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BTW3201 International Trade Law

International transport:
Marine insurance

Accredited by: Advanced Signatory:

Introduction
What is ‘insurance’?
• “A contract of insurance is, essentially, an indemnity contract. That
is, an arrangement whereby the loss incurred is made good by a
monetary repayment equal to that of the loss incurred. The net effect
of this is to put the assured back to a squared position.” (Di Lieto &
Treisman, 2018, p. 153).

Who insures the goods in an international sale?

• The insured could be the seller or the buyer.
• For instance, in a CIF (carriage, insurance and freight) contract, the
seller takes out an insurance on the goods. But in an Ex Work
contract, the seller is not an obligation to insure the goods. It is up to
the buyer to arrange for insurance.
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Terminology
• Insurer – The party who agrees to insure the risk.
• Assured/ Insured – The party who takes out an insurance.
• Insurable property – The goods, assets, etc. that are insured.
• Insurable interest – The insured has to show that he is related to
the subject-matter of the insurance, in that he will benefit from its
survival or will suffer from loss/damage to it.
• Premium – The fees payable to the insurer.
• Contribution – Where two or more insurers indemnify the insured in
respect of the same subject-matter against the same peril on behalf
of the same interest, they share the loss proportionately.

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Institute cargo clauses
• There are standard clauses (templates) used in international cargo
insurance known as the ‘Institute Cargo Clauses’.
• The ‘Institute’ in this context refers to the International Underwriting
Association of London – the result of a merger between the Institute
of London Underwriters and London Insurance and Reinsurance
Market Association.
• Here, we will briefly examine them:

Institute Cargo Clauses A

Nature and extent
of risks covered in
Institute Cargo Clauses B descending order

Institute Cargo Clauses C

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 Institute Cargo Clauses A
• This is also known as the ‘all risk’ cover. The policy covers all risk of loss of or
damage to the goods, including those accidentally or fortuitously (not intentionally
caused). A loss ‘fortuitously’ caused include a loss that occurred due to neglect of
duty. In British and Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41,
the court held that an all risk policy would cover the cargo of wool damaged by
wetting although this was caused by neglect.
• The followings are the main risks excluded:
- Loss damage or expense attributable to willful misconduct of the insured.
- Ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of
the subject-matter insured.
- Loss damage or expense caused by insufficiency or unsuitability of packing or
preparation of the subject-matter insured.
- Loss damage or expense caused by inherent vice or nature of the subject-matter
insured.
- Loss damage or expense caused by delay, even though the delay be caused by a
risk insured against.
- Loss damage or expense arising from the use of any weapon of war employing MONASH
atomic or nuclear fission and/or fusion or other like reaction or radioactive force or BUSINESS
matter.
Institute Cargo Clauses B
• By contrast, Institute Cargo Clauses B specify the risks that are
covered, namely:
- fire or explosion,
- vessel or craft being stranded grounded sunk or capsized,
- overturning or derailment of land conveyance,
- collision or contact of vessel craft or conveyance with any
external object other than water,
- discharge of cargo at port of distress,
*Where part of the
- earthquake volcanic eruption or lightning ship cargo had to
- general average sacrifice* be sacrificed to
save the whole, all
- jettison shareholders in a
- washing overboard sea venture share
the losses
- general average and salvage charges MONASH
proportionally.. BUSINESS
Institute Cargo Clauses B
- entry of sea, lake or river water into the vessel craft hold
conveyance container liftvan or place of storage
- total loss of any package lost overboard or dropped whilst
loading on to, or unloading from vessel or craft

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Institute Cargo Clauses C
• This is a minimum cover that only insures a limited range of risks,
namely:
- fire or explosion
- vessel or craft being stranded grounded sunk or capsized
- overturning or derailment of land conveyance
- collision or contact of vessel craft or conveyance with any
external object other than water
- discharge of cargo at port of distress
- general average sacrifice
- jettison
- general average and salvage charges
[ Not covered: loss from cargo being washed overboard]
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UK’s Marine Insurance Act 1906
• There is no specific statute that deals with marine insurance in Malaysia,
though there is the Insurance Act 1996 that deals with insurance more
generally.
• Where marine insurance is concerned, UK’s Marine Insurance Act 1906
is applicable. This is by virtue of section 5(1) of our Civil Law Act 1956 that
provides that commercial matters can be decided by our courts with
reference to English law. See The “Melanie” United Oriental Assurance
Sdn. Bhd. Kuantan v. W.M. Mazzarol [1984] 1 MLJ 260.
• Section 5(1) of the Civil Law Act 1956 states: “In all questions or issues
which arise or which have to be decided in the States of Peninsular
Malaysia other than Malacca and Penang with respect to the law of
partnerships, corporations, banks and banking, principals and agents,
carriers by air, land and sea, marine insurance, average, life and fire
insurance, and with respect to mercantile law generally, the law to be
administered shall be the same as would be administered in England in the
like case at the date of the coming into force of this Act, if such question or
issue had arisen or had to be decided in England, unless in any case other MONASH
provision is or shall be made by any written law.” BUSINESS
UK’s Marine Insurance Act 1906
• Take note that in the UK today, the Marine Insurance Act 1906 (MIA
1906) must be read together with the Insurance Act 2015.
• However, where Malaysia is concerned, only the MIA 1906 is
applicable.
• In the following slides, important concepts in marine insurance will
be highlighted with reference to the MIA 1906.
• Unless stated otherwise, the provisions mentioned are sections of
the MIA 1906.

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Basic concepts
Maritime adventure: Any situation where the insurable property is exposed
to maritime perils. See section 3(2).

Maritime perils: The risks related to navigation, including perils of the seas,
fire, war perils, acts of pirates or thieves, captures, seizures, restraints,
detainments of princes and peoples, jettisons, barratry and all other perils of a
like kind and, in respect of a marine policy, any peril designated by the policy
(section 3(2)).

Insurable interest: Only a person with any legal or equitable interest in the
subject-matter of the insurance can insure it. A person has an insurable
interest if he benefits by the safety or due arrival of the insurable property, or
may incur liability in respect of its loss, damage or detention. See sections 4
to 8. This concept is reflected by clause 11.1 of the Institute Cargo Clauses
(A, B and C) which states that, “in order to recover under this insurance, the
assured must have an insurable interest in the subject matter insured at the MONASH
time of the loss”. BUSINESS
Basic concepts
• Determining whether a person has legal or equitable interest in
goods is not always straightforward, especially where a person
conducts business through a company yet treats the company’s
assets as his own.
• Contrast the following cases:
Macaura v Northern Assurance Co Ltd [1925] AC 619
Facts: M owned a timber estate. M sold the timber to a company which
was owned almost solely by him. M insured the timber against fire, but
in his own name. The timber was destroyed by fire. The insurance
company refused the claim.
Decision: The House of Lords held that in order to have an insurable
interest in property a person must have a legal or equitable interest in
that property. Here, the timber belonged to the company, not to M
personally. As a shareholder of the company, M did not have legal or
equitable interest in the timber. MONASH
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Basic concepts
Sharp v Sphere Drake Insurance (The Moonacre) [1992] 2 Lloyd’s
Rep 501
Facts: Sharp bought a vessel and insured it in his name, but registered
it in the name of a company (X). Sharpe and X had an agreement that
Sharpe would have exclusive use and control of the vessel. The vessel
was destroyed by a fire. The insurers argued that Sharpe had no
insurable interest in the vessel.
Decision: The court distinguished Macaura and held that S had an
insurable interest in the vessel for the purpose of section 6 of the
Marine Insurance Act 1906. This was because Sharpe would benefit
from its preservation and suffer loss of a valuable benefit if it were lost
or destroyed.

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Basic concepts
The principle of utmost good faith (uberrimae fidei):
• Section 17 states: “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 means the insurer and the assured are under an obligation to
disclose information that is likely to affect the judgement of the other.
• Where utmost good faith has not been observed by either of the
parties, the insurance contract can be avoided by the aggrieved
party (Pickersgill v London & Provincial Marine Insurance Co
[1912] 3 KB 51).
• Take note that the assured is “deemed to know every circumstance
which, in the ordinary course of business, ought to be known by him”
(section 18(1)). This means that the knowledge that his
agents/employees has will be imputed to him, even if he is not MONASH
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personally aware of the fact concerned.
Basic concepts
Subrogation:
• The word ‘subrogate’ means ‘to put in the place of another’. For
example, in the context of a debt, subrogation could mean to
substitute a creditor for another with regard to the claim.
• Here, subrogation means allowing the insurer to recover losses from
a third party by stepping into the shoes of the assured (Simpson v
Thomson (1877) 3 App Cas 279). See section 79.
• Example:
- Seller (S) entered into a sale contract with the buyer (B).
- The carrier (C) damaged the goods during their removal from the
ship at the port of destination.
- B demanded compensation from S.
- S compensated B.
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- The insurer can step into S’s shoes to recover compensation from C. BUSINESS
Basic concepts
• It follows from the principle of subrogation that an insurer is only
entitled to recover what he has paid out.

Yorkshire Insurance v Nisbet Shipping [1962] 2 QB 330

Facts: P was the insurer of a ship that sunk as a result of a collision. P
paid the assured £72,000. The shipowners successfully sued the
tortfeasors and were awarded £127,000. The shipowners therefore
returned £72,000 to P and kept the balance. P sued the assured for the
balance.
Decision: The assured could retain the balance.

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Basic concepts
Assignment:
• A marine insurance policy can be assigned to a third party (usually
the buyer). This means ‘transferring’ the benefit of the coverage to a
third party.
• Under section 50(1), the assignment of a policy is permissible
PROVIDED THAT the policy does not expressly prohibit assignment.
• Section 50(3) states that “A marine policy may be assigned by
endorsement thereon or in other customary manner.”
• Question: What does ‘other customary manner’ mean?
• There is uncertainty where this term is concerned. In Baker v
Adams (1910) 15 Com Cas 227, the court stated that the mere
delivery of the policy to the purported assignment is insufficient to
establish assignment. The parties must also show an intention to
transfer the rights under the policy.
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Basic concepts
• An assignment can be made before or after the loss (section 50(1)).
• However, an assignment after loss is only possible where the
assigner still has an interest in the subject-matter.

North of England Pure Oil Cake Co v Archangel Maritime Bank and

Insurance Co Ltd (1875) LR 10 QB 249
Facts:
- D was the insurer. The insurance included the risk of lighterage (the
transference of cargo by means of a lighter).
- The original assured (X) sold the goods to P during transit.
- The cargo was unloaded on to the P’s lighters.
- One of the lighters sunk – some of the cargo was lost.
- X assigned the policy to P after the loss. MONASH
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- P tried to recover its loss from D.
Basic concepts
Decision:
- On whether there was an intention to assign: the sold note did not
contain an agreement to assign the policy to P, nor could an intention
to assign be inferred from the sold note.
- Was assignment after loss valid? No. This was because the assured
ceased to have interest in the goods when they were delivered to P’s
lighters.
- Since the assignment purported took place after this point, D was not
liable to pay for the loss.

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Basic concepts
Double insurance and contribution:
• Double insurance means insuring the same insurable property more than
once. In the event of loss, the assured cannot recover the loss more than
once. Where one of the insurers pays out on the loss, he is entitled to
demand contribution from the other insurer.
• See section 32(2) on double insurance.
• See section 80 on contribution.

Warranty:
• A warranty is a condition that the assured undertakes to comply with,
regardless of whether it is material to the risk. See sections 33 to 41.
• For example, an insured may warrant that the goods shall not be stored
next to sources of heat during the sea carriage.
• Non-compliance with a warranty will discharge the insurer from liability
from the date of the breach of warranty onwards, but without prejudice to MONASH
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any liability incurred before that date.
Basic concepts
36 Warranty of neutrality
(1) Where insurable property, whether ship or goods, is
expressly warranted neutral, there is an implied As opposed to
condition that the property shall have a neutral character contraband.
at the commencement of the risk, and that, so far as the
assured can control the matter, its neutral character shall
be preserved during the risk.
(2) Where a ship is expressly warranted “neutral” there is
also an implied condition that, so far as the assured can
control the matter, she shall be properly documented, As opposed to
that is to say, that she shall carry the necessary papers a ship that
to establish her neutrality, and that she shall not falsify or belonged to an
suppress her papers, or use simulated papers. If any
loss occurs through breach of this condition, the insurer ‘enemy’ state.
may avoid the contract.
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Basic concepts
37 No implied warranty of nationality
There is no implied warranty as to the nationality of a ship, or that her
nationality shall not be changed during the risk.

38 Warranty of good safety

Where the subject-matter insured is warranted “well” or “in good
safety” on a particular day, it is sufficient if it be safe at any time during
that day.

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Basic concepts
39 Warranty of seaworthiness of ship
(1) In a voyage policy there is an implied warranty that at the commencement of
the voyage the ship shall be seaworthy for the purpose of the particular
adventure insured.
(2) Where the policy attaches while the ship is in port, there is also an implied
warranty that she shall, at the commencement of the risk, be reasonably fit to
encounter the ordinary perils of the port.
(3) Where the policy relates to a voyage which is performed in different stages,
during which the ship requires different kinds of or further preparation or
equipment, there is an implied warranty that at the commencement of each A time policy
stage the ship is seaworthy in respect of such preparation or equipment for the in respect of
purposes of that stage.
a ship insures
(4) A ship is deemed to be seaworthy when she is reasonably fit in all respects the ship for a
to encounter the ordinary perils of the seas of the adventure insured. fixed time.
(5) In a time policy there is no implied warranty that the ship shall be seaworthy
at any stage of the adventure, but where, with the privity of the assured, the ship
is sent to sea in an unseaworthy state, the insurer is not liable for any loss MONASH
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attributable to unseaworthiness.
Basic concepts
• The implied warranty of seaworthiness presents a problem for the
cargo owner, because he has no way of knowing whether the ship
complies with this warranty.
• Thus, it is common for insurance of cargo to exclude this implied
warranty of seaworthiness.
• Clause 5.2 of the Institute Cargo Clauses A states: “The
Underwriters waive any breach of the implied warranties of
seaworthiness of the ship and fitness of the ship to carry the
subject matter insured to destination, unless the Assured or their
servants are privy to such unseaworthiness or unfitness.”

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Basic concepts
40 No implied warranty that goods are seaworthy
(1) In a policy on goods or other moveables there is no implied
warranty that the goods or moveables are seaworthy.
(2) In a voyage policy on goods or other moveables there is an
implied warranty that at the commencement of the voyage the ship is
not only seaworthy as a ship, but also that she is reasonably fit to
carry the goods or other moveables to the destination contemplated
by the policy.

41 Warranty of legality
There is an implied warranty that the adventure insured is a lawful
one, and that, so far as the assured can control the matter, the
adventure shall be carried out in a lawful manner.
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Basic concepts
Deviation:
• A ship is expected to proceed on the voyage on the usual or customary
course, or the course specifically designed for the voyage. Where a ship
deviates from the voyage contemplated, without any lawful excuse, the
insured loses cover from the point of deviation (section 46).
• However, section 49(1) excuses deviation in the following circumstances:
(a) Where authorised by any special term in the policy; or
(b) Where caused by circumstances beyond the control of the master
and his employer; or
(c) Where reasonably necessary in order to comply with an express or
implied warranty; or
(d) Where reasonably necessary for the safety of the ship or subject-
matter insured; or
(e) For the purpose of saving human life, or aiding a ship in distress
where human life may be in danger; or MONASH
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Basic concepts
(f) Where reasonably necessary for the purpose of obtaining medical
or surgical aid for any person on board the ship; or
(g) Where caused by the barratrous conduct of the master or crew, if
barratry be one of the perils insured against.

• This principle is reflected in clause 8.3 of the Institute Cargo Clauses ( A, B

and C).

*Barratry: fraud or gross negligence of a ship's master or crew at the

expense of its owners or users.

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Basic concepts
The doctrine of proximate cause (causa proxima non remota
spectator):
• Section 55(1) states: “… 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.”
• This means that in determining whether an insurer is liable for the
loss, one should look at the proximate cause and not the remote
cause of the loss.

Leyland Shipping Co v Norwich Union Fire Insurance Soc (The

Ikaria) [1918] AC 350
Facts: A ship was torpedoed by a German boat. It didn’t sink at this
point, and managed to reach the closest harbour. Due to a swell
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caused by a gale, the ship was moved to an outer harbour where it BUSINESS
sank.
Basic concepts
Decision: The court had to consider which of the two events (torpedo or
the gales) was the proximate cause of the loss. Although the cause
closest in time was the gales, the House of Lords held that the
torpedoing of the ship was the real and efficient cause of the event.

Lord Shaw stated as follows (at p. 369):

“To treat proxima causa as the cause which is nearest in time is out of
the question. Causes are spoken as if they were as distinct from one
another as beads in a row or links in a chain, but – if this metaphysical
topic has to be referred to – it is not wholly so. The chain of causation
is a handy expression, but the figure is inadequate. Causation is not a
chain, but a net. At each point, influences, forces, events, precedents
and simultaneous, meet, and the radiation from each point extends
infinitely. At the point where these various influences meet, it is for the
judgment as upon a matter of fact to declare which of the causes thus MONASH
joined at the point of effect was the proximate and which was the BUSINESS
remote cause.
Basic concepts
To treat proximate cause as if it was the cause which is proximate in time
is, as I have said, out of the question. The cause which is truly proximate
is that which is proximate in efficiency. That efficiency may have been
preserved although other causes may meantime have sprung up which
have not yet destroyed it, or truly impaired it, and it may culminate in a
result of which it still remains the efficient cause to which the event can be
ascribed.”

• Section 55(2) states the circumstances where an insurer will not be

liable, namely, where the proximate cause is caused by:
- willful misconduct of the assured
- delay, even though the delay is caused by a peril insured
against
- ordinary wear and tear, ordinary leakage and breakage,
inherent vice or nature of the subject matter MONASH
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- rats or vermin