated in s.18(3)(c) of the MIO. This may be stated 8.077
clearly in the policy.273 Otherwise, the question of ‘fair presentation’ must be referred
to.274 As explained by the learned editors of Arnould’s Law of Marine Insurance and
Average, disclosure of every minute detail is not necessary. It would be enough if
what the assured discloses draws the insurer to probe for further information if he so
requires.275 Hence, ‘…a summary of material facts will suffice so long as it is fair…’276
The case of relevance is the Court of Appeal decision in WISE Ltd v Grupo Nacional
Provincial SA.277 This is a re-insurance case. The insurance was placed with a Mexican
insurer who then arranged re-insurance in the London Market.278 The insurance was
for cargoes shipped from Miami to Cancun.279 As noted in the judgment, the language
of the re-insurance slip was found to be unsatisfactory as it was a clear product of
translating from Spanish to English.280 This re-insurance slip was also not the same from
the slip in Spanish language presented to the primary insurer.281 The slip presented to
the primary insurer indicated clearly that watches ‘Rolex’ were to be shipped while in
the slip presented to the re-insurer this was not mentioned. In the re-insurance slip, only
‘clocks’ were mentioned. The judge at first instance found this mistake was due to the
translation of a Spanish word ‘Relojes’ which can be understood as either watches or
clocks.282 Goods were stolen from the warehouse of the primary assured in Cancun.283
The re-insurer sought to avoid the contract alleging, among other things, non-disclosure
of the facts that expensive branded watches were shipped and were likely to be shipped
on a regular basis.284 The reinsured alleged that the value of the said ‘clocks’ should raise
questions in the mind of the re-insurers. Plus, the re-insured also raises s.18(3)(b) of
the MIO maintaining that the re-insurer should know the nature of the trade in Cancun
and that ‘Cancun was well known to be a high class tourist resort within a duty-free
272
273
Ibid., para 4.100.
274
Ibid., para 4.101.
275
276
Ibid., para 16-208.
277
WISE (Underwriting Agency) Ltd v Grupo Nacional Provincial SA [2004] EWCA Civ 962; [2004] 2 Lloyd’s Rep 483.
278
Ibid., [7].
279
Ibid., [1].
280
Ibid., [6].
281
Ibid., [10].
282
Ibid., [11].
283
Ibid., [12].
284
Ibid., [31].

zone…’285 For Lord Justice Rix, in addressing the issue of fair presentation, the overall
scheme of s.18 must be taken into account, especially s.18 is placed under s.17 where
the reciprocity of the duty is addressed.286 He further propounded:
“…the question is ultimately not whether an “unfair” presentation has been

waived, but whether, taking both sides of the matter into consideration, the
presentation is unfair or alternatively it would be unfair of the insurer to seek to
avoid on a ground on which he was put on inquiry…”287
8.078 He came to state the test on waiver later on in his judgment as follows:288
“Ultimately, it seems, the question is: Has the insurer been put fairly on inquiry
about the existence of other material facts, which such inquiry would necessarily
have revealed? The test has to be applied by reference to a reasonably careful
insurer rather than the actual insurer, and not merely by reference to what such an
insurer is told in the assured’s actual presentation but also by reference to what
he knows or ought to know, i.e. his s.18(3)(b) knowledge. The reasonably careful
underwriter is neither a detective on the one hand or lacking in common sense
on the other hand. Mere possibilities will not put him on inquiry, and very little
if anything can make up for non-disclosure of the unusual or special. Overriding
all, however, is the notion of fairness, and that applies mutually to both parties,
even if the presentation starts with the would-be assured.”
8.079 Applying the test to the facts of the case as mentioned, he found the re-insurer in this
case to have waived disclosure along the line of arguments raised by the reinsured.289
However, Rix LJ was on a minority on this point. Examining the CTI case where the
issue of waiver was considered, Longmore LJ, with whom Peter Gibson LJ agreed,
stated the test as follows:290
So the question becomes (a) was there a fair presentation of the risk? And (b) was
the insurer in the course of that presentation in the words of Lord Justice Parker
[in the CTI case)]:
“… put on inquiry by the disclosure of facts which would raise in the
mind of the reasonable insurer at least the suspicion that there were other
circumstances which would or might vitiate the presentation?”
8.080 Applying this test to the facts, Longmore LJ described the ‘fair presentation’ further
that the reinsurer ‘must be entitled to take at face value what is said on the slip’.291 He
described the presentation in this case as having instead the effect of putting the insurer
‘off inquiry’.292 He endorsed the first instance judge’s view that, to raise enquiry in the
285
Ibid., [41].
286
Ibid., [46].
287
Ibid., [62].
288
Ibid., [64].
289
Ibid., [65]-[68].
290
Ibid., [111].
291
Ibid., [114].
292
Ibid.

mind of the prudent insurer, the prudent insurer should have known three facts, namely
that the slip was the translated version, the word ‘Relojes’ has two meanings, and that
Cancun was not the place where clocks are sold.293
It must be observed that, under the scheme of the MIO, the positive duty of disclosure is 8.081
not only placed upon the assured. It is also placed upon the ‘agent effecting insurance’
as per s.19 of the MIO:
Subject to the provisions of s.18 as to the 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 comes to his knowledge too late to communicate it to the agent.
Perhaps the language of s.19(b) of the MIO does not require explanation here. It can 8.082
be observed from s.19(a), however, that the ‘agent to insure’ has an independent duty
of disclosure, in addition to that of the assured.294 The ‘material circumstance’ in this
section is not defined and hence one has to refer back to the definition given in s.18.
Likewise, the effect of the failure to disclose is not defined. However, one would
readily realise that the effect would be that the assured’s insurance contract would
be avoided, giving the status of the ‘agent to insure’. The leading case in relation to
this is that of the House of Lords in Blackburn, Low & Co v Vigors.295 More modern
authorities are SAIL v Farex296 and PCW Syndicates v PCW Reinsurers.297
In the Vigors case, a marine insurer in Glasgow sought re-insurance in the London 8.083
Market. It instructed a broker to obtain insurance through the broker’s agent in London. It
was the broker who came to know of alleged material facts but these were not disclosed
to the marine insurer in question or the agent in London.298 This was the policy which
was sued upon. On the very next day, the same marine insurer instructed another broker
firm to effect another re-insurance. This was the policy which was sued upon based on
the allegation that the ship had been lost some days before the marine insurer sought re-
insurance contract.299 Lord Halsbury L.C started by asking a rather convincing question:300
“While so employed he receives material information – he does not effect the

insurance and he does not communicate the information. How is it possible to
suggest that the assured could rely upon the communication to the principal of
293
Ibid., [115].
294
295
Blackburn, Low & Co v Thomas Vigors (1887) LR 12 App Cas 531.
296
Societe Anonyme D’Intermediaries Luxembourgeois v Farex Gie [1995] LRLR 116.
297
[1996] 1 Lloyd’s Rep 241.
298
Vigors (n 295) 532.
299
Ibid., 532-533.
300
Ibid., 537.

every piece of information acquired by any agent through whom the assured has
unsuccessfully endeavoured to procure an insurance?”
8.084 He further explained the issue as a matter of the principal-agency relationship. He

explained the position would be different if the broker in this case was the one who
effected the insurance because in such a capacity: ‘the authority to make the contract
drew with it all the necessary powers or responsibilities which are involved in such
an employment…’301 Since the broker was not the agent to effect the insurance in
this case: ‘[t]here was no material fact known to any agent which was not disclosed
at the point of time at which the contract was made; there was no one possessed of
knowledge whose duty it was to communicate such knowledge’.302
8.085 SAIL v Farex concerned complicated reinsurance arrangement. In short, companies
within the AIG group sought to arrange re-insurance via their agent, SAIL. SAIL
contacted the London broker. The London broker then entered into negotiations with
an American reinsurance firm. However, this American reinsurance firm declined
but demonstrated its willingness to share the retrocession arrangement.303 This
led the London broker to approach Farex.304 Later on, the American reinsurance
firm commenced litigation against Farex and the London broker maintaining that
the person who had confirmed the retrocession arrangement on its behalf had no
authority to do so and that the London broker had known of this. In turn, Farex
sought to avoid the insurance contract it had with SAIL and AIG on the basis,
among others, of alleged misrepresentation as to the effectiveness of the retrocession
arrangement.305 The essence of the argument is that Farex alleged that the London
broker acted as an agent for SAIL while it arranged the retrocession.306 The Court
of Appeal found the London Broker to act on behalf of Farex in concluding the
retrocession contract and hence the argument was rejected.307 Hoffman LJ (as he then
was) proceeded to emphasise the duty to disclose by the broker as an independent
duty that does not arise out of the notion of the ‘imputed knowledge’ to that of the
assured. He explained:308
“…the structure of the Marine Insurance Act 1906…distinguishes between the

duty of the insured in s.18 to disclose matters within his knowledge and the duty
of the agent in s.19 to disclose matters within his. The latter section would not
have been necessary if the knowledge of the agent was imputed to the insured…
Of course it may come down to a matter of words, so that the knowledge of
301
Ibid., 539.
302
Ibid.
303
SAIL v Farex (n 296) 148. ‘Reinsurance is the process by which an insurer (‘the primary insurer’) who has accepted a
risk from an insured passes on some or all of that risk to another insurer (‘the reinsurer’)…The process of reinsurance
can be continued beyond the first level of reinsurance. A contract which reinsures a reinsured risk is known as a
contract of retrocession, the reinsurer being referred to as the retrocessionaire and the reinsured as the retrocedant’.
Andrew McGee, The Modern Law of Insurance (3rd edn, LexisNexis 2011) para 49.1 (italics followed the original text).
304
Ibid.
305
Ibid., 148-149.
306
Ibid.
307
Ibid.
308
Ibid., 150.

the agent is “imputed” to the insured for a purpose of the contract which the
agent has concluded but not for the purpose of another contract which he has
not, nor indeed for any other purpose whatever. This seems to me so artificial a
compartmentalisation of the notional mind of the insured…”
If the passage of Hoffman LJ above can be said to provide the most succinct 8.086
explanation of the duty of disclosure by the agent to insure under s.19, the passage
of Lord Justice Saville in PCW Syndicates v PCW Reinsurers can be said to be
the one which gave the most complete definition of the ‘agent to insure’. The case
involved alleged fraudulent conduct of the underwriting agent for a number of
syndicates at Lloyd’s in relation to the premiums received for the syndicates. The
underwriting agent also involved in the arrangement for reinsurances. It was alleged
by the reinsurers that the underwriting agent should disclose the fraud it perpetrated
on the primary insurers.309 The Court of Appeal did not find the duty of disclosure to
extend that far, especially since the underwriting agent was not the ‘agent to insure’.
A lucid explanation of Saville LJ (as he then was) in this case deserves to be quoted
in some length:310
“It seems to me, both from a reading of the words used in s.19, and from an
examination of the authorities upon which that section was based, that the “agent
to insure” only encompasses those who actually deal with the insurers concerned
and make the contract in question… What I find lacking … is any suggestion that
s.19 is intended to encompass not only those who actually effect the insurance,
but also those who instruct others to effect the insurance. What I also find lacking
is any good reason for extending s.19 to include the latter…
As to the words used in s.19 I can find nothing to indicate that it was intended to
cover what can be described as intermediate agents. Indeed it would to my mind
be very odd if the section were to be read as including those who do not actually
effect the insurance. The section stipulates that the agent to insure must disclose
to the insurer the material circumstances specified. An intermediate agent, by
the very fact that such an agent is an intermediary, does not and is not expected
to do this. What an intermediate agent does and is expected to do is to pass
information etc., not to the insurers, but either to further intermediaries or to
those actually dealing with the insurers. It is only the agent who actually deals
with the insurers who, as a matter of practical politics, is going to provide the
insurers with information relating to the proposed insurance…
In addition there seems no good reason to include intermediate agents within
the ambit of s.19. The agent to insure must, up to the moment the contract is
made, disclose every material circumstance which he knows, or which in the
ordinary course of business ought to be known or communicated to him, as well
as every circumstance that the insured is bound to disclose, subject only to a
minor and irrelevant exception. Thus if intermediaries have information which in
309
PCW Syndicates (n 297), 251-252.
310
Ibid., 258-259.

the ordinary course of business ought to be communicated to the agent to insure,

or which the agent ought to know, it matters not that the intermediaries are not
themselves agents to insure. If on the other hand the information is such that it
would not fall into these categories, and is not information which the assured
is bound to disclose, then it seems to me that the section does not require its
disclosure.”
8.087 The above passage of Saville LJ was so clear that the author thinks it does provide a
final word of interpretation on the language of s.19.
8.088 It must be emphasised that ss.18 and 19 of the MIO as discussed above must be read
within the larger context of the doctrine of ‘utmost good faith’ as in previous s.17. The
language of s.17 suggests the doctrine of utmost good faith is reciprocal. However,
the alleged non-disclosure by the underwriter is rarely seen. This may be due to two
reasons. First, it remains the fact that most information is within the knowledge of the
assured. Secondly, even if the material non-disclosure on the part of the underwriter
is successfully alleged, still the only remedy available to the assured is the remedy
of avoidance of the contract. The only case that came to discuss this was that of the
Court of Appeal in La Banque Financiere v Westgate.311 The case involved a fraud on
the banks by a man who managed to convince the banks to advance loans by pledging
of jewelleries (which later proved to be valueless) supported by the credit insurance
taken out by the bank.312 The credit insurance policy contained the ‘fraud exclusion
clause’ so claims occurred following any fraud perpetrated by any persons would
fall outside the scope of this insurance.313 The broker found that it was impossible
to place the credit insurance with the underwriters as a single risk. Therefore, the
broker tried to place the credit insurance in three layers.314 The insurance company,
Hodge, accepted the primary layer for 100% but the broker was under pressure on
the remaining layers. He turned to Hodge for help who agreed to provide temporary
cover as to the remaining layers.315 However, the cover note as issued by the broker
purported to show all insurance was in place.316 It happened that the insurance
company, Hodge, happened to be a company within the Standard Chartered Group.
The Standard Chartered Group participated in providing loans to the man in question.
Therefore, the issue of Hodge’s participation in the excess layers as stated in the
cover note came to light.317 Nevertheless, the underwriter at Hodge did not notify
the banks of such broker’s dishonesty. This led the banks to advance the second
loans with the purported increased value of the jewelleries and the increased credit
insurance.318 The banks failed in their claims against the insurers due to the fraud
exclusion clause in the policy. The banks had to fire their second shot. They alleged
311
La Banque Financiere De La Cite SA (formerly named Banque Keyser Ullman En Suisse SA) v Westgate
Insurance Co Ltd ( formerly named Hodge General & Mercantile Insurance Co Ltd ) [1988] 2 Lloyd’s Rep 513.
312
Ibid., 517.
313
Ibid., 520.
314
Ibid.
315
Ibid., 520-521.
316
Ibid., 521.
317
Ibid., 523.
318
Ibid., 526.

a breach of the duty of disclosure on the part of the underwriters as to the dishonesty
of the broker and claimed damages.319 At first instance, Mr. Justice Steyn (as he then
was) felt convinced by the banks’ argument. He went on to award damages:320
“The question whether an action for damages lies for breach of the obligation of
the utmost good faith in an insurance context must be considered from the point
of view of legal principle and policy…avoidance of a policy and a claim for
return of the premium will be a wholly ineffective remedy if the breach of the duty
of the utmost good faith by the insurer caused the insured to be unprotected and
exposed to great loss.”
The Court of Appeal refused to follow this. First, the Court of Appeal maintained that 8.089
avoidance in non-disclosure is derived from equitable jurisdiction. The right to avoid
in the case of duress or undue influence also stemmed from the same source. Since
neither in the case of duress nor undue influence are damages available, damages
should not be available in non-disclosure.321 The Court of Appeal did accept that
damages should be available if the duty of utmost good faith was based upon the
implied term. However, in light of this purported historical trace, the implied term
basis was rejected.322 In the view of the Court of Appeal, damages are only available
in contract, by statute, in the parties’ fiduciary relationship, and in tort.323 Damages
imposed by statute do not concern us here. The fact that relationship of the parties to
the insurance contract can be described as having a fiduciary nature is doubtful even
though Birds suggested that an insurance contract has a ‘quasi-fiduciary nature’.324
As far as damages available in torts are concerned, the Court of Appeal advanced
three reasons to insist that a novel heading of tort of breach of utmost good faith
should not be created.325 The Court of Appeal first made an assumption in respect
of the intention of those who engaged in the enactment of the Marine Insurance Act
1906. ‘[T[he clear inference…is that Parliament did not contemplate that a breach of
the obligation would give rise to a claim for damage in the case of such contracts’.326
Then, the Court of Appeal raised concerns that material non-disclosure is based
upon the view of the prudent insurer or prudent assured. The courts do not concern
themselves with the effect of non-disclosure upon the actual assured or actual
insurer. As such, how damages would be assessed and awarded is questionable.327 It
must be noted that this part of reasoning no longer stands in light of the decision of
the House of Lords in the Pan Atlantic case discussed above. Finally, the Court of
Appeal said the award of damages could cause some difficulties to the insurer or the
319
Ibid., 529.
320
Banque Keyser Ullman v Skandia (UK) Insurance Co Ltd [1987] 1 Lloyd’s Rep 69, 96 (emphasis added).
321
La Banque Financiere v Westgate (n 311) 549.
322
Ibid., 548.
323
Ibid., 550.
324
John Birds, ‘Insurers not liable in damages for failure to disclose’ [1988] JBL 421, 423.
325
See La Banque Financiere v Wesgate (n 311), 550.
326
Ibid.
327
Ibid.

assured because the duty of disclosure rests on the parties regardless of the degree
of culpability. Hence:328
“An insured who had in complete innocence failed to disclose a material fact
when making an insurance proposal might find himself subsequently faced with
a claim by the insurer for a substantially increased premium by way of damages
before any event had occurred which gave rise to a claim.”
8.090 The above reasoning was expressed on the basis of reciprocity in the sense that,
if damages can be available for the assured, it must equally be available for the
insurer.
8.091 However, the above analysis was based on the availability of damages which the
Court of Appeal found to be available in certain instances. However, this might be
too rigid an approach. As argued by Macdonald-Eggers, it is neither a doctrine nor a
principle that damages need to be so confined.329 The reasoning of the Court of Appeal
to find that damages are unavailable for the insurer’s breach of the duty of disclosure
have been doubted and argued by academic commentators.330 As far as the scope of
the insurer’s duty of disclosure is concerned, the Court of Appeal touched upon this
briefly and the test was formulated by analogy from the language of s.18 of the MIO.
According to the Court of Appeal,331
“…[T]he duty falling upon the insurer must…extend to disclosing all facts
known to him which are material either to the nature of the risk sought to be
covered or the recoverability of a claim under a policy which a prudent insured
would take into account in deciding whether or not to place the risk for which he
seeks cover with that insurer.”
8.092 It remains hopeful that the courts will have opportunities to revisit the issue of the
insurer’s duty of disclosure. It is unlikely that the decision in La Banque Financiere v
Westgate will provide the final words on the matter.
8.093 Moving on to the duty not to misrepresent, this duty is not easily distinguishable from
the duty to disclose mentioned above.332 Perhaps, the duty not to misrepresent can
be understood as Hodges explained in her work: ‘Representations…are generally
made spontaneously in answers to questions put to the assured by the insurer…’333
As such, Lowry and the others correctly observed, since the duty of disclosure is
already rather extensive, misrepresentation does not have a significant role in the
context of insurance law. Questions of non-disclosure and misrepresentation are often
mixed.334 Lowry and the others raised the point that there remains unclear as to the
328
La Banque Financiere v Westgate (n 311), 550.
329
Peter Macdonald-Eggers, ‘Remedies for the failure to observe the utmost good faith’ [2003] LMCLQ 249, 275.
330
See Ibid. See also H.Y. Yeo, ‘Of reciprocity and remedies – duty of disclosure in insurance contracts’ (1991) 11
Legal Studies 131.
331
La Banque Financiere v Westgate (n 311) 513, 545 (emphasis added).
332
333
Susan Hodges, The Law of Marine Insurance (Cavendish Publishing, 1996) 92 (emphasis added).
334
Lowry and the others (n 149) 127-128.

implications of s.2(2) of the Misrepresentation Act 1967 on insurance contracts. Same

question can be raised of the equivalent s. 3(2) of the Misrepresentation Ordinance
(Cap. 284) of Hong Kong.335 They referred to Highland Insce v Continental Insce336
as a case which may provide a hint on this issue.337 Another issue in the context of
the Misrepresentation Ordinance is whether by any chance the insurer lost its right
to avoid the contract for misrepresentation can claim damages by resorting to the
Misrepresentation Ordinance. In their work,338 Lowry and the others referred to Argo
Systems v Liberty Insurance.339
In the Highland Insce case, the situation involved a dispute between the reinsured and 8.094
the retrocessionaire following a fire which occurred in a building project in Israel.340
The alleged misrepresentation was in relation to the slip which indicated that the said
building had the sprinkler system installed.341 Steyn J. (as he then was) concluded that
there was a misrepresentation and hence the reinsurance contract can be avoided.342
Despite such finding, the question arose whether s.2(2) of the Misrepresentation Act
1967 can be invoked so that the court may find the contract to remain in existence.343
Steyn J. emphasised on the policy ground of the remedy of avoidance in insurance
contracts and found the Misrepresentation Act 1967 to have no application. In his
passage:344
“When a contract of reinsurance has been validly avoided on the grounds of a

material misrepresentation, it is difficult to conceive of circumstances in which
it would be equitable within the meaning of s.2(2) to grant relief from such
avoidance. Avoidance is the appropriate remedy for material misrepresentation in
relation to marine and non-marine contracts of insurance…The rules governing
material misrepresentation fulfil an important “policing” function in ensuring
that the brokers make a fair representation to underwriters. If s.2(2) were to be
regarded as conferring a discretion to grant relief from avoidance on the grounds
of material misrepresentation the efficacy of those rules will be eroded. The
policy consideration must militate against relief under s.2(2) from an avoidance
on the grounds of material misrepresentation in the case of commercial contracts
of insurance.”
335
Ibid. Section 3(2) of the Misrepresentation Ordinance (Cap.284): ‘Where a person has entered into a contract
after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason
of the misrepresentation, to rescind the contract, then if it is claimed, in any proceedings arising out of the
contract, that the contract ought to be or has been rescinded the court or arbitrator may declare the contract
subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard
to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well
as to the loss that rescission would cause to the other party’.
336
Highland Insurance Co v Continental Insurance Co [1987] 1 Lloyd’s Rep 109.
337
See Lowry and the others (n 149), 128.
338
Ibid., 133.
339
Argo Systems FZE v Liberty Insurance (PTE) [2011] EWHC 301 (Comm); [2011] 2 Lloyd’s Rep 61.
340
Highland Insurance Co (n 336), 109.
341
Ibid.
342
Ibid., 116.
343
Ibid.
344
Ibid., 118.

8.095 However, it was argued by Macdonald-Eggers and the others who submitted that the
Misrepresentation Act 1967 applies to insurance contracts.345 In their view, there is
no indication in this piece of legislation that insurance contracts would be excluded
and they traced to the drafting history of the Act that the Law Reform Committee
did not contemplate insurance contracts to fall outside the scope. However, this may
create inconsistency as the Misrepresentation Act 1967 applies only in the case of
misrepresentation but it does not apply to non-disclosure.346
8.096 In the Argo Systems case, His Honour Judge Mackie QC was asked to decide certain
preliminary issues. One of the issues was whether the insurer would be entitled to
damages if the alleged misrepresentation on the part of the assured failed, for example
due to affirmation, and hence avoidance of the contract was not possible. The judge
bore in mind the opinion of Aikens J. in HIH Casualty v Chase347 where he relied upon
the obiter of the Court of Appeal in La Banque Financiere v Westgate. In that case, the
Court of Appeal appeared to suggest that damages based upon the Misrepresentation
Act 1967 could be possible in the context of insurance.348
8.097 The MIO deals with misrepresentation in s.20 which provides:
(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 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.
8.098 The meaning of ‘prudent insurer’ in the context of the duty not to misrepresent is not
defined differently from that in the context of the duty to disclose. Hence, no explanation
is needed here. Likewise, the materiality test in s.20(2) of the MIO with the exact
same language as in previous s.18(2) does not require any explanation either. However,
345
Peter Macdonald Eggers and the others, Good Faith and Insurance Contracts (3rd edn, Lloyd’s List 2010)
para 6.21.
346
Ibid.
347
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2001] 1 Lloyd’s Rep 30.
348
Argo Systems FZE (n 339) [45] citing HIH Casualty v Chase (n 347) [90].

what should be discussed is in relation to s.20(5) – representation as to the matter of

expectation or belief. Bennett, in his work,349 discussed and argued in some detail the
case before the Court of Appeal in Economides v Commercial Assurance Co plc.350
The Economides case concerned the household contents policy. The burglar broke into 8.099
the plaintiff’s flat and items worth £31,000 were stolen. The plaintiff made a claim
under the policy but the insurer alleged misrepresentation.351 It was alleged that the full
replacing costs for his flat would be in the region of £40,000 while he only made the
declaration at £16,000 and that the cost of valuables would not exceed one-third of the
declared amount. In other words, the cost of valuables would be around £5,333 only
whilst in fact the value of these valuables exceeded such amount.352
It was found that the value of £16,000 was actually an adjusted value. Originally, the 8.100
plaintiff had put the value at £12,000. However, his parents came to live with him
from Cyprus. His mother brought along with her some jewellery. Upon the advice
from his father, he asked the insurer to increase the value.353 The trial judge held
the plaintiff did not have reasonable ground for the belief of the replacing costs to
be £16,000 and that the plaintiff should have made further inquiries knowing that
his parents brought the jewellery.354 The requirement that there must be a reasonable
ground to believe in s.20(5) of the MIO was rejected by the Court of Appeal, notably
in the judgment of Simon Brown and Peter Gibson LJJ. For Simon Brown LJ read
s.20(5) literally and he held that the sole requirement in s.20(5) is that of honesty. He
justified his interpretation by what he called the ‘practical and policy considerations’
which he asked: ‘What, would amount to reasonable grounds for belief in this sort of
situation? What must a householder seeking contents insurance do? Must he obtain
professional valuations of all his goods and chattels?’355 So he held upon the facts that
considering the assured was 21 years old at the relevant time and the increase of value
to £16,000 was given by his father who had a respectable career as a retired senior
policeman, he found the value represented by the plaintiff to be honestly made.356 For
Peter Gibson LJ:357
“…I find it impossible to see how consistently with section 20(5) an objective
test of reasonableness can be imported by way of an implied representation. Once
statute deems an honest representation as to a matter of belief to be true, I cannot
see that there is scope for inquiry as to whether there were objectively reasonable
grounds for that belief. Of course the absence of reasonable grounds for belief
may point to the absence of good faith for that belief. But in a case such as the
present where the bad faith of the plaintiff is not alleged, I can see no basis for the
implication of a representation of reasonable grounds for belief.”
349
Bennett (n 12) paras 4.139-4.146.
350
Economides (n 251).
351
Ibid., 591.
352
Ibid.
353
Ibid., 592.
354
Ibid., 594.
355
Ibid., 599.
356
Ibid., 600.
357
Ibid., 606.

8.101 This case came to be considered and applied in Rendall v Combined Insurance Co. of
America358 and more recently in Genesis Housing Association v Liberty Syndicate.359
8.102 The Rendall case arose out of the tragic “9/11 incident” which led to the death of
176 employees of Aon.360 The insurer compensated the families of those who died
but the reinsurers sought a declaration that they were not liable. They maintained
among other things that there was a material misrepresentation.361 The alleged
misrepresentation was in relation to the estimated travel days of Aon staff, which the
underwriting agent put in the figure of 160,000. It was alleged by the reinsurer that
this was ‘a representation of fact that the estimate was based on Aon-specific historical
information / experience’.362 On the part of the insurer, on the other hand, the argument
was that the figure constituted only ‘a representation as to a matter of expectation or
belief’ and they maintained that such estimate was based on the reasonable ground.363
Cresswell J adopted the position in the Economides case but he also pointed out the
difficulty of distinguishing between the representation of fact and the representation
of expectation or belief. ‘What may at first blush appear to be a representation merely
of expectation or belief can on analysis be seen in certain cases to be an assertion of
a specific fact…’364 He did not find the estimated days of travel in this case to be a
representation of fact because there can be various means to estimate the travel days.365
Akenhead J. in the Genesis Housing Association case mentioned the Economides case
in passing without any comments to the contrary.366 The case turned on the ‘basis of
the contract’ clause to be discussed below in the context of warranty.
8.103 As mentioned, despite the Economides decision remains an authority which has been
followed in a number of cases, Bennett doubts the accuracy. He compares the position
with the general contract law on misrepresentation. While expressing the opinion
does not constitute a misrepresentation, the lack of reasonable ground does. ‘The
crucial point with respect to such an implied representation is that the statement of
opinion is not transferred into a statement of fact. The existence of reasonable grounds
justifying the opinion is the subject of a distinct, underlying, statement of fact’.367 He
also argues as a matter of policy that the interpretation the Court of Appeal rendered
in the Economides is not in line with the doctrine of utmost good faith. ‘It simply
makes no sense, for example, to forgive negligence in a situation where the general
law would recognise…implied representation and yet condemn the innocent failure to
state a material fact’.368 The language of s.20(5) of the MIO also does not make sense
358
[2005] EWHC 678 (Comm); [2006] Lloyd’s Rep IR 732.
359
Genesis Housing Association Ltd v Liberty Syndicate Management Ltd (for and on behalf of Syndicate 4472 at
Lloyd’s) [2012] EWHC 3105 (TCC), [2012] 2 CLC 837.
360
Rendall (n 358) [1]-[4].
361
Ibid., [7]-[8].
362
Ibid., [73].
363
Ibid., [80-[83].
364
Ibid., [103].
365
Ibid.
366
Genesis Housing Association (n 359) [36]-[37].
367
Howard N Bennett, ‘Statements of Fact and Statements of Belief in Insurance Contract Law and General Contract
Law’ (1998) 61 MLR 886, 887 citing Smith v Land and House Property Corp (1884) 28 Ch D 7 and Brown v
Raphael [1958] Ch 636.
368
Ibid., 893.

TERMS OF MARINE INSURANCE AGREEMENTS 315
if it is to be interpreted linguistically. It cannot mean that the opinion becomes true

simply because it is expressed in good faith.369 Moreover, drawing support from the
House of Lords in the Pan Atlantic case, symmetry should be maintained between the
misrepresentations in general contract law and in insurance contract law.370
5. TERMS OF MARINE INSURANCE AGREEMENTS

(a) Warranty and analogous terms
At times, a representation and a ‘warranty’ in marine insurance contract can prove 8.104
to be rather confusing due to the use of the ‘basis of the contract’ clause such as that
in the Genesis Housing Association case. In the United Kingdom, at least within the
context of the consumer insurance contract, the use of the ‘basis of the contract’ clause
is now prohibited by s.6 of the Consumer Insurance (Disclosure and Representations)
Act 2012.371 In the Genesis Housing Association, the case involved insurance against
the insolvency of the contractor.372 To conclude this insurance, the proposal form
was completed. This proposal form contained a section of the ‘Declaration by the
Insured’ with the clause reads: ‘I/we declare that to the best of my/our knowledge and
belief, the information I/we have given is correct and complete in every detail…I/
we understanding [sic]…this proposal and the statements made therein shall form
the basis of the contract between me/us and the insurer’.373 While a company ‘TT
Bedford’ was engaged as the contractor, in the proposal form the parent company,
‘TT Construction’, was indicated as the Builder.374 TT Bedford fell into financial
difficulties and another developer had to be engaged to complete the construction
work.375 The insurer argued that the builder was not ‘TT Construction’ as stated in the
proposal form and that proposal form was considered as a warranty forming part of
the contract, there was a breach of warranty.376 Akenhead J traced the authorities and
came to summarise following legal position:377
“(a) It is well established that in principle ‘basis of contract’ clauses and warranties
in relation to insurance are enforceable in law and not contrary to law or
public policy at least yet…
369
Ibid., 894.
370
Ibid. ‘There is no presumption that a codifying Act covers the whole of the relevant common law…In any event,
s.91(2) preserves the common law save insofar as it is inconsistent with the express provisions of the Act’. Pan
Atlantic (n 254) 466 (per Lord Lloyd of Berwick). Section 91(2) of the MIA which the same language also reflects
in s.91 of the MIO provides: ‘The rules of the common law including the law merchant, save in so far as they are
inconsistent with the express provisions of this Ordinance, shall continue to apply to contracts of marine insurance’.
371
Section 6: ‘(1) This section applies to representations made by a consumer…(2) Such a representation is not
capable of being converted into a warranty by means of any provision of the consumer insurance contract (or of
the terms of the variation), or of any other contract (and whether by declaring the representation to form the basis
of the contract or otherwise).
372
Genesis Housing Association (n 359) [4]-[6].
373
Ibid., [7].
374
Ibid.
375
Ibid., [15]-[17].
376
Ibid., [20].
377
Ibid., [38].

(b) The enforceability will generally come about either by such clauses or
warranties being incorporated within the contract of insurance or as a stand-
alone warranty by the insured given to the insurer through the proposal form
or other document in which the ‘basis of contract’ expression or declaration
is given…
(c) If the insured has innocently or otherwise signed a document, usually the
proposal, as the basis of the insurance contract entered or to be entered into,
which confirms (either to the best of the insured’s knowledge or belief or
absolutely) as true the contents of that document, the insurance contract will
be void or unenforceable if the contents are untrue…
(d) The contract of insurance, whether contained in the policy itself or any other
documents such as the quotation or a certificate of insurance, may as a matter
of construction modify, amend or even render of no or limited effect the
‘basis of the contract’ declaration or warranty. The ordinary principles of
contractual interpretation apply to this exercise…”
8.105 Thus, a mere representation in the proposal form containing the ‘basis of contract’
clause can be changed into a warranty. Any inaccuracy in answering the proposal form
in such a case can constitute a breach of warranty. Different from misrepresentations
where insurers can avoid the contract when the materiality and the inducement are
proved, breaches of warranty do not require such proof. This is because of how
warranties are defined in s.33 of the MIO:
(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.
8.106 Certain warranties are implied by statute itself, including, for example, the implied
warranty of seaworthiness in a voyage policy378 or the implied warranty of legality.379
Two particular difficulties deserve attention here. First, what exactly is a consequence
of a breach of warranty pursuant to s.33 of the MIO? Secondly, how can a distinction
be made between a warranty and a contractual term which is seemingly like but, in
fact not, a warranty?
378
See s.39 of the Marine Insurance Ordinance (Cap.329).
379
See s.41 of the Marine Insurance Ordinance (Cap.329).

As to the first question, in the language of s.33(3), the warranty requires ‘strict 8.107
compliance’. ‘It makes no difference that the breach is beyond the control or
knowledge of the assured, or is someone else’s fault…’380 Whether the breach would
increase or cause the loss or not is irrelevant.381 A classic authority on the effect of the
breach is that of the House of Lords in The Good Luck.382 In the speech of Lord Goff
of Chieveley:383
“…if a promissory warranty is not complied with, the insurer is discharged

from liability as from the date of the breach of warranty, for the simple reason
that fulfilment of the warranty is a condition precedent to the liability or future
liability of the insurer…and it follows that the immediate effect of a breach of
a promissory warranty is to discharge the insurer from liability as from the date
of the breach…[N]on-fulfilment of the condition does not prevent the contract
from coming into existence…Certainly, it does not have the effect of avoiding the
contract ab initio. Nor, strictly speaking, does it have the effect of bringing the
contract to an end. It is possible that there may be obligations of the assured under
the contract which will survive the discharge of the insurer from liability, as for
example a continuing liability to pay a premium.”
So, the insurer is discharged from liability automatically in the sense that no further 8.108
action on the part of the insurer is required to bring his liability to an end.384 Whilst the
explanation of Lord Goff is entirely consistent with the language of s.33(3), this raises
serious contention with s.34(3) of the MIO: ‘A breach of warranty may be waived by
the insurer’. A conduct regarded as a ‘waiver’ may take either one of these two forms.
First, there might be a ‘waiver by election’ whereby the insurer can take active act in
affirming the contract or else there can be a ‘waiver by estoppel’ whereby there exists
a ‘conduct resulting in the underwriters being estopped from avoiding the policy…’385
It is explained that the waiver in the context of s.34(3) is a reference to the waiver by
estoppel. Reliance was placed on a line of authorities starting from that of Longmore J
(as he then was) in J. Kirkaldy & Son Ltd v Walker386 and that of the House of Lords,
albeit in an entirely different context, in The Kanchenjunga.387
The J. Kirkaldy case concerned an insurance of a dry dock which was to be towed 8.109
from Sweden to the United Kingdom. The underwriters imposed a warranty to
the effect that there must be a towage approval survey and a condition survey.
Due to a misunderstanding, it was found that the surveyor did not conduct the
condition survey.388 During the voyage, the crane fell causing the dock to sink.
380
381
Ibid.
382
The Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1991] 2 Lloyd’s Rep 191.
383
Ibid., 202.
384
385
Ibid., para 19-37.
386
Ibid., see in particular footnote number 180, citing J. Kirkaldy & Sons Ltd v Walker [1999] Lloyd’s Rep IR 410
and the other cases.
387
Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The “Kanchenjunga”) [1990] 1
Lloyd’s Rep. 391.
388
J Kirkaldy (n 386) 412-413 and 416.

However, the underwriters denied liability on the basis of the breach of warranty.389
It transpired that the surveyor had undertaken the towage approval survey and the
report was forwarded to the underwriter who, upon seeing the fax, signed with
the mark “Noted and Agreed”.390 It was upon the basis of this and also of the fact
that it was argued before Longmore J. that the underwriters had known of the lack
of condition survey and yet expressed no concern and therefore the underwriters
were estopped from raising the breach of warranty.391 Longmore J (as he then was)
held that, to demonstrate the waiver by estoppel on the part of the underwriter,
the owners of the dry dock in the context of this case must demonstrate that the
underwriters did represent that they would not demand the condition survey.392 The
judge denied that there was a waiver by estoppel in this particular case. He held that
the mark “Noted and Agreed” to the towage approval survey report did not equate
to the underwriters expressing that the lack of the condition survey did not matter
to them.393 In The Kanchenjunga, Lord Goff of Chieveley explained the estoppel
as follows:394
“[Estoppel] occurs where a person, having legal rights against another,

unequivocally represents (by words or conduct) that he does not intend to enforce
those legal rights; if in such circumstances the other party acts, or desists from
acting, in reliance upon that representation, with the effect that it would be
inequitable for the representor thereafter to enforce his legal rights inconsistently
with his representation, he will to that extent be precluded from doing so.”
8.110 Bennett maintains that a difficulty lies in the fact that the unequivocal representation on
the part of the insurer sufficient to constitute an estoppel requires ‘reliance’ on the part
of the assured. In other words, the assured must have been conscious about its breach
of warranty and the insurer’s representation not to rely on it. As he explained, ‘[t]here
can be no apparent waiver of right that one does not appear to know [what] one enjoys.
The assured must then rely on the representation so that it would be inequitable to go
back on it. This reliance requires an understanding of the insurer’s legal position’.395
This may not present a problem for large ship-owning companies with ready access
to sophisticated legal advice. However, it is certainly a problem for small ship-owning
companies or first-time ship-owners. This is exactly the problem in the recent case
before the Hong Kong Court of Final Appeal in The Ho Feng 7.396
8.111 In The Ho Feng 7, the assured had been pursuing a business in ‘shipping round
logs from South East Asia to China’.397 The assured secured an insurance to cover
389
J Kirkaldy (n 386), 414-415.
390
Ibid.
391
Ibid., 422.
392
Ibid.
393
Ibid., 423.
394
The Kanchenjunga (n 387) 399.
395
396
Hua Tyan Development Ltd v Zurich Insurance Co Ltd (The “Ho Feng 7”) [2014] HKCFA 72, [2014] 2 Lloyd’s
Rep 637.
397
Hua Tyan Development Ltd v Zurich Insurance Co Ltd (The “Ho Feng 7”) [2012] HKCFI 1185, [2013] Lloyd’s
Rep IR 664, [5].

1,894 pieces of round logs shipped on board the Ho Feng 7, a vessel of 8,960.13
DWT. The vessel sank during the voyage which led to the loss of all logs.398 When
the insurance was placed, the cover note was issued. The cover note contained a
condition: ‘WARRANTED YEAR BUILT OF THE VESSEL NOT OVER 30 YEARS.
WARRANTED DWT NOT LESS THAN 10,000’.399 The policy was subsequently
issued to replace the cover note with age and deadweight warranty incorporated.400 At
the first instance, Chung J found there existed an inconsistency in the policy between a
named vessel which was less than 10,000 DWT and the deadweight warranty requiring
the vessel to be not less than 10,000 DWT. Viewing both terms as inconsistent, Chung
J. relied on the passage which can still be found in the authoritative treatise on contract
law,401 which explains:402
“Where the different parts of an instrument are inconsistent, effect must be given
to the part which is calculated to carry into effect the purpose of the contract as
gathered from the instrument as a whole and the available background, and that
part which would defeat it must be rejected.”
He held that effect should be given to the term stipulating the named vessel and not 8.112
to give effect to the deadweight warranty, this would give effect to the insurance.403
The Court of Appeal overturned this decision.404 This was upheld in the Court of Final
Appeal. ‘The mere fact that a vessel is named in a contract of marine insurance does
not mean in any way that an insurer is somehow prevented from insisting by way of
warranty on that vessel possessing certain characteristics’.405 An analogy was made
with the implied warranty of seaworthiness in a voyage policy that the underwriters’
knowledge of the vessel and the voyage does not mean such a warranty can be
dispensed with.406
With the harsh consequence created by the warranty regime, experience have shown 8.113
that the courts are increasingly willing to step out from this by interpreting a clause
that is seemingly a warranty as instead a ‘suspensory provision’. As Soyer explained,407
“The effect of such a clause is that the operation of the policy is suspended
for the period when the circumstances specified in the clause are not satisfied.
Accordingly, the insurer is not liable for any loss which occurs during this period,
but the cover reattaches as soon as the original position is restored.”
398
The Ho Feng 7 (n 397), [6].
399
Ibid., [17].
400
Ibid., [18].
401
Ibid., [46].
402
H.G. Beale et al (eds), Chitty on Contracts Volume 1: General Principles (31st edn, Thomson Reuters 2012)
para 12-078.
403
The Ho Feng 7 (n 397), [47].
404
Hua Tyan Development Ltd v Zurich Insurance Co Ltd (The “Ho Feng 7”) [2013] HKCA 414, [2014] Lloyd’s
Rep IR 1, [16.1]-[16.2].
405
Hua Tyan Development Ltd (n 396) [41].
406
Ibid.
407
Baris Soyer, ‘Classification of terms in marine insurance contracts in the context of contemporary developments’
in D.Rhidian Thomas (ed.), Marine Insurance: The Law in Transition (Informa 2006) para 5.18.

8.114 Courts have indicated their willingness to construe a clause in the policy as a
‘suspensory provision’ but that in turn makes the line between this type of clause
and the traditional warranty rather blurred. This is apparent from the judgment of
the Supreme Court of Canada in The Bamcell II408 and also of the court in the United
Kingdom in Kler v Lombard General Insurance.409
8.115 In The Bamcell II, the policy contained the clause ‘WARRANTED that a watchman is
stationed on board the BAMCELL II each night from 2200 hours to 0600 hours with
instructions for shutting down all equipment in an emergency’.410 The sinking in this
case occurred in the afternoon following the opening of the valves. Richie J explained
the language of the clause only constituted ‘a limitation of the risk insured against’ and
it is not a warranty.411
8.116 In the Kler case, a non-marine insurance case, the policy contained the following
clause:412
SPRINKLER INSTALLATIONS WARRANTY

It is warranted that within 30 days of renewal 1998 the sprinkler systems at the
Jellicoe Road / Gough Road / Spalding Road locations must be inspected by a LPC
approved sprinkler engineer with all necessary rectification work commissioned
within 14 days of the inspection report being received.
8.117 In this case, the claimant’s factory located on Jellicoe Road was damaged due to storm.
It was alleged by the insurer that the sprinkler system at this premise was inspected
60 days late and there was a breach of warranty.413 While the judge admitted that the
existence of a word ‘warranty’ or the like in the clause indicated the parties’ intention
to accord the clause with the warranty status, the judge held the clause requiring
the sprinkler system to be inspected within the specified period of time to be only a
suspensory condition.414 While it is understandable that the courts in both cases tried
to evade a ‘harsh’ consequence of a warranty regime, it is questionable whether the
courts chose to disregard a clear intention of the parties as stipulated in contractual
terms.
(b) Conditions
8.118 As in a general contractual setting, both the contingent and promissory condition
precedents are seen in the context of marine insurance. In the context of a contingent
condition precedent, or known as a condition precedent to the attachment of the risk,
‘either the existence of the contract or the liability of the insurer under the contract is
408
Century Insurance Company of Canada v Case Existological Laboratories Ltd; Re Foremost Insurance Company
and R Douglas Agencies (1971) Ltd [1983] 2 SCR 47.
409
Kler Knitwear Ltd v Lombard General Insurance Company Ltd [2000] Lloyd’s Rep. I.R. 47.
410
Ibid., [22].
411
Ibid., [23].
412
Kler (n 409) 48.
413
Ibid., 50.
414
See Ibid., 49-50.

made subject to the occurrence or non-occurrence of some further event’.415 As for

the promissory condition precedent, ‘the assured promises to perform an obligation
under the contract of insurance. In case of non-performance of the obligation
stipulated in the condition, the insurer is entitled to reject a particular claim or
subsequent claims, depending on the construction of the clause in question’.416 The
question whether the term constitutes a condition came for consideration by the
Court of First Instance in Hong Kong in a fairly complicated litigation in Kam Hing
Trading (Hong Kong) Ltd v People’s Insurance Co of China (Hong Kong) Ltd.417 In
short, the case arose out of a vessel which sank causing the loss of the cargo of round
logs on board.418 For the insurance of these round logs, the terms of the Institute
Classification Clause 1/1/2001 was incorporated.419 Clause 1.1 of this standard term
provides that the cargoes have to be carried on a ship which is classed by a member
of the International Association of Classification Societies (IACS). Clause 1 of this
standard term further requires that the insurer should be ‘notified promptly for rates
and conditions to be agreed’ if the vessel is not classed with the said IACS member.
It transpired from the Class Certificate that the vessel in question was not classed
with the IACS member.420 The argument was that the condition was fulfilled as
soon as the cargo interest in this case provided the underwriter with the name of the
vessel for the underwriter would be in the position to check the vessel’s particulars,
including the class.421 Stone J was satisfied that Clause 1 in question constituted the
condition.422 He endorsed the submission made by the counsel for the underwriters
that the fact that the underwriters may be able to check the vessel’s particulars does
not dispense with the assured’s obligation to comply with the stated condition.423
Apart from the conditions as mentioned, there is also another type of condition, a 8.119
‘mere condition’.424 For a mere condition, Soyer noted that a ‘sue and labour’ clause
falls into this category.425 The sue and labour clause has to be discussed in some
length here as the Court of Appeal in The Bunga Melati Dua affirmed the obiter of
the judge at first instance that the ransom payment may be claimable under the sue
415
Soyer (n 407) para 5.11 citing Zeus Tradition Marine Ltd v Bell (The “Zeus V”) [2000] 2 Lloyd’s Rep 587.
416
Ibid., paras 5.12-5.13 citing among other cases Directors of the London Guarantie Company v Benjamin Lister
Fearnley (1880) 5 App Cas 911 and Kazakstan Wool Processors (Europe) Ltd v Nederlandsche Credietverzekering
Maatzschappij NV [2000] Lloyd’s Rep IR 371.
417
[2010] 4 HKLRD 630.
418
Ibid., [1]-[2].
419
Ibid., [13]-[15].
420
Ibid., [22].
421
Ibid., [138].
422
Ibid., [172].
423
Ibid., [169]-[170].
424
Soyer (n 407) para 5.15.
425
Ibid., para 5.16. According to s.78 of the MIO: ‘(1) Where the policy contains a suing and laboring 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…(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’.

and labour clause.426 In general, there is no duty of the assured to the insurer to ensure
no damage or loss to the subject-matter insured. However, if the assured does take
measures to reduce such damage or loss, he does so to the benefit of the underwriter.
The assured cannot be left with expenses in implementing such measures. Bearing
this rationale in mind: ‘[t]he assured’s difficulty was overcome by giving the right
to the assured to turn such expenditure into an insured loss; there is no need for
him to be bound to incur such expenditure if it is in respect of a loss for which the
insurer would not be otherwise liable’.427 The status of the sue and labour clause was
considered by Mr. Justice Hobhouse (as he then was) in The Vasso.428 The cargo policy
in question incorporated the Institute Cargo Clauses (A) 1/1/82 which Clause 16 deals
with sue and labour.429 The underwriters in this case argued that the assured (cargo-
owners) was in breach of this clause in not issuing the mareva injunction restraining
the ship-owners (one-ship company) from moving the insurance moneys out of the
jurisdiction.430 They further argued that the consequence of such breach discharged
them from further liability.431 Mr. Justice Hobhouse first explained the nature of sue
and labour clause:432
“The subject matter of cl.16, as of s.78, is to make express the duty of the assured
to minimize or avoid a loss and to provide for the assured to be indemnified against
the expenses that he so incurs. Neither cl.16 nor s.78 has any role in defining the
scope of the primary cover. It states a collateral duty which arises once an insured
peril has begun to take effect and confers collaterally an additional indemnity in
connection with the performance of that duty. Neither under the statute nor under
the clause is the assured required to act unreasonably or to undertake any step
other than one which could reasonably be expected to result in the avoidance or
reduction of the loss…”
8.120 He then proceeded to address the underwriters’ submission as to the consequence of

the breach of such a duty. The underwriters’ submission essentially suggested the sue
and labour clause has a warranty status and this should be rejected outright as deviating
from ‘the long accepted understanding of the law’ and this is plainly wrong.433 First,
s.78 is placed in a different part of the statute with s.33 hinting that the latter is not
applicable to the former. Secondly, the warranty defines the extent of the cover but
clause 16 is irrelevant to the scope of the cover. Thirdly, the underwriters’ liability
before the date of the breach of warranty remains intact. Even if the sue and labour
426
Masefield AG v Amlin Corporate Member Ltd (The “Bunga Melati Dua”) [2011] EWCA Civ 24, [2011] 1 Lloyd’s
Rep 630, [64].
427
FD Rose (n 7) paras 20.25-20.26.
428
Noble Resources Ltd and Unirise Development Ltd v George Albert Greenwood (The “Vasso”) [1993] 2 Lloyd’s
Rep 309.
429
The Vasso (n 428), 310. Clause 16 of the Institute Cargo Clauses A 1/1/82 reads: ‘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…’
430
Ibid., 311.
431
Ibid.
432
Ibid., 313.
433
Ibid.

clause is accepted to have the status of the warranty, based on the fact of the case,
this would not alter the position as the liability of the underwriters (if any) allegedly
accrued prior to the date of the breach.434 He proceeded to explain the consequence of
the breach of the duty to sue and labour:435
“The breach of that duty may cause loss to the insurer in which case the insurer
will have a claim for damages against the assured in respect of such breach of
duty insofar as the insurer has been caused loss…the duty is a contractual duty,
breach of which gives rise to liability in damages.”
Therefore, the mere condition only leads to the insurer’s right to claim damages.436 8.121
This should not be confused with the condition precedents mentioned earlier.
(c) Innominate terms

The question whether the innominate term exists in (marine) insurance context has 8.122
caused some confusion due to the approach taken by the Court of Appeal in a non-
marine insurance case of McAlpine v BAI (Run Off).437 The clause in the McAlpine case
required the assured to give notice to the insurer as soon as possible in the event of
claim.438 The parties accepted the finding of a judge at first instance that the clause was
not a condition.439 Waller LJ considered the clause to have an ‘innominate’ character,
the breach of which if sufficiently serious entitles the insurer to reject the claim.440
He explained ‘the payment of individual claims [is] severable obligations…’441 and
continued ‘where an insured is bound to carry out one obligation in order to receive
the benefit of the insurer’s obligation by implication the insured is accepting that
if he fails in a serious way to carry out his part of that bargain he will not receive
what he has bargained for’.442 However, in the Court of Appeal in Friends Provident
Life v Sirius International443 the majority comprising of Mance LJ and Sir William
Aldous (not unsurprisingly the minority opinion was given by Waller LJ) doubted this
construction. ‘The primary quid pro quo for insurers’ obligation to pay claims under
the insurance is the premium, which is incapable of being severally allocated to any
particular risk or claim…’444 Moreover, the construction as suggested in the McAlpine
case ‘has no basis in the law of contract unless an appropriate term can be implied into
the contract’.445 Mance LJ found the clause in this case, which was similar to that in the
McAlpine case to be only an ancillary provision sounding in damages in the event of
434
The Vasso (n 428), 313-314.
435
Ibid., 314.
436
Soyer (n 407) para 5.15.
437
Alfred McAlpine plc v BAI (Run-Off) Ltd [2000] 1 Lloyd’s Rep 437.
438
Ibid., [13].
439
Ibid., [17].
440
Ibid., [32].
441
Ibid.
442
Ibid.
443
Friends Provident Life & Pensions Ltd v Sirius International Insurance [2005] EWCA Civ. 601, [2005] 2 Lloyd’s
Rep 517.
444
Ibid., [31].
445
Ibid., [35].

breach.446 Considering that both the McAlpine and the Friends Provident Life decisions
were from the Court of Appeal, it is left to the United Kingdom Supreme Court to
render its ultimate voice on the matter.
6. CAUSATION
8.123 In marine insurance contracts, underwriters are only liable for the loss caused by the
risks insured against. This is so as provided in s.55(1) of the MIO: ‘Subject to the
provisions of this Ordinance, 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’. The modern authority on proximate causation is that of the House of
Lords in Leyland Shipping Company v Norwich Union Fire Insurance Society.447 The
question of causation then turns increasingly complex when there seem to be more
than one cause of the loss. Two situations must be clearly distinguished. First, where
more than one cause involved, one was included in the policy while the other was not
specifically mentioned.448 Secondly, where more than one cause involved, one of them
is specifically excluded in the policy.449 The leading authority touching upon the first
situation is that of The Miss Jay Jay.450 The relevant authority for the second situation
is Wayne Tank & Pump v Employers’ Liability.451
8.124 In the Leyland Shipping case, the vessel had her marine insurance with exclusion of
risks of war and hostilities. Torpedoes attacked her. Subsequently, she was brought
along the quay in France. The authorities, fearing that she would sink and block
the quay, ordered her to be moved to the outer harbour. There, repeatedly struck by
rough wind and tide, she finally sank.452 The question is whether she sank due to the
‘perils of the sea’ as covered in the insurance or due to the ‘hostilities’ as excluded in
the insurance. Lord Shaw of Dunfermline explained that the proximate cause in the
context of insurance is not a proximate in time, instead a ‘proximate in efficiency’.453
All their Lordships agreed the cause of loss in this case was due to the attack by the
torpedo.
8.125 In The Miss Jay Jay, the yacht was insured against loss caused by ‘external accidental
means’, which as found by the Court of Appeal, this is not different from the typical
risk of the ‘perils of the seas’.454 There was exclusion in the policy for ‘any loss or
446
Friends Provident Life v Sirius (n 443), [32].
447
Leyland Shipping Company Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 850.
448
Bennett (n 12) paras 9.22-9.24.
449
Ibid., paras 9.25-9.29.
450
J.J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The “Miss Jay Jay”) [1987] 1 Lloyd’s Rep 32.
451
Wayne Tank & Pump Co. Ltd v Employers’ Liability Assurance Corporation Ltd [1973] 2 Lloyd’s Rep 237.
452
Leyland Shipping (n 447) 354.
453
Ibid., 369.
454
The Miss Jay Jay (n 450) 35. According to Rule 7 of the ‘Rules for Construction of Policy’ attached as Schedule
to the MIO, the ‘perils of the seas’ is defined as ‘refers only to fortuitous accidents or casualties of the seas. It
does not include the ordinary action of the wind and waves’.

CAUSATION 325
expenditure [was] incurred solely in remedying a fault in design or in the event of

damage resulting from faulty design’.455 The yacht was on a voyage from Deauville
to Hamble while it met rough seas along the route. It arrived Hamble safely but the
floor was found cracked and a part of the skin went missing.456 The Court of Appeal
accepted the finding of Mr. Justice Mustill at first instance that the cause of the damage
to the yacht was due to the combination of the sea conditions at the relevant time and
also the faulty design of the yacht.457 Since the faulty design was not the sole cause
and the insurer did not exclude liability for the faulty design (without it being the
sole cause), the Court of Appeal held unanimously that the insurer was liable. In the
passage of Lawton LJ., ‘[I]f there are two concurrent and effective causes of a marine
loss, and one comes within the terms of the policy and the other does not, the insurers
must pay’.458
In contrast from The Miss Jay Jay, in the Wayne, Tank & Pump, a fire occurred to 8.126
an old mill owned by the company which Wayne Tank supplied equipment. That
company sued Wayne Tank and subsequently Wayne Tank sought indemnity from the
insurer. The Court of Appeal referred to the judgment of the first instance in a related
action, it found the causes of the loss appeared to have resulted from the supply of
useless material and also the negligence of the employee of Wayne Tank in turning on
the heating tape overnight.459 The relevant insurance policy contained an exception
for ‘death injury or damage caused by the nature or condition of any goods or the
containers thereof sold or supplied by or on behalf of the Insured’.460 Lord Denning
M.R found the proximate cause to be the installation of the equipment. However,
he proceeded to hold, in case he was wrong on his finding, that where there were
two causes and one of them was excluded in the policy, then the exception would
be applicable.461 Lord Cairns was satisfied that the fire was caused by two causes.462
Lord Roskill was inclined of the same opinion.463 The rules are explained by Lord
Denning M.R:464
“The result is that, although this accident comes within the general words at the
opening of the policy, nevertheless seeing that there is a particular exception, the
exception takes priority over the general words. General words always have to
give way to particular provisions.”
Having laid the rules on proximate causation, the next part will deal with marine risks. 8.127
455
The Miss Jay Jay (n 454), 36 (Italics contained in the original text).
456
Ibid., 35.
457
Ibid., 39.
458
Ibid., 36.
459
Wayne Tank (n. 451) 238-239.
460
Ibid.
461
Ibid., 240.
462
Ibid., 241.
463
Ibid., 2452-246.
464
Ibid., 241.

7. MARINE RISKS
8.128 This part will deal with common marine risks. These are: (a) perils of the seas; (b) fire;
(c) theft; (d) jettison; and (e) piracy.465
(a) Perils of the Seas

8.129 What constitutes the ‘perils of the seas’ has been defined in Rule 7 of the ‘Rules for
Construction of Policy’ attached to the Schedule of the MIO. Rule 7 explains that
this term ‘refers to fortuitous accidents or casualties of the seas. It does not include
the ordinary actions of the winds and waves’. This is the same concept as the ‘perils
of the seas’ in the law on carriage of goods by sea. Three cases are crucial to the
understanding of this,466 namely: The Inchmaree,467 The Xantho,468 Hamilton, Fraser &
Co v Pandorf & Co.469 In addition to these, there are also significant cases of The Popi
M470 and The Marel471 dealing with the burden of proof.
8.130 In The Xantho, the claim was made by the owners of cargo on board for loss or damage
following the collision with another vessel.472 The question whether the situation fell
within the exception in the bills of lading for perils of the seas (or more precise the term
used in the bill of lading was “dangers and accidents of the sea”).473 Lord Herschell
explained the term as follows:474
“I think it clear that the term “perils of the seas” does not cover every accident
or casualty which may happen to the subject-matter of the insurance on the sea.
It must be a peril “of ” the sea. Again, it is well settled that it is not every loss or
damage of which the sea is the immediate cause that is covered by these words.
They do not protect, for example, against that natural and inevitable action of
the winds and waves, which results in what may be described as wear and tear.
There must be some casualty, something which could not be foreseen as one of
the necessary incidents of the adventure. The purpose of the policy is to secure
an indemnity against accidents which may happen, not against events which
must happen.”
8.131 Bearing this definition in mind, in the Pandorf case, the pipe on the ship was bitten by
the rats and hence the sea water came in and caused damage to the cargo on board.475
465
Susan Hodges, Cases and Materials on Marine Insurance Law (Cavendish Publishing 1999) 363.
466
See Gilman and Merkin (n 23) para 23-11.
467
The Thames and Mersey Marine Insurance Company Ltd v Hamilton, Fraser & Co (The “Inchmaree”) (1887)
12 App Cas. 484.
468
Thomas Wilson, Sons & Co v The Owners of the Cargo per the “Xantho” (1887) 12 App Cas 503.
469
(1887) 12 App Cas 518.
470
Rhesa Shipping Co SA v Herbert David Edmunds; Rhesa Shipping Co SA v Fenton Insurance Co Ltd (The “Popi M”)
[1985] 2 Lloyd’s Rep 1.
471
Lamb Head Shipping Co Ltd v Jennings (The “Marel”) [1994] 1 Lloyd’s Rep 624.
472
The Xantho (n 468) 504.
473
Ibid., 508.
474
Ibid., 509.
475
Pandorf (n 469) 518.

MARINE RISKS 327
The question once again was whether the situation fell within the exception in the bill
of lading. The House of Lords found it was. Lord Watson explained:476
“When a cargo of rice is directly injured by rats, or by the crew of the vessel,
the sea has no share in producing the damage, which in that case, is wholly due
to a risk not peculiar to the sea, but incidental to the keeping of that class of
goods, whether on shore or on board of a voyaging ship. But in the case where
rats make a hole, or where one of the crew leaves a port-hole open, through
which the sea enters and injures the cargo, the sea is the immediate cause of
mischief, and it would afford no answer to the claim of the insured to say that,
had ordinary precaution been taken to keep down vermin, or had careful hands
been employed, the sea would not have been admitted and there would have no
subsequent damage.”
This has to be contrasted with the situation in The Inchmaree where the pump could 8.132
not be opened leading to the consequence that a part of the pump exploded as the sea
water forced itself in.477 The House of Lords did not find the loss to fall within the
‘perils of the seas’ or similar terms. As explained by Lord Bramwell: ‘[t]he damage…
was not through its being in a ship or at sea. The same thing would have happened had
the boiler or engines based on land, if the same mismanagement had taken place. The
sea, waves and winds had nothing to do with it’.478 Therefore, if the loss can equally
happen on land, it is not a peril “of ” the sea.
The question of burden and standard of proof of the perils of the seas came to be 8.133
discussed by the House of Lords in The Popi M where in that case the vessel sank
in fine weather.479 Despite there being no factual evidence in support, Bingham J
felt compelled to find that the vessel sank due to the collision with a submarine.480
In the House of Lords, Lord Brandon of Oakbrook emphasised that ‘the Judge is
not bound always to make a finding one way or the other with regard to the facts
averred by the parties. He has open to him the third alternative of saying that the
party on whom the burden of proof lies…has failed to discharge that burden’.481 He
explained that there was no need for Bingham J. to find the cause of the loss when
none of the cause canvassed by the parties appeared probable. In the event of doubt
as to the cause, it is always available to the judge to hold that the shipowners ‘has
failed to discharge the burden of proof which was on them’.482 This was followed
in The Marel.
In The Marel, the vessel sank due to a sudden flooding while she had been found to be 8.134
in fine and seaworthy condition.483 Dillon LJ rejected the submission that there existed
a presumption that the vessel must be lost due to the ‘perils of the seas’ when she had
476
Pandorf (n 469), 525.
477
The Inchmaree (n 467) 490.
478
Ibid., 493.
479
The Popi M (n 470) 3.
480
Ibid., 5.
481
Ibid., 6.
482
Ibid.
483
The Marel (n 471) 628.

been found to be seaworthy before she set sail. Instead, he ascribed it to the standard
of proof. He explained:484
“…the presumption is really founded on the balance of probabilities. If it is

known that a ship was seaworthy when she set out, and she has never been seen
since and nothing has been heard of her crew, then on the balance of probabilities
she must have sunk and, on the balance of probabilities, the sinking must have
been due to “perils of the seas” because she was seaworthy when she set out. The
only alternative would be that she was scuttled, but member of a ship’s company
who scuttled their ship do not normally intend to commit suicide.”
8.135 In The Marel, many suggested causes of the sinking were found improbable and Dillon
LJ found that the burden of proof remains on the plaintiffs. He endorsed the reasoning
of Lord Brandon of Oakbrook in The Popi M where he explained the common sense
dictates the finding on the balance of probabilities.485
(b) Fire
8.136 What constitutes this risk is not defined in the statute. Therefore, gleaning through
case law assists in understanding this risk.486 Two cases were considered ‘fire’ in
the context of the then s.502(1) of the Merchant Shipping Act 1894 which provided
essentially that the owner of the British ship shall not be liable for any loss or damage
arising from fire if there is no fault or privity on his part. In The Diamond,487 Bargrave
Deane J found the loss or damage arising from fire to encompass loss or damage due
to smoke from the fire as well as loss or damage due to water used in extinguishing
the fire.488 In Tempus Shipping Co v Louis Dreyfus & Co,489 Wright J found the term
‘fire’ to include fire occurring from spontaneous combustion. However, fire does
not include: ‘[m]ere heating, which has not arrived at the stage of incandescence
or ignition…’490 In The Alexion Hope,491 Staughton J found fire to include also
deliberate fire. However, in this context, the fire deliberately caused by the assured
is excluded.492
8.137 Before this part ends, a short note should be made of another risk which is usually
covered along with fire, namely explosion. This has been considered by the Court of
484
The Marel (n 471), 629.
485
Ibid.
486
Hodges (n 465) 392.
487
[1906] P 282.
488
Ibid., 287.
489
Tempus Shipping Company Ltd v Louis Dreyfus and Company Ltd [1930] 1 KB 699.
490
at 708.
491
Schiffshypothekenbank Zu Luebeck AG v Norman Philip Compton (The “Alexion Hope”) [1987] 1 Lloyd’s
Rep 60.
492
Ibid., 67. The deliberate fire caused by the assured is excluded pursuant to s.55(2)(a) of the MIO which provides:
‘an insurer is not liable for any loss attributable to the willful 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’.

MARINE RISKS 329
Appeal in Commonwealth Smelting v GRE493 In this case, there was damage to the
blower which witnesses explained was caused by the explosion.494 Parker LJ warned
that what laymen described as an explosion is not actually an explosion.495 This has to
be asked from what the ordinary English man would have understood.496 The Court of
Appeal did not hold that Staughton J in the first instance was wrong when he adopted
the meaning from the Encyclopedia Britannica and found explosion to mean ‘an event
that is violent, noisy and are caused by a very rapid chemical or nuclear reaction, or
the bursting out of gas or vapour under pressure’.497 Therefore, what was described as
explosion in this case may serve as a guideline.
(c) Theft
“Theft” or “thieves” is defined in Rule 9 of the Rules for Construction of Policy 8.138
attached to the MIO. It ‘does not cover clandestine theft or a theft committed by any
one of the ship’s company, whether crew or passengers’. The fact that clandestine
theft is excluded means the theft must be violent.498 The significant authority as far
as this risk is concerned is La Fabrique de Produits Chimiques v Large.499 The case
was about cargo insurance on a warehouse to warehouse basis. The thieves broke
into the warehouse which was left unattended at night by breaking the padlocks and
stealing some cargoes.500 While no violence was caused to any person, Bailhache J
was of the view that there was use of force or violence in this case. He said, ‘I do
not think that the expression ‘by violence’ as used in this connection means that the
assault must be committed upon some person’.501 This should be contrasted with
the situation in The Andreas Lemos.502 In this case, the vessel was insured for both
marine risk (hull & machinery insurance) and war risk. The war risk was covered by
the war risk association, the defendant in this case. The war risk insurance covered,
among other things, risks excluded from marine risk cover by the existence of the
“F.C & S clause”.503 Both risks of piracy and theft were among exclusions listed
in the clause. One of the questions for Staughton J (as he then was) was whether
the factual circumstances of the case fell under the risk of theft.504 The facts were
thus: while the vessel was in Chittagong Roads, men with knives boarded her and
took some of the vessel’s equipment. They were spotted by a crewman on watch
while they were throwing equipment into the sea. The men took fright and jumped
493
Commonwealth Smelting Ltd v Guardian Royal Exchange Assurance Ltd [1986] 1 Lloyd’s Rep 121.
494
Ibid., 123.
495
Ibid.
496
Ibid., 126.
497
Ibid., 124 citing Commonwealth Smelting Ltd v Guardian Royal Exchange Assurance Ltd [1984] 2 Lloyd’s
Rep 608, 612.
498
Hodges (n 465) 405.
499
La Fabrique de Produits Chimiques Societe Anonymes v Large [1922] 1 KB 203.
500
Ibid., 205.
501
Ibid., 206.
502
Athens Maritime Enterprises Corporation v Hellenic Mutual War Risks Association (Bermuda) Ltd (The “Andreas
Lemos”) [1982] 2 Lloyd’s Rep 483.
503
Ibid., 486. ‘FC & S’ stands for ‘Free of Capture and Seizure’.
504
Ibid., 487.

into the sea when they saw crewmen coming with knives and pistols.505 Staughton J
viewed the situation to amount only to the ‘clandestine theft’. The reason was
because in his finding: ‘force or a threat of force was used by the men to make good
their escape’.506 The next relevant case, albeit not a marine insurance case, is Dino
Services v Prudential.507 The case involved a combined business insurance which
also covers theft or theft involving: ‘[e]ntry to or exit from the premises by forcible
and violent means’. The assured in this case locked up his company’s premises
and then put the keys in the glove box in his car. He parked his car adjacent to the
public house and then went back home. When he returned the next day, the car
was gone. The thief used the key in his car to enter his premises and stole some
items.508 Tracing previous authorities, Kerr LJ explained by using a key to open
the lock or by turning a knob would suffice to find there was a ‘forcible’ entry.
For the term ‘violent’, he explained: ‘it is intended to convey that the use of some
force to effect entry…is accentuated or accompanied by some physical act which
can properly be described as violent in its nature or character’.509 For, breaking the
window constitutes such violence. However, violence does not necessarily connote
illegality.510
(d) Jettison
8.139 This risk can be dealt with briefly as its focus in marine insurance law has been
substantially decreased. It means ‘a cargo has been thrown overboard by way of
sacrifice in time of peril to the vessel or other cargo’.511 First, the loss by jettison
is normally claimable in general average.512 Secondly, jettison must be done with a
reason.513 So, if jettison is needed due to the bad sea condition, the claim may be
made on the basis of the perils of the seas. Likewise, if goods are thrown over board to
prevent the spreading of the fire, the loss may fall under fire.514 So, the risk of jettison
will not be discussed here further.
(e) Piracy
8.140 For detailed discussions of this risk, readers may refer to the work of the author
elsewhere.515 The risk of piracy is defined in Rule 8 of the Rules for Construction that
this term ‘includes passengers who mutiny and rioters who attack the ship from the
shore’. This is unlikely to fit in well within the modern context where attacks from
505
The Andreas Lemos (n 502), 485-486.
506
Ibid., 491.
507
Dino Services Ltd v Prudential Assurance Co Ltd [1989] 1 Lloyd’s Rep 379.
508
Ibid., 380.
509
Ibid., 382.
510
Ibid. Kerr LJ gave an example of he had to break his own door because he forgot the key. That would be violent
but that was not illegal.
511
Baris Soyer, ‘Marine Insurance’ in Robert Merkin (ed.), Insurance Law – An Introduction (Informa 2007) 227.
512
Ibid., see Rule 1 of the York-Antwerp Rules 2014.
513
Ibid.
514
Ibid.
515
Poomintr Sooksripaisarnkit, ‘The Global Insurance Industry’ in Charles H. Norchi and Gwenaële Proutière-
Maulion (eds), Piracy in Comparative Perspective: Problems, Strategies, Law (A. Pedone & Hart 2012), 275.

MARINE RISKS 331
pirates are unlikely to be from the ‘shore’.516 Also, how far from the shore can a ship
be attacked?517 It must also be noted that the definition of the ‘piracy’ in Rule 8 is not
the same as that in the context of the United Nations Convention on the Law of the Sea
(UNCLOS) 1994.518 This question has not been answered by authorities. In dealing
with the piracy risk, two cases are referred to by the learned editors of Arnould’s Law
of Marine Insurance and Average.519
The first case is Republic of Bolivia v Indemnity Mutual Marine Assurance, 8.141
Limited.520 In this case, a vessel was taken by a group of men who attempted to
establish the ‘Free Republic of El Acre’ in a once disputed area between Brazil
and Bolivia.521 All of the judges in the Court of Appeal endorsed the speech of
Pickford J. at first instance where there the pirate was described as ‘a man who
is plundering indiscriminately for his own ends, and not a man who is simply
operating against the property of a particular State for the public end’.522 Therefore,
it is the motive for the ‘private ends’ which distinguishes the piracy risk from the
risk of terrorism.523
The next case is The Andreas Lemos, the facts of which was mentioned above. In 8.142
addition to the argument on the risk of theft, the argument on the risk of piracy was
also raised. In reliance on public international law, the counsel for the underwriters
argued that the situation did not constitute piracy as it happened on territorial
waters.524 Reviewing various authorities, Staughton J. concluded there is no basis
to restrict the risk of piracy to events happening outside territorial waters. ‘In the
context of an insurance policy, if a ship is, in the ordinary meaning of the phrase, “at
sea”…or if the attack upon her can be described as “a maritime offence”…then for
the business purposes of a policy of insurance she is…in a place where piracy can
be committed’.525 Nor did he find that the risk of piracy has to be confined within
territorial waters. ‘It is not easy to envisage a ship being attacked by rioters from the
shore when she is outside territorial waters; but it could happen, I suppose, when she
is “at sea”’.526
516
Poomintr Sooksripaisarnkit (n 515), 278.
517
Ibid., 280.
518
In Article 101 of the UNCLOS: ‘Piracy consists of any of the following acts: (a) any illegal acts of violence or
detention, or any act of depredation, committed for private ends by the crew or the passengers of a private ship or
a private aircraft, and directed (i) on the high seas, against another ship or aircraft, or against persons or property
on board such ship or aircraft; (ii) against a ship, aircraft, persons or property in a place outside the jurisdiction
of any State; (b) any act of voluntary participation in the operation of a ship or of an aircraft with knowledge of
facts making it a pirate ship or aircraft; (c) any act of inciting or of intentionally facilitating an act described in
subparagraph (a) or (b)’.
519
Gilman and Merkin (n 23) 23-31-23-32.
520
[1909] 1 KB 785.
521
Ibid., 787.
522
Ibid., 791.
523
Sooksripaisarnkit (n 515) 283.
524
The Andreas Lemos (n 502) 487.
525
Ibid., 490.
526
Ibid.

8. EXCLUDED RISKS
8.143 Apart from any exclusions agreed between the parties or stipulated in the standard
form contracts, risks which are excluded in marine insurance are mentioned in s.55(2)
of the MIO:
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 the peril insured against; and
(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.
8.144 Therefore, in this part, there will be a discussion on: (a) wilful misconduct; (b) delay;
(c) ordinary wear and tear; and (d) inherent vice.
(a) Wilful misconduct

8.145 In general, wilful misconduct has been discussed in cases involving alleged intentional
sinking of the vessel by the owners in order to make insurance claims.527 Two authorities
are noted by the learned editors of Arnould’s Law of Marine Insurance and Average
as they pointed out these two cases could not be read together easily: Papadimitriou v
Henderson528 and NOW v DOL.529 Likewise, in relation to the burden of proof, there
was uncertainty due to seemingly conflicting authorities: La Compania Martiatu v
Royal Exchange Assurance530 and The Elias Issaias.531
8.146 In Papamiditriou v Henderson, the case involved a war risk insurance of a ship
that was chartered to carry goods of the Government of Spain. She was instructed
to sail to Oran.532 The relevant information at the time was that the problem may
arise off Cap Bon, near to Oran. The master was instructed by the owners to return.
However, insurgent warships soon seized her.533 It was alleged by the underwriters
527
Gilman and Merkin (n 23) 22-35.
528
(1939) 64 Ll L Rep 345.
529
NOW v DOL (n 214).
530
La Compania Martiatu v The Corporation of The Royal Exchange Assurance [1923] 1 KB 650.
531
Elfie A. Issaias v Marine Insurance Co Ltd (1923) 15 Ll L Rep 186.
532
Papamiditriou v Henderson (n 528) 347.
533
Ibid., 348.

EXCLUDED RISKS 333
that there was wilful misconduct on the part of the owners in allowing the vessel
to proceed to Oran while they should have known that the risk of capture by the
insurgent warships was particularly high.534 Lord Justice Goddard rejected this
argument:535
“Of course, if it was a case in which the shipowner got warning that a blockade
had been established at a particular port or that a ship was lying waiting at a
particular point, and the shipowner deliberately sent his ship forward to that point
to run the blockade, it may be that there would be, in certain cases, an inference
to be drawn that he was not endeavouring to carry out the voyage, but what he
was endeavouring to do was to get his ship captured, and that, of course, would
be wilful misconduct…I certainly would be very sorry to lay down any such
doctrine, that a shipowner who had dispatched his ship on what was to him a
perfectly lawful voyage, should be held guilty of wilful misconduct because he
had continued on that voyage and was doing his best to fulfil it, more especially
when one finds that when he was asked to order the ship to return, he did order
his ship to return…”
The author is of the view that the distinction which Lord Justice Goddard contemplated 8.147
introduces a line which is hard to draw in practice. By contrast, in NOW v DOL, in
determining the preliminary issue on the alleged wilful misconduct on the part of
NOW, Colman J found Lord Justice Goddard did not intend to lay down the definition
of wilful misconduct.536 He then proceeded to explain the ‘wilful misconduct’ as
follows:537
“Clearly for the conduct to be characterized as “misconduct” it must be wrongful

in the context of the contractual or other relationship existing at the relevant time
between the parties concerned. That is to say, in the context of a contract one
party must do or omit to do something which is aptly described as misconduct
towards the other contracting party. In the context of a policy of insurance on
property the misconduct in question must obviously relate to the subject-matter
insured and it must also relate to the assured’s obligations under the policy…
essential elements are that the assured intended to achieve a loss or the damage
or that he was recklessly indifferent whether such loss or damage was caused and
that his immediate purpose was to claim on his insurers or that he subsequently
advanced such a claim.”
The learned editors of Arnould’s Law of Marine Insurance and Average are inclined to 8.148
be of the view that the approach of Colman J. in the matter of NOW v DOL was correct.
It does not suffice to demonstrate the assured’s awareness that it is highly probable
that his conduct would bring about the losses covered by the policy. Instead, ‘it must
at least usually be shown that he knew his conduct to be wrongful in a more general
534
Papadimitriou v Henderson (n 528), 346.
535
Ibid., 349.
536
NOW v DOL (n 214) 621.
537
Ibid., 622.

sense if not actually illegal, or was indifferent to that possibility’.538 As in NOW v DOL,
they maintained the wilful misconduct encompasses recklessness.
8.149 As far as the burden of proof is concerned, perhaps a starting point is that of Lord
Justice Atkin in The Elias Issaias. He said:539
“The charge of privity against the owner makes against him an allegation of what
would be a crime if committed in respect of an English ship…and is in any case a
charge of very serious dishonesty. The plaintiff is entitled to invoke in his favour a
principle of English law so well established that it is somewhat surprising to find
little reference to it in some recent cases, the principle of presumption of innocence.”
8.150 As can be seen, the burden of proof as adopted in this case results in the underwriter
having to shoulder an unnecessarily heavy burden of proof in a case that is not criminal
in nature. The different position can be seen in the La Compania Martiatu case which
was decided by the Court of Appeal around the same year. In that case, Lord Justice
Scrutton explained:540
“…if there are circumstances suggesting that another cause than a peril insured
against was the dominant or effective cause of the entry of sea water into the
ship…and an examination of all the evidence and probabilities leaves the Court
doubtful what is the real cause of the loss, the assured has failed to prove his case.”
8.151 This approach held the burden of proof was otherwise and it is the assured who has to
prove there was no wilful misconduct.
8.152 Reviewing modern authorities following the two cases mentioned above, Aikens J
made the following summary in The Milasan:541
“(1) It is for the claimants to prove that the loss was caused by an insured peril,
on a balance of probabilities;
(2) An incursion of seawater into a vessel is not, by itself, a peril of the seas;
(3) The claimants have to identify and prove (on a balance of probabilities) why
water entered a vessel in order to identify the cause of entry as a peril of the seas;
(4) If a defendant insurer is to succeed on an allegation that a vessel was
deliberately cast away with the connivance of the owner, then the insurer
must prove both aspects on a balance of probabilities. However as such
allegations amount to an accusation of fraudulent and criminal conduct on
the part of the owner, then the standard of proof that the insurer must attain
to satisfy the Court that its allegations are proved must be commensurate
with the seriousness of the charge laid. Effectively the standard will fall not
far short of the rigorous criminal standard;
538
539
The Elias Issaias (n 531) 191.
540
La Compania Martiatu (n 530) 657.
541
Brownsville Holdings Ltd v Adamjee Insurance Co Ltd (The “Milasan”) [2000] 2 Lloyd’s Rep 458, [28].

EXCLUDED RISKS 335
(5) Although there is no “presumption of innocence” of the owners, due weight

must be given to the consideration that scuttling a ship would be fraudulent
and criminal behaviour by the owners;
(6) When deciding whether the allegation of scuttling with the connivance of
the owners is proved, the Court must consider all the relevant facts and
take the story as a whole. By the very nature of these cases it is usually not
possible for insurers to obtain any direct evidence that a vessel was wilfully
cast away by her owners, so that the Court is entitled to consider all the
relevant indirect or circumstantial evidence in reaching a decision;
(7) It is unlikely that all relevant facts will be uncovered in the course of
investigations. Therefore it will not be fatal to the insurers’ case that “parts
of the canvas remain unlighted or blank”;
(8) Ultimately the issue for the Court is whether the facts proved against the
owners are sufficiently unambiguous to conclude that they were complicit
in the casting away of the vessel;
(9) In such circumstances the fact that an owner was previously of good
reputation and respectable will not save him from an adverse judgment; and
(10) The insurers do not have to prove a motive if the facts are sufficiently
unambiguously against the owners. But if there is a motive for dishonesty
then it may assist in determining whether there has been dishonesty in fact.”
It is to be observed that the standard of proof for wilful misconduct is not clear at 8.153
all. The burden rests upon the underwriters to prove. The standard of proof is not a
criminal one. Yet, the standard appears higher than the usual standard of balance of
probabilities in civil cases. However, the courts do not make clear exactly how high
the standard is. The statement that the standard is near to the criminal standard is
unhelpful.
(b) Delay
In discussing this exclusion, cases including Taylor v Dunbar542 and Pink v Fleming543 8.154
were mentioned by Bennett.544
Taylor v Dunbar involved insurance of dead pigs and beef from Hamburg to London 8.155
via two ships. Both ships encountered strong gales and heavy weather en route that
caused delay. Goods were found putrid.545 The court found the damage to goods was
caused by delay.546 Relying on this decision, in Pink v Fleming where lemons and
oranges were found in damaged condition following the collision of the ship which
necessitated repairs of the ship, discharging, and re-loading the goods,547 the Court
542
(1869) LR 4 CP 206.
543
Pink v Fleming (1890) 25 Q.B.D 396.
544
See Bennett (n 12) paras 15.33-15.37.
545
Taylor v Dunbar (n 542) 206-208.
546
Ibid., 210-211.
547
Pink v Fleming (n 543) 396.

of Appeal unanimously found the damage to the goods to be caused by the cargo
handling during the discharging and re-loading and delay during the repair.548 This
case was decided before the House of Lords in Leyland Shipping at a time when the
attitudes of judges were that the proximate cause is the last cause in time. Therefore,
despite Lord Esher M.R appearing to be of the view that the effective cause was the
collision, he declined to find this as the proximate cause. The reason being that to do so
‘the plaintiffs [cargo interests] must go back two steps, and that, according to English
law, they are not entitled to do so’.549 Bennett argued that the peril of the seas and the
collision should be viewed as the proximate cause respectively in these cases.550
(c) Ordinary wear and tear

8.156 This simply means deterioration or decrease in value after the subject-matter has been
used for a period of time.551 This is found more in the context of hull & machinery
insurance. ‘[I]t would apply to “a case where a ship’s plating simply wastes away through
rust, or a ship sinks through general debility; or a case where a part of machinery
simply wears out in use and breaks causing damage”, as where a link in a dredger’s
chain snaps simply because it is worn’.552 At times, however, it may be difficult to
distinguish ordinary wear and tear from inherent vice, which is considered next.
(d) Inherent Vice

8.157 This exclusion has been discussed by the United Kingdom Supreme Court in a fairly
recent decision in The Cendor MOPU.553 This decision clarified the earlier judgment of
the House of Lords in Soya GmbH v White554 as well as refused to follow the approach
in Mayban General Insurance Bhd v Alstom Power Plants Ltd.555
8.158 In Soya GmBH v White, Lord Diplock explained the term ‘inherent vice’ as follows:556
“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.”
8.159 In the Mayban case, the transformer was transported from Ellesmere Port to Rotterdam
and then it was transhipped onto another vessel for carriage from Rotterdam to
Malaysia.557 In both legs of the voyage, the vessels faced heavy weather (force 8-9
winds).558 The transformer arrived in Malaysia in damaged condition.559 Moore-Bick J
548
Pink v Fleming (n 543), 398-399.
549
Ibid., 398.
550
551
552
553
Global Process Systems Inc v Syarikat Takaful Malaysia Berhad (The “Cendor MOPU”) [2011] UKSC 5, [2011]
1 Lloyd’s Rep 560.
554
Soya GmbH Mainz Kommanditgesellschaft v White [1983] 1 Lloyd’s Rep 122.
555
[2004] EWHC 1038 (Comm), [2004] 2 Lloyd’s Rep 609.
556
Soya GmbH (n 554) 126.
557
Mayban (n 555) [1].
558
Ibid., [12] and [16].
559
Ibid., [17].

EXCLUDED RISKS 337
was satisfied that the sea condition was not extreme or unusual560 and that the ‘violent
movement of the vessel’ led to the progressive damage of the transformer during
the voyage.561 He explained and distinguished perils of the seas and inherent vice as
follows:562
“The action of the winds and waves is…an inevitable incident of any voyage and
is therefore a hazard to which all goods carried by sea are necessarily exposed.
Goods tendered for shipment must therefore be capable of withstanding the forces
that they can ordinarily be expected to encounter in the course of the voyage…If
the conditions encountered by the vessel were more severe than could reasonably
have been expected, it is likely that the loss will have been caused by perils of the
sea (though even then there might be evidence that the goods would have suffered
the same degree of damage under normal conditions). If, however, the conditions
encountered by the vessel were no more severe than could reasonably have been
expected, the conclusion must be that the real cause of the loss was the inherent
inability of the goods to withstand the ordinary incidents of the voyage.”
As such, he found the insurer in this case to be free from liability due to the exception 8.160
of inherent vice in the policy.563
In The Cendor MOPU, the case involved insurance for the transportation of an oil rig 8.161
from Galveston to Malaysia.564 The oil rig consisted of the legs and the transportation
arrangement was such that ‘the legs extended some 300 ft into the air’.565 With the
recommendation of experts appointed by the insurers, the legs were inspected near
Cape Town and some repairs were done to the legs. However, shortly after the voyage
continued, the oil rig lost its starboard leg. Subsequently, the forward leg broke off.
Lastly, the port leg also fell into the sea.566 Upon investigation, it was found that the loss
was due to metal fatigue.567 Based on the definition of ‘inherent vice’ given by Lord
Diplock in the Soya GmbH v White case, the insurers submitted that sea conditions at
the relevant time ‘were within the range that could reasonably have been contemplated
for the voyage’ and hence the loss was due to ‘unfitness of the goods which existed
on shipment’.568 This argument found favour with Blair J at the first instance but was
rejected by the Court of Appeal. For the Court of Appeal, ‘the proximate cause of
the loss was an insured peril in the form of the occurrence of a “leg-breaking wave”,
which resulted in the starboard leg breaking off, leading to greater stresses on the
remaining legs, which then broke off’.569 The Supreme Court of the United Kingdom
unanimously rejected the insurers’ argument. Lord Saville interpreted Lord Diplock’s
definition of ‘inherent vice’ to mean that ‘where goods deteriorated, not because they
560
Mayban (n 555), [26].
561
Ibid., [21].
562
Ibid.
563
Ibid., [4]-[6] and [33].
564
The Cendor MOPU (n 553), [2].
565
Ibid., [5].
566
Ibid., [6].
567
Ibid., [7].
568
Ibid., [25].
569
Ibid., [15]-[16].

had been subjected to some external fortuitous accident or casualty, but because of
their natural behaviour in the ordinary course of the voyage, then such deterioration
amounted to inherent vice or nature of the subject matter insured’.570 Likewise, in the
passage of Lord Mance:571
“If inability to withstand foreseeably bad weather conditions does not prevent
damage sustained as a result being attributed to perils of the sea: (i) that must be
because Lord Diplock’s reference to “the ordinary course of the contemplated
voyage” was not intended to embrace the weather conditions foreseeable on
such a voyage, but was rather used as a counterpoint to a voyage on which
some fortuitous external accident or casualty occurred; and (ii) 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.”
8.162 From Lord Mance’s interpretation of Lord Diplock’s speech here, it does not seem
possible for the perils of the seas and inherent vice to co-exist as causes of loss.
However, Lord Mance preferred leaving the possibility of finding concurrent causes
open.572 Likewise, Lord Clarke was of the view that the insurers’ argument gave rather
artificial sense to Lord Diplock’s speech as this argument only leads to differentiation
between levels of fortuity, contrary to the word ‘any’ used in Lord Diplock’s speech.573
Moreover, Lord Clarke was of the view that Lord Diplock bore in mind the definition
of the ‘perils of the seas’ provided in the MIA and hence the explanation of ‘inherent
vice’ was contrary to this and where the cause of the loss was found to be perils of the
seas, there would be no basis to find the loss by the inherent vice.574 Moreover, it must
be observed that inherent vice is grouped together with ordinary wear and tear and
ordinary leakage and breakage in s.55(2)(c). The latter two excluded risks encompass
loss ‘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 the hull or cargo leading to it causing loss or damage to itself’.575 These
losses have one thing in common – lack of fortuity.576
8.163 So, what is the difference between ordinary wear and tear of the vessel and inherent
vice? It is a thin line to distinguish between the two. Inherent vice ‘connotes some
condition of the hull or machinery at the inception of the risk which does not merely
happen from the ordinary incidents of trading’ while the ordinary wear and tear is not
caused by any such defect but it is solely damage due to usual course of trading.577
570
The Cendor MOPU (n 553), [45].
571
Ibid., [80].
572
Ibid., [88].
573
Ibid., [110].
574
Ibid., [111].
575
Ibid., [81].
576
Ibid.
577

CLAIMS 339
9. CLAIMS
Two aspects are considered here: (a) fraudulent claims; (b) damages for late payment 8.164
of insurance claims.
(a) Fraudulent claims

The assured may submit a fraudulent claim and this is unfortunately not uncommon. 8.165
The fraudulent claim may appear in one of these five forms:578
“1. Where the assured procures or causes the loss deliberately and knowingly (or
with reckless indifference to the truth) presents a claim for an indemnity in
respect of that loss;
2. Where the assured suffers no loss, but manufactures or invents a loss for
presentation to the insurer;
3. Where the assured suffers a genuine loss but presents the claim in such a way
as knowingly (or with reckless indifference to the truth) to disguise the fact
that the insurer has or might have a defence to the claim;
4. Where the assured suffers a genuine loss, which is indemnifiable under the
insurance contract, but the assured knowingly (or with reckless indifference
to the truth) exaggerates the claim to a not insignificant extent; and
5. Where the assured suffers a genuine loss, which is indemnifiable under
the insurance contract, but the assured deploys a fraudulent device with
the intention of (not insignificantly) improving his prospects vis-à-vis the
insurer.”
For sometimes, it has been doubted whether the consequences of submitting fraudulent 8.166
claims would lead to the right of the underwriters to avoid the contract as cases on
fraudulent claims were among those relied on by Mr. Justice Hirst in Litsion Pride to
suggest that the doctrine of utmost good faith in s.17 also applies post-contractually.579
The subsequent decision of the House of Lords in The Star Sea was convoluted on
this point.580
In The Star Sea, the alleged breach of post-contractual duty of utmost good faith was 8.167
in relation to information transpired during the exchange of witness statements.581 In
light of the finding of the House of Lords that the post-contractual duty of utmost good
faith ceases once the writ is issued,582 any further analysis in relation to s.17 was purely
578
Macdonald Eggers and others (n 345) para 11.43.
579
See in general Black King Shipping Corporation and Wayang (Panama) SA v Mark Ranald Massie (The “Litsion
Pride”) [1985] 1 Lloyd’s Rep 437, 511. See also Baris Soyer (n 242).
580
See The Star Sea (n 243).
581
Ibid., [37]-38].
582
Ibid., [74]-[75].

obiter. This paved the way for Mance LJ (as he then was) to proclaim as follows in the
subsequent Court of Appeal case of Agapitos v Agnew:583
“In the present imperfect state of the law, fettered as it is by s.17, my tentative
view of an acceptable solution would be:
(a) To recognize that the fraudulent claim rule applies as much to the
fraudulent maintenance of an initially honest claim as to a claim which
the insured knows from the outset to be exaggerated.
(b) To treat the use of a fraudulent device as a sub-species of making a
fraudulent claim – at least as regards forfeiture of the claim itself in
relation to which the fraudulent device or means is used…
(c) To treat as relevant for this purpose any lie, directly related to the claim
to which the fraudulent device relates, which is intended to improve the
insured’s prospects of obtaining a settlement or winning the case, and
which would, if believed, tend, objectively, prior to any final determination
at trial of the parties’ rights, to yield a not insignificant improvement
in the insured’s prospects – whether they be prospects of obtaining a
settlement, or a better settlement, or of winning at trial.
(d) To treat the common law rules governing the making of a fraudulent
claim (including the use of fraudulent device) as falling outside the
scope of s.17…”
8.168 Mance LJ came to consider the remedy of ‘forfeiture’ again in a non-marine insurance
case of Axa General Insurance v Gottlieb.584
8.169 The Gottlieb case involved four claims during one policy year in a building insurance.
It was found by the judge at first instance that the assured acted fraudulently in respect
of two out of these four claims. These alleged fraudulent conducts were in relation to a
claim for temporary accommodation supplied by the builder and the forged electrician
bill.585 However, there were interim payments made by the underwriters in respect of
these two claims prior to the fraud. The judge at first instance held that the assured had
to return all sums paid by the underwriters in respect of these two claims. The assured
challenged this in the appeal that the judge ‘should have held that a fraudulent claim has
no effect on interim payments made…’586 Mance LJ came to state the law as follows:587
“…the proper scope of the common law rule relating to fraudulent insurance
claims is to forfeit the whole of the claim to which the fraud relates, with the
effect that the consideration of any interim payments made on that claim fails and
they are recoverable.”
583
Agapitos v Agnew [2002] EWCA Civ 247, [2002] 2 Lloyd’s Rep 42, [45].
584
[2005] EWCA Civ 112, [2005] Lloyd’s Rep IR 369.
585
Ibid., [1]-[2].
586
Ibid.
587
Ibid., [32].

CLAIMS 341
The Agapitos v Agnew and the Gottlieb case represent the common law rules relating 8.170
to fraudulent claims as they now stand.
As can be seen from what Mance LJ mentioned in Agapitos v Agnew, the rules on 8.171
fraudulent claims also apply to the use of fraudulent devices. In this context, the
fraudulent device can be understood as ‘a lie or other falsity (such as a false document)
put forward in support of an otherwise genuine claim’.588 Soyer gave an example of
a person taking out insurance against theft on his property. A claim was submitted
when someone broke into his property. To support a claim, a photograph of the broken
door was sent to the underwriter. However, to secure a greater chance of success in
the claim, the assured caused damage to the door which became more extensive.589
Nevertheless, not all instances of the use of fraudulent devices attract the use of
fraudulent claim rules. As Mance LJ acknowledged:590
“In the context of use of a fraudulent device or means, one can contemplate
the possibility of an obviously irrelevant lie – one which, whatever the insured
may have thought, could not have had any significant impact on any insurer or
Judge.”
Therefore, he propounded that the fraudulent claim rules should only be applicable to 8.172
the use of fraudulent devices in case where such use likely to have such impact as he
mentioned in paragraph 45 of his judgment in Agapitos v Agnew quoted above. This
has been followed in a number of cases.591
(b) Damages for late payment of insurance claims

This can be dealt with shortly with The Italia Express.592 8.173
In The Italia Express, the ferry was sunk due to explosives stuck to the hull. The 8.174
underwriters alleged wilful misconduct on the part of the assured and that allegation
was only withdrawn after the 37th day of the trial.593 The ship-owners came to
claim from the underwriters for damages for loss of supposed incomes along with
anticipated increase in value of the replacement ship and they also claimed for
‘damages for hardship, inconvenience, and mental distress’.594 Hirst J held that the
ship-owners could only claim up to the value stated in the valued policy. He held the
claims advanced by the ship-owners to have the nature of ‘damages for late payment
of damages’ and this is contrary to the rule laid down by the House of Lords in The
588
589
Soyer (n 242) 47.
590
Agapitos v Agnew (n 583) [38].
591
See Eagle Star Insurance Co Ltd v Games Video Co (GVC) SA (The “Game Boy”) [2004] EWHC 15 (Comm),
[2004] 1 Lloyd’s Rep 238; see also Stemson v AMP General Insurance (NZ) Ltd [2006] UKPC 30, [2006] Lloyd’s
Rep IR 852; Aviva Insurance Ltd v Brown [2011] EWHC 362 (QB); [2012] Lloyd’s Rep. I.R. 211; Versloot
Dredging BV; SO DC Merwestone BV v HDI Gerling Industrie Versicherung AG (The “DC Merwestone”) [2014]
EWCA Civ 1349.
592
Apostolos Konstantine Ventouris v Trevor Rex Mountain (The “Italia Express” (No.2)) [1992] 2 Lloyd’s Rep 281.
593
The Italia Express (No.2) (n 592) 284.
594
Ibid.

Lips.595 He appeared to be of the view that the underwriters’ duty under the contract
of insurance is to hold the assureds harmless and that duty is breached once there is a
loss of the subject matter insured.596
10. LOSSES IN MARINE INSURANCE LAW

8.175 There are two types of losses recognised in marine insurance law – partial loss and total
loss. Total loss can also be divided into two types – actual total loss and constructive
total loss. These are reflected in s.56 of the MIO:
(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.
8.176 Following the construction of this provision, this part will first consider the total loss
before moving on to discuss partial loss.
(a) Actual Total Loss

8.177 Pursuant to s.57 of the MIO:
(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.
8.178 It can be seen from this section that there are three circumstances which can render the
actual total loss of the subject-matter insured. There is no need to explain any further
595
The Italia Express (No.2) (n 592), 292. Reference was made to a voyage charter party case of President of India v
Lips Maritime Corporation (The “Lips”) [1987] 2 Lloyd’s Rep 311 in the context of payment of demurrage
where Lord Brandon of Oakbrook held in pages 317-318: ‘…there was no breach of the charter by the charterer
in respect of the payment of demurrage. All that happened was that the charterer did not pay liquidated damages
for the detention of the ship at the time when the cause of action in respect of such damages accrued…For that
non-payment the only remedy which the law affords to the owners is interest on the sum remaining unpaid’.
596
Ibid. This view is affirmed in Sprung v Royal Insurance (UK) Ltd. [1999] 1 Lloyd’s Rep IR 111.

LOSSES IN MARINE INSURANCE LAW 343
of the first situation when the subject-matter insured is destroyed. However, the other
two situations need certain clarifications. These are: (1) the subject-matter insured is
so damaged as to cease to be a thing of the kind insured; and (2) where the assured is
irretrievably deprived of the subject-matter insured
(i) The subject-matter is damaged as to cease to be a thing of the kind insured

This was addressed in a case which pre-dated the MIA in Asfar & Co v Blundell.597 8.179
The case involved insurance for profits on charter. The vessel loaded many kinds of
goods, among them dates were loaded. On the way to the discharging port, the vessel
sank with the consequence that those dates were under water for two days.598 The
underwriters argued that there was no loss despite the dates being contaminated with
sewage, ‘they were still dates, composed of stone, skin, flesh, and whatever else goes
to make dates…’599 It is clear in the passage of Lord Esher MR that such argument
should be rejected. The matter should be seen from the perspective of businessmen,
not the chemist.600 He continued:601
“There is a perfectly well known test which has for many years been applied to
such cases as the present – that test is whether, as a matter of business, the nature
of the thing has been altered. The nature of a thing is not necessarily altered
because the thing itself has been damaged; wheat or rice may be damaged, but
may still remain the things dealt with as wheat or rice in business. But if the
nature of the thing is altered, and it becomes for business purposes something
else, so that it is not dealt with by business people as the thing which it originally
was, the question for determination is whether the thing insured, the original
article of commerce, has become a total loss. If it is so changed in its nature by
perils of the seas as to become an unmerchantable thing, which no buyer would
buy and no honest seller would sell, then there is a total loss.”
This can be contrasted with the more recent case of Fraser Shipping v Colton.602 In this 8.180
case, the plaintiffs bought the ship and sold it again for demolition with the delivery
place ultimately agreed to be at Huang Pu. The tug was engaged to tow the vessel. At
Huang Pu anchorage, due to the typhoon, the tug and the tow parted.603 Despite the
ship being found broken into two parts, and despite the argument that the nature of
this subject matter was changed from a ‘ship’ to a ‘wreck’, Lord Justice Potter did not
find that the subject-matter ceased to be the thing insured. In his reasoning, ‘…the
vessel was a dead ship under tow and heading for break-up…Albeit it was grounded
and incapable of proceeding without salvage and a degree of repair, its essential
components were not so damaged or dissipated that its role and function as a dead ship
susceptible of being towed away for scrap had been totally destroyed’.604 However, the
597
Asfar & Co v Blundell [1896] 1 QB 123.
598
Ibid., 131.
599
Ibid.
600
Ibid., 127.
601
Ibid., 127-128.
602
Fraser Shipping Co Ltd v Colton [1997] 1 Lloyd’s Rep 586.
603
Ibid., 589.
604
Ibid., 591.

plaintiffs also based their claim for actual total loss upon the ground that they were
‘irretrievably deprived’ of the vessel to which we now turn.
(ii) Where the assured is irretrievably deprived of the subject-matter insured

8.181 Potter LJ in Fraser Shipping v Colton stated the test as follows:605
“As to the definition of actual total loss, whether the plaintiffs were “irretrievably
deprived” of the vessel prima facie depends upon whether, by reason of the vessel’s
situation, it was wholly out of the power of the plaintiffs or the underwriters to
procure on its arrival. It seems to be that this, in turn, depends upon whether the
vessel could have been physically salved or not.”
8.182 He found upon the facts that the salvage of the vessel was feasible.606 As to the fact
that the costs of salvage may prove to exceed the value of the vessel, he held this to be
relevant to the constructive total loss, not the actual total loss.
(b) Constructive Total Loss

8.183 The recognition of constructive total loss makes the marine insurance contract unique
from other types of insurance contract. The MIO defines the constructive total loss
in s.60.
(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…
(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.
8.184 Despite the words ‘in particular’ at the beginning of s.60(2), this is not taken as an
illustration of s.60(1) as Lord Wright explained in the Robertson v Petros M Nomiskos,
Ltd, ‘[t]he two sub-sections contain two separate definitions, applicable to different
605
Fraser Shipping v Colton [1997] 1 Lloyd’s Rep 586.
606
Ibid.

conditions of circumstances’.607 Hodges explained constructive total loss by splitting

it into four categories and the same structure is adopted here. These four categories
are: (1) Reasonable abandonment of the subject-matter insured; (2) Deprivation of
possession of ships or goods; (3) Damage to Ships; and (4) Damage to goods.608
(i) Reasonable abandonment of the subject-matter insured

The term ‘abandonment’ appears in different places of the MIO in different context. 8.185
Within the context of s.60(1), this term was discussed in Court Line Ltd v King.609
Scott LJ explained:610
“When the ship is spoken off as “abandoned on account of its actual total loss
appearing to be unavoidable”, the word is used in nearly the same sense as when
according to the law of salvage the ship is left by master and crew in such a way as
to make it a “derelict”…But to constitute the ship a “derelict”, it must have been
left (a) with that intention…(b) with no intention of returning to her; and (c) with no
hope of recovering her. Obviously that sense of the word is frequently inappropriate
to the second case to which the first sub-section applies, namely, because it could
not be preserved from total loss (that is an economic test) “without an expenditure
which would exceed its value when the expenditure had been incurred”…
Another distinction between those two alternative grounds in sub-s.(1) for
claiming a constructive total loss is that in the latter case the financial estimate
is one which normally would be made by the owner; whereas the forecast of the
probability of actual total loss would…nearly always have to be made by the
master on the spot…The making of financial estimate is, of course, merely an
exercise of business judgment and discretion.”
Du Parq LJ in the same case put it slightly different:611 8.186
“The word “abandoned” in s.60 cannot…be given one sense in relation to the
first, and another in relation to the second limb of sub-s.(1)…the word “abandon”
must refer to something done by the shipowner or his agent with his authority,
and I would add that the master may often be an agent of necessity. I understand
“abandon” to mean “give up for lost”, and when I say give up for lost I mean that
the owners are renouncing all their rights in the ship except the right to recover
insurance. This meaning fits both limbs of the sub-section. Of course, the master
may, in this sense, abandon the ship on behalf of the owners, but in order to prove
that he has done so, it is not enough to show that he and the crew left the ship
temporarily to her fate, or that, having left her, he had grave doubt whether she
would be recovered or ultimately saved. It must, I think, be made clear that he so
acted as to show an intention to renounce all the owners’ (his principals’) rights
in the ship, their right to property as well as to possession.”
607
[1939] AC 371, 382.
608
See Hodges (n 465) 629-657.
609
(1945) 78 Ll L Rep 390.
610
Ibid., 396-397.
611
Ibid., 399.

8.187 Despite expressing it differently, as observed by Hodges, Du Parc LJ’s expression was
broad enough to include both meanings of ‘abandonment’ given by Scott LJ and hence
both judges ‘arrived at the same solution by different routes’.612
8.188 As to the term ‘unavoidable’, this was also explained by the same authority in the
passage of Mr. Justice Stable:613
“The word “unavoidable” is undoubtedly a strong word, and it may be said in one
sense that nothing is unavoidable until it has actually happened. In my judgment
in considering the meaning of avoidability in relation to some future event, one
cannot assign such an absolute meaning to the word as inevitable in the sense of
something which must in the course of nature happen…It is sufficient to say that
I think the word connotes a very high degree of probability, with the additional
element that there is no course of action, project or plan, present at the time or
place in the mind of the person concerned which offers any reasonable possibility
of averting the anticipated event.”
8.189 The second limb of s.60(1) of the MIO overlaps with later s.60(2)(ii) of the MIO and
this will be dealt with together later below.
(ii) Deprivation of possession of ships or goods

8.190 The issue of the deprivation of possession of ships was considered in an arbitration
award given by Staughton J in The Bamburi.614 Staughton J reiterated that s.60(2) is
not a mere illustration of s.60(1) and hence even the situation did not fall within the
ambit of s.60(1), it may still fall within s.60(2). He also found implicit in s.60(2)(i)(a)
that ships and goods are unlikely to be recovered ‘within a reasonable time’.615 He
discussed at length the meaning of ‘possession’ in this context and ultimately he
equated this term with ‘free use and disposal’.616 The facts of the case arose against
the background of the war between Iran and Iraq while the Bamburi was discharging
at a port in Iraq. The Master attempted many times to obtain permissions to leave the
port but his requests were refused.617 Due to the war, the Master decided ‘to evacuate
and repatriate the crew’ while he, the chief officer, and the chief engineer stayed
behind and visited the vessel from time to time until they departed nearly a month
later, i.e around early October 1980.618 The chief engineer returned to the ship again
in December 1980 while the chief officer returned in January 1981 and the rest of
the crew returned by May 1981. Still, the vessel could not get out of the port. ‘There
[was] no Iraqi presence on board any of the vessels, either physically or in the sense
that there is any interference by the Iraqi Officials in the day-to-day life on board
612
Hodges (n 465) 631.
613
Court Line, Ltd (n 609) 401.
614
[1982] 1 Lloyd’s Rep 312.
615
Ibid., 314 citing among others Polurrian Steamship Co Ltd v Young [1915] 1 KB 922, 937; Societe Belge SA v
London & Lanchashire Insurance Co (1938) 60 Ll L Rep 225, 234.
616
Ibid., 320.
617
Ibid., 313.
618
Ibid.

the ships’.619 Referring to two official documents the contents of which could not be
disclosed, Staughton J was of the view that in the event it was unlikely for the owners
to be able to recover the ship within a reasonable time.620 Whether the recovery of the
ships or goods is unlikely depends on the ‘viewpoint of a reasonable man, and not that
of the assured’.621
This case can be contrasted with the situation in The Bunga Melati Dua where the 8.191
cargo of bio-diesel was carried on board the vessel from Malaysia to Rotterdam but
the vessel was captured by pirates off the Gulf of Aden. One month later, the cargo
interests purported to claim the constructive total loss of the cargoes by submitting the
notice of abandonment to the cargo insurers.622 The Court of Appeal, in agreement with
the judgment at first instance, found there was no basis for the claim for constructive
total loss. The reason was that ‘there was not only a chance, but a strong likelihood,
that payment of a ransom of a comparatively small sum, relative to the value of the
vessel and her cargo, would secure recovery of both [ship and cargoes]…’623 This
was in accordance with what David Steel J found at first instance in relation to the
modus operandi of the pirates around that area that they were only after the ransom
payment.624 The fact was that the vessel was detained for 41 days and it was released
within a week of payment of ransom.625
(iii) Damage to ships

The modern case in point is Kastor Navigation Co. Ltd v AGF MAT.626 8.192
In the Kastor Navigation case, the vessel Kastor Too had been valued for US$ 3 8.193
million. While on her voyage, a fire broke out from the engine room. With unsuccessful
attempts to extinguish the fire, crews abandoned the vessel. The vessel sank within
fifteen hours from the initial notice of the fire.627 The claim founded on actual total
loss. The claimants put forward an alternative ground of constructive total loss,
maintaining that ‘prior to her sinking the vessel was so damaged by fire that the cost
of requiring the repairing of the damage would have exceeded the insured value’.628
Reviewing factual circumstances along with evidences, Tomlinson J not convinced
that the fire could cause substantial influx of seawater to the extent that the vessel
could have been sunk within fifteen hours.629 Instead, he found the cause of sinking
was ‘a large unexplained ingress of water’.630 He found that even though the fire may
affect the piping or water system in the vessel, that would not cause sufficient quantity
of water such that the water caused by the impact of the fire can be regarded as one of
the proximate causes of the loss. ‘Where there are two concurrent causes, one insured
619
[1982] 1 Lloyd’s Rep 312 at 313.
620
Ibid., 315 and 322.
621
Hodges (n 465) 640.
622
The Bunga Melati Dua (n 426) [1].
623
Ibid., [56].
624
Masefield AG v Amlin Corporate Member Ltd [2010] EWHC 280 (Comm), [2010] 1 Lloyd’s Rep 509, [23].
625
Ibid., [17] and [26].
626
[2004] EWCA Civ. 277, [2004] 2 Lloyd’s Rep 119.
627
Kastor Navigation Co Ltd v AGF MAT [2002] EWHC 2601 (Comm), [2003] 1 Lloyd’s Rep 296, [1]-[2].
628
Ibid., [4].
629
Ibid., [62].
630
Ibid., [65].

and one not, although not excepted, I do not believe that the insured can recover
unless the causes are of equal efficacy’.631 This has to be distinguished from The
Miss Jay Jay considered above where two causes were found to be equal in efficacy.
On that basis, the judge found the claim for actual total loss failed. Nevertheless, he
allowed the claim for constructive total loss. He accepted that the costs of repair at
the time before the vessel sank would exceed US$ 3 million.632 The case reached the
Court of Appeal.
8.194 In the Court of Appeal, the underwriters argued essentially that there was no
‘abandonment’ in the sense of s.61 of the MIO.633 This section provides: ‘Where
there is a total loss the assured may either treat a loss as a partial loss, or abandon
the subject-matter insured to the insurer and treat the loss as if it were the actual
total loss’. The term abandonment is used in the same sense again in s.63(1) of
the MIO: ‘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’. The term ‘abandonment’ in these
provisions has to be distinguished from that in s.60(1) explained earlier. This will
be mentioned further below. Secondly, they maintained that there was only one
loss by sinking.634 Moreover, they maintained in this case the constructive and the
actual total losses were apart by only a ‘scintilla temporis’ and hence there was in
fact no prior constructive total loss.635 Alternatively, the assured suffered no loss,
as the cause of the actual total loss was not mentioned in the policy.636 Moreover,
the claim for constructive total loss was ‘merged’ into the claim for actual total
loss ‘so that the insured’s recovery depended entirely on whether the total loss was
covered by the policy or not’.637 Lastly, they maintained that the assured original
claim for actual total loss meant the assured chose not to claim for constructive
total loss.638
8.195 As to the argument on abandonment, the Court of Appeal explained that there needs to
be abandonment in either the actual or the constructive total loss. ‘By claiming for a
total loss, albeit initially an actual loss, the owners demonstrated that they were willing
to abandon the vessel to the underwriters’.639 As to the argument that there was only
one loss, the Court of Appeal found this a question of fact and hence it affirmed the
finding of Tomlinson J.640 Concerning the point raised by the underwriters that there
was in essence no prior constructive total loss, the Court of Appeal again affirmed
the finding of Tomlinson J. As a question of fact, expert witnesses agreed the costs of
repair before the sinking would have rather far exceeded the value.641 The construction
631
Kastor Navigation v AGF MAT (n 627), [65].
632
Ibid., [19].
633
Ibid., [29].
634
Ibid., [30].
635
Ibid., [31].
636
Ibid., [32].
637
Ibid., [34].
638
Ibid., [35].
639
Ibid., [88].
640
Ibid., [94]-[95].
641
Ibid., [101].

of the policy has no negative effect on the claim.642 Importantly, the Court of Appeal
found the point on merger to be inapplicable. The policy consideration is different
from the case of partial loss where there is a specific provision, namely s.66, addresses
the merger when there are successive losses, which will be discussed below. However,
the same policy consideration is not applicable in the event of successive total losses.
The policy behind the merger rule in the context of the partial loss is that the assured
would be indemnified more than he is entitled to if he is allowed to claim for both the
unrepaired partial loss and the total loss. In the context of successive total losses, on
the contrary, the assured cannot recover more than the insured value in any event.643
(iv) Damage to goods

This part can be dealt with very briefly. Both Bennett and Hodges refer to a pre-1906 8.196
authority which seemed to suggest that only the forwarding costs in excess of the
original freight is to be taken into account.644 Bennett is inclined to the opinion that the
wording of the statute seems to encompass the entire forwarding costs.645 Hodges only
highlighted the ambiguity but left the question unanswered.646
Once there has been a constructive total loss of the subject-matter insured, to be able 8.197
to make a claim for the constructive total loss, the assured has to submit a ‘notice of
abandonment’. Lord Wright warned of the potential confusion in the Robertson case. He
explained the entitlement to claim is subject to the ‘due notice of abandonment…’647
Tomlinson J in the Kastor Navigation case quoted in some length the passage of
Brett LJ from the old case of Kaltenbach v Mackenzie.648 Brett LJ explained:649
“How, then, did it arise that a notice of abandonment was imported into a contract
of marine insurance?… It seems to me to have been introduced into the contract
of marine insurance…by the consent of shipowner and underwriter, and so to
have become part of the contract, and a condition precedent to the validity of
the claim for a constructive total loss. The reason why it was introduced by the
shipowner and underwriter is on account of the peculiarity of marine losses. These
losses do not occur under the immediate notice of all the parties concerned…The
underwriter in general can receive no notice of what has occurred, unless from
the assured, who is the owner of the ship or owner of the goods, and there would
therefore be great danger if the owner of a ship or of goods….might take any time
that he pleased to consider whether he would claim as for a constructive total loss
or not – there would be great danger that he would be taking time to consider
what the state of the market might be, or many other circumstances, and would
throw upon the underwriter a loss if the market were unfavourably, or to take to
himself the advantage if the market were favourable…”
642
Kastor Navigation v AGF MAT (n 627), [110].
643
Ibid., [116].
644
Bennett (n 12) para 21.75; Hodges (n 465) 657 citing Farnworth v Hyde (1866) LR 2 CP 204.
645
Ibid.
646
Ibid.
647
Robertson (n 607) 381.
648
Kastor Navigation (n 627), [16] citing Kaltenbach v Mackenzie [1878] 3 CPD 467, 471-475.
649
Ibid.

8.198 The law relating to the notice of abandonment is codified in s.62 of the MIO:
(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 attention of the assured to abandon his insured interest in
the subject-matter insured unconditionally to the insurer.
(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
enquiry.
(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 the 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 the insurer has re-insured his risk, no notice of abandonment need be
given by him
8.199 The Kastor Navigation case is an excellent illustration of the case where s.62(7)
applied. It was found that the assured could not simply make any choice in light of
the subsequent actual total loss just fifteen hours after the constructive total loss.650
As to s.62(4), it has become an industry practice that most of the time the notice
of abandonment is initially rejected by the insurer. ‘[M]arine underwriters have
established the practice of permitting the assured to treat any notification of a rejection
of a notice of abandonment as the equivalent of the commencement of proceedings;
any facts discovered after that date which indicate that a constructive total loss had not
occurred are, therefore, irrelevant in fixing the rights of the parties’.651 Therefore, in
The Bunga Melati Dua, the court assessed the circumstances as of 19 September 2008
650
Kastor Navigation (n 627), [17].
651

when the notice of abandonment was rejected.652 The practice of rejecting the notice of
abandonment is explained to be due to fear on the part of the underwriters of liabilities
which may come along with the property.653 This is due to s.62(6).
The effect of the abandonment is in accordance to s.63(1) referred to above. Again, 8.200
reference can be made to what Brett LJ explained in Kaltenbach v Mackenzie as
quoted in the Kastor Navigation case:654
“Whenever…there is a contract of indemnity and a claim under it for an absolute

indemnity, there must be an abandonment on the part of the person claiming
indemnity of all his right in respect of that for which he receives indemnity…
If there is anything to abandon, abandonment must take place; as, for instance,
when the loss is an actual total loss, and that which remains of a ship is what has
been called a congeries of planks, there must be an abandonment of the wreck…
But that abandonment takes place at the time of the settlement of the claim; it
need not take place before.”
But, the overall scheme of the MIO is confusing as s.63(1) is somewhat similar in 8.201
language to that of s.79(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 the subject-matter as from the time of
the casualty causing the loss.”
The learned editors of Colinvaux’s Law of Insurance in Hong Kong explained the 8.202
inter-relationship between ss.63(1) and 79(1) of the MIO by distinguishing between
the circumstances. Where the underwriters pay for the actual total loss of the vessel,
the underwriters are entitled to take over the property. This is the effect of s.79(1) of the
MIO.655 Where the underwriters accepted the notice of abandonment, the underwriters
have the right under s.63(1). ‘If the right has been exercised (or the obligation has
taken effect) the insurers are given an immediate equitable lien over the subject matter;
and this crystallises into a proprietary right under MIO s.79(1) once payment has
actually been made’.656 Where the underwriters rejected the notice of abandonment
but then subsequently paid for the total loss: ‘s.63(1) is not engaged and the insurers
have no equitable rights over the insured subject matter, although once payment has
been made then they have the right to take over the subject matter in accordance with
MIO, s.79(1)’.657
652
See The Bunga Melati Dua (n 426) [1] and [11].
653
654
Kastor Navigation (n 627) [16].
655
656
Ibid.
657
Ibid.

(c) Partial Loss

8.203 Partial loss is a kind of loss which does not fall within either actual or constructive
total loss. ‘As a residual category, the concept of a partial loss does not present many
problems’.658 It is provided in s.79(2) that:
“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 the 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 Ordinance,
by such payment for the loss.”
8.204 However, the problem arises where there were successive losses. The MIO has a
specific provision deals with such circumstances in s.77:
“(1) Unless the policy otherwise provides, and subject to the provisions of this
Ordinance, the insurer is liable for successive losses, even though 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.”
8.205 The problem lies in s.77(2) of the MIO: The effect of this sub-section is that ‘where
the total loss is caused by a covered peril under the same policy that covers the initial
partial loss, the assured is entitled to indemnification for the partial loss only’.659
However, it leaves out the circumstance whereby the total loss does not come within
the ambit of the policy which covers the partial loss. This aspect is left to the common
law.660 Bennett maintained two authorities are relevant:661 Livie v Janson662 and British
and Foreign Insurance Co v Wilson Shipping Co.663
8.206 Livie v Janson involved the transportation of goods from New York to London. The
hull insurance contained the warranty ‘free from American condemnation’.664 The ship
slipped out of New York. On the way, she was hit by ice until she reached the shore
and got stuck with her bottom damaged due to rocks. The American authorities located
her and she and her cargo ‘were finally condemned for the breach of embargo’.665
658
659
Ibid., para 21.115.
660
Ibid.
661
Ibid., para 21.116.
662
(1810) 12 East 648, 104 ER 253.
663
British and Foreign Insurance Company Ltd v Wilson Shipping Company Ltd [1921] 1 AC 188.
664
Levie (n 662) 648, 254.
665
Ibid.

The court concluded that the assured had no right to claim in respect of damages
caused by ice and rocks. The court held:666
“…we think we may lay it down as a rule, that where the property deteriorated
is afterwards totally lost to the assured, and the previous deterioration becomes
ultimately a matter of perfect indifference to his interests, he cannot make it the
ground of a claim upon the underwriters. The object of a policy is indemnity to
the assured; and he can have no claim to indemnity where there is ultimately no
damage to him from any peril insured against. If the property, whether damaged
or undamaged, would have been equally taken away from him, and the whole loss
would have fallen upon him had the property been ever so entire, how can he said
to have been injured by its having been antecedently damaged?”
The House of Lords in the British and Insurance case followed this where, in that case, 8.207
the ship on three occasions was damaged by the risks covered in the insurance policy.
The permanent repair to the last damage had not yet been conducted when she got
stuck by torpedo and became a total loss.667 In the passage of Lord Birkenhead LC:668
“The true rule is capable of statement in the following proposition. When a

vessel, insured against perils of the sea, is damaged by one of the risks covered
by the policy and before that damage is repaired she is lost, during the currency
of the policy, by a risk which is not covered by the policy, then the insurer is
not liable for such unrepaired damage. The rule so stated embodies the principle
upon which underwriters and merchants have based their practice in such matters
for upwards for a century, and, even if this House were of opinion that the rule did
not correctly state the law, it would be a matter for grave consideration whether
such a rule, which has been observed for so long, which has been expressly or
impliedly incorporated in so many contracts, and which has profoundly influenced
the course of dealing between merchants, should be reversed at this period of its
history.”
666
Levie (n 662), 654, 256.
667
British and Fire Insurance (n 663) 192.
668
Ibid., 199.

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3. Formation of a Marine Insurance Contract ........................................................................... 8.011

4. Vitiating Factors .................................................................................................................... 8.039

5. Terms of Marine Insurance Agreements ............................................................................... 8.104

7. Marine Risks ......................................................................................................................... 8.128

8. Excluded Risks...................................................................................................................... 8.143

9. Claims ................................................................................................................................... 8.164

10. Losses in Marine Insurance Law........................................................................................... 8.175

Maritime Law and Practice in Hong Kong_CH08.indd 269 11/25/15 5:11 PM

(b) Constructive Total Loss ................................................................................................... 8.183

Maritime Law and Practice in Hong Kong_CH08.indd 270 11/25/15 5:11 PM

2. INTRODUCTION TO MARINE INSURANCE LAW AND MARINE

Maritime Law and Practice in Hong Kong_CH08.indd 271 11/25/15 5:11 PM

Maritime Law and Practice in Hong Kong_CH08.indd 272 11/25/15 5:11 PM

This is to be explained below in relation to the formation of a marine insurance

Maritime Law and Practice in Hong Kong_CH08.indd 273 11/25/15 5:11 PM

in mind a marine insurance contract is a contract to ‘indemnify’, which, to explain in

“The standard arrangement, however, is that for an agreed period – whether it

3. FORMATION OF A MARINE INSURANCE CONTRACT

Maritime Law and Practice in Hong Kong_CH08.indd 274 11/25/15 5:11 PM

(a) Placing of risk at Lloyd’s Market

Maritime Law and Practice in Hong Kong_CH08.indd 275 11/25/15 5:11 PM

Maritime Law and Practice in Hong Kong_CH08.indd 276 11/25/15 5:11 PM

“…an oblong piece of paper containing details of the intended insurance, in

Maritime Law and Practice in Hong Kong_CH08.indd 277 11/25/15 5:11 PM

“Subject to the provisions of any Ordinance, a contract of marine insurance is

Maritime Law and Practice in Hong Kong_CH08.indd 278 11/25/15 5:11 PM

Maritime Law and Practice in Hong Kong_CH08.indd 279 11/25/15 5:11 PM

(b) Placing of risk outside the Lloyd’s Market

Maritime Law and Practice in Hong Kong_CH08.indd 280 11/25/15 5:11 PM

“(1) Unless otherwise agreed, where a marine policy is effected on behalf of

Maritime Law and Practice in Hong Kong_CH08.indd 281 11/25/15 5:11 PM

Maritime Law and Practice in Hong Kong_CH08.indd 282 11/25/15 5:11 PM

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“[T]here is “lawful authority” (consisting of a long line of judicial pronouncements

Maritime Law and Practice in Hong Kong_CH08.indd 284 11/25/15 5:11 PM

duties. As observed by Henley: ‘[t]his lack of necessity to disclose the commission

Moreover, what constitutes a ‘commission’ the disclosure of which is unnecessary is 8.036

Maritime Law and Practice in Hong Kong_CH08.indd 285 11/25/15 5:11 PM

Maritime Law and Practice in Hong Kong_CH08.indd 286 11/25/15 5:11 PM

(a) Lack of Insurable Interest

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Maritime Law and Practice in Hong Kong_CH08.indd 288 11/25/15 5:11 PM

“He [a shareholder] is entitled to a share in the profits while the company

Lord Buckmaster proceeded to reject the approach of Lawrence J in Lucena v 8.045

Maritime Law and Practice in Hong Kong_CH08.indd 289 11/25/15 5:11 PM

Maritime Law and Practice in Hong Kong_CH08.indd 290 11/25/15 5:11 PM

Maritime Law and Practice in Hong Kong_CH08.indd 291 11/25/15 5:11 PM

Maritime Law and Practice in Hong Kong_CH08.indd 292 11/25/15 5:11 PM

Maritime Law and Practice in Hong Kong_CH08.indd 293 11/25/15 5:11 PM

“The suggestion that there cannot as a matter of law be an insurable interest

Maritime Law and Practice in Hong Kong_CH08.indd 294 11/25/15 5:11 PM

“The concept of separate interests under a composite insurance is also to be

Maritime Law and Practice in Hong Kong_CH08.indd 295 11/25/15 5:11 PM

Maritime Law and Practice in Hong Kong_CH08.indd 296 11/25/15 5:11 PM

(b) Breaches of the duty of utmost good faith

Maritime Law and Practice in Hong Kong_CH08.indd 297 11/25/15 5:11 PM

(i) Pre-contractual utmost good faith: non-disclosure and misrepresentation